Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Automated Delivery and Handling of Stop and Stop-Limit Orders, 15240-15244 [E6-4342]

Download as PDF 15240 Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices rules and regulations thereunder applicable to a national securities Interested persons are invited to association.8 Specifically, the submit written data, views and Commission finds that the proposed arguments concerning the foregoing, rule change is consistent with Section including whether the proposed rule 15A(b)(6) of the Act,9 which requires, change is consistent with the Act. among other things, that the rules of a Comments may be submitted by any of national securities association must be the following methods: designed to prevent fraudulent and Electronic Comments manipulative acts and practices, to • Use the Commission’s Internet promote just and equitable principles of comment form (http://www.sec.gov/ trade, and, in general, to protect rules/sro.shtml); or investors and the public interest. The • Send an e-mail to ruleCommission finds that the proposed comments@sec.gov. Please include File rule change is consistent with the Act Number SR–NASD–2006–036 on the and, in particular, with Section subject line. 15A(b)(6) of the Act because the proposal should help to provide clarity Paper Comments with respect to the timing for the • Send paper comments in triplicate delivery of the report required by Rule to Nancy M. Morris, Secretary, 3013 while ensuring that the report is Securities and Exchange Commission, delivered to the member’s board of 100 F Street, NE., Washington, DC directors and audit committee (or their 20549–1090. equivalents) in a timely manner. All submissions should refer to File NASD has requested that the Number SR–NASD–2006–036. This file Commission find good cause for number should be included on the subject line if e-mail is used. To help the approving the proposed rule change Commission process and review your prior to the 30th day after publication of comments more efficiently, please use notice thereof in the Federal Register. only one method. The Commission will The Commission finds good cause, post all comments on the Commission’s pursuant to Section 19(b)(2) of the Internet Web site (http://www.sec.gov/ Act,10 for approving the proposed rule rules/sro.shtml). Copies of the change prior to the 30th day after the submission, all subsequent date of publication of notice of filing amendments, all written statements thereof in the Federal Register because with respect to the proposed rule it believes accelerated approval will change that are filed with the reduce the burden of members that are Commission, and all written currently in the process of taking the communications relating to the necessary steps to execute the first CEO proposed rule change between the certification, which is required to be Commission and any person, other than made by April 1, 2006.11 Moreover, the those that may be withheld from the Commission does not believe that the public in accordance with the proposal will reduce the investor provisions of 5 U.S.C. 552, will be protections that the certification available for inspection and copying in requirement is intended to promote. the Commission’s Public Reference Room, 100 F Street, NE., Washington, V. Conclusion DC 20549. Copies of such filing also will be available for inspection and copying It is therefore ordered, pursuant to at the principal office of NASD. Section 19(b)(2) of the Act,12 that the All comments received will be posted proposed rule change (SR–NASD–2006– without change; the Commission does 036), is hereby approved on an not edit personal identifying accelerated basis. information from submissions. You should submit only information that 8 See supra note 6. In approving this proposal, the you wish to make available publicly. All Commission has considered its impact on submissions should refer to the File efficeincy, competition, and capital formation. 15 Number SR–NASD–2006–036 and U.S.C. 78c(f). should be submitted on or before April 9 See supra note 7. 17, 2006. 10 wwhite on PROD1PC65 with NOTICES III. Solicitation of Comments IV. Commission’s Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the VerDate Aug<31>2005 18:19 Mar 24, 2006 Jkt 208001 15 U.S.C. 78s(b)(2). Exchange Act Release No. 52727 (Nov. 3, 2005), 70 FR 68122 (Nov. 9, 2005) (SR–NASD– 2005–121) (which, among other things, extended until April 1, 2006 the date by which members must execute their first annual certification pursuant to Rule 3013 and IM–3013). 12 See supra note 10. 11 See PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13 Nancy M. Morris, Secretary. [FR Doc. E6–4346 Filed 3–24–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53514; File No. SR–Phlx– 2005–80] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Automated Delivery and Handling of Stop and Stop-Limit Orders March 17, 2006. 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 December 15, 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, II and III below, which Items have been prepared by the Exchange. Phlx filed Amendment No. 1 with the Commission on March 6, 2006.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. The Phlx proposes to amend Phlx Rules 1066(c)(1) and 1080(b)(i)(A) and (C), and to delete Options Floor Procedure Advices (‘‘OFPAs’’) A–5 and A–6, to permit customer and off-floor broker-dealer stop 4 and stop-limit 5 orders in options to be delivered via the 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1, which replaced the original filing in its entirety, adds clarifying language to the description of the proposed rule change and adopts a definition of ‘‘agency order’’ in Phlx Rule 1080(b)(i)(A). 4 A stop order is a contingency order to buy or sell when the market for a particular option contract reaches a specified price. A stop order to buy becomes a market order when the option contract trades or is bid at or above the stop price. A stop order to sell becomes a market order when the option contract trades or is offered at or below the stop price. See Phlx Rule 1066(c)(1). 5 A stop-limit order is a contingency order to buy or sell at a limited price when the market for a particular option contract reaches a specified price. A stop limit order to buy becomes a limit order executable at the limit price or better when the option contract trades or is bid at or above the stoplimit price. A stop limit order to sell becomes a limit order executable at the limit price or better when the option contract trades or is offered at or below the stop limit price. See id. 1 15 \\ALPHA3\E\FR\FM\27MRN1.SGM 27MRN1 Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices Exchange’s Automated Options Market (‘‘AUTOM’’) System 6 and to be handled electronically. The Exchange also proposes to amend Phlx Rule 1080(b)(i)(A) to include the definition of ‘‘agency order’’ in the rule. The text of the proposed rule change is set forth below. Proposed new language is in italics; deletions are in [brackets]. * * * * * wwhite on PROD1PC65 with NOTICES Rule 1066. Certain Types of Orders Defined (a)–(b) No change. (c) Contingency Order. A contingency order is a limit or market order to buy or sell that is contingent upon a condition being satisfied while the order is at the post. (1) Stop-Limit Order. A stop-limit order is a contingency order to buy or sell at a limited price when [the market] a trade or quote on the Exchange for a particular option contract reaches a specified price. A stop-limit order to buy becomes a limit order executable at the limit price or better when the option contract trades or is bid on the Exchange at or above the stop-limit price[, after the offer is represented in the trading crowd]. A stop-limit order to sell becomes a limit order executable at the limit price or better when the option contract trades or is offered on the Exchange at or below the stop-limit price[, after the order is represented in the trading crowd]. Stop (stop-loss) Order. A stop order is a contingency order to buy or sell when [the market] a trade or quote on the Exchange for a particular option contract reaches a specified price. A stop order to buy becomes a market order when the option contract trades or is bid on the Exchange at or above the stop price[, after the order is represented in the trading crowd]. A stop order to sell becomes a market order when the option contract trades or is offered on the Exchange at or below the stop price[, after the order is represented in the trading crowd]. Notwithstanding the foregoing, a stop or stop-limit order shall not be elected by a trade that is reported late or out of sequence. [Stop and stop-limit orders elected by a quotation must be given floor official approval prior to execution or, if circumstances make it impractical for prior approval, promptly following the execution. The facts surrounding each instance when retroactive approval is requested must be documented in writing, signed by the specialist and floor official, and submitted to the 6 See Phlx Rule 1080. VerDate Aug<31>2005 20:32 Mar 24, 2006 Jkt 208001 Surveillance Department on the day of the trade.] (2)–(7) No change. (d)–(g) No change. Commentary: No change. * * * * * Rule 1080. Philadelphia Stock Exchange Automated Options Market (AUTOM) and Automatic Execution System (AUTO–X) (a) No change. (b) Eligible Orders (i) The following types of orders are eligible for entry into AUTOM: (A) Agency orders may be entered. The following types of agency orders are eligible for AUTOM; day, GTC, Immediate or Cancel (‘‘IOC’’), market, limit, stop, stop-limit, all or none, or better, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order, and possible duplicate orders. For purposes of Exchange options trading, an agency order is any order entered on behalf of a public customer, and does not include any order entered for the account of a broker-dealer, or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest. (B) No change. (C) Off-floor broker-dealer limit orders, subject to the restrictions on order entry set forth in Commentary .05 of this Rule, may be entered. The following types of broker-dealer limit orders are eligible for AUTOM: Day, GTC, IOC, stop, stop-limit, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order. For purposes of this Rule 1080, the term ‘‘off-floor broker-dealer’’ means a broker-dealer that delivers orders from off the floor of the Exchange for the proprietary account(s) of such brokerdealer, including a market maker located on an exchange or trading floor other than the Exchange’s trading floor who elects to deliver orders via AUTOM for the proprietary account(s) of such market maker. (ii)–(iii) No change. (c)–(k) No change. (l) Directed Orders. For a one-year pilot period, beginning on the date of approval of this Rule by the Securities and Exchange Commission, respecting Streaming Quote Options traded on Phlx XL, specialists, RSQTs and SQTs may receive Directed Orders (as defined in this Rule) in accordance with the provisions of this Rule 1080(l). (i)(A) The term ‘‘Directed Order’’ means any customer order (other than a stop or stop-limit order as defined in Rule 1066) to buy or sell which has been PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 15241 directed to a particular specialist, RSQT, or SQT by an Order Flow Provider, as defined below. To qualify as a Directed Order, an order must be delivered to the Exchange via AUTOM. (B)–(C) No change. (ii)–(iv) No change. Commentary: No change. * * * * * A–5 RESERVED [Execution of Stop and Stop Limit Orders Stop and stop-limit orders are contingency orders to buy or sell when the market for a particular option reaches a specified price. Stop and stop-limit orders to buy become eligible for execution when the option trades at or above the stop price or when the bid price for the option is at or above the stop price. Stop and stop-limit orders to sell become eligible for execution when the option trades at or below the stop price or when the offer price for the option is at or below the stop price. A stop or stop-limit order which will be made eligible by an opening sale should be executed as the opening trade or included with the opening trade. Stop and stop-limit orders elected by a quotation must be given Floor Official approval prior to execution or, if circumstances make it impractical for prior approval, promptly following the execution. The facts surrounding each instance where retroactive approval is requested must be documented in writing, signed by the Specialist and Floor Official, and submitted to the Surveillance Department on the day of the trade. A Specialist may refuse to accept stop and/or stop limit orders on the book if he has received the approval of one Floor Official no later than 30 minutes before the opening, or such orders shall be accepted throughout the day. Notification of such approval will be posted on the Exchange floor one-half hour before the opening. All stop or stop-limit orders which have been entrusted to the Specialist shall be returned to the responsible member immediately upon Floor Official approval for the return of such orders. FINE SCHEDULE A–5 * Fine not applicable] * * * * A–6 RESERVED [Cancel/ Replacement Process It is the responsibility of the Specialist to notify the appropriate brokers when orders they placed on the Specialist book become subject to a \\ALPHA3\E\FR\FM\27MRN1.SGM 27MRN1 15242 Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices cancel/replacement process. This process shall normally be required when: (1) There is a change in the contract terms of an option, (2) there is a transfer of the Specialist book, or (3) in any other instance where two Floor Officials approve a cancel/replacement of orders on the book. In all instances where a required cancel/replacement of all orders on the book occurs, it is the responsibility of the Specialist to ensure that, to the extent possible, any such replacement order will not incur a loss of the priority it established prior to the cancel/ replacement process. FINE SCHEDULE (Implemented on a two-year running calendar basis) A–6 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 Exchange included statements concerning the purpose of and basis for the proposal and discussed any comments it received on the proposal. 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 wwhite on PROD1PC65 with NOTICES 1. Purpose The purpose of the proposed rule change is to increase the number of option transactions on the Exchange that are handled automatically by establishing rules that permit the electronic delivery and handling of stop and stop-limit orders on the Exchange, and to delete certain provisions in the Exchange’s rules concerning stop and stop-limit orders that are either redundant or no longer practical. Currently, stop and stop-limit orders in options are not deliverable electronically via AUTOM. The proposal would amend the Exchange’s rules to permit the electronic delivery of stop and stop-limit orders to the Exchange via AUTOM. VerDate Aug<31>2005 18:19 Mar 24, 2006 Jkt 208001 Election of Stop and Stop-Limit Orders Stop orders delivered electronically on the Exchange’s AUTOM System would be handled in the system as market orders once elected by a trade or quote on the Exchange.7 Stop-limit orders delivered electronically to the limit order book would become live limit orders in the system once elected by a trade or quotation on the Exchange, and would be placed on the limit order book 8 in price-time priority as of the time of election.9 The proposed rule change would provide that, notwithstanding the foregoing, a stop or stop-limit order would not be elected by a trade that is reported late or out of sequence. The purpose of this provision is to ensure systemically that a stop or stop-limit order would be elected on the Exchange by the execution price at the actual time of the execution, instead of at the time of a late or out-of-sequence report. Absent this provision, it would be possible for a stop or stop-limit order to be elected by a trade that is reported late or out-of-sequence, which could result in such stop or stop-limit order being converted into a market or limit order and, in the case of a stop order, executed at a significantly different price than the election price of the stop order.10 A stop-limit order that is elected out-of-sequence could be converted incorrectly into a live limit order that has a price that is significantly different than the thencurrent market price. Eligible Order Types Phlx Rules 1080(b)(i)(A) and (C) would be amended to include agency 11 7 A stop or stop-limit order is ‘‘elected’’ when the market (i.e., a trade or quotation) for a particular option contract reaches a specified price. Under the proposal, such orders would be elected when a trade or quote occurs on the Exchange that causes the Exchange’s market to reach the specified price of the stop or stop-limit order. See Phlx Rule 1066(c)(1). 8 See Phlx Rule 1080, Commentary .02. 9 An opening trade or quotation would also elect a stop or stop-limit order. A stop or stop-limit order that is elected by an opening trade or quotation is treated as a market or limit order for purposes of the Exchange’s rules concerning openings. See Phlx Rule 1017. 10 For example, if a stop order to sell at $3.00 is elected by a trade reported late or out-of-sequence with an execution price of $3.00 when the actual bid price at the time of the report is $1.00, the stop order would be converted into a market order and executed at $1.00. 11 The Exchange has defined an agency order as any order entered on behalf of a public customer, excluding any order entered for the account of a broker-dealer, or any account in which a brokerdealer or an associated person of a broker-dealer has any direct or indirect interest. See Securities Exchange Act Release Nos. 46763 (November 1, 2002), 67 FR 68898 (November 13, 2002) and 40970 (January 25, 1999), 64 FR 4922 (February 1, 1999). PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 and off-floor broker-dealer 12 stop and stop-limit orders as order types that are eligible for electronic delivery on the Exchange’s systems. Floor Official Approval Requirement OFPA A–5 and Phlx Rule 1066(c)(1) currently provide that stop and stoplimit orders elected by a quotation must be given floor official approval prior to execution or, if circumstances make it impractical for prior approval, promptly following the execution. The facts surrounding each instance when retroactive approval is requested must be documented in writing, signed by the specialist and floor official, and submitted to the Surveillance Department on the day of the trade. Under the instant proposal, stop and stop-limit orders would be entered electronically and executed and handled automatically on the Exchange’s electronic trading platform for options, Phlx XL.13 The Exchange believes that it would be impractical in an electronic trading environment to require Floor Official approval prior to the execution of each stop and stoplimit order that is entered onto the system. Accordingly, the Exchange proposes to delete the provision from Phlx Rule 1066(c)(1) requiring Floor Official approval prior to the execution of stop and stop-limit orders. The provision would also be deleted from OFPA A–5, which is proposed to be deleted in its entirety, as set forth more fully below. In-Crowd Representation Requirement Phlx Rule 1066(c)(1) currently provides that stop and stop-limit orders are elected only after the order is represented in the trading crowd. The Exchange believes that, with the advent of Phlx XL and increasingly automated quoting, trading and order handling in options obviates the need for the requirement that a stop order be represented in the crowd prior to execution. A stop order (or a stop-limit order that becomes a marketable limit order) that is elected by a quotation would be executed, reported and allocated automatically by the The Exchange proposes to codify this definition in Phlx Rule 1080(b)(i)(A). 12 The term ‘‘off-floor broker-dealer’’ means a broker-dealer that delivers orders from off the floor of the Exchange for the proprietary account(s) of such broker-dealer, including a market maker located on an exchange or trading floor other than the Exchange’s trading floor who elects to deliver orders via the Exchange’s electronic order routing, delivery, execution and reporting system, AUTOM, for the proprietary account(s) of such market maker. See Phlx Rule 1080(b)(i)(C). 13 See Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 44612 (August 3, 2004). \\ALPHA3\E\FR\FM\27MRN1.SGM 27MRN1 Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices Exchange’s systems. Thus, there could be no ‘‘representation in the crowd’’ prior to such an execution. The Exchange therefore proposes to delete the requirement that such orders be represented in the crowd as a prerequisite to their election. Exclusion From the Definition of ‘‘Directed Orders’’ wwhite on PROD1PC65 with NOTICES In May 2005, the Exchange adopted rules that permit Exchange specialists, Streaming Quote Traders (‘‘SQTs’’),14 and Remote Streaming Quote Traders (‘‘RSQTs’’) 15 to receive Directed Orders, and to provide a participation guarantee to specialists, SQTs and RSQTs that receive Directed Orders.16 Currently, Phlx Rule 1080(l) defines the term ‘‘Directed Order’’ as any customer order to buy or sell that has been directed to a particular specialist, SQT, or RSQT by an order flow provider. The Exchange proposes an amendment to Phlx Rule 1080(l) that would specifically exclude stop and stop-limit orders from the definition of a Directed Order. Directed Orders must be executed and allocated electronically in accordance with the Exchange’s rules that provide the participation guarantee described above.17 A stop or stop-limit order that is elected on the Exchange might not be eligible for automatic execution 18 and instead would be handled manually by the specialist and allocated in accordance with Phlx Rule 1014(g)(v), which governs manual trade allocation and does not provide a participation guarantee to the recipient of a Directed Order. Such a stop or stoplimit order that is allocated manually would not be allocated pursuant to Phlx Rule 1014(g)(viii), the trade allocation algorithm applicable to Directed Orders. Therefore, the Exchange proposes to 14 An SQT is an Exchange Registered Options Trader (‘‘ROT’’) who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options to which such SQT is assigned. An SQT may only submit such quotations while such SQT is physically present on the floor of the Exchange. See Phlx Rule 1014(b)(ii)(A). 15 An RSQT is an ROT that is a member or member organization with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. See Phlx Rule 1014(b)(ii)(B). 16 See Securities Exchange Act Release No. 51759 (May 27, 2005), 70 FR 32860 (June 6, 2005). See also Phlx Rule 1014(g)(viii) (setting forth the automatic trade allocation algorithm for Directed Orders). 17 See Phlx Rule 1014(g)(viii). 18 For example, an order is not eligible for automatic execution on the Exchange when the Exchange’s bid or offer is not the National Best Bid or Offer. See Phlx Rule 1080(c)(iv)(E). VerDate Aug<31>2005 18:19 Mar 24, 2006 Jkt 208001 exclude stop and stop-limit orders from the definition of ‘‘Directed Order.’’ Deletion of OFPA A–5 in Its Entirety OFPA A–5 currently includes a provision that a specialist may refuse to accept stop and/or stop-limit orders on the book if he has received the approval of one Floor Official no later than 30 minutes before the opening. The original purpose of this provision was to allow the specialist to manage his or her risk of missing, or not timely executing, elected stop and stop-limit orders in options that are expected to be volatile during the trading day due to, for example, pending news or other eventdriven changes in the market for the particular option. The Exchange believes that, because stop and stoplimit orders would be elected automatically under the proposal, specialists would no longer be subject to such risks. The Exchange therefore proposes to delete the provision permitting specialists to refuse to accept stop and stop-limit orders with the proper Floor Official approval. The Exchange proposes to delete OFPA A–5 in its entirety. The descriptive language of stop and stoplimit orders contained in OFPA A–5 is currently contained in Phlx Rule 1066, and would remain in Rule 1066. Additionally, the provision that a stop or stop-limit order which will be made eligible by an opening sale should be executed as the opening trade or included with the opening trade is addressed in Phlx Rule 1017, which includes market orders (such as those that are the result of a stop order being elected) and limit orders (such as those resulting from a limit order being elected) that are treated as market orders under that rule, in the opening of trading in a particular series. The remaining sections of OFPA A–5 regarding the requirement to obtain Floor Official approval prior to election, and permitting specialists to refuse to accept stop and stop-limit orders with prior Floor Official approval, would be deleted for the reasons stated above. In addition, the Exchange historically adopted some OFPAs in order to reprint them in a pocket format; this rationale is outdated and no longer applies. Deletion of OFPA A–6 in Its Entirety Currently, OFPA A–6, Cancel/ Replacement Process, requires the specialist to notify ‘‘the appropriate brokers’’ when orders they placed on the limit order book become subject to a cancel/replacement process. Notification of the cancel/replacement process is now provided systemically, except with respect to stop and stop- PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 15243 limit orders placed with the specialist. Stop and stop-limit orders are the only order types for which the specialist is currently responsible to notify the appropriate Exchange member or member organization when stop and stop-limit orders they placed with the specialist become subject to a cancel/ replacement process (due to, for example, a transfer or an adjustment for a dividend). Once stop and stop-limit orders are automated the specialist would no longer be responsible for notification of cancel/replacement activity for any order type. Therefore the OFPA is proposed to be deleted in its entirety. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act 19 in general, and furthers the objectives of section 6(b)(5) of the Act 20 in particular, in that it is designed 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, by increasing the number of orders handled electronically and establishing rules that permit the electronic delivery and handling of stop and stop-limit orders via the Exchange’s AUTOM System. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: 19 15 20 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). \\ALPHA3\E\FR\FM\27MRN1.SGM 27MRN1 15244 Federal Register / Vol. 71, No. 58 / Monday, March 27, 2006 / Notices (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Nancy M. Morris, Secretary. [FR Doc. E6–4342 Filed 3–24–06; 8:45 am] IV. Solicitation of Comments BILLING CODE 8010–01–P Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments DEPARTMENT OF STATE [Public Notice 5352] Bureau of Educational and Cultural Affairs (ECA) Request for Grant Proposals: Youth Programs Academic Year Disability Component wwhite on PROD1PC65 with NOTICES • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2005–80 on the subject line. Announcement Type: New Grant. Funding Opportunity Number: ECA/ PE/C/PY–06–37. Catalog of Federal Domestic Assistance Number: 00.000. Key Dates: July 2006–June 2007. Application Deadline: May 8, 2006. Executive Summary: The Office of Citizen Exchanges, Youth Programs Paper Comments Division, of the Bureau of Educational and Cultural Affairs announces an open • Send paper comments in triplicate competition for the management of the to Nancy M. Morris, Secretary, Disability Component for its Academic Securities and Exchange Commission, Year programs. This includes Station Place, 100 F Street, NE., conducting a five-day summer Washington, DC 20549–1090. Preparatory Workshop and a three-day All submissions should refer to File spring Leadership and Reentry Number SR–Phlx–2005–80. This file Workshop for Students with Disabilities number should be included on the from Eurasia participating in the Future subject line if e-mail is used. To help the Leaders Exchange (FLEX) Program and Commission process and review your from countries with significant Muslim comments more efficiently, please use populations participating in the Youth only one method. The Commission will Exchange and Study (YES) Program, as post all comments on the Commission’s well as the provision of support services Internet Web site (http://www.sec.gov/ to these students throughout the year by rules/sro.shtml). Copies of the assisting grantee placement submission, all subsequent organizations and maintaining regular amendments, all written statements communication with each student, as with respect to the proposed rule needed. Approximately 20–27 high change that are filed with the school-aged students will participate in Commission, and all written the Disability Component Program. communications relating to the I. Funding Opportunity Description proposed rule change between the Commission and any person, other than Authority: Overall grant making those that may be withheld from the authority for this program is contained public in accordance with the in the Mutual Educational and Cultural provisions of 5 U.S.C. 552, will be Exchange Act of 1961, Public Law 87– available for inspection and copying in 256, as amended, also known as the the Commission’s Public Reference Fulbright-Hays Act. The purpose of the Room. Copies of such filing also will be Act is ‘‘to enable the Government of the available for inspection and copying at United States to increase mutual the principal office of the Exchange. All understanding between the people of comments received will be posted the United States and the people of without change; the Commission does other countries * * *; to strengthen the not edit personal identifying ties which unite us with other nations information from submissions. You by demonstrating the educational and should submit only information that cultural interests, developments, and you wish to make available publicly. All achievements of the people of the submissions should refer to File United States and other nations * * * Number SR–Phlx–2005–80 and should and thus to assist in the development of be submitted on or before April 17, 2006. 21 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 18:19 Mar 24, 2006 Jkt 208001 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 friendly, sympathetic and peaceful relations between the United States and the other countries of the world.’’ The funding authority for the program above is provided through legislation. Purpose: It is Bureau policy that recruitment of people with disabilities at every level should be a priority in all sponsored programming. It is ECA’s goal to provide each student with disabilities participating in the FLEX or YES Programs with an integrated three-phase program designed to enhance their experience in the U.S. This will include providing a Preparatory Workshop upon the students’ arrival in the U.S. and developing an action plan with each student for the coming year. The grantee organization will then continue to support each of these students and work with their placement organizations to assist the students in taking advantage of local opportunities for people with disabilities. Finally, the process will include implementing the Leadership and Reentry Workshop to assist the students in discussing their year’s experience and in preparing for their return home as individuals with disabilities. Background: The Future Leaders Exchange (FLEX) and Youth Exchange and Study (YES) programs bring secondary school students from Eurasia and countries with significant Muslim populations to the U.S. for an academic year. During their time in the U.S., these students live with American host families and attend U.S. high schools. (Note: For more information on these programs, refer to the Youth Programs Division Web site: http:// exchanges.state.gov/education/citizens/ students.)Since 1995, the FLEX program has included a component for students with disabilities. This has been challenging since individuals with disabilities are treated very differently in Eurasia than they are in the U.S. In Eurasia, most disabled young people attend special schools, largely institutions, and being disabled carries a major stigma. Most young, disabled individuals either are ignored by parents who are ashamed of them or are overprotected by parents who are concerned that they cannot function independently. A similar situation exists in the countries from which the YES students come; and therefore, the disabilities component is being expanded this year to include YES students. The program should be designed to support the following specific activities/components: Preparatory Workshop for Students with Disabilities: Generally, FLEX and YES participants with disabilities adjust well to American life and culture and \\ALPHA3\E\FR\FM\27MRN1.SGM 27MRN1

Agencies

[Federal Register Volume 71, Number 58 (Monday, March 27, 2006)]
[Notices]
[Pages 15240-15244]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4342]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53514; File No. SR-Phlx-2005-80]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Automated Delivery and Handling of Stop and Stop-Limit 
Orders

March 17, 2006.

    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 December 15, 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, II 
and III below, which Items have been prepared by the Exchange. Phlx 
filed Amendment No. 1 with the Commission on March 6, 2006.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1, which replaced the original filing in its 
entirety, adds clarifying language to the description of the 
proposed rule change and adopts a definition of ``agency order'' in 
Phlx Rule 1080(b)(i)(A).
---------------------------------------------------------------------------

    The Phlx proposes to amend Phlx Rules 1066(c)(1) and 1080(b)(i)(A) 
and (C), and to delete Options Floor Procedure Advices (``OFPAs'') A-5 
and A-6, to permit customer and off-floor broker-dealer stop \4\ and 
stop-limit \5\ orders in options to be delivered via the

[[Page 15241]]

Exchange's Automated Options Market (``AUTOM'') System \6\ and to be 
handled electronically. The Exchange also proposes to amend Phlx Rule 
1080(b)(i)(A) to include the definition of ``agency order'' in the 
rule. The text of the proposed rule change is set forth below. Proposed 
new language is in italics; deletions are in [brackets].
---------------------------------------------------------------------------

    \4\ A stop order is a contingency order to buy or sell when the 
market for a particular option contract reaches a specified price. A 
stop order to buy becomes a market order when the option contract 
trades or is bid at or above the stop price. A stop order to sell 
becomes a market order when the option contract trades or is offered 
at or below the stop price. See Phlx Rule 1066(c)(1).
    \5\ A stop-limit order is a contingency order to buy or sell at 
a limited price when the market for a particular option contract 
reaches a specified price. A stop limit order to buy becomes a limit 
order executable at the limit price or better when the option 
contract trades or is bid at or above the stop-limit price. A stop 
limit order to sell becomes a limit order executable at the limit 
price or better when the option contract trades or is offered at or 
below the stop limit price. See id.
    \6\ See Phlx Rule 1080.
---------------------------------------------------------------------------

* * * * *

Rule 1066. Certain Types of Orders Defined

    (a)-(b) No change.
    (c) Contingency Order. A contingency order is a limit or market 
order to buy or sell that is contingent upon a condition being 
satisfied while the order is at the post.
    (1) Stop-Limit Order. A stop-limit order is a contingency order to 
buy or sell at a limited price when [the market] a trade or quote on 
the Exchange for a particular option contract reaches a specified 
price. A stop-limit order to buy becomes a limit order executable at 
the limit price or better when the option contract trades or is bid on 
the Exchange at or above the stop-limit price[, after the offer is 
represented in the trading crowd]. A stop-limit order to sell becomes a 
limit order executable at the limit price or better when the option 
contract trades or is offered on the Exchange at or below the stop-
limit price[, after the order is represented in the trading crowd].
    Stop (stop-loss) Order. A stop order is a contingency order to buy 
or sell when [the market] a trade or quote on the Exchange for a 
particular option contract reaches a specified price. A stop order to 
buy becomes a market order when the option contract trades or is bid on 
the Exchange at or above the stop price[, after the order is 
represented in the trading crowd]. A stop order to sell becomes a 
market order when the option contract trades or is offered on the 
Exchange at or below the stop price[, after the order is represented in 
the trading crowd].
    Notwithstanding the foregoing, a stop or stop-limit order shall not 
be elected by a trade that is reported late or out of sequence.
    [Stop and stop-limit orders elected by a quotation must be given 
floor official approval prior to execution or, if circumstances make it 
impractical for prior approval, promptly following the execution. The 
facts surrounding each instance when retroactive approval is requested 
must be documented in writing, signed by the specialist and floor 
official, and submitted to the Surveillance Department on the day of 
the trade.]
    (2)-(7) No change.
    (d)-(g) No change.
    Commentary: No change.
* * * * *

Rule 1080. Philadelphia Stock Exchange Automated Options Market (AUTOM) 
and Automatic Execution System (AUTO-X)

    (a) No change.
    (b) Eligible Orders
    (i) The following types of orders are eligible for entry into 
AUTOM:
    (A) Agency orders may be entered. The following types of agency 
orders are eligible for AUTOM; day, GTC, Immediate or Cancel (``IOC''), 
market, limit, stop, stop-limit, all or none, or better, simple cancel, 
simple cancel to reduce size (cancel leaves), cancel to change price, 
cancel with replacement order, and possible duplicate orders. For 
purposes of Exchange options trading, an agency order is any order 
entered on behalf of a public customer, and does not include any order 
entered for the account of a broker-dealer, or any account in which a 
broker-dealer or an associated person of a broker-dealer has any direct 
or indirect interest.
    (B) No change.
    (C) Off-floor broker-dealer limit orders, subject to the 
restrictions on order entry set forth in Commentary .05 of this Rule, 
may be entered. The following types of broker-dealer limit orders are 
eligible for AUTOM: Day, GTC, IOC, stop, stop-limit, simple cancel, 
simple cancel to reduce size (cancel leaves), cancel to change price, 
cancel with replacement order. For purposes of this Rule 1080, the term 
``off-floor broker-dealer'' means a broker-dealer that delivers orders 
from off the floor of the Exchange for the proprietary account(s) of 
such broker-dealer, including a market maker located on an exchange or 
trading floor other than the Exchange's trading floor who elects to 
deliver orders via AUTOM for the proprietary account(s) of such market 
maker.
    (ii)-(iii) No change.
    (c)-(k) No change.
    (l) Directed Orders. For a one-year pilot period, beginning on the 
date of approval of this Rule by the Securities and Exchange 
Commission, respecting Streaming Quote Options traded on Phlx XL, 
specialists, RSQTs and SQTs may receive Directed Orders (as defined in 
this Rule) in accordance with the provisions of this Rule 1080(l).
    (i)(A) The term ``Directed Order'' means any customer order (other 
than a stop or stop-limit order as defined in Rule 1066) to buy or sell 
which has been directed to a particular specialist, RSQT, or SQT by an 
Order Flow Provider, as defined below. To qualify as a Directed Order, 
an order must be delivered to the Exchange via AUTOM.
    (B)-(C) No change.
    (ii)-(iv) No change.
    Commentary: No change.
* * * * *

A-5 RESERVED [Execution of Stop and Stop Limit Orders

    Stop and stop-limit orders are contingency orders to buy or sell 
when the market for a particular option reaches a specified price.
    Stop and stop-limit orders to buy become eligible for execution 
when the option trades at or above the stop price or when the bid price 
for the option is at or above the stop price. Stop and stop-limit 
orders to sell become eligible for execution when the option trades at 
or below the stop price or when the offer price for the option is at or 
below the stop price. A stop or stop-limit order which will be made 
eligible by an opening sale should be executed as the opening trade or 
included with the opening trade.
    Stop and stop-limit orders elected by a quotation must be given 
Floor Official approval prior to execution or, if circumstances make it 
impractical for prior approval, promptly following the execution. The 
facts surrounding each instance where retroactive approval is requested 
must be documented in writing, signed by the Specialist and Floor 
Official, and submitted to the Surveillance Department on the day of 
the trade.
    A Specialist may refuse to accept stop and/or stop limit orders on 
the book if he has received the approval of one Floor Official no later 
than 30 minutes before the opening, or such orders shall be accepted 
throughout the day. Notification of such approval will be posted on the 
Exchange floor one-half hour before the opening. All stop or stop-limit 
orders which have been entrusted to the Specialist shall be returned to 
the responsible member immediately upon Floor Official approval for the 
return of such orders.

FINE SCHEDULE

A-5
    Fine not applicable]
* * * * *

A-6 RESERVED [Cancel/Replacement Process

    It is the responsibility of the Specialist to notify the 
appropriate brokers when orders they placed on the Specialist book 
become subject to a

[[Page 15242]]

cancel/replacement process. This process shall normally be required 
when: (1) There is a change in the contract terms of an option, (2) 
there is a transfer of the Specialist book, or (3) in any other 
instance where two Floor Officials approve a cancel/replacement of 
orders on the book.
    In all instances where a required cancel/replacement of all orders 
on the book occurs, it is the responsibility of the Specialist to 
ensure that, to the extent possible, any such replacement order will 
not incur a loss of the priority it established prior to the cancel/
replacement process.

FINE SCHEDULE (Implemented on a two-year running calendar basis)

A-6
    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 Exchange included statements 
concerning the purpose of and basis for the proposal and discussed any 
comments it received on the proposal. 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 increase the number 
of option transactions on the Exchange that are handled automatically 
by establishing rules that permit the electronic delivery and handling 
of stop and stop-limit orders on the Exchange, and to delete certain 
provisions in the Exchange's rules concerning stop and stop-limit 
orders that are either redundant or no longer practical. Currently, 
stop and stop-limit orders in options are not deliverable 
electronically via AUTOM. The proposal would amend the Exchange's rules 
to permit the electronic delivery of stop and stop-limit orders to the 
Exchange via AUTOM.

Election of Stop and Stop-Limit Orders

    Stop orders delivered electronically on the Exchange's AUTOM System 
would be handled in the system as market orders once elected by a trade 
or quote on the Exchange.\7\ Stop-limit orders delivered electronically 
to the limit order book would become live limit orders in the system 
once elected by a trade or quotation on the Exchange, and would be 
placed on the limit order book \8\ in price-time priority as of the 
time of election.\9\
---------------------------------------------------------------------------

    \7\ A stop or stop-limit order is ``elected'' when the market 
(i.e., a trade or quotation) for a particular option contract 
reaches a specified price. Under the proposal, such orders would be 
elected when a trade or quote occurs on the Exchange that causes the 
Exchange's market to reach the specified price of the stop or stop-
limit order. See Phlx Rule 1066(c)(1).
    \8\ See Phlx Rule 1080, Commentary .02.
    \9\ An opening trade or quotation would also elect a stop or 
stop-limit order. A stop or stop-limit order that is elected by an 
opening trade or quotation is treated as a market or limit order for 
purposes of the Exchange's rules concerning openings. See Phlx Rule 
1017.
---------------------------------------------------------------------------

    The proposed rule change would provide that, notwithstanding the 
foregoing, a stop or stop-limit order would not be elected by a trade 
that is reported late or out of sequence. The purpose of this provision 
is to ensure systemically that a stop or stop-limit order would be 
elected on the Exchange by the execution price at the actual time of 
the execution, instead of at the time of a late or out-of-sequence 
report. Absent this provision, it would be possible for a stop or stop-
limit order to be elected by a trade that is reported late or out-of-
sequence, which could result in such stop or stop-limit order being 
converted into a market or limit order and, in the case of a stop 
order, executed at a significantly different price than the election 
price of the stop order.\10\ A stop-limit order that is elected out-of-
sequence could be converted incorrectly into a live limit order that 
has a price that is significantly different than the then-current 
market price.
---------------------------------------------------------------------------

    \10\ For example, if a stop order to sell at $3.00 is elected by 
a trade reported late or out-of-sequence with an execution price of 
$3.00 when the actual bid price at the time of the report is $1.00, 
the stop order would be converted into a market order and executed 
at $1.00.
---------------------------------------------------------------------------

Eligible Order Types

    Phlx Rules 1080(b)(i)(A) and (C) would be amended to include agency 
\11\ and off-floor broker-dealer \12\ stop and stop-limit orders as 
order types that are eligible for electronic delivery on the Exchange's 
systems.
---------------------------------------------------------------------------

    \11\ The Exchange has defined an agency order as any order 
entered on behalf of a public customer, excluding any order entered 
for the account of a broker-dealer, or any account in which a 
broker-dealer or an associated person of a broker-dealer has any 
direct or indirect interest. See Securities Exchange Act Release 
Nos. 46763 (November 1, 2002), 67 FR 68898 (November 13, 2002) and 
40970 (January 25, 1999), 64 FR 4922 (February 1, 1999). The 
Exchange proposes to codify this definition in Phlx Rule 
1080(b)(i)(A).
    \12\ The term ``off-floor broker-dealer'' means a broker-dealer 
that delivers orders from off the floor of the Exchange for the 
proprietary account(s) of such broker-dealer, including a market 
maker located on an exchange or trading floor other than the 
Exchange's trading floor who elects to deliver orders via the 
Exchange's electronic order routing, delivery, execution and 
reporting system, AUTOM, for the proprietary account(s) of such 
market maker. See Phlx Rule 1080(b)(i)(C).
---------------------------------------------------------------------------

Floor Official Approval Requirement

    OFPA A-5 and Phlx Rule 1066(c)(1) currently provide that stop and 
stop-limit orders elected by a quotation must be given floor official 
approval prior to execution or, if circumstances make it impractical 
for prior approval, promptly following the execution. The facts 
surrounding each instance when retroactive approval is requested must 
be documented in writing, signed by the specialist and floor official, 
and submitted to the Surveillance Department on the day of the trade.
    Under the instant proposal, stop and stop-limit orders would be 
entered electronically and executed and handled automatically on the 
Exchange's electronic trading platform for options, Phlx XL.\13\ The 
Exchange believes that it would be impractical in an electronic trading 
environment to require Floor Official approval prior to the execution 
of each stop and stop-limit order that is entered onto the system.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 44612 (August 3, 2004).
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to delete the provision from 
Phlx Rule 1066(c)(1) requiring Floor Official approval prior to the 
execution of stop and stop-limit orders. The provision would also be 
deleted from OFPA A-5, which is proposed to be deleted in its entirety, 
as set forth more fully below.

In-Crowd Representation Requirement

    Phlx Rule 1066(c)(1) currently provides that stop and stop-limit 
orders are elected only after the order is represented in the trading 
crowd. The Exchange believes that, with the advent of Phlx XL and 
increasingly automated quoting, trading and order handling in options 
obviates the need for the requirement that a stop order be represented 
in the crowd prior to execution. A stop order (or a stop-limit order 
that becomes a marketable limit order) that is elected by a quotation 
would be executed, reported and allocated automatically by the

[[Page 15243]]

Exchange's systems. Thus, there could be no ``representation in the 
crowd'' prior to such an execution. The Exchange therefore proposes to 
delete the requirement that such orders be represented in the crowd as 
a prerequisite to their election.

Exclusion From the Definition of ``Directed Orders''

    In May 2005, the Exchange adopted rules that permit Exchange 
specialists, Streaming Quote Traders (``SQTs''),\14\ and Remote 
Streaming Quote Traders (``RSQTs'') \15\ to receive Directed Orders, 
and to provide a participation guarantee to specialists, SQTs and RSQTs 
that receive Directed Orders.\16\
    Currently, Phlx Rule 1080(l) defines the term ``Directed Order'' as 
any customer order to buy or sell that has been directed to a 
particular specialist, SQT, or RSQT by an order flow provider. The 
Exchange proposes an amendment to Phlx Rule 1080(l) that would 
specifically exclude stop and stop-limit orders from the definition of 
a Directed Order. Directed Orders must be executed and allocated 
electronically in accordance with the Exchange's rules that provide the 
participation guarantee described above.\17\ A stop or stop-limit order 
that is elected on the Exchange might not be eligible for automatic 
execution \18\ and instead would be handled manually by the specialist 
and allocated in accordance with Phlx Rule 1014(g)(v), which governs 
manual trade allocation and does not provide a participation guarantee 
to the recipient of a Directed Order. Such a stop or stop-limit order 
that is allocated manually would not be allocated pursuant to Phlx Rule 
1014(g)(viii), the trade allocation algorithm applicable to Directed 
Orders. Therefore, the Exchange proposes to exclude stop and stop-limit 
orders from the definition of ``Directed Order.''
---------------------------------------------------------------------------

    \14\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
option quotations electronically through AUTOM in eligible options 
to which such SQT is assigned. An SQT may only submit such 
quotations while such SQT is physically present on the floor of the 
Exchange. See Phlx Rule 1014(b)(ii)(A).
    \15\ An RSQT is an ROT that is a member or member organization 
with no physical trading floor presence who has received permission 
from the Exchange to generate and submit option quotations 
electronically through AUTOM in eligible options to which such RSQT 
has been assigned. An RSQT may only submit such quotations 
electronically from off the floor of the Exchange. See Phlx Rule 
1014(b)(ii)(B).
    \16\ See Securities Exchange Act Release No. 51759 (May 27, 
2005), 70 FR 32860 (June 6, 2005). See also Phlx Rule 1014(g)(viii) 
(setting forth the automatic trade allocation algorithm for Directed 
Orders).
    \17\ See Phlx Rule 1014(g)(viii).
    \18\ For example, an order is not eligible for automatic 
execution on the Exchange when the Exchange's bid or offer is not 
the National Best Bid or Offer. See Phlx Rule 1080(c)(iv)(E).
---------------------------------------------------------------------------

Deletion of OFPA A-5 in Its Entirety

    OFPA A-5 currently includes a provision that a specialist may 
refuse to accept stop and/or stop-limit orders on the book if he has 
received the approval of one Floor Official no later than 30 minutes 
before the opening. The original purpose of this provision was to allow 
the specialist to manage his or her risk of missing, or not timely 
executing, elected stop and stop-limit orders in options that are 
expected to be volatile during the trading day due to, for example, 
pending news or other event-driven changes in the market for the 
particular option. The Exchange believes that, because stop and stop-
limit orders would be elected automatically under the proposal, 
specialists would no longer be subject to such risks. The Exchange 
therefore proposes to delete the provision permitting specialists to 
refuse to accept stop and stop-limit orders with the proper Floor 
Official approval.
    The Exchange proposes to delete OFPA A-5 in its entirety. The 
descriptive language of stop and stop-limit orders contained in OFPA A-
5 is currently contained in Phlx Rule 1066, and would remain in Rule 
1066. Additionally, the provision that a stop or stop-limit order which 
will be made eligible by an opening sale should be executed as the 
opening trade or included with the opening trade is addressed in Phlx 
Rule 1017, which includes market orders (such as those that are the 
result of a stop order being elected) and limit orders (such as those 
resulting from a limit order being elected) that are treated as market 
orders under that rule, in the opening of trading in a particular 
series.
    The remaining sections of OFPA A-5 regarding the requirement to 
obtain Floor Official approval prior to election, and permitting 
specialists to refuse to accept stop and stop-limit orders with prior 
Floor Official approval, would be deleted for the reasons stated above. 
In addition, the Exchange historically adopted some OFPAs in order to 
reprint them in a pocket format; this rationale is outdated and no 
longer applies.

Deletion of OFPA A-6 in Its Entirety

    Currently, OFPA A-6, Cancel/Replacement Process, requires the 
specialist to notify ``the appropriate brokers'' when orders they 
placed on the limit order book become subject to a cancel/replacement 
process. Notification of the cancel/replacement process is now provided 
systemically, except with respect to stop and stop-limit orders placed 
with the specialist. Stop and stop-limit orders are the only order 
types for which the specialist is currently responsible to notify the 
appropriate Exchange member or member organization when stop and stop-
limit orders they placed with the specialist become subject to a 
cancel/replacement process (due to, for example, a transfer or an 
adjustment for a dividend). Once stop and stop-limit orders are 
automated the specialist would no longer be responsible for 
notification of cancel/replacement activity for any order type. 
Therefore the OFPA is proposed to be deleted in its entirety.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \19\ in general, and furthers the objectives of section 
6(b)(5) of the Act \20\ in particular, in that it is designed 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, by increasing the number of orders handled electronically and 
establishing rules that permit the electronic delivery and handling of 
stop and stop-limit orders via the Exchange's AUTOM System.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 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 would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments with respect 
to the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 15244]]

    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2005-80 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Phlx-2005-80. 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 (http://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-2005-80 and should be submitted on or before April 
17, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-4342 Filed 3-24-06; 8:45 am]
BILLING CODE 8010-01-P