Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Extension of a Pilot Limiting Trade-Through Liability at the End of the Options Trading Session, 6492-6493 [E5-467]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6492-6493]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-467]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51114; File No. SR-Phlx-2005-07]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to the Extension of a Pilot 
Limiting Trade-Through Liability at the End of the Options Trading 
Session

January 31, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 27, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. On January 
28, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange has filed the proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the 
Act,\4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission.\6\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated January 28, 2005 (``Amendment No. 1''). 
In Amendment No. 1, the Exchange made technical corrections to the 
rule text included in the original rule filing. Amendment No. 1 
replaced the original filing it its entirety.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ The Phlx asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend proposes to amend Exchange Rule 
1085(a)(2)(ii)(B), Order Protection, to correspond to the extension of 
the current pilot (``pilot'') under the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage 
Plan''),\7\ which limits Trade-Through \8\ liability at the end of the 
options trading session, until January 31, 2006. The extended pilot 
would increase the limit on liability at the end of the trading session 
from 25 contracts to 50 contracts per Satisfaction Order.\9\ The text 
of the proposed rule change is available on the Phlx Web site (https://
www.phlx.com), at the Phlx's Office of the Secretary, and at the 
Commission's Public Reference Room.
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    \7\ See Securities Exchange Act Release Nos. 44482 (June 27, 
2001), 66 FR 35470 (July 5, 2001) (Amendment to Linkage Plan to 
Conform to the Requirements of Securities Exchange Act Rule 11Ac1-
7); 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000) 
(Approval of Phlx Joining the Linkage Plan); and 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000) (Order approving the Linkage 
Plan).
    \8\ ``Trade-Through'' means a transaction in an options series 
at a price that is inferior to the NBBO. See Exchange Rule 1083(t).
    \9\ A ``Satisfaction Order,'' is an order sent through the 
Linkage to notify a member of another Participant Exchange of a 
Trade-Through and to seek satisfaction of the liability arising from 
that Trade-Through. See Exchange Rule 1083(k)(iii).
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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 and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 is to extend the pilot 
contained in Exchange Rule 1085(a)(2)(ii)(B), which limits trade-
through liability at the end of the options trading session. Currently 
under the pilot, an Exchange member's trade-through liability is 
limited to 25 contracts per Satisfaction Order received during the 
period between five minutes prior to the close of trading in the 
underlying security and the close of trading in the options class. The 
Commission temporarily approved the pilot on January 31, 2003,\10\ 
followed by approval on June 18, 2003.\11\ The Commission then granted 
an extension of the pilot until June 30, 2004 \12\ and then until 
January 31, 2005.\13\
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    \10\ See Securities Exchange Act Release No. 47298 (January 31, 
2003), 68 FR 6524 (February 7, 2003) (Temporary effectiveness of 
pilot program on a 120-day basis).
    \11\ See Securities Exchange Act Release No. 48055 (June 18, 
2003), 68 FR 37869 (June 25, 2003) (Order approving Joint Amendment 
No. 4).
    \12\ See Securities Exchange Act Release No. 49146 (January 29, 
2004), 69 FR 5618 (February 5, 2004) (Order approving Joint 
Amendment No. 8).
    \13\ See Securities Exchange Act Release No. 49863 (June 15, 
2004), 69 FR 35081 (June 23, 2004) ) (Order approving Joint 
Amendment No. 12). This extension increased the maximum liability 
from 10 to 25 contracts.
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    The Exchange proposes to extend the pilot for an additional year, 
until January 31, 2006. In addition, the Exchange proposes to increase 
the limit on trade-through liability from 25 contracts to 50 contracts 
per Satisfaction Order received during the period between five minutes 
prior to the close of trading in the underlying security and the close 
of trading in the options class. This increase in the limit on 
liability would be effective on February 1, 2005, after the current 
pilot expires.
    As a condition to granting permanent approval of this limitation, 
the Commission required that the options exchanges participating in the 
Linkage Plan (``Participants'') provide the Commission with a report 
(``Report'') regarding data on the use of the exemption no later than 
60 days before seeking permanent approval. The Participants have 
provided the Commission with certain information required in the 
Report, and continue to discuss with Commission staff what additional 
information the staff may need to evaluate possible permanent approval 
of the trade-through limitation. This extension of the pilot would 
allow the limitation to continue in effect, as amended, while the 
Commission staff and the Participants continue to discuss permanent 
approval.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \14\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \15\ in particular, in 
that the proposed rule change is designed to perfect the mechanisms of 
a free and open market and a national market system, protect investors 
and the public interest, and promote just and equitable principles of 
trade by extending the pilot limiting trade-through liability during 
the period between five minutes prior to the close of trading in the 
underlying security and the close of trading in the options class until 
January 31, 2006, and by

[[Page 6493]]

increasing the limit on trade-through liability from 25 contracts to 50 
contracts per Satisfaction Order received during the same period.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\18\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the five-day pre-filing requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change immediately operative.
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    \18\ Id.
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\19\ By waiving the 
pre-filing requirement and accelerating the operative date, the Pilot 
Program can continue without interruption. The Commission believes that 
allowing the pilot to continue will allow Participants to either gather 
sufficient information to justify the need for the pilot program or 
determine that the exemption from trade-through liability is no longer 
necessary. Increasing the maximum number of contracts to be satisfied 
with respect to Satisfaction Orders in the last seven minutes of 
trading in options to 50 contracts will enhance customer order 
protection.
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    \19\ For purposes of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\20\
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    \20\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on January 28, 2005, the date the Exchange filed 
Amendment No. 1 to the proposed rule change. See 15 U.S.C. 
78s(c)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is 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-2005-07 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-2005-07. 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 the 
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 SR-Phlx-2005-07 and should be submitted on or before January 28, 
2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-467 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P