Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 Thereto To Establish a Directed Order Process for Orders Delivered to the Phlx Via AUTOM, 32860-32863 [E5-2871]
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32860
Federal Register / Vol. 70, No. 107 / Monday, June 6, 2005 / Notices
will relay the information to the issuer
insurance company and will also
provide a means of communicating to
the ACAT Service whether the
insurance company has confirmed,
rejected, or requested a modification of
the change. NSCC will not debit or
credit a delivering or receiving brokerdealer for the value of any applicable
insurance product that is part of a
customer account transfer.
In order for the receiving and
delivering broker-dealers and the issuer
insurance company to be able to effect
an account change through the ACAT
Service, the insurance company must
participate in IPS, the receiving brokerdealer must participate in the ACAT
Service and IPS, and the delivering
broker-dealer must participate in the
ACAT Service.
NSCC is also making certain technical
changes to Rule 50, which governs the
ACAT Service. For purposes of bringing
efficiencies to the financial marketplace,
NSCC’s Rule 50 will cover all asset
types regardless of whether NSCC has
the operational capability to effect the
transfer of such assets. NSCC either will
undertake to cause the asset transfer or
asset reregistration to occur or will issue
a document evidencing each delivering
firm’s obligation and each receiving
firm’s entitlement that will result from
the transfer. Such instructions,
regardless of their form, are commonly
referred to as receive and deliver
instructions. NSCC is adding a
definition, ‘‘ACAT Receive and Deliver
Instruction,’’ 3 relating to these
instructions. NSCC also is making
certain technical changes to the ACATS
rule.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions.4
The Commission finds that NCCC’s
proposed rule change is consistent with
this requirement because by automating
and facilitating the change in brokerdealer of record for eligible insurance
products associated with account
transfers, the enhancements to the
ACAT Service and the new IFT product
should reduce processing errors and
3 As
defined in NSCC Rule 1:
The term ‘‘ACAT Receive and Deliver
Instruction’’ shall mean such document, form, file,
report or other information issued by the
Corporation [NSCC] to a Member or to a QSD (as
defined in Rule 50), on behalf of such QSD’s
participants, which identifies Automated Customer
Account Transfer receive and deliver obligations.
4 15 U.S.C. 78q–1(b)(3)(F).
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delays that are typically associated with
manual processing.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular Section 17A of the Act and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
NSCC–2005–02) be and hereby is
approved.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.5
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2873 Filed 6–3–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51759; File No. SR–Phlx–
2004–91]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Order Approving Proposed Rule
Change and Notice of Filing and Order
Granting Accelerated Approval to
Amendment No. 1 Thereto To Establish
a Directed Order Process for Orders
Delivered to the Phlx Via AUTOM
May 27, 2005.
I. Introduction
On December 9, 2004, the
Philadelphia Stock Exchange, Inc.
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to
establish a directed order process for
orders delivered to the Exchange via the
Automated Options Market
(‘‘AUTOM’’). The proposed rule change
was published for comment in the
Federal Register on December 22,
2004.3 The Commission received three
comment letters on the proposal.4 On
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 50856
(December 14, 2004), 69 FR 76817.
4 See letter from Michael J. Simon, General
Counsel and Secretary, International Securities
Exchange, Inc. (‘‘ISE’’), to Jonathan G. Katz,
Secretary, Commission, dated January 13, 2005
(‘‘ISE Letter’’); letter from Philip D. DeFeo,
Chairman and Chief Executive Officer, Pacific
Exchange, Inc. (‘‘PCX’’), to Jonathan G. Katz,
Secretary, Commission, dated March 22, 2005
PO 00000
5 17
1 15
Frm 00118
Fmt 4703
Sfmt 4703
January 18, 2005, the Phlx sent a
response to the comment letters.5
On April 27, 2005, the Phlx filed
Amendment No. 1 to the proposed rule
change.6 This order approves the
proposed rule change and
simultaneously provides notice of filing
and grants accelerated approval of
Amendment No. 1.
II. Description of the Proposed Rule
Change
The Phlx proposes to establish, for a
one-year pilot period, rules that permit
Exchange specialists, Streaming Quote
Traders (‘‘SQTs’’), and Remote
Streaming Quote Traders (‘‘RSQTs’’)
assigned in options trading on the Phlx
XL system (‘‘Streaming Quote Options’’)
to receive directed orders. The Phlx
proposes to define the term ‘‘Directed
Order’’ to mean any customer order to
buy or sell that has been directed to a
particular specialist, SQT, or RSQT by
an Order Flow Provider (‘‘OFP’’).7 The
Phlx also proposes to establish a trade
algorithm for electronically executed
and allocated trades involving Directed
Orders, which would provide a
participation guarantee to the Directed
Specialist, SQT, or RSQT (collectively
‘‘Phlx directed participants’’).
To qualify as a Directed Order, an
order must be delivered to the Exchange
via AUTOM. AUTOM currently
functions to provide automatic
executions in Streaming Quote Options
only when the Exchange’s disseminated
bid or offer is the National Best Bid or
Offer (‘‘NBBO’’). Therefore, to
participate in automatic executions of
Directed Orders, Phlx directed
participants would be required to be
quoting the NBBO at the time the
Directed Order is received.
Currently, an SQT or RSQT must
quote continuous, two-sided markets in
not less than 60% of the series in each
Streaming Quote Option traded on Phlx
XL in which such SQT or RSQT is
assigned. A specialist must quote
(‘‘PCX Letter’’); and letter from Matthew Hinerfeld,
Managing Director and Deputy General Counsel,
Citadel Investment Group, L.L.C., on behalf of
Citadel Derivatives Group LLC (‘‘Citadel’’), to
Jonathan G. Katz, Secretary, Commission, dated
April 6, 2005 (‘‘Citadel Letter’’).
5 See letter from Richard S. Rudolph, Director and
Counsel, Phlx, to Jonathan G. Katz, Secretary,
Commission, dated January 18, 2005 (‘‘Phlx
Letter’’).
6 Amendment No. 1 added language to clarify the
application of the allocation algorithm and to note
that Phlx Rule 707, Just and Equitable Principles of
Trade, would prohibit coordinated actions between
a Phlx directed participant and an OFP involving
Directed Orders.
7 The term Order Flow Provider under proposed
Phlx Rule 1080(l)(i)(B) would mean any member or
member organization that submits, as agent,
customer orders to the Exchange.
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continuous, two-sided markets in not
less than 100% of the series in each
Streaming Quote Option in which such
specialist is assigned.8 Under the
proposal, like specialists, Directed SQTs
or RSQTs would be required to quote
continuous, two-sided markets in not
less than 100% of the series in each
Streaming Quote Option in which they
receive Directed Orders.
Directed Orders would first be
allocated to customer limit orders
resting on the limit order book at the
execution price. Any remaining
contracts would be allocated as follows:
• If the specialist were directed an
order, it would be allocated a number of
contracts that is the greater of: (1) Its
size pro rata share; (2) the Enhanced
Specialist Participation; 9 or (3) 40% of
the contracts to be allocated.
• If an SQT or RSQT were directed an
order, it would be allocated a number of
contracts that is the greater of: (1) Its
size pro rata share; or (2) 40% of the
contracts to be allocated.
• After a specialist, SQT, or RSQT is
allocated contracts, other market makers
quoting at the disseminated price, and
non-SQT Registered Options Traders
(‘‘ROTs’’) that have placed limit orders
on the limit order book via electronic
interface would be allocated their size
pro rata of the remaining contracts.
• If any contracts still remain, offfloor broker-dealers that have placed
limit orders on the limit order book that
represent the Exchange’s disseminated
price would be allocated contracts on a
size pro rata basis.
• Finally, if the Directed Order is for
a size that is greater than the Exchange’s
disseminated size, remaining contracts
would be allocated manually in
accordance with Phlx Rule 1014(g)(v),
which sets forth the rules and contract
allocation algorithm for trades that are
executed in the trading crowd. A market
maker directed an order would not be
entitled to receive a number of contracts
that is greater than the size associated
with its quotation, nor would a ROT or
off-floor broker-dealer be entitled to
receive a number of contracts that is
greater than the size associated with its
limit order.
The allocation algorithm would apply
to Directed Orders in lieu of the current
allocation algorithm applicable to orders
other than Directed Orders contained in
Exchange Rule 1014(g)(vii). Specialists
that are not Directed Specialists
participating in trades involving a
Directed SQT or a Directed RSQT would
be entitled to receive a number of
contracts as specified in proposed rule
8 See
9 See
Phlx Rule 1014(b)(ii)(B).
Phlx Rule 1014(g)(ii).
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1014(g)(viii), and would not be entitled
to receive an Enhanced Specialist
Participation on the remaining
contracts.
III. Discussion and Commission
Findings
The Commission has reviewed
carefully the proposed rule change,
comment letters, and the Phlx’s
response and finds that the proposed
rule change is consistent with the
requirements of section 6 of the Act 10
and the rules and regulations
thereunder applicable to a national
securities exchange 11 and, in particular,
the requirements of Section 6(b)(5) of
the Act.12 section 6(b)(5) requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, 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.
The Commission received three
comment letters regarding the proposal,
all of which opposed the proposal.13
The commenters criticized the proposal
because they believe it would allow a
Phlx directed participant a guarantee
based solely on its relationships with
order entry firms rather than on such
Phlx directed participant’s
obligations.14 The commenters assert
that the proposal would reward a Phlx
directed participant for its payment for
order flow arrangements rather than the
quality of its quotes, and therefore the
proposal would have a negative impact
on price competition.15 In addition, two
commenters note that the proposal
would not limit the allocation
entitlement to specialists, but extend it
to SQTs and RSQTs, which have fewer
obligations to the market.16 Two
commenters also believed that the
proposal did not address the possibility
U.S.C. 78f.
approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
12 15 U.S.C. 78f(b)(5).
13 See supra note 4.
14 See, e.g., ISE Letter, supra note 4 at 1–2; PCX
Letter, supra note 4 at 1–2; Citadel Letter, supra
note 4 at 2.
15 Id.
16 ISE Letter (‘‘The Phlx proposal is not limited
to specialist[s], and the Phlx does not attempt to
justify this proposal other than as a way to reward
market makers that attract order-flow to the Phlx.’’),
supra note 4 at 1, 3–4; Citadel Letter, supra note
4 at 2.
PO 00000
32861
of coordinated actions between a
directed market maker and an OFP.17
The Commission has previously
approved rules that guarantee a Phlx
specialist a portion of each order when
the specialist’s quote is equal to the
NBBO.18 The Commission has closely
scrutinized exchange rule proposals to
adopt or amend a specialist guarantee
where the percentage of specialist
participation would rise to a level that
could have a material adverse impact on
quote competition within a particular
exchange.19 Because the proposal would
not increase the overall percentage of an
order that is guaranteed to the specialist
beyond the currently acceptable
threshold, but instead would allow
SQTs and RSQTs to share in that
guarantee, the Commission does not
believe that the proposal will negatively
impact quote competition on the Phlx.
Under the proposal, the remaining
portion of each order will still be
allocated based on the competitive
bidding of market participants.
In addition, a Phlx directed
participant will have to be quoting at
the NBBO at the time the order is
received to capitalize on the guarantee.
The Commission believes it is critical
that the Phlx directed participant cannot
step up and match the NBBO after it
receives an order, but must be publicly
quoting at that price when the order is
received. In this regard, the Phlx’s
proposal prohibits from notifying a Phlx
directed participant regarding its
intention to submit a Directed Order so
that such Phlx directed participant
could change its quotation to match the
NBBO immediately prior to submission
of the preferenced order, and then fade
its quote. In response to commenters’
concerns that its proposal failed to
protect against coordinated actions
between a Phlx directed participant and
an OFP, the Phlx stated it believes its
Rule 707, Just and Equitable Principles
of Trade, already provides the necessary
protections against that type of conduct,
and will proactively conduct
surveillance for, and enforce against,
such violations.20
10 15
11 In
Frm 00119
Fmt 4703
Sfmt 4703
17 ISE Letter, supra note 4 at 3; PCX Letter, supra
note 4 at 2.
18 See Securities Exchange Act Release No. 34606
(August 26, 1994), 59 FR 45741 (September 2, 1994)
(SR–Phlx–94–12) (order approving the enhanced
specialist participation in Phlx Rule 1014(g)(ii) for
a one-year pilot basis); see Securities Exchange Act
Release No. 41588 (July 1, 1999), 64 FR 37185 (July
9, 1999) (SR–Phlx–98–56) (order approving the
enhanced specialist participation in Phlx Rule
1014(g)(ii) on a permanent basis).
19 See Securities Exchange Act Release No. 43100
(July 31, 2000), 65 FR 48788 (August 9, 2000).
20 See Amendment No. 1; letter from Edith
Hallahan, Deputy General Counsel, and Edward
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Federal Register / Vol. 70, No. 107 / Monday, June 6, 2005 / Notices
One commenter states that specialists
currently receive participation
entitlements based on their obligations
to the market. The commenter believes
that the proposal, by allowing any
directed market maker quoting at the
NBBO to receive a guaranteed
percentage of an order without in turn
increasing the market maker’s
obligations to the market, would
‘‘eliminate the incentive to be a
specialist, thereby potentially leaving
the obligations of the specialist to the
market unfulfilled.’’ 21 The Commission
does not believe that the proposal will
result in the role of the specialist going
unfulfilled, and notes that it recently
approved an options exchange without
specialists.22 Moreover, specialists’
obligations to the market have been
reduced through other changes,
including greater automation of
functions previously handled manually
by the specialist. While this proposal
may reduce the incentive to be a
specialist, the Commission does not
believe that makes the proposal
inconsistent with the Act. Finally, the
Commission notes that Phlx specialists
and Directed SQTs and RSQTs have
greater quoting obligations than other
Phlx market makers who cannot be Phlx
directed participants. Specifically, Phlx
specialists must submit continuous,
two-sided quotations in 100% of the
series of options in which it is
assigned,23 and a Directed SQTs or
RSQTs must submit continuous, twosided quotations in 100% of the series
of options in which it receives Directed
Orders. To receive an allocation under
this rule filing, the Phlx directed
participant must be quoting at the
NBBO for the size of the allocation
received.
Two commenters believe that the
proposal is similar to facilitation
guarantees and other directed order
programs approved by the
Commission.24 However, unlike those
programs, the commenters criticize that
the instant proposal does not include
certain protections for customers, such
as providing the opportunity for price
Deitzel, Vice President, Phlx, to John Roeser,
Assistant Director, Division of Market Regulation,
Commission, dated May 26, 2005.
21 Citadel Letter, supra note 4 at 2.
22 See Securities Exchange Act Release No. 49068
(January 13, 2004), 69 FR 2775 (January 20, 2004)
(SR–BSE–2002–15) (order approving trading rules
for the Boston Options Exchange Facility).
23 See Phlx Rule 1014(b)(ii)(B).
24 ISE Letter (‘‘There is no distinction between a
broker ‘facilitating’ an order and a broker directing
an order to a particular market maker for execution.
* * *’’), supra note 4 at 3–4; PCX Letter, supra note
4 at 2.
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improvement, or limiting the program to
a minimum number of contracts.25
The Commission believes that the
proposal is more akin to current
participation entitlements, for
specialists, than the facilitation
guarantee programs and other directed
order programs cited by the
commenters. Unlike exchange
facilitation guarantee programs,26 under
the proposal, the Phlx directed
participant would not be eligible for a
participation entitlement unless it is
publicly quoting at the NBBO at the
time an order is received. Instead of
changing its facilitation program rules,
this proposal allows Phlx directed
participants to share in the participation
entitlement currently available only for
specialists. The Commission believes
this reallocation is consistent with the
Act and will not affect the incentives of
the trading crowd to compete
aggressively for orders based on price.
The Commission emphasizes that
approval of this proposal does not affect
a broker-dealer’s duty of best execution.
A broker-dealer has a legal duty to seek
to obtain best execution of customer
orders, and any decision to preference a
particular specialist, SQT, or RSQT
must be consistent with this duty.27 A
broker-dealer’s duty of best execution
derives from common law agency
principles and fiduciary obligations,
and is incorporated in SRO rules and,
through judicial and Commission
decisions, the antifraud provisions of
the federal securities laws.28
25 ISE Letter, supra note 4 at 3–4; PCX Letter,
supra note 4 at 2.
26 See CBOE Rule 6.74(d); ISE Rule 716(d); Pacific
Exchange, Inc. Rule 6.47(b); American Stock
Exchange, Inc. Rule 950(d), Commentary .02(d); and
Philadelphia Stock Exchange, Inc. Rule 1064,
Commentary .02.
27 27 See, e.g., Newton v. Merrill, Lynch, Pierce,
Fenner & Smith, Inc., 135 F.3d 266, 269–70, 274 (3d
Cir.), cert. denied, 525 U.S. 811 (1998); Certain
Market Making Activities on Nasdaq, Securities
Exchange Act Release No. 40900 (Jan. 11, 1999)
(settled case) (citing Sinclair v. SEC, 444 F.2d 399
(2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636
(1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969
(D.C. Cir. 1949)). See also Order Execution
Obligations, Securities Exchange Act Release No.
37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12,
1996) (‘‘Order Handling Rules Release’’).
28 Order Handling Rules Release, 61 FR at 48322.
See also Newton, 135 F.3d at 270. Failure to satisfy
the duty of best execution can constitute fraud
because a broker-dealer, in agreeing to execute a
customer’s order, makes an implied representation
that it will execute it in a manner that maximizes
the customer’s economic gain in the transaction.
See Newton, 135 F.3d at 273 (‘‘[T]he basis for the
duty of best execution is the mutual understanding
that the client is engaging in the trade—and
retaining the services of the broker as his agent—
solely for the purpose of maximizing his own
economic benefit, and that the broker receives her
compensation because she assists the client in
reaching that goal.’’); Marc N. Geman, Securities
Exchange Act Release No. 43963 (Feb. 14, 2001)
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
The duty of best execution requires
broker-dealers to execute customers’
trades at the most favorable terms
reasonably available under the
circumstances, i.e., at the best
reasonably available price.29 The duty
of best execution requires broker-dealers
to periodically assess the quality of
competing markets to assure that order
flow is directed to the markets
providing the most beneficial terms for
their customer orders.30 Broker-dealers
must examine their procedures for
seeking to obtain best execution in light
of market and technology changes and
modify those practices if necessary to
enable their customers to obtain the best
reasonably available prices.31 In doing
so, broker-dealers must take into
account price improvement
opportunities, and whether different
markets may be more suitable for
different types of orders or particular
securities.32
(citing Newton, but concluding that respondent
fulfilled his duty of best execution). See also
Payment for Order Flow, Securities Exchange Act
Release No. 34902 (Oct. 27, 1994), 59 FR 55006,
55009 (Nov. 2, 1994) (‘‘Payment for Order Flow
Final Rules’’). If the broker-dealer intends not to act
in a manner that maximizes the customer’s benefit
when he accepts the order and does not disclose
this to the customer, the broker-dealer’s implied
representation is false. See Newton, 135 F.3d at
273–274.
29 Newton, 135 F.3d at 270. Newton also noted
certain factors relevant to best execution—order
size, trading characteristics of the security, speed of
execution, clearing costs, and the cost and difficulty
of executing an order in a particular market. Id. at
270 n. 2 (citing Payment for Order Flow, Securities
Exchange Act Release No. 33026 (Oct. 6, 1993), 58
FR 52934, 52937–38 (Oct. 13, 1993) (Proposed
Rules)). See In re E.F. Hutton & Co. (‘‘Manning’’),
Securities Exchange Act Release No. 25887 (July 6,
1988). See also Payment for Order Flow Final Rules,
59 FR at 55008–55009.
30 Order Handling Rules Release, 61 FR at 48322–
48333 (‘‘In conducting the requisite evaluation of its
internal order handling procedures, a broker-dealer
must regularly and rigorously examine execution
quality likely to be obtained from different markets
or market makers trading a security.’’). See also
Newton, 135 F.3d at 271; Market 2000: An
Examination of Current Equity Market
Developments V–4 (SEC Division of Market
Regulation January 1994) (‘‘Without specific
instructions from a customer, however, a brokerdealer should periodically assess the quality of
competing markets to ensure that its order flow is
directed to markets providing the most
advantageous terms for the customer’s order.’’);
Payment for Order Flow Final Rules, 59 FR at
55009.
31 Order Handling Rules, 61 FR at 48323.
32 Order Handling Rules, 61 FR at 48323. For
example, in connection with orders that are to be
executed at a market opening price, ‘‘[b]rokerdealers are subject to a best execution duty in
executing customer orders at the opening, and
should take into account the alternative methods in
determining how to obtain best execution for their
customer orders.’’ Disclosure of Order Execution
and Routing Practices, Securities Exchange Act
Release No. 43590 (Nov. 17, 2000), 65 FR 75414,
75422 (Dec. 1, 2000) (adopting new Exchange Act
Rules 11Ac1–5 and 11Ac1–6 and noting that
alternative methods offered by some Nasdaq market
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Federal Register / Vol. 70, No. 107 / Monday, June 6, 2005 / Notices
The Commission notes that the
proposed rule change would be
implemented on a pilot basis for one
year. During this time, the Commission
intends to evaluate the impact of the
proposal on the options markets to
determine whether it would be
beneficial to customers and to the
options markets as a whole before
approving any request for permanent
approval of the pilot program.
For these reasons, the Commission
believes that the proposal is consistent
with the requirements of Section 6(b)(5)
of the Act,33 and will not jeopardize
market integrity or the incentive for
market participants to post competitive
quotes.34
IV. Accelerated Approval of
Amendment No. 1
Pursuant to Section 19(b)(2) of the
Act,35 the Commission may not approve
any proposed rule change, or
amendment thereto, prior to the 30th
day after the date of publication of
notice of the filing thereof, unless the
Commission finds good cause for so
doing and publishes its reasons for so
finding. The Commission hereby finds
good cause for approving Amendment
No. 1 to the proposal, prior to the 30th
day after publishing notice of
Amendment No. 1 in the Federal
Register.
The Commission believes that it has
received and fully considered
meaningful comments with respect to
the proposal, and that Amendment No.
1 does not raise any new regulatory
issues that warrant further delay. In
Amendment No. 1, the Exchange added
language to clarify the application of the
allocation algorithm. In addition,
Amendment No. 1 added language to
note that Phlx Rule 707, Just and
Equitable Principles of Trade, prohibits
coordinated actions between the Phlx
directed participant and the OFP
involving Directed Orders. The
Commission believes that the addition
of the language is appropriate to clarify
the proposed Directed Order process.
V. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
centers for pre-open orders included the mid-point
of the spread or at the bid or offer).
33 15 U.S.C. 78f(b)(5).
34 Approval of this proposal is in no way an
endorsement of payment for order flow by the
Commission.
35 15 U.S.C. 78s(b)(2).
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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–2004–91 on the
subject line.
• 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–2004–91. 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
Section, 450 Fifth Street, NW.,
Washington, DC 20549. 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
publicly available. All submissions
should refer to File Number SR–Phlx–
2004–91 and should be submitted on or
before June 27, 2005.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,36 that the
proposed rule change (SR–Phlx–2004–
91) be, and hereby is, approved, and
that Amendment No. 1 to the proposed
rule change be, and hereby is, approved
on an accelerated basis, for a pilot
period to expire on May 27, 2006.
PO 00000
U.S.C. 78s(b)(2).
Frm 00121
Fmt 4703
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.37
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2871 Filed 6–3–05; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF VETERANS
AFFAIRS
Paper Comments
36 15
32863
Fund Availability Under the VA
Homeless Providers Grant and Per
Diem Program
ACTION:
SUMMARY: The Department of Veterans
Affairs (VA) is announcing the
availability of funds for currently
operational VA Per Diem Only
Recipients (projects that were originally
awarded in 2002, 2003, and 2004 that
are currently providing services and
receiving per diem payments as of May
15, 2005) to make reapplication for
assistance for their existing project
number under the Per Diem Only Grant
Component of VA’s Homeless Providers
Grant and Per Diem (GPD) Program. The
focus of this Notice of Funds
Availability (NOFA) is to provide
previous recipients that have
demonstrated performance in the
delivery of services to the homeless
veteran population an opportunity to
seek re-application. This Notice
contains information concerning the
program, re-application process, and the
amount of funding available.
DATES: An original request for reapplication letter, on agency letterhead
for assistance under the VA’s Homeless
Providers Grant and Per Diem Program,
must be received in the Grant and Per
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Time on October 5, 2005. Requests for
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fairness to all competing applicants, this
deadline is firm as to date and hour, and
VA will treat as ineligible for
consideration any request for reapplication that is received after the
deadline. Applicants should take this
practice into account and make early
submission of their material to avoid
any risk of loss of eligibility brought
about by unanticipated delays or other
delivery-related problems.
For a Copy of the Application
Package: An application package is not
needed for this NOFA. Applicants
submitting a letter requesting reapplication on their agency’s letterhead
37 17
Sfmt 4703
Department of Veterans Affairs.
Notice.
AGENCY:
E:\FR\FM\06JNN1.SGM
CFR 200.30–3(a)(12).
06JNN1
Agencies
[Federal Register Volume 70, Number 107 (Monday, June 6, 2005)]
[Notices]
[Pages 32860-32863]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2871]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51759; File No. SR-Phlx-2004-91]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Approving Proposed Rule Change and Notice of Filing and Order
Granting Accelerated Approval to Amendment No. 1 Thereto To Establish a
Directed Order Process for Orders Delivered to the Phlx Via AUTOM
May 27, 2005.
I. Introduction
On December 9, 2004, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ to establish a directed order process for orders
delivered to the Exchange via the Automated Options Market (``AUTOM'').
The proposed rule change was published for comment in the Federal
Register on December 22, 2004.\3\ The Commission received three comment
letters on the proposal.\4\ On January 18, 2005, the Phlx sent a
response to the comment letters.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 50856 (December 14,
2004), 69 FR 76817.
\4\ See letter from Michael J. Simon, General Counsel and
Secretary, International Securities Exchange, Inc. (``ISE''), to
Jonathan G. Katz, Secretary, Commission, dated January 13, 2005
(``ISE Letter''); letter from Philip D. DeFeo, Chairman and Chief
Executive Officer, Pacific Exchange, Inc. (``PCX''), to Jonathan G.
Katz, Secretary, Commission, dated March 22, 2005 (``PCX Letter'');
and letter from Matthew Hinerfeld, Managing Director and Deputy
General Counsel, Citadel Investment Group, L.L.C., on behalf of
Citadel Derivatives Group LLC (``Citadel''), to Jonathan G. Katz,
Secretary, Commission, dated April 6, 2005 (``Citadel Letter'').
\5\ See letter from Richard S. Rudolph, Director and Counsel,
Phlx, to Jonathan G. Katz, Secretary, Commission, dated January 18,
2005 (``Phlx Letter'').
---------------------------------------------------------------------------
On April 27, 2005, the Phlx filed Amendment No. 1 to the proposed
rule change.\6\ This order approves the proposed rule change and
simultaneously provides notice of filing and grants accelerated
approval of Amendment No. 1.
---------------------------------------------------------------------------
\6\ Amendment No. 1 added language to clarify the application of
the allocation algorithm and to note that Phlx Rule 707, Just and
Equitable Principles of Trade, would prohibit coordinated actions
between a Phlx directed participant and an OFP involving Directed
Orders.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Phlx proposes to establish, for a one-year pilot period, rules
that permit Exchange specialists, Streaming Quote Traders (``SQTs''),
and Remote Streaming Quote Traders (``RSQTs'') assigned in options
trading on the Phlx XL system (``Streaming Quote Options'') to receive
directed orders. The Phlx proposes to define the term ``Directed
Order'' to mean any customer order to buy or sell that has been
directed to a particular specialist, SQT, or RSQT by an Order Flow
Provider (``OFP'').\7\ The Phlx also proposes to establish a trade
algorithm for electronically executed and allocated trades involving
Directed Orders, which would provide a participation guarantee to the
Directed Specialist, SQT, or RSQT (collectively ``Phlx directed
participants'').
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\7\ The term Order Flow Provider under proposed Phlx Rule
1080(l)(i)(B) would mean any member or member organization that
submits, as agent, customer orders to the Exchange.
---------------------------------------------------------------------------
To qualify as a Directed Order, an order must be delivered to the
Exchange via AUTOM. AUTOM currently functions to provide automatic
executions in Streaming Quote Options only when the Exchange's
disseminated bid or offer is the National Best Bid or Offer (``NBBO'').
Therefore, to participate in automatic executions of Directed Orders,
Phlx directed participants would be required to be quoting the NBBO at
the time the Directed Order is received.
Currently, an SQT or RSQT must quote continuous, two-sided markets
in not less than 60% of the series in each Streaming Quote Option
traded on Phlx XL in which such SQT or RSQT is assigned. A specialist
must quote
[[Page 32861]]
continuous, two-sided markets in not less than 100% of the series in
each Streaming Quote Option in which such specialist is assigned.\8\
Under the proposal, like specialists, Directed SQTs or RSQTs would be
required to quote continuous, two-sided markets in not less than 100%
of the series in each Streaming Quote Option in which they receive
Directed Orders.
---------------------------------------------------------------------------
\8\ See Phlx Rule 1014(b)(ii)(B).
---------------------------------------------------------------------------
Directed Orders would first be allocated to customer limit orders
resting on the limit order book at the execution price. Any remaining
contracts would be allocated as follows:
If the specialist were directed an order, it would be
allocated a number of contracts that is the greater of: (1) Its size
pro rata share; (2) the Enhanced Specialist Participation; \9\ or (3)
40% of the contracts to be allocated.
---------------------------------------------------------------------------
\9\ See Phlx Rule 1014(g)(ii).
---------------------------------------------------------------------------
If an SQT or RSQT were directed an order, it would be
allocated a number of contracts that is the greater of: (1) Its size
pro rata share; or (2) 40% of the contracts to be allocated.
After a specialist, SQT, or RSQT is allocated contracts,
other market makers quoting at the disseminated price, and non-SQT
Registered Options Traders (``ROTs'') that have placed limit orders on
the limit order book via electronic interface would be allocated their
size pro rata of the remaining contracts.
If any contracts still remain, off-floor broker-dealers
that have placed limit orders on the limit order book that represent
the Exchange's disseminated price would be allocated contracts on a
size pro rata basis.
Finally, if the Directed Order is for a size that is
greater than the Exchange's disseminated size, remaining contracts
would be allocated manually in accordance with Phlx Rule 1014(g)(v),
which sets forth the rules and contract allocation algorithm for trades
that are executed in the trading crowd. A market maker directed an
order would not be entitled to receive a number of contracts that is
greater than the size associated with its quotation, nor would a ROT or
off-floor broker-dealer be entitled to receive a number of contracts
that is greater than the size associated with its limit order.
The allocation algorithm would apply to Directed Orders in lieu of
the current allocation algorithm applicable to orders other than
Directed Orders contained in Exchange Rule 1014(g)(vii). Specialists
that are not Directed Specialists participating in trades involving a
Directed SQT or a Directed RSQT would be entitled to receive a number
of contracts as specified in proposed rule 1014(g)(viii), and would not
be entitled to receive an Enhanced Specialist Participation on the
remaining contracts.
III. Discussion and Commission Findings
The Commission has reviewed carefully the proposed rule change,
comment letters, and the Phlx's response and finds that the proposed
rule change is consistent with the requirements of section 6 of the Act
\10\ and the rules and regulations thereunder applicable to a national
securities exchange \11\ and, in particular, the requirements of
Section 6(b)(5) of the Act.\12\ section 6(b)(5) requires, among other
things, that the rules of a national securities exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, 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.
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\10\ 15 U.S.C. 78f.
\11\ 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).
\12\ 15 U.S.C. 78f(b)(5).
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The Commission received three comment letters regarding the
proposal, all of which opposed the proposal.\13\ The commenters
criticized the proposal because they believe it would allow a Phlx
directed participant a guarantee based solely on its relationships with
order entry firms rather than on such Phlx directed participant's
obligations.\14\ The commenters assert that the proposal would reward a
Phlx directed participant for its payment for order flow arrangements
rather than the quality of its quotes, and therefore the proposal would
have a negative impact on price competition.\15\ In addition, two
commenters note that the proposal would not limit the allocation
entitlement to specialists, but extend it to SQTs and RSQTs, which have
fewer obligations to the market.\16\ Two commenters also believed that
the proposal did not address the possibility of coordinated actions
between a directed market maker and an OFP.\17\
---------------------------------------------------------------------------
\13\ See supra note 4.
\14\ See, e.g., ISE Letter, supra note 4 at 1-2; PCX Letter,
supra note 4 at 1-2; Citadel Letter, supra note 4 at 2.
\15\ Id.
\16\ ISE Letter (``The Phlx proposal is not limited to
specialist[s], and the Phlx does not attempt to justify this
proposal other than as a way to reward market makers that attract
order-flow to the Phlx.''), supra note 4 at 1, 3-4; Citadel Letter,
supra note 4 at 2.
\17\ ISE Letter, supra note 4 at 3; PCX Letter, supra note 4 at
2.
---------------------------------------------------------------------------
The Commission has previously approved rules that guarantee a Phlx
specialist a portion of each order when the specialist's quote is equal
to the NBBO.\18\ The Commission has closely scrutinized exchange rule
proposals to adopt or amend a specialist guarantee where the percentage
of specialist participation would rise to a level that could have a
material adverse impact on quote competition within a particular
exchange.\19\ Because the proposal would not increase the overall
percentage of an order that is guaranteed to the specialist beyond the
currently acceptable threshold, but instead would allow SQTs and RSQTs
to share in that guarantee, the Commission does not believe that the
proposal will negatively impact quote competition on the Phlx. Under
the proposal, the remaining portion of each order will still be
allocated based on the competitive bidding of market participants.
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\18\ See Securities Exchange Act Release No. 34606 (August 26,
1994), 59 FR 45741 (September 2, 1994) (SR-Phlx-94-12) (order
approving the enhanced specialist participation in Phlx Rule
1014(g)(ii) for a one-year pilot basis); see Securities Exchange Act
Release No. 41588 (July 1, 1999), 64 FR 37185 (July 9, 1999) (SR-
Phlx-98-56) (order approving the enhanced specialist participation
in Phlx Rule 1014(g)(ii) on a permanent basis).
\19\ See Securities Exchange Act Release No. 43100 (July 31,
2000), 65 FR 48788 (August 9, 2000).
---------------------------------------------------------------------------
In addition, a Phlx directed participant will have to be quoting at
the NBBO at the time the order is received to capitalize on the
guarantee. The Commission believes it is critical that the Phlx
directed participant cannot step up and match the NBBO after it
receives an order, but must be publicly quoting at that price when the
order is received. In this regard, the Phlx's proposal prohibits from
notifying a Phlx directed participant regarding its intention to submit
a Directed Order so that such Phlx directed participant could change
its quotation to match the NBBO immediately prior to submission of the
preferenced order, and then fade its quote. In response to commenters'
concerns that its proposal failed to protect against coordinated
actions between a Phlx directed participant and an OFP, the Phlx stated
it believes its Rule 707, Just and Equitable Principles of Trade,
already provides the necessary protections against that type of
conduct, and will proactively conduct surveillance for, and enforce
against, such violations.\20\
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\20\ See Amendment No. 1; letter from Edith Hallahan, Deputy
General Counsel, and Edward Deitzel, Vice President, Phlx, to John
Roeser, Assistant Director, Division of Market Regulation,
Commission, dated May 26, 2005.
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[[Page 32862]]
One commenter states that specialists currently receive
participation entitlements based on their obligations to the market.
The commenter believes that the proposal, by allowing any directed
market maker quoting at the NBBO to receive a guaranteed percentage of
an order without in turn increasing the market maker's obligations to
the market, would ``eliminate the incentive to be a specialist, thereby
potentially leaving the obligations of the specialist to the market
unfulfilled.'' \21\ The Commission does not believe that the proposal
will result in the role of the specialist going unfulfilled, and notes
that it recently approved an options exchange without specialists.\22\
Moreover, specialists' obligations to the market have been reduced
through other changes, including greater automation of functions
previously handled manually by the specialist. While this proposal may
reduce the incentive to be a specialist, the Commission does not
believe that makes the proposal inconsistent with the Act. Finally, the
Commission notes that Phlx specialists and Directed SQTs and RSQTs have
greater quoting obligations than other Phlx market makers who cannot be
Phlx directed participants. Specifically, Phlx specialists must submit
continuous, two-sided quotations in 100% of the series of options in
which it is assigned,\23\ and a Directed SQTs or RSQTs must submit
continuous, two-sided quotations in 100% of the series of options in
which it receives Directed Orders. To receive an allocation under this
rule filing, the Phlx directed participant must be quoting at the NBBO
for the size of the allocation received.
---------------------------------------------------------------------------
\21\ Citadel Letter, supra note 4 at 2.
\22\ See Securities Exchange Act Release No. 49068 (January 13,
2004), 69 FR 2775 (January 20, 2004) (SR-BSE-2002-15) (order
approving trading rules for the Boston Options Exchange Facility).
\23\ See Phlx Rule 1014(b)(ii)(B).
---------------------------------------------------------------------------
Two commenters believe that the proposal is similar to facilitation
guarantees and other directed order programs approved by the
Commission.\24\ However, unlike those programs, the commenters
criticize that the instant proposal does not include certain
protections for customers, such as providing the opportunity for price
improvement, or limiting the program to a minimum number of
contracts.\25\
---------------------------------------------------------------------------
\24\ ISE Letter (``There is no distinction between a broker
`facilitating' an order and a broker directing an order to a
particular market maker for execution. * * *''), supra note 4 at 3-
4; PCX Letter, supra note 4 at 2.
\25\ ISE Letter, supra note 4 at 3-4; PCX Letter, supra note 4
at 2.
---------------------------------------------------------------------------
The Commission believes that the proposal is more akin to current
participation entitlements, for specialists, than the facilitation
guarantee programs and other directed order programs cited by the
commenters. Unlike exchange facilitation guarantee programs,\26\ under
the proposal, the Phlx directed participant would not be eligible for a
participation entitlement unless it is publicly quoting at the NBBO at
the time an order is received. Instead of changing its facilitation
program rules, this proposal allows Phlx directed participants to share
in the participation entitlement currently available only for
specialists. The Commission believes this reallocation is consistent
with the Act and will not affect the incentives of the trading crowd to
compete aggressively for orders based on price.
---------------------------------------------------------------------------
\26\ See CBOE Rule 6.74(d); ISE Rule 716(d); Pacific Exchange,
Inc. Rule 6.47(b); American Stock Exchange, Inc. Rule 950(d),
Commentary .02(d); and Philadelphia Stock Exchange, Inc. Rule 1064,
Commentary .02.
---------------------------------------------------------------------------
The Commission emphasizes that approval of this proposal does not
affect a broker-dealer's duty of best execution. A broker-dealer has a
legal duty to seek to obtain best execution of customer orders, and any
decision to preference a particular specialist, SQT, or RSQT must be
consistent with this duty.\27\ A broker-dealer's duty of best execution
derives from common law agency principles and fiduciary obligations,
and is incorporated in SRO rules and, through judicial and Commission
decisions, the antifraud provisions of the federal securities laws.\28\
---------------------------------------------------------------------------
\27\ 27 See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner &
Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525
U.S. 811 (1998); Certain Market Making Activities on Nasdaq,
Securities Exchange Act Release No. 40900 (Jan. 11, 1999) (settled
case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen
Hughes, 27 SEC 629, 636 (1948), aff'd sub nom. Hughes v. SEC, 174
F.2d 969 (D.C. Cir. 1949)). See also Order Execution Obligations,
Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR
48290 (Sept. 12, 1996) (``Order Handling Rules Release'').
\28\ Order Handling Rules Release, 61 FR at 48322. See also
Newton, 135 F.3d at 270. Failure to satisfy the duty of best
execution can constitute fraud because a broker-dealer, in agreeing
to execute a customer's order, makes an implied representation that
it will execute it in a manner that maximizes the customer's
economic gain in the transaction. See Newton, 135 F.3d at 273
(``[T]he basis for the duty of best execution is the mutual
understanding that the client is engaging in the trade--and
retaining the services of the broker as his agent--solely for the
purpose of maximizing his own economic benefit, and that the broker
receives her compensation because she assists the client in reaching
that goal.''); Marc N. Geman, Securities Exchange Act Release No.
43963 (Feb. 14, 2001) (citing Newton, but concluding that respondent
fulfilled his duty of best execution). See also Payment for Order
Flow, Securities Exchange Act Release No. 34902 (Oct. 27, 1994), 59
FR 55006, 55009 (Nov. 2, 1994) (``Payment for Order Flow Final
Rules''). If the broker-dealer intends not to act in a manner that
maximizes the customer's benefit when he accepts the order and does
not disclose this to the customer, the broker-dealer's implied
representation is false. See Newton, 135 F.3d at 273-274.
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The duty of best execution requires broker-dealers to execute
customers' trades at the most favorable terms reasonably available
under the circumstances, i.e., at the best reasonably available
price.\29\ The duty of best execution requires broker-dealers to
periodically assess the quality of competing markets to assure that
order flow is directed to the markets providing the most beneficial
terms for their customer orders.\30\ Broker-dealers must examine their
procedures for seeking to obtain best execution in light of market and
technology changes and modify those practices if necessary to enable
their customers to obtain the best reasonably available prices.\31\ In
doing so, broker-dealers must take into account price improvement
opportunities, and whether different markets may be more suitable for
different types of orders or particular securities.\32\
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\29\ Newton, 135 F.3d at 270. Newton also noted certain factors
relevant to best execution--order size, trading characteristics of
the security, speed of execution, clearing costs, and the cost and
difficulty of executing an order in a particular market. Id. at 270
n. 2 (citing Payment for Order Flow, Securities Exchange Act Release
No. 33026 (Oct. 6, 1993), 58 FR 52934, 52937-38 (Oct. 13, 1993)
(Proposed Rules)). See In re E.F. Hutton & Co. (``Manning''),
Securities Exchange Act Release No. 25887 (July 6, 1988). See also
Payment for Order Flow Final Rules, 59 FR at 55008-55009.
\30\ Order Handling Rules Release, 61 FR at 48322-48333 (``In
conducting the requisite evaluation of its internal order handling
procedures, a broker-dealer must regularly and rigorously examine
execution quality likely to be obtained from different markets or
market makers trading a security.''). See also Newton, 135 F.3d at
271; Market 2000: An Examination of Current Equity Market
Developments V-4 (SEC Division of Market Regulation January 1994)
(``Without specific instructions from a customer, however, a broker-
dealer should periodically assess the quality of competing markets
to ensure that its order flow is directed to markets providing the
most advantageous terms for the customer's order.''); Payment for
Order Flow Final Rules, 59 FR at 55009.
\31\ Order Handling Rules, 61 FR at 48323.
\32\ Order Handling Rules, 61 FR at 48323. For example, in
connection with orders that are to be executed at a market opening
price, ``[b]roker-dealers are subject to a best execution duty in
executing customer orders at the opening, and should take into
account the alternative methods in determining how to obtain best
execution for their customer orders.'' Disclosure of Order Execution
and Routing Practices, Securities Exchange Act Release No. 43590
(Nov. 17, 2000), 65 FR 75414, 75422 (Dec. 1, 2000) (adopting new
Exchange Act Rules 11Ac1-5 and 11Ac1-6 and noting that alternative
methods offered by some Nasdaq market centers for pre-open orders
included the mid-point of the spread or at the bid or offer).
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[[Page 32863]]
The Commission notes that the proposed rule change would be
implemented on a pilot basis for one year. During this time, the
Commission intends to evaluate the impact of the proposal on the
options markets to determine whether it would be beneficial to
customers and to the options markets as a whole before approving any
request for permanent approval of the pilot program.
For these reasons, the Commission believes that the proposal is
consistent with the requirements of Section 6(b)(5) of the Act,\33\ and
will not jeopardize market integrity or the incentive for market
participants to post competitive quotes.\34\
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\33\ 15 U.S.C. 78f(b)(5).
\34\ Approval of this proposal is in no way an endorsement of
payment for order flow by the Commission.
---------------------------------------------------------------------------
IV. Accelerated Approval of Amendment No. 1
Pursuant to Section 19(b)(2) of the Act,\35\ the Commission may not
approve any proposed rule change, or amendment thereto, prior to the
30th day after the date of publication of notice of the filing thereof,
unless the Commission finds good cause for so doing and publishes its
reasons for so finding. The Commission hereby finds good cause for
approving Amendment No. 1 to the proposal, prior to the 30th day after
publishing notice of Amendment No. 1 in the Federal Register.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
The Commission believes that it has received and fully considered
meaningful comments with respect to the proposal, and that Amendment
No. 1 does not raise any new regulatory issues that warrant further
delay. In Amendment No. 1, the Exchange added language to clarify the
application of the allocation algorithm. In addition, Amendment No. 1
added language to note that Phlx Rule 707, Just and Equitable
Principles of Trade, prohibits coordinated actions between the Phlx
directed participant and the OFP involving Directed Orders. The
Commission believes that the addition of the language is appropriate to
clarify the proposed Directed Order process.
V. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
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-2004-91 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-2004-91. 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 Section, 450 Fifth
Street, NW., Washington, DC 20549. 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
publicly available. All submissions should refer to File Number SR-
Phlx-2004-91 and should be submitted on or before June 27, 2005.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\36\ that the proposed rule change (SR-Phlx-2004-91) be, and hereby
is, approved, and that Amendment No. 1 to the proposed rule change be,
and hereby is, approved on an accelerated basis, for a pilot period to
expire on May 27, 2006.
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\36\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2871 Filed 6-3-05; 8:45 am]
BILLING CODE 8010-01-P