Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change and Amendments No. 1 and 2 Thereto To Require the Immediate Display of Customer Options Limit Orders, 4180-4185 [E5-324]
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4180
Federal Register / Vol. 70, No. 18 / Friday, January 28, 2005 / Notices
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the Phlx. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Phlx–2005–01 and should
be submitted on or before February 18,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–323 Filed 1–27–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
19, 2005.4 The Commission is
publishing this notice to solicit
comment on the proposed rule change,
as amended, from interested persons,
and at the same time is granting
accelerated approval to the proposed
rule change, as amended.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Phlx proposes to amend Phlx Rules
1014, 1063 and 1080, and to delete
Option Floor Procedure Advice A–1, to:
(1) Reflect that the Exchange’s
Automated Options Market (‘‘AUTOM’’)
System,5 and not the specialist, will
immediately display the full price and
size of any limit order that establishes
the Exchange’s disseminated price or
increases the size of the Exchange’s
disseminated bid or offer, subject to
certain exemptions; and (2) establish
new rules that require Exchange
Registered Options Traders (‘‘ROTs’’)
and Floor Brokers to place limit orders
on the limit order book electronically.
The text of the proposed rule change,
as amended, follows. Additions are in
italics. Deletions are in [brackets].
*
*
*
*
*
[Release No. 34–51064; File No. SR-Phlx2004–73
Rule 1014. Obligations and Restrictions
Applicable to Specialists and Registered
Options Traders
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting
Accelerated Approval to a Proposed
Rule Change and Amendments No. 1
and 2 Thereto To Require the
Immediate Display of Customer
Options Limit Orders
(a)–(h) No Change.
Commentary:
.01–.17 No change.
.18. An ROT who wishes to place a
limit order on the limit order book must
submit such a limit order electronically.
*
*
*
*
*
January 21, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on November
3, 2004, the Philadelphia Stock
Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in items I, II, and III, below, which items
have been substantially prepared by the
Exchange. Phlx filed Amendment No. 1
to the proposed rule change on January
13, 2005,3 and filed Amendment No. 2
to the proposed rule change on January
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Amendment No. 1, dated January 13, 2005,
submitted by Richard S. Rudolph, Director and
Counsel, Phlx (‘‘Amendment No. 1’’). In
Amendment No. 1, Phlx proposes clarifying
language to be included in the previously submitted
proposed rules.
1 15
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Rule 1063. Responsibilities of Floor
Brokers
(a)–(e) No change.
Commentary:
.01. A Floor Broker who wishes to
place a limit order on the limit order
book must submit such a limit order
4 See Amendment No. 2, dated January 19, 2005,
submitted by Richard S. Rudolph, Director and
Counsel, Phlx (‘‘Amendment No. 2’’). In
Amendment No. 2, Phlx proposes a minor
modification to the previously submitted proposed
rules.
5 AUTOM is the Exchange’s electronic order
delivery, routing, execution and reporting system,
which provides for the automatic entry and routing
of equity option and index option orders to the
Exchange trading floor. Orders delivered through
AUTOM may be executed manually, or certain
orders are eligible for AUTOM’s automatic
execution features: AUTO-X, Book Sweep, and
Book Match. Equity option and index option
specialists are required by the Exchange to
participate in AUTOM and its features and
enhancements. Option orders entered by Exchange
members into AUTOM are routed to the appropriate
specialist unit on the Exchange trading floor. See
Phlx Rule 1080.
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Fmt 4703
Sfmt 4703
electronically through the Options Floor
Broker Management System.
*
*
*
*
*
Rule 1080. Philadelphia Stock Exchange
Automated Options Market (AUTOM)
and Automatic Execution System
(AUTO–X)
(a)–(b) No change
(c) AUTO–X. * * *
(i)–(iii) No change.
(iv) Except as otherwise provided in
this Rule, in the following
circumstances, an order otherwise
eligible for automatic execution will
instead be manually handled by the
specialist:
(A)–(C) No change.
(D) When the [specialist posts]
Exchange’s best [a] bid or offer is
represented by a limit order on the book
[that is better than the specialist’s own
bid or offer] (except with respect to
orders eligible for ‘‘Book Sweep’’ as
described in Rule 1080(c)(iii) above, and
‘‘Book Match’’ as described in Rule
1080(g)(ii) below);
(E)–(H) No change.
(d)–(k) No change.
Commentary:
.01 No change.
.02 The Electronic Order Book is the
Exchange’s automated [specialist] limit
order book, which automatically routes
all unexecuted AUTOM orders to the
book and displays orders real-time in
order of price/time priority. [Orders not
delivered through AUTOM may also be
entered onto the Electronic Order Book.]
(a)(i) Except as provided in subparagraph (a)(ii) below, the AUTOM
System will immediately display the full
price and size of any limit order that
establishes the Exchange’s disseminated
price or increases the size of the
Exchange’s disseminated bid or offer.
(ii) The AUTOM System will not
display:
(A) An order executed upon receipt;
(B) An order where the customer who
placed it requests that it not be
displayed, and upon representation of
such order in the trading crowd the
Floor Broker announces in public outcry
the information concerning the order
that would be displayed if the order
were subject to being displayed;
(C) A customer limit order for which,
immediately upon receipt, a related
order for the principal account of the
specialist, reflecting the terms of the
customer order, is routed to another
options exchange;
(D) Orders received before or during a
trading rotation, however, such limit
orders will be displayed immediately
upon conclusion of the applicable
rotation if they represent the Exchange’s
best bid or offer;
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(E) The following order types as
defined in Rule 1066: Contingency
Orders; One-Cancels-the-Other Orders;
Hedge Orders (e.g., spreads, straddles,
combination orders); Synthetic Options;
(F) Immediate or Cancel (‘‘IOC’’)
orders.
(b) Limit orders may only be placed
on the limit order book by: (i) An ROT
via electronic interface with AUTOM
pursuant to Rule 1014, Commentary .18;
(ii) a Floor Broker using the Options
Floor Broker Management System (as
described in Commentary .06 below); or
(iii) the AUTOM System for eligible
customer and off-floor broker-dealer
limit orders.
(c) A limit order to be executed
manually by the specialist pursuant to
Rule 1080(c)(iv) will be displayed
automatically by the AUTOM System
until such limit order is executed or
cancelled. If such limit order is partially
executed, the AUTOM System will
automatically display the actual
number of contracts remaining in such
limit order.
.03 No change.
.04 ROT Limit Orders. * * *
Not later than ten days following
approval by the Securities and Exchange
Commission of the rules applicable to
the Exchange’s electronic trading
platform, Phlx XL, the Exchange will
commence the initial deployment of
Phlx XL by allowing specialists and
ROTs who are Streaming Quote Traders
(‘‘SQTs,’’ as defined in the Phlx XL
rules) to submit electronic quotations in
Streaming Quote Options (as defined in
the Phlx XL rules), and ROTs who are
not SQTs to submit limit orders onto the
limit order book via electronic interface
with AUTOM [or manually through a
Floor Broker or the Specialist]. Eligible
incoming orders and quotations will
automatically execute against quotations
of specialists and SQTs and orders of
ROTs in accordance with the
functionality of the Phlx XL system, as
set forth in the Phlx XL rules.
* * *
.05–.07 No change.
*
*
*
*
*
Option Floor Procedure Advices—A–1:
Reserved
[Responsibility of Displaying Best Bids
and Offers
(a) A Specialist shall use due
diligence to ensure that the best
available bid and offer is displayed for
those option series in which he is
assigned.
Bids and offers for the Specialist’s
own account, bids and offers on the
book, and bids and offers established in
the crowd are deemed available for
display purposes.
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(b) After voicing a bid/offer, the Floor
Broker or ROT shall use due diligence
to inform the Specialist when s/he is no
longer bidding/offering at that price.
Specifically, the Floor Broker or ROT
must immediately inform the Specialist
when s/he is ‘‘out’’ of that bid/offer,
including due to an execution or
departure from the crowd.
FINE SCHEDULE (Implemented on a
two-year running calendar basis)
A–1
1st Occurrence—$250.00
2nd Occurrence—$500.00
3rd Occurrence—$1,000.00
4th Occurrence and Thereafter Sanction
is discretionary with Business
Conduct Committee]
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Phlx included statements concerning
the purpose of and basis for the
proposed rule change, as amended, and
discussed any comments it received on
the proposed rule change, as amended.
The text of these statements may be
examined at the places specified in item
III below. The Phlx has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change, as amended, is to establish Phlx
rules that reflect the immediate,
automatic display of limit orders (with
certain exemptions as described below),
and to require that Phlx ROTs and Floor
Brokers who wish to place limit orders
on the limit order book do so
electronically.
Currently, Exchange Options Floor
Procedure Advice (‘‘OFPA’’) A–16
requires the specialist to use due
diligence to ensure that the best
available bid and offer is displayed for
those option series in which he is
assigned, including limit orders that
represent the Exchange’s best bid or
offer. However, due to the recently
enhanced display functionality of the
6 See Securities Exchange Act Release Nos. 21760
(February 14, 1985), 50 FR 7248 (February 21, 1985)
(SR–Phlx–84–13); 39754 (March 13, 1998), 63 FR
13901 (March 23, 1998) (SR–Phlx–97–53); and
44537 (July 11, 2001), 66 FR 37511 (July 18, 2001)
(SR–Phlx–2001–36).
PO 00000
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4181
AUTOM System, the Exchange is
proposing to remove this responsibility
from the specialist and to fully automate
that process. Accordingly, the proposal
would delete OFPA A–1 in its entirety.
The Exchange also proposes to adopt
Commentary .02(a) to Phlx Rule 1080 to
provide generally that the AUTOM
System will immediately7 display the
full price and size of any limit order that
establishes the Exchange’s disseminated
price or increases the size of the
Exchange’s disseminated bid or offer.
The proposal would delete the current
provision in Commentary .02 that states
that orders not delivered through
AUTOM may also be entered onto the
Electronic Order Book, because this can
no longer be done manually.
Consistent with the full automation of
the display of limit orders on the limit
order book, the Exchange proposes to
adopt Commentary .02(b) to clarify that
limit orders may be placed on the limit
order book only by: (i) An ROT via
electronic interface with AUTOM
pursuant to Phlx Rule 1080,
Commentary .18;8 (ii) a Floor Broker
using the Options Floor Broker
Management System pursuant to Phlx
Rule 1063, Commentary .01;9 or (iii) the
AUTOM System for eligible customer
and off-floor broker-dealer limit
7 The Exchange represents that, for the purposes
of this rule, ‘‘immediately’’ display means that the
AUTOM System will display eligible orders not
subject to an exemption automatically and
instantaneously upon receipt. Telephone call
between Rick Rudolph, Director and Counsel, Phlx,
and Nathan Saunders, Attorney, Division of Market
Regulation (‘‘Division’’), Commission, November 8,
2004.
8 In November, 2002, the Commission approved
the Exchange’s proposal to allow on-floor, in-crowd
ROTs to place electronic price improving limit
orders on the limit order book via electronic
interface with AUTOM (‘‘ROT Access’’). See
Securities Exchange Act Release No. 46763
(November 1, 2002), 67 FR 68898 (November 13,
2003) (SR–Phlx–2002–04). The rules governing ROT
Access were amended in July 2004 in the Phlx XL
proposal by eliminating the requirement that ROT
limit orders placed on the limit order book under
ROT Access be price-improving limit orders. See
Securities Exchange Act Release No. 50100 (July 27,
2004), 69 FR 46612 (August 3, 2004) (SR–Phlx–
2003–59).
9 The Options Floor Broker Management System
is a component of AUTOM designed to enable Floor
Brokers and/or their employees to enter, route and
report transactions stemming from options orders
received on the Exchange. The Options Floor
Broker Management System also is designed to
establish an electronic audit trail for options orders
represented and executed by Floor Brokers on the
Exchange, such that the audit trial provides an
accurate, time-sequenced record of electronic and
other orders, quotations and transactions on the
Exchange, beginning with the receipt of an order by
the Exchange, and further documenting the life of
the order through the process of execution, partial
execution, or cancellation of that order. See Phlx
Rule 1080, Commentary .06.
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orders.10 In conjunction with this rule,
the Exchange proposes to adopt
Commentary .18 to Phlx Rule 1014, to
require an ROT who wishes to place a
limit order on the limit order book to
submit such a limit order electronically,
and Commentary .01 to Phlx Rule 1063,
to establish that a Floor Broker who
wishes to place a limit order on the
limit order book must submit such a
limit order electronically through the
Options Floor Broker Management
System. The proposed rule change
would delete the provision currently
contained in Commentary .04 to Phlx
Rule 1014 that an ROT may place a limit
order onto the limit order book
manually through a Floor Broker or the
specialist.
Additionally, because the specialist
would no longer have the ability to post
a limit order, the Exchange proposes to
amend Phlx Rule 1080(c)(iv)(D), which
currently provides that an order
otherwise eligible for automatic
execution is instead handled manually
by the specialist ‘‘when the specialist
posts a bid or offer that is better than the
specialist’s own bid or offer.’’ Currently,
Phlx Rule 1080(c)(iv)(D) states that the
specialist will handle an order
otherwise eligible for automatic
execution manually in this situation,
except with respect to orders eligible for
Book Sweep, where an automatic
execution occurs when a contra-side
quotation that matches a limit order on
the book results in an execution at the
NBBO,11 and Book Match, where an
automatic execution occurs when an
inbound contra-side order that matches
a limit order on the book results in an
execution at the NBBO.12 To accurately
reflect that the specialist can no longer
‘‘post’’ a bid or offer (as described
above), the Exchange proposes to amend
Phlx Rule 1080(c)(iv)(D) to provide that
an order otherwise eligible for automatic
execution would instead be handled
manually by the specialist when the
Exchange’s best bid or offer is
represented by a limit order on the
book. While generally a limit order on
the book would be eligible for automatic
execution by way of Book Match or
Book Sweep, Phlx Rule 1080(c)(iv)(D) is
10 Off-floor broker-dealers may deliver limit
orders for entry onto the limit order book via
AUTOM. See Phlx Rule 1080(b)(i)(C). The Exchange
represents that orders that are not eligible for
routing through the AUTOM System would be
rejected and sent back either (a) to the firm that
submitted the order, for reentry, or (b) to the Floor
Broker who submitted the order, to be represented
using the Options Floor Broker Management
System. Telephone call between Rick Rudolph,
Director and Counsel, Phlx, and Nathan Saunders,
Attorney, Division, Commission, November 8, 2004.
11 See Phlx Rule 1080(c)(iii).
12 See Phlx Rule 1080(g)(ii).
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still necessary, because the specialist
still would handle an order manually
when a ROT or a Floor Broker in the
trading crowd verbally announces to the
specialist that he/she intends to trade
against the limit order on the book
representing the Exchange’s best bid or
offer. While the specialist no longer has
the ability to ‘‘post’’ a limit order on the
limit order book, the specialist would
continue to have the ability to execute
such an order, once it is placed on the
limit order book electronically, against
the ROT or Floor Broker’s order, by
pointing and clicking on the limit order
on the book and entering the contra-side
account number against which the limit
order on the book will trade.
The proposed rule change also
includes in Commentary .02(c) a
provision that limit orders to be
executed manually by the specialist
pursuant to Phlx Rule 1080(c)(iv) 13
would be displayed automatically by
the AUTOM system until the limit order
is executed or cancelled. If a limit order
is partially executed, the AUTOM
System would automatically display the
actual number of contracts remaining in
the limit order.
Finally, the proposed rule change
would establish certain exemptions, or
partial exemptions, to the limit order
display rule. The proposed exemptions
provide that AUTOM will not display:
(a) Limit orders executed upon receipt;
(b) a limit order where the customer
who placed it requests that it not be
displayed, and upon representation of
such order in the trading crowd the
Floor Broker announces in public outcry
the information concerning the order
that would be displayed if the order
were subject to being displayed; (c) a
customer limit order for which,
immediately upon receipt, a related
order for the principal account of the
specialist, reflecting the terms of the
customer order, is routed to another
options exchange; (d) a limit order
received before or during a trading
rotation 14 (however, such limit orders
will be displayed immediately upon
conclusion of the applicable rotation if
they represent the Exchange’s best bid
or offer); (e) certain contingent and
complex order types defined in Phlx
13 Phlx Rule 1080(c)(iv) enumerates a variety of
circumstances under which orders otherwise
eligible for automatic execution are instead handled
manually by the specialist.
14 During a trading rotation, the specialist
attempts to find the opening price and until the
opening price is established, there is no
disseminated market. Once the trading rotation
ends and regular trading begins, limit orders
received before or during the trading rotation that
are not executed at the opening price and remain
on the limit order book will be displayed if they
represent the Exchange’s best bid or offer.
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Rule 1066, as discussed more fully
below; and (f) immediate or cancel limit
orders.
Generally, Phlx has proposed
exemptions or partial exemptions for
certain types of contingent and complex
orders because these order types, by
definition, are priced in a way that is
dependent on a condition or another
variable, such that displaying the price
of such an order without the other
information would not accurately reflect
that trading interest.
Contingency Orders (Phlx Rule
1066(c)): These orders are contingent
upon a condition being satisfied, and
are not executable until the prerequisite
condition is satisfied. Phlx Rule 1066(c)
contains the following types of
contingency orders eligible for delivery
via AUTOM that would not be
immediately displayed under the
proposal: stop (stop-loss), stop-limit, allor-none, market-on-close, and cancelreplacement orders.
Stop (Stop-Loss) and Stop Limit
Orders (Phlx Rule 1066(c)(1)): These
orders are not executable until the
market reaches a specified price that
‘‘elects’’ the order, at which point they
convert to a market order. As such, they
are not available to trade and have no
standing in the quoted markets until the
specified price is reached. A trade or a
quote can be the ‘‘triggering’’ event for
the election of a stop order. Because
they convert to market orders upon the
triggering event, stop orders cannot then
be subject to the display requirement.
A stop-limit order is not ‘‘triggered’’
until the option contract trades or is bid
(offered) at or above (below) the stop
price, at which point it converts to a
limit order. As such, a stop-limit order
has no standing in the quoted markets
until the specified price trigger is
reached. Once triggered, the stop-limit
order converts to a limit order, and thus
would be subject to display.
All-or-None Orders (Phlx Rule
1066(c)(4)): While an all-or-none order
can be a limit order, instructions require
the order be executed in its entirety or
not at all. The Commission’s Display
Rule, applicable to customer limit
orders received in the equity market,
also provides an exemption for all-ornone orders.15
Market-on-Close Orders (Phlx Rule
1066(c)(6)): These orders may have a
limit price attached, but are not eligible
for representation until the close of
trading is imminent. Regardless of the
time at which a market-on-close order is
entered, the floor broker is required to
hold such an order, and is precluded
from representing it, until as near as
15 See
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17 CFR 240.11Ac1–4(c)(7).
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possible to the close of trading.
Furthermore, because representation
and execution of these orders must
occur on or as near to the close of
trading as possible, it would be difficult
if not impossible to determine whether
members met an appropriate display
standard for such orders.
Cancel-Replacement Order (Phlx Rule
1066(c)(7)): A cancel-replacement order
is a contingency order consisting of two
or more parts which require the
immediate cancellation of a previously
received order prior to the replacement
of a new order with new terms and
conditions. If the previously placed
order is already filled partially or in its
entirety, the replacement order is
automatically canceled or reduced by
the number of contracts partially filled.
AUTOM would not immediately display
all parts of the cancel-replacement
order, but rather would display only the
order that remains after the previously
received order is cancelled.
In addition to contingency orders, the
Exchange also proposes to establish an
exemption for one-cancels-the-other
orders, hedge orders and synthetic
options.
One-Cancels-the-Other Orders (Phlx
Rule 1066(e)): A one-cancels-the-other
order is comprised of two or more
orders treated as a collective unit. The
execution of any one of the component
orders cancels the other(s). If the
specialist cannot execute any of the
orders upon receipt, then none can be
displayed or booked as doing so could
result in the approximate simultaneous
execution of more than one component
order, in direct contravention of the
primary order condition.
Hedge Orders (Phlx Rule 1066(f)) and
Synthetic Options (Phlx Rule 1066(g)):
Hedge orders (e.g., spreads, straddles,
and combination orders) and synthetic
options are orders that specify
instructions to trade more than one
options series or product as a package,
typically (with respect to hedge orders)
at a specified net debit or credit, as
opposed to a specific limit price for
each leg involved. Therefore, there is no
specified limit price for each series
involved to display in the quotes.
Moreover, the Options Price Reporting
Authority (‘‘OPRA’’) does not accept
complex order quotes at net prices.
Therefore, these orders would not be
displayed. Each component of these
complex orders is, in essence, itself
contingent on the ability to execute the
other components of the order. Since
there is no guarantee that all
components will become executable at
the same time, if at all, the immediate
display of all components could result
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in the execution of less than all
components of the order.
Immediate or Cancel Orders: An
immediate or cancel order is a market or
limit order which is to be executed in
whole or in part as soon as such order
is represented in the trading crowd. Any
portion not executed is to be cancelled,
which means it cannot be displayed. An
immediate or cancel order shares most
of the same characteristics of an all-ornone order, which is exempt from the
Commission’s Display Rule.16 Given the
similarity between these order types, the
Exchange believes that immediate or
cancel orders should also be exempt
from the requirements of the Exchange’s
limit order display rule.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with section 6(b)
of the Act 17 in general, and furthers the
objectives of section 6(b)(5) of the Act 18
in particular, in that it is designed to
promote just and equitable principles of
trade, remove impediments to and
perfect the mechanisms of a free and
open market and a national market
system, and to protect investors and the
public interest, by establishing rules
requiring the immediate automated
display of limit orders on the Exchange,
and by requiring ROTs and Floor
Brokers to place limit orders on the
book electronically, which should
enhance transparency on the Exchange
and should enhance the Exchange’s
ability to provide an electronic audit
trail respecting the immediate display of
limit orders.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any inappropriate burden on
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether they are consistent
with the Act. Comments may be
submitted by any of the following
methods:
PO 00000
16 See
supra note 15 and accompanying text.
U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(5).
17 15
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4183
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2004–73 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–Phlx–2004–73. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Phlx–2004–73 and should
be submitted on or before February 18,
2005.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange 19 and, in particular,
the requirements of section 6(b)(5) of the
Act,20 which requires, among other
19 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
20 15 U.S.C. 78f(b)(5).
E:\FR\FM\28JAN1.SGM
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4184
Federal Register / Vol. 70, No. 18 / Friday, January 28, 2005 / Notices
things, that the rules of an exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. Specifically, the
Commission believes that the immediate
display of customer options limit orders
that improve the price or size of the best
disseminated Phlx quote should
promote transparency and enhance the
quality of executions of customer limit
orders on the Phlx.
The proposed amendments to Phlx
rules introduce requirements for limit
order display that are comparable to the
requirements of the Commission’s
Display Rule, Rule 11Ac1–4 under the
Act,21 which is applicable to customer
limit orders received in the equity
market. The Exchange has represented
that immediate display of limit orders
by the AUTOM system means that
eligible limit orders will be displayed
automatically and instantaneously, as
soon as the order is received on the
Exchange. Proposed commentaries
.02(b) to Phlx Rule 1080, .18 to Phlx
Rule 1014, and .01 to Phlx Rule 1063
provide that the only way limit orders
may be sent to the Exchange will be
electronically via AUTOM, either by an
ROT via electronic interface with
AUTOM, by a Floor Broker via the
Options Floor Broker Management
System component of AUTOM, or by
off-floor broker-dealers who transmit
orders via AUTOM. Thus, under Phlx’s
system, all limit orders subject to
display must be delivered electronically
to the Exchange, and would then be
displayed automatically and
instantaneously.
The Commission believes that the
Exchange’s proposal to exempt all-ornone and immediate or cancel orders
from the Phlx’s limit order display rule
is reasonable since these order types are
either identical or substantially similar
to order types exempt from the
Commission’s Display Rule.
The Commission also believes that it
is consistent with the Act for the Phlx
to exempt from the limit order display
requirements under its rules stop-limit
and stop or stop-loss orders. These
orders are contingent orders that are
subject to a particular triggering event
and, thus, are not available for
execution until the triggering event
occurs. A stop-loss order becomes a
21 17
CFR 249,11Ac1–4.
VerDate jul<14>2003
15:43 Jan 27, 2005
Jkt 205001
market order when triggered and thus is
not subject to the Phlx’s limit order
display rule because such an order
would then be immediately executable.
A stop-limit order becomes a limit order
when the triggering event occurs. This
limit order would be subject to display
under the Phlx’s rules.
Cancel-replacement orders may be
reduced in size if the order intended to
be cancelled and replaced has already
been filled partially or in its entirety.
Thus, a cancel-replacement order would
not be immediately displayed, but
would be subject to display only after
any necessary adjustments were made
as a result of the contingency.
Market-on-close orders may not be
represented, displayed or booked until
as near as possible to the close of
trading, and, therefore, the Commission
believes it is reasonable to exempt such
orders from the Phlx’s limit order
display rule. Hedge orders (e.g., spread,
straddle, and combination orders),
synthetic options and one-cancels-theother orders are complex orders with
more than one component and, thus are
not suitable for display.
In addition, during a trading rotation,
Phlx systems attempt to set an opening
price for the series. Until that opening
price is established, there is no
disseminated market. Therefore, it is
reasonable to exempt orders received
during a trading rotation from the
Exchange’s limit order display rule. The
Commission notes, however, that once
the trading rotation ends, any orders not
executed would then be subject to
display.
Finally, the Exchange proposes to
exempt from its limit order display rule
customer limit orders for which,
immediately upon receipt, a related
order for the principal account of the
specialist, reflecting the terms of the
customer order, is routed to another
options exchange. The Commission
believes it is reasonable to exempt such
orders since they are subject to
execution upon receipt at the other
options exchange. Moreover, the
Exchange represents that if the order
delivered to the other options exchange
were canceled, in whole or in part, by
the other exchange, then, immediately
upon receipt of the cancellation notice,
the original customer order would be
subject to the Exchange’s limit order
display rule and automatically
displayed.22
The Commission finds good cause for
approving the proposed rule change
22 Telephone conversation between Richard S.
Rudolph, Director and Counsel, Phlx, and Nathan
Saunders, Attorney, Division, Commission, January
14, 2005.
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
prior to the thirtieth day after the
proposal is published in the Federal
Register, pursuant to Section 19(b)(2) of
the Act.23 The Commission notes that
the proposed rule change, which
provides for immediate display of limit
orders that better the Exchange’s
disseminated quote, is substantially
identical to the proposals filed by the
Chicago Board Options Exchange
(‘‘CBOE’’) 24 and the American Stock
Exchange (‘‘Amex’’),25 although the
form of Phlx’s proposed rule differs
slightly.26 Phlx also proposes several
exemptions to its limit order display
rule. The Commission notes that these
exemptions, discussed above, are
substantially identical to exemptions
proposed by CBOE and Amex in their
options limit order display proposals.
The Amex and CBOE proposals were
recently noticed for full 21-day
comment periods.27 No comments were
received on the CBOE or Amex
proposal.
Accelerated approval of the proposed
rule change will permit the Exchange to
implement the proposal in an
expeditious manner, i.e.,
simultaneously with the
implementation of the similar proposals
by CBOE, Amex and the Pacific
Exchange, Inc. (‘‘PCX’’), which we also
approve today.28 The Commission,
therefore, believes that good cause
exists, consistent with section 6(b)(5) 29
and section 19(b) 30 of the Act, to
accelerate approval of the proposed rule
change.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,31 that the
proposed rule change, as amended (File
No. SR–Phlx–2004–73), be approved on
an accelerated basis.
23 15
U.S.C. 78s(b)(2).
Securities Exchange Act Release No. 49916
(June 25, 2004), 69 FR 40422 (July 2, 2004) (SR–
CBOE–2004–35).
25 See Securities Exchange Act Release No. 50188
(August 12, 2004), 69 FR 51495 (August 19, 2004)
(SR–Amex–00–27).
26 CBOE and Amex seek to place an affirmative
display obligation on their Designated Primary
Market-makers and Specialists respectively,
whereas Phlx’s proposed rule provides for
automatic display via the AUTOM system.
27 See supra notes 24 and 25.
28 See Securities Exchange Act Release Nos.
51063 (January 21, 2005) (order approving SR–
CBOE–2004–35); 51062 (January 21, 2005) (order
approving SR–Amex–00–27); and 51061 (January
21, 2005) (order approving SR–PCX–00–15).
29 15 U.S.C. 78f(b)(5).
30 15 U.S.C. 78s(b).
31 Id.
24 See
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Federal Register / Vol. 70, No. 18 / Friday, January 28, 2005 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.32
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–324 Filed 1–27–05; 8:45 am]
BILLING CODE 8010–01–P
SMALL BUSINESS ADMINISTRATION
Small Business Size Standards:
Waiver of the Nonmanufacturer Rule
U.S. Small Business
Administration.
ACTION: Notice of termination of waiver
of the Nonmanufacturer Rule for
Petroleum and Coal Products
Manufacturing.
AGENCY:
SUMMARY: The U.S. Small Business
Administration (SBA) is terminating the
waiver of the Nonmanufacturer Rule for
Petroleum and Coal Products
Manufacturing based on our recent
discovery of small business
manufacturers for this class of products.
Terminating this waiver will require
recipients of contracts set aside for
small businesses, service-disabled
veteran-owned small businesses, SBA’s
Very Small Business Program or 8(a)
businesses to provide the products of
small business manufacturers or process
on such contracts.
DATES: This termination of waiver is
effective on February 14, 2005.
FOR FURTHER INFORMATION CONTACT:
Edith Butler, Program Analyst, by
telephone at (202) 619–0422; by fax at
(202) 481–1788; or by e-mail at
edith.butler@sba.gov.
SUPPLEMENTARY INFORMATION: Section
8(a)(17) of the Small Business Act, (Act)
15 U.S.C. 637(a)(17), requires that
recipients of Federal contracts set aside
for small businesses, service-disabled
veteran-owned small businesses, SBA’s
Very Small Business Program or SBA’s
8(a) Business Development Program
provide the product of a small business
manufacturer or processor, if the
recipient is other than the actual
manufacturer or processor of the
product. This requirement is commonly
referred to as the Nonmanufacturer
Rule.
The SBA regulations imposing this
requirement are found at 13 CFR
121.406(b). Section 8(a)(17)(b)(iv) of the
Act authorizes SBA to waive the
Nonmanufacturer Rule for any ‘‘class of
products’’ for which there are no small
business manufacturers or processors
available to participate in the Federal
market.
32 17
CFR 200.30–3(a)(12).
VerDate jul<14>2003
15:43 Jan 27, 2005
Jkt 205001
As implemented in SBA’s regulations
at 13 CFR 121.1204, in order to be
considered available to participate in
the Federal market for a class of
products, a small business manufacturer
must have submitted a proposal for a
contract solicitation or received a
contract from the Federal government
within the last 24 months. The SBA
defines ‘‘class of products’’ based on six
digit coding systems. The first coding
system is the Office of Management and
Budget North American Industry
Classification System (NAICS). The
second is the Product and Service Code
established by the Federal Procurement
Data System.
The SBA received a request on
November 2, 2004 to waive the
Nonmanufacturer Rule for Petroleum
and Coal Products Manufacturing. In
response, on December 6, 2004, SBA
published in the Federal Register a
notice of intent to the waiver of the
Nonmanufacturer Rule for Petroleum
and Coal Products Manufacturing.
In response to these notices, SBA
discovered the existence of small
business manufacturers of that class of
products. Accordingly, based on the
available information, SBA has
determined that there are small business
manufacturers of this class of products,
and is therefore terminating the class
waiver of the Nonmanufacturer Rule for
Petroleum and Coal Products
Manufacturing, NAICS 324210.
Authority: 15 U.S.C. 637(a)(17).
Dated: January 19, 2005.
Emily Murphy,
Acting Associate Administrator for
Government Contracting.
[FR Doc. 05–1585 Filed 1–27–05; 8:45 am]
4185
as newkach.org, also known as Kahane, also
known as Yeshivat HaRav Meir, also known
as the International Kahane Movement, also
known as Kahane.org, also known as
Kahanetzadak.com, also known as Kahane
Tzadak, also known as the Hatikva Jewish
Identity Center, also known as the Rabbi Meir
David Kahane Memorial Fund, also known as
Friends of the Jewish Idea Yeshiva, also
known as Judean Congress, also known as
Jewish Legion, also known as The Voice of
Judea, also known as No’ar Meir, also known
as Meir’s Youth, also known as American
Friends of Yeshivat Rav Meir, also known as
American Friends of the United Yeshiva
Movement, also known as The Committee
Against Racism and Discrimination (CARD),
a Foreign Terrorist Organization pursuant to
Section 219 of the Immigration and
Nationality Act.
In consultation with the Attorney
General and the Secretary of the
Treasury, the Secretary of State hereby
revokes the designation of Kahane.net as
an alias of Kahane Chai, also known as
Kach, Kahane.org, and the other aliases
listed above, pursuant to section 219 of
the INA, based on a finding that
circumstances have changed in such a
manner as to warrant revocation. This
revocation is effective on the date of
publication of this notice. In all other
respects, the redesignation on October 2,
2003 of Kahane Chai, also known as
Kach, Kahane.org, and the other aliases
listed above is maintained.
Dated: January 25, 2005.
William P. Pope,
Acting Coordinator for Counterterrorism,
Department of State.
[FR Doc. 05–1607 Filed 1–27–05; 8:45 am]
BILLING CODE 4710–10–P
DEPARTMENT OF STATE
BILLING CODE 8025–01–P
[Public Notice 4979]
DEPARTMENT OF STATE
Foreign Terrorists and Terrorist
Organizations
[Public Notice 4978]
Foreign Terrorists and Terrorist
Organizations
In the matter of the revocation of
Kahane.net as an alias of Kahane Chai, also
known as Kach, also known as Kahane Lives,
also known as the Kfar Tapuah Fund, also
known as The Judean Voice, also known as
The Judean Legion, also known as The Way
of the Torah, also known as The Yeshiva of
the Jewish Idea, also known as the
Repression of Traitors, also known as Dikuy
Bogdim, also known as DOV, also known as
the State of Judea, also known as the
Committee for the Safety of the Roads, also
known as the Sword of David, also known as
Judea Police, also known as Forefront of the
Idea, also known as The Qomemiyut
Movement, also known as KOACH, also
known as New Kach Movement, also known
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
Amendment of a Certain Designation in
order to revoke Kahane.net as an alias of
Kahane Chai, also known as Kach, also
known as Kahane Lives, also known as the
Kfar Tapuah Fund, also known as The Judean
Voice, also known as The Judean Legion, also
known as The Way of the Torah, also known
as The Yeshiva of the Jewish Idea, also
known as the Repression of Traitors, also
known as Dikuy Bogdim, also known as
DOV, also known as the State of Judea, also
known as the Committee for the Safety of the
Roads, also known as the Sword of David,
also known as Judea Police, also known as
Forefront of the Idea, also known as The
Qomemiyut Movement, also known as
KOACH, also known as New Kach
Movement, also known as newkach.org, also
known as Kahane, also known as Yeshivat
HaRav Meir, also known as the International
Kahane Movement, also known as
Kahane.org, also known as
E:\FR\FM\28JAN1.SGM
28JAN1
]]>Agencies
[Federal Register Volume 70, Number 18 (Friday, January 28, 2005)]
[Notices]
[Pages 4180-4185]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-324]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51064; File No. SR-Phlx-2004-73
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval to a Proposed
Rule Change and Amendments No. 1 and 2 Thereto To Require the Immediate
Display of Customer Options Limit Orders
January 21, 2005.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on November 3, 2004, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in items I, II, and III, below, which items have been
substantially prepared by the Exchange. Phlx filed Amendment No. 1 to
the proposed rule change on January 13, 2005,\3\ and filed Amendment
No. 2 to the proposed rule change on January 19, 2005.\4\ The
Commission is publishing this notice to solicit comment on the proposed
rule change, as amended, from interested persons, and at the same time
is granting accelerated approval to the proposed rule change, as
amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Amendment No. 1, dated January 13, 2005, submitted by
Richard S. Rudolph, Director and Counsel, Phlx (``Amendment No.
1''). In Amendment No. 1, Phlx proposes clarifying language to be
included in the previously submitted proposed rules.
\4\ See Amendment No. 2, dated January 19, 2005, submitted by
Richard S. Rudolph, Director and Counsel, Phlx (``Amendment No.
2''). In Amendment No. 2, Phlx proposes a minor modification to the
previously submitted proposed rules.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Phlx proposes to amend Phlx Rules 1014, 1063 and 1080, and to
delete Option Floor Procedure Advice A-1, to: (1) Reflect that the
Exchange's Automated Options Market (``AUTOM'') System,\5\ and not the
specialist, will immediately display the full price and size of any
limit order that establishes the Exchange's disseminated price or
increases the size of the Exchange's disseminated bid or offer, subject
to certain exemptions; and (2) establish new rules that require
Exchange Registered Options Traders (``ROTs'') and Floor Brokers to
place limit orders on the limit order book electronically.
---------------------------------------------------------------------------
\5\ AUTOM is the Exchange's electronic order delivery, routing,
execution and reporting system, which provides for the automatic
entry and routing of equity option and index option orders to the
Exchange trading floor. Orders delivered through AUTOM may be
executed manually, or certain orders are eligible for AUTOM's
automatic execution features: AUTO-X, Book Sweep, and Book Match.
Equity option and index option specialists are required by the
Exchange to participate in AUTOM and its features and enhancements.
Option orders entered by Exchange members into AUTOM are routed to
the appropriate specialist unit on the Exchange trading floor. See
Phlx Rule 1080.
---------------------------------------------------------------------------
The text of the proposed rule change, as amended, follows.
Additions are in italics. Deletions are in [brackets].
* * * * *
Rule 1014. Obligations and Restrictions Applicable to Specialists and
Registered Options Traders
(a)-(h) No Change.
Commentary:
.01-.17 No change.
.18. An ROT who wishes to place a limit order on the limit order
book must submit such a limit order electronically.
* * * * *
Rule 1063. Responsibilities of Floor Brokers
(a)-(e) No change.
Commentary:
.01. A Floor Broker who wishes to place a limit order on the limit
order book must submit such a limit order electronically through the
Options Floor Broker Management System.
* * * * *
Rule 1080. Philadelphia Stock Exchange Automated Options Market (AUTOM)
and Automatic Execution System (AUTO-X)
(a)-(b) No change
(c) AUTO-X. * * *
(i)-(iii) No change.
(iv) Except as otherwise provided in this Rule, in the following
circumstances, an order otherwise eligible for automatic execution will
instead be manually handled by the specialist:
(A)-(C) No change.
(D) When the [specialist posts] Exchange's best [a] bid or offer is
represented by a limit order on the book [that is better than the
specialist's own bid or offer] (except with respect to orders eligible
for ``Book Sweep'' as described in Rule 1080(c)(iii) above, and ``Book
Match'' as described in Rule 1080(g)(ii) below);
(E)-(H) No change.
(d)-(k) No change.
Commentary:
.01 No change.
.02 The Electronic Order Book is the Exchange's automated
[specialist] limit order book, which automatically routes all
unexecuted AUTOM orders to the book and displays orders real-time in
order of price/time priority. [Orders not delivered through AUTOM may
also be entered onto the Electronic Order Book.]
(a)(i) Except as provided in sub-paragraph (a)(ii) below, the AUTOM
System will immediately display the full price and size of any limit
order that establishes the Exchange's disseminated price or increases
the size of the Exchange's disseminated bid or offer.
(ii) The AUTOM System will not display:
(A) An order executed upon receipt;
(B) An order where the customer who placed it requests that it not
be displayed, and upon representation of such order in the trading
crowd the Floor Broker announces in public outcry the information
concerning the order that would be displayed if the order were subject
to being displayed;
(C) A customer limit order for which, immediately upon receipt, a
related order for the principal account of the specialist, reflecting
the terms of the customer order, is routed to another options exchange;
(D) Orders received before or during a trading rotation, however,
such limit orders will be displayed immediately upon conclusion of the
applicable rotation if they represent the Exchange's best bid or offer;
[[Page 4181]]
(E) The following order types as defined in Rule 1066: Contingency
Orders; One-Cancels-the-Other Orders; Hedge Orders (e.g., spreads,
straddles, combination orders); Synthetic Options;
(F) Immediate or Cancel (``IOC'') orders.
(b) Limit orders may only be placed on the limit order book by: (i)
An ROT via electronic interface with AUTOM pursuant to Rule 1014,
Commentary .18; (ii) a Floor Broker using the Options Floor Broker
Management System (as described in Commentary .06 below); or (iii) the
AUTOM System for eligible customer and off-floor broker-dealer limit
orders.
(c) A limit order to be executed manually by the specialist
pursuant to Rule 1080(c)(iv) will be displayed automatically by the
AUTOM System until such limit order is executed or cancelled. If such
limit order is partially executed, the AUTOM System will automatically
display the actual number of contracts remaining in such limit order.
.03 No change.
.04 ROT Limit Orders. * * *
Not later than ten days following approval by the Securities and
Exchange Commission of the rules applicable to the Exchange's
electronic trading platform, Phlx XL, the Exchange will commence the
initial deployment of Phlx XL by allowing specialists and ROTs who are
Streaming Quote Traders (``SQTs,'' as defined in the Phlx XL rules) to
submit electronic quotations in Streaming Quote Options (as defined in
the Phlx XL rules), and ROTs who are not SQTs to submit limit orders
onto the limit order book via electronic interface with AUTOM [or
manually through a Floor Broker or the Specialist]. Eligible incoming
orders and quotations will automatically execute against quotations of
specialists and SQTs and orders of ROTs in accordance with the
functionality of the Phlx XL system, as set forth in the Phlx XL rules.
* * *
.05-.07 No change.
* * * * *
Option Floor Procedure Advices--A-1: Reserved
[Responsibility of Displaying Best Bids and Offers
(a) A Specialist shall use due diligence to ensure that the best
available bid and offer is displayed for those option series in which
he is assigned.
Bids and offers for the Specialist's own account, bids and offers
on the book, and bids and offers established in the crowd are deemed
available for display purposes.
(b) After voicing a bid/offer, the Floor Broker or ROT shall use
due diligence to inform the Specialist when s/he is no longer bidding/
offering at that price. Specifically, the Floor Broker or ROT must
immediately inform the Specialist when s/he is ``out'' of that bid/
offer, including due to an execution or departure from the crowd.
FINE SCHEDULE (Implemented on a two-year running calendar basis)
A-1
1st Occurrence--$250.00
2nd Occurrence--$500.00
3rd Occurrence--$1,000.00
4th Occurrence and Thereafter Sanction is discretionary with Business
Conduct Committee]
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Phlx included statements
concerning the purpose of and basis for the proposed rule change, as
amended, and discussed any comments it received on the proposed rule
change, as amended. The text of these statements may be examined at the
places specified in item III below. The Phlx has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change, as amended, is to
establish Phlx rules that reflect the immediate, automatic display of
limit orders (with certain exemptions as described below), and to
require that Phlx ROTs and Floor Brokers who wish to place limit orders
on the limit order book do so electronically.
Currently, Exchange Options Floor Procedure Advice (``OFPA'') A-
1\6\ requires the specialist to use due diligence to ensure that the
best available bid and offer is displayed for those option series in
which he is assigned, including limit orders that represent the
Exchange's best bid or offer. However, due to the recently enhanced
display functionality of the AUTOM System, the Exchange is proposing to
remove this responsibility from the specialist and to fully automate
that process. Accordingly, the proposal would delete OFPA A-1 in its
entirety.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release Nos. 21760 (February 14,
1985), 50 FR 7248 (February 21, 1985) (SR-Phlx-84-13); 39754 (March
13, 1998), 63 FR 13901 (March 23, 1998) (SR-Phlx-97-53); and 44537
(July 11, 2001), 66 FR 37511 (July 18, 2001) (SR-Phlx-2001-36).
---------------------------------------------------------------------------
The Exchange also proposes to adopt Commentary .02(a) to Phlx Rule
1080 to provide generally that the AUTOM System will immediately\7\
display the full price and size of any limit order that establishes the
Exchange's disseminated price or increases the size of the Exchange's
disseminated bid or offer. The proposal would delete the current
provision in Commentary .02 that states that orders not delivered
through AUTOM may also be entered onto the Electronic Order Book,
because this can no longer be done manually.
---------------------------------------------------------------------------
\7\ The Exchange represents that, for the purposes of this rule,
``immediately'' display means that the AUTOM System will display
eligible orders not subject to an exemption automatically and
instantaneously upon receipt. Telephone call between Rick Rudolph,
Director and Counsel, Phlx, and Nathan Saunders, Attorney, Division
of Market Regulation (``Division''), Commission, November 8, 2004.
---------------------------------------------------------------------------
Consistent with the full automation of the display of limit orders
on the limit order book, the Exchange proposes to adopt Commentary
.02(b) to clarify that limit orders may be placed on the limit order
book only by: (i) An ROT via electronic interface with AUTOM pursuant
to Phlx Rule 1080, Commentary .18;\8\ (ii) a Floor Broker using the
Options Floor Broker Management System pursuant to Phlx Rule 1063,
Commentary .01;\9\ or (iii) the AUTOM System for eligible customer and
off-floor broker-dealer limit
[[Page 4182]]
orders.\10\ In conjunction with this rule, the Exchange proposes to
adopt Commentary .18 to Phlx Rule 1014, to require an ROT who wishes to
place a limit order on the limit order book to submit such a limit
order electronically, and Commentary .01 to Phlx Rule 1063, to
establish that a Floor Broker who wishes to place a limit order on the
limit order book must submit such a limit order electronically through
the Options Floor Broker Management System. The proposed rule change
would delete the provision currently contained in Commentary .04 to
Phlx Rule 1014 that an ROT may place a limit order onto the limit order
book manually through a Floor Broker or the specialist.
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\8\ In November, 2002, the Commission approved the Exchange's
proposal to allow on-floor, in-crowd ROTs to place electronic price
improving limit orders on the limit order book via electronic
interface with AUTOM (``ROT Access''). See Securities Exchange Act
Release No. 46763 (November 1, 2002), 67 FR 68898 (November 13,
2003) (SR-Phlx-2002-04). The rules governing ROT Access were amended
in July 2004 in the Phlx XL proposal by eliminating the requirement
that ROT limit orders placed on the limit order book under ROT
Access be price-improving limit orders. See Securities Exchange Act
Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR-
Phlx-2003-59).
\9\ The Options Floor Broker Management System is a component of
AUTOM designed to enable Floor Brokers and/or their employees to
enter, route and report transactions stemming from options orders
received on the Exchange. The Options Floor Broker Management System
also is designed to establish an electronic audit trail for options
orders represented and executed by Floor Brokers on the Exchange,
such that the audit trial provides an accurate, time-sequenced
record of electronic and other orders, quotations and transactions
on the Exchange, beginning with the receipt of an order by the
Exchange, and further documenting the life of the order through the
process of execution, partial execution, or cancellation of that
order. See Phlx Rule 1080, Commentary .06.
\10\ Off-floor broker-dealers may deliver limit orders for entry
onto the limit order book via AUTOM. See Phlx Rule 1080(b)(i)(C).
The Exchange represents that orders that are not eligible for
routing through the AUTOM System would be rejected and sent back
either (a) to the firm that submitted the order, for reentry, or (b)
to the Floor Broker who submitted the order, to be represented using
the Options Floor Broker Management System. Telephone call between
Rick Rudolph, Director and Counsel, Phlx, and Nathan Saunders,
Attorney, Division, Commission, November 8, 2004.
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Additionally, because the specialist would no longer have the
ability to post a limit order, the Exchange proposes to amend Phlx Rule
1080(c)(iv)(D), which currently provides that an order otherwise
eligible for automatic execution is instead handled manually by the
specialist ``when the specialist posts a bid or offer that is better
than the specialist's own bid or offer.'' Currently, Phlx Rule
1080(c)(iv)(D) states that the specialist will handle an order
otherwise eligible for automatic execution manually in this situation,
except with respect to orders eligible for Book Sweep, where an
automatic execution occurs when a contra-side quotation that matches a
limit order on the book results in an execution at the NBBO,\11\ and
Book Match, where an automatic execution occurs when an inbound contra-
side order that matches a limit order on the book results in an
execution at the NBBO.\12\ To accurately reflect that the specialist
can no longer ``post'' a bid or offer (as described above), the
Exchange proposes to amend Phlx Rule 1080(c)(iv)(D) to provide that an
order otherwise eligible for automatic execution would instead be
handled manually by the specialist when the Exchange's best bid or
offer is represented by a limit order on the book. While generally a
limit order on the book would be eligible for automatic execution by
way of Book Match or Book Sweep, Phlx Rule 1080(c)(iv)(D) is still
necessary, because the specialist still would handle an order manually
when a ROT or a Floor Broker in the trading crowd verbally announces to
the specialist that he/she intends to trade against the limit order on
the book representing the Exchange's best bid or offer. While the
specialist no longer has the ability to ``post'' a limit order on the
limit order book, the specialist would continue to have the ability to
execute such an order, once it is placed on the limit order book
electronically, against the ROT or Floor Broker's order, by pointing
and clicking on the limit order on the book and entering the contra-
side account number against which the limit order on the book will
trade.
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\11\ See Phlx Rule 1080(c)(iii).
\12\ See Phlx Rule 1080(g)(ii).
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The proposed rule change also includes in Commentary .02(c) a
provision that limit orders to be executed manually by the specialist
pursuant to Phlx Rule 1080(c)(iv) \13\ would be displayed automatically
by the AUTOM system until the limit order is executed or cancelled. If
a limit order is partially executed, the AUTOM System would
automatically display the actual number of contracts remaining in the
limit order.
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\13\ Phlx Rule 1080(c)(iv) enumerates a variety of circumstances
under which orders otherwise eligible for automatic execution are
instead handled manually by the specialist.
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Finally, the proposed rule change would establish certain
exemptions, or partial exemptions, to the limit order display rule. The
proposed exemptions provide that AUTOM will not display: (a) Limit
orders executed upon receipt; (b) a limit order where the customer who
placed it requests that it not be displayed, and upon representation of
such order in the trading crowd the Floor Broker announces in public
outcry the information concerning the order that would be displayed if
the order were subject to being displayed; (c) a customer limit order
for which, immediately upon receipt, a related order for the principal
account of the specialist, reflecting the terms of the customer order,
is routed to another options exchange; (d) a limit order received
before or during a trading rotation \14\ (however, such limit orders
will be displayed immediately upon conclusion of the applicable
rotation if they represent the Exchange's best bid or offer); (e)
certain contingent and complex order types defined in Phlx Rule 1066,
as discussed more fully below; and (f) immediate or cancel limit
orders.
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\14\ During a trading rotation, the specialist attempts to find
the opening price and until the opening price is established, there
is no disseminated market. Once the trading rotation ends and
regular trading begins, limit orders received before or during the
trading rotation that are not executed at the opening price and
remain on the limit order book will be displayed if they represent
the Exchange's best bid or offer.
---------------------------------------------------------------------------
Generally, Phlx has proposed exemptions or partial exemptions for
certain types of contingent and complex orders because these order
types, by definition, are priced in a way that is dependent on a
condition or another variable, such that displaying the price of such
an order without the other information would not accurately reflect
that trading interest.
Contingency Orders (Phlx Rule 1066(c)): These orders are contingent
upon a condition being satisfied, and are not executable until the
prerequisite condition is satisfied. Phlx Rule 1066(c) contains the
following types of contingency orders eligible for delivery via AUTOM
that would not be immediately displayed under the proposal: stop (stop-
loss), stop-limit, all-or-none, market-on-close, and cancel-replacement
orders.
Stop (Stop-Loss) and Stop Limit Orders (Phlx Rule 1066(c)(1)):
These orders are not executable until the market reaches a specified
price that ``elects'' the order, at which point they convert to a
market order. As such, they are not available to trade and have no
standing in the quoted markets until the specified price is reached. A
trade or a quote can be the ``triggering'' event for the election of a
stop order. Because they convert to market orders upon the triggering
event, stop orders cannot then be subject to the display requirement.
A stop-limit order is not ``triggered'' until the option contract
trades or is bid (offered) at or above (below) the stop price, at which
point it converts to a limit order. As such, a stop-limit order has no
standing in the quoted markets until the specified price trigger is
reached. Once triggered, the stop-limit order converts to a limit
order, and thus would be subject to display.
All-or-None Orders (Phlx Rule 1066(c)(4)): While an all-or-none
order can be a limit order, instructions require the order be executed
in its entirety or not at all. The Commission's Display Rule,
applicable to customer limit orders received in the equity market, also
provides an exemption for all-or-none orders.\15\
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\15\ See 17 CFR 240.11Ac1-4(c)(7).
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Market-on-Close Orders (Phlx Rule 1066(c)(6)): These orders may
have a limit price attached, but are not eligible for representation
until the close of trading is imminent. Regardless of the time at which
a market-on-close order is entered, the floor broker is required to
hold such an order, and is precluded from representing it, until as
near as
[[Page 4183]]
possible to the close of trading. Furthermore, because representation
and execution of these orders must occur on or as near to the close of
trading as possible, it would be difficult if not impossible to
determine whether members met an appropriate display standard for such
orders.
Cancel-Replacement Order (Phlx Rule 1066(c)(7)): A cancel-
replacement order is a contingency order consisting of two or more
parts which require the immediate cancellation of a previously received
order prior to the replacement of a new order with new terms and
conditions. If the previously placed order is already filled partially
or in its entirety, the replacement order is automatically canceled or
reduced by the number of contracts partially filled. AUTOM would not
immediately display all parts of the cancel-replacement order, but
rather would display only the order that remains after the previously
received order is cancelled.
In addition to contingency orders, the Exchange also proposes to
establish an exemption for one-cancels-the-other orders, hedge orders
and synthetic options.
One-Cancels-the-Other Orders (Phlx Rule 1066(e)): A one-cancels-
the-other order is comprised of two or more orders treated as a
collective unit. The execution of any one of the component orders
cancels the other(s). If the specialist cannot execute any of the
orders upon receipt, then none can be displayed or booked as doing so
could result in the approximate simultaneous execution of more than one
component order, in direct contravention of the primary order
condition.
Hedge Orders (Phlx Rule 1066(f)) and Synthetic Options (Phlx Rule
1066(g)): Hedge orders (e.g., spreads, straddles, and combination
orders) and synthetic options are orders that specify instructions to
trade more than one options series or product as a package, typically
(with respect to hedge orders) at a specified net debit or credit, as
opposed to a specific limit price for each leg involved. Therefore,
there is no specified limit price for each series involved to display
in the quotes. Moreover, the Options Price Reporting Authority
(``OPRA'') does not accept complex order quotes at net prices.
Therefore, these orders would not be displayed. Each component of these
complex orders is, in essence, itself contingent on the ability to
execute the other components of the order. Since there is no guarantee
that all components will become executable at the same time, if at all,
the immediate display of all components could result in the execution
of less than all components of the order.
Immediate or Cancel Orders: An immediate or cancel order is a
market or limit order which is to be executed in whole or in part as
soon as such order is represented in the trading crowd. Any portion not
executed is to be cancelled, which means it cannot be displayed. An
immediate or cancel order shares most of the same characteristics of an
all-or-none order, which is exempt from the Commission's Display
Rule.\16\ Given the similarity between these order types, the Exchange
believes that immediate or cancel orders should also be exempt from the
requirements of the Exchange's limit order display rule.
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\16\ See supra note 15 and accompanying text.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act \17\ in general, and furthers the objectives of section
6(b)(5) of the Act \18\ in particular, in that it is designed to
promote just and equitable principles of trade, remove impediments to
and perfect the mechanisms of a free and open market and a national
market system, and to protect investors and the public interest, by
establishing rules requiring the immediate automated display of limit
orders on the Exchange, and by requiring ROTs and Floor Brokers to
place limit orders on the book electronically, which should enhance
transparency on the Exchange and should enhance the Exchange's ability
to provide an electronic audit trail respecting the immediate display
of limit orders.
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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether they are
consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2004-73 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-Phlx-2004-73. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-Phlx-2004-73 and should be submitted on or before
February 18, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
\19\ and, in particular, the requirements of section 6(b)(5) of the
Act,\20\ which requires, among other
[[Page 4184]]
things, that the rules of an exchange be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. Specifically, the Commission believes that the
immediate display of customer options limit orders that improve the
price or size of the best disseminated Phlx quote should promote
transparency and enhance the quality of executions of customer limit
orders on the Phlx.
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\19\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
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The proposed amendments to Phlx rules introduce requirements for
limit order display that are comparable to the requirements of the
Commission's Display Rule, Rule 11Ac1-4 under the Act,\21\ which is
applicable to customer limit orders received in the equity market. The
Exchange has represented that immediate display of limit orders by the
AUTOM system means that eligible limit orders will be displayed
automatically and instantaneously, as soon as the order is received on
the Exchange. Proposed commentaries .02(b) to Phlx Rule 1080, .18 to
Phlx Rule 1014, and .01 to Phlx Rule 1063 provide that the only way
limit orders may be sent to the Exchange will be electronically via
AUTOM, either by an ROT via electronic interface with AUTOM, by a Floor
Broker via the Options Floor Broker Management System component of
AUTOM, or by off-floor broker-dealers who transmit orders via AUTOM.
Thus, under Phlx's system, all limit orders subject to display must be
delivered electronically to the Exchange, and would then be displayed
automatically and instantaneously.
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\21\ 17 CFR 249,11Ac1-4.
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The Commission believes that the Exchange's proposal to exempt all-
or-none and immediate or cancel orders from the Phlx's limit order
display rule is reasonable since these order types are either identical
or substantially similar to order types exempt from the Commission's
Display Rule.
The Commission also believes that it is consistent with the Act for
the Phlx to exempt from the limit order display requirements under its
rules stop-limit and stop or stop-loss orders. These orders are
contingent orders that are subject to a particular triggering event
and, thus, are not available for execution until the triggering event
occurs. A stop-loss order becomes a market order when triggered and
thus is not subject to the Phlx's limit order display rule because such
an order would then be immediately executable. A stop-limit order
becomes a limit order when the triggering event occurs. This limit
order would be subject to display under the Phlx's rules.
Cancel-replacement orders may be reduced in size if the order
intended to be cancelled and replaced has already been filled partially
or in its entirety. Thus, a cancel-replacement order would not be
immediately displayed, but would be subject to display only after any
necessary adjustments were made as a result of the contingency.
Market-on-close orders may not be represented, displayed or booked
until as near as possible to the close of trading, and, therefore, the
Commission believes it is reasonable to exempt such orders from the
Phlx's limit order display rule. Hedge orders (e.g., spread, straddle,
and combination orders), synthetic options and one-cancels-the-other
orders are complex orders with more than one component and, thus are
not suitable for display.
In addition, during a trading rotation, Phlx systems attempt to set
an opening price for the series. Until that opening price is
established, there is no disseminated market. Therefore, it is
reasonable to exempt orders received during a trading rotation from the
Exchange's limit order display rule. The Commission notes, however,
that once the trading rotation ends, any orders not executed would then
be subject to display.
Finally, the Exchange proposes to exempt from its limit order
display rule customer limit orders for which, immediately upon receipt,
a related order for the principal account of the specialist, reflecting
the terms of the customer order, is routed to another options exchange.
The Commission believes it is reasonable to exempt such orders since
they are subject to execution upon receipt at the other options
exchange. Moreover, the Exchange represents that if the order delivered
to the other options exchange were canceled, in whole or in part, by
the other exchange, then, immediately upon receipt of the cancellation
notice, the original customer order would be subject to the Exchange's
limit order display rule and automatically displayed.\22\
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\22\ Telephone conversation between Richard S. Rudolph, Director
and Counsel, Phlx, and Nathan Saunders, Attorney, Division,
Commission, January 14, 2005.
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the proposal is published in
the Federal Register, pursuant to Section 19(b)(2) of the Act.\23\ The
Commission notes that the proposed rule change, which provides for
immediate display of limit orders that better the Exchange's
disseminated quote, is substantially identical to the proposals filed
by the Chicago Board Options Exchange (``CBOE'') \24\ and the American
Stock Exchange (``Amex''),\25\ although the form of Phlx's proposed
rule differs slightly.\26\ Phlx also proposes several exemptions to its
limit order display rule. The Commission notes that these exemptions,
discussed above, are substantially identical to exemptions proposed by
CBOE and Amex in their options limit order display proposals. The Amex
and CBOE proposals were recently noticed for full 21-day comment
periods.\27\ No comments were received on the CBOE or Amex proposal.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(2).
\24\ See Securities Exchange Act Release No. 49916 (June 25,
2004), 69 FR 40422 (July 2, 2004) (SR-CBOE-2004-35).
\25\ See Securities Exchange Act Release No. 50188 (August 12,
2004), 69 FR 51495 (August 19, 2004) (SR-Amex-00-27).
\26\ CBOE and Amex seek to place an affirmative display
obligation on their Designated Primary Market-makers and Specialists
respectively, whereas Phlx's proposed rule provides for automatic
display via the AUTOM system.
\27\ See supra notes 24 and 25.
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Accelerated approval of the proposed rule change will permit the
Exchange to implement the proposal in an expeditious manner, i.e.,
simultaneously with the implementation of the similar proposals by
CBOE, Amex and the Pacific Exchange, Inc. (``PCX''), which we also
approve today.\28\ The Commission, therefore, believes that good cause
exists, consistent with section 6(b)(5) \29\ and section 19(b) \30\ of
the Act, to accelerate approval of the proposed rule change.
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\28\ See Securities Exchange Act Release Nos. 51063 (January 21,
2005) (order approving SR-CBOE-2004-35); 51062 (January 21, 2005)
(order approving SR-Amex-00-27); and 51061 (January 21, 2005) (order
approving SR-PCX-00-15).
\29\ 15 U.S.C. 78f(b)(5).
\30\ 15 U.S.C. 78s(b).
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V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\31\ that the proposed rule change, as amended (File No. SR-Phlx-
2004-73), be approved on an accelerated basis.
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\31\ Id.
[[Page 4185]]
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-324 Filed 1-27-05; 8:45 am]
BILLING CODE 8010-01-P
