Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Split Price Priority in Options, 32171-32173 [E6-8550]
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Federal Register / Vol. 71, No. 106 / Friday, June 2, 2006 / Notices
revisit that earlier finding or preclude
the trading of these funds on the
Exchange pursuant to UTP. Therefore,
accelerating approval of this proposed
rule change should benefit investors by
creating, without undue delay,
additional competition in the market for
these Units.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NYSEArca–
2006–11), is hereby approved on an
accelerated basis.41
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.42
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6–8547 Filed 6–1–06; 8:45 am]
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Phlx Rule 1014(g)(i)(C) 4 to adopt a new
split price priority provision that
establishes priority for in-crowd
participants in split price transactions
over the quotations of participants that
are not located in the crowd (i.e., outof-crowd Streaming Quote Traders
(‘‘SQTs’’) 5 and Remote Streaming Quote
Traders (‘‘RSQTs’’) 6) even where the
market has a bid/ask differential of one
minimum trading increment.7 The text
of the proposed rule change, as
amended, is set forth below. Proposed
new language is in italics; deleted
language is in brackets.8
*
*
*
*
*
Obligations and Restrictions Applicable
to Specialists and Registered Options
Traders
BILLING CODE 8010–01–P
Rule 1014. (a)–(f) No change.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53874; File No. SR–Phlx–
2006–18]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting
Accelerated Approval of a Proposed
Rule Change and Amendment No. 1
Thereto Relating to Split Price Priority
in Options
May 25, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on March 2,
2006, the Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. On May
9, 2006, Phlx filed an amendment to the
proposed rule change (‘‘Amendment No.
1’’).3 The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons and is approving the proposal
on an accelerated basis.
41 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, the Exchange revised the
rule text of the proposed rule change to clarify its
meaning and revised the purpose section to clarify
the operation of the Exchange’s current split price
priority rule and the proposed modification to that
rule.
jlentini on PROD1PC65 with NOTICES
42 17
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18:05 Jun 01, 2006
Jkt 208001
(g) Equity Option and Index Option
Priority and Parity
(i) (A)–(B)
(C) Purchase or sale priority for orders
of 100 contracts or more. If a member
purchases (sells) 50 or more option
contracts of a particular series at a
particular price or prices, he shall, at the
next lower (higher) price have priority
in purchasing (selling) up to the
equivalent number of option contracts
of the same series that he purchased
(sold) at the higher (lower) price or
prices, but only if his bid (offer) is made
promptly and the purchase (sale) so
effected represents the opposite side of
a transaction with the same order or
offer (bid) as the earlier purchase or
purchases (sale or sales).
4 Phlx Rule 1014(g)(i)(C) is subject to a pilot
program scheduled to expire on June 30, 2006. See
infra Section II. A.1.
5 An SQT is an 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).
6 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).
7 Generally, all options on stocks, indexes, and
Exchange Traded Funds quoting in decimals at
$3.00 or higher have a minimum increment of $.10,
and those quoting in decimals under $3.00 have a
minimum increment of $.05. See Phlx Rule 1034(a).
8 The bracketed word ‘‘and’’ in the final sentence
of the rule text set forth below is indicated in
Exhibit 4 of the proposed rule change.
PO 00000
Frm 00144
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Sfmt 4703
32171
When the market has a bid/ask
differential of one minimum trading
increment and the bid and/or offer
represent the quotation of an out-ofcrowd SQT or an RSQT, such member
shall have priority over such SQT and/
or RSQT with respect to both the bid
and the offer.
The Options Committee may increase
the ‘‘minimum qualifying order size’’
above 100 contracts for all products
under its jurisdiction. Announcements
regarding changes to the minimum
qualifying order size shall be made via
an Exchange circular. This paragraph is
subject to a pilot scheduled to expire
June 30, 2006, and shall only apply to
transactions in equity options (including
[and] options overlying Exchange
Traded Fund Shares (‘‘ETFs’’)) and only
to such transactions that are effected in
open outcry.
(h) No change.
Commentary: No change.
*
*
*
*
*
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 proposed rule change, as amended,
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item III 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 modify an existing pilot
program concerning split-price
transactions (‘‘pilot’’),9 which by virtue
of their size and the need to execute
them at multiple prices may be difficult
to execute without a limited exception
to current Exchange priority rules, as
described below. The pilot is scheduled
to expire on June 30, 2006.
The Exchange proposes to modify the
pilot such that when the market has a
bid/ask differential of one minimum
trading increment and the bid and/or
offer represent the quotation of an outof-crowd SQT or an RSQT, the rule
would apply to grant priority over such
9 See Securities Exchange Act Release No. 53021
(December 23, 2005), 70 FR 77435 (December 30,
2005) (SR–Phlx–2005–86).
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32172
Federal Register / Vol. 71, No. 106 / Friday, June 2, 2006 / Notices
SQT and/or RSQT with respect to the
bid and/or the offer. Thus, the Exchange
is expanding the pilot to include
priority in both trades of the split price
transaction where there is a minimum
trading increment market, but only over
an out-of-crowd SQT or an RSQT. Such
priority would apply only when the bid
and/or ask, as applicable, represent the
quotation of an out-of-crowd SQT or an
RSQT.
Current Pilot
The current pilot, applicable to equity
options (including options overlying
Exchange Traded Fund Shares, permits
a member with an order for at least 100
contracts 10 who buys (sells) at least 50
contracts at a particular price to have
priority over all others in purchasing
(selling) up to an equivalent number of
contracts of the same order at the next
lower (higher) price without being
required to yield priority, including to
existing customer interest in the limit
order book. Absent this rule, such
orders would be required to yield
priority.11
For example, where the market is
$.25–$.35, a Floor Broker who is
representing an order to purchase 100
contracts and executes a purchase of 50
of those contracts at a price of $.30 has
priority over all market participants to
purchase the remaining 50 contracts in
the order at $.25. Two trades would be
reported to the tape, one a purchase of
50 contracts at $.30 and the other a
purchase of 50 contracts at $.25. The
Floor Broker’s customer thus would
receive a net purchase price of $.275 for
100 contracts.
In this example, the Floor Broker
would not be able to use this provision
in a minimum increment market (e.g.,
$.25–$.30), because he or she could not
execute the first trade at $.30 at all,
regardless of the current split price
priority provision, because that
provision does not give priority over
whoever is offering at $.30 until the
second trade. Accordingly, the
Exchange is proposing to amend the
split price priority provision, as
described below.
jlentini on PROD1PC65 with NOTICES
Proposed Modification to the Current
Pilot
As stated above, the current pilot
contemplates that a member who
purchases (sells) 50 or more option
contracts of a particular series at a
particular price or prices has priority at
the next lower (higher) price in
10 Orders for a size of less than 100 contracts are
not eligible for the current pilot and would not be
affected by this proposed rule change.
11 See Phlx Rule 119(a).
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18:05 Jun 01, 2006
Jkt 208001
purchasing (selling) up to the equivalent
number of option contracts of the same
series that he or she purchased (sold) at
the higher (lower) price or prices. The
proposed rule change would afford
priority to members physically located
in the crowd with respect to split price
transactions in those instances when the
market has a bid/ask differential of one
minimum trading increment and the bid
and/or ask represent quotations of
members physically located outside of
the crowd. The Exchange believes that
this provision should enable it to
compete for order flow in situations
where Floor Brokers seek split price
executions in open outcry when the bid
and/or ask consists of RSQT quotations
and/or the quotations of an out-of-crowd
SQT and there is a bid/ask differential
of one minimum trading increment.
The Exchange provides the following
example: assume a Floor Broker
represents an order to purchase 100
contracts in a series where the market is
$0.25 bid, $0.30 offer, and both the bid
and offer represent quotations submitted
by out of-crowd SQTs 12 or RSQTs.
Under the proposal, the Floor Broker
and contra-side participant in the
trading crowd would be afforded
priority over the out-of-crowd SQT or
RSQT at both $0.25 and $0.30, because
the bid/ask differential is one minimum
trading increment ($.05). This would
enable the Floor Broker to execute a
split-price order at a net price ($0.275)
that improves the market. According to
the Phlx, the effect (and ultimate
benefit) to that Floor Broker’s customer
would be a net purchase price of $.275
for 100 contracts. The proposed rule
change would apply only with respect
to quotations submitted by out-of-crowd
SQTs and RSQTs, and thus would not
operate to afford priority over, for
example, customer or broker-dealer
orders or in-crowd SQT quotes.
The Exchange believes that, in
situations where the market has a bid/
ask differential of one minimum trading
increment, it is potentially difficult for
the Floor Broker to achieve price
improvement for the Floor Broker’s
customer on the Phlx. Instead, the order
might trade at another exchange that has
no impediments, i.e., rules that afford
priority to in-crowd participants over
out-of-crowd participants generally,
regardless of split price priority.13
12 The specialist and/or SQTs participating in a
trading crowd may, in response to a verbal request
for a market by a Floor Broker, state a bid or offer
that is different than their electronically submitted
bid or offer, provided that such stated bid or offer
is not inferior to such electronically submitted bid
or offer. See Phlx Rule 1014, Commentary .05(c).
13 The Phlx cites to Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’) Rule 6.45A,
PO 00000
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Fmt 4703
Sfmt 4703
Accordingly, the Exchange has
proposed a limited exception to its
priority rule in the context of split price
transactions.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 14 in general, and furthers the
objectives of Section 6(b)(5) of the Act 15
in particular, in that 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.
According to the Exchange, the rule
would enable Floor Brokers
representing split price orders in open
outcry to provide split-price executions
at improved prices on behalf of
customers by establishing a limited
priority rule regarding split-price
transactions when the bid/ask
differential is one minimum trading
increment and the bid and/or ask
represent the quotation of an out-ofcrowd participant.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will 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
No written comments were either
solicited or received.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether 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 (https://www.sec.gov/
rules/sro.shtml); or
which provides that only in-crowd market
participants are eligible to participate in open
outcry trade allocations. See Securities Exchange
Act Release No. 51366 (March 14, 2005), 70 FR
13217 (March 18, 2005) (SR–CBOE–2004–75). The
Phlx notes that CBOE Rule 6.45A affords priority
over out-of-crowd participants even where there is
no split price priority situation. CBOE Rule 6.47
contains CBOE’s split price provision, which is
similar to current Phlx Rule 1014(g)(i)(C).
14 15 U.S.C. 78f(b).
15 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 71, No. 106 / Friday, June 2, 2006 / Notices
jlentini on PROD1PC65 with NOTICES
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2006–18 on the
subject line.
or an RSQT when there is a bid/ask
differential of one minimum trading
increment that is established by the
quotes of such SQT or RSQT. The
Commission believes that the proposed
Paper Comments
rule change should help facilitate better
• Send paper comments in triplicate
priced executions for larger-sized orders
to Nancy M. Morris, Secretary,
on the floor of the Exchange. The
Securities and Exchange Commission,
Commission notes that it has previously
100 F Street, NE., Washington, DC
approved rule proposals that permit an
20549–1090.
exchange to grant priority to in-crowd
All submissions should refer to File
participants in open outcry auctions on
Number SR–Phlx–2006–18. This file
its floor over market participants who
number should be included on the
subject line if e-mail is used. To help the are not physically present in the
crowd.17
Commission process and review your
comments more efficiently, please use
The Exchange has requested
only one method. The Commission will accelerated approval of the proposed
post all comments on the Commission’s rule change. The Commission finds
Internet Web site (https://www.sec.gov/
good cause, consistent with Section
rules/sro.shtml). Copies of the
19(b)(2) of the Act, to approve the
submission, all subsequent
proposed rule change, as amended,
amendments, all written statements
prior to the 30th day after the date of
with respect to the proposed rule
publication of the notice of filing thereof
change that are filed with the
in the Federal Register. As noted above,
Commission, and all written
the Exchange’s proposal yields a result
communications relating to the
similar to that of CBOE rules previously
proposed rule change between the
Commission and any person, other than approved by the Commission that
permit a Floor Broker and a contra-side
those that may be withheld from the
participant in the trading crowd to have
public in accordance with the
priority in split price transactions over
provisions of 5 U.S.C. 552, will be
out-of-crowd participants when there is
available for inspection and copying in
a bid/ask differential of one trading
the Commission’s Public Reference
increment.18 Accordingly, the
Room. Copies of the filing also will be
Commission believes that it is
available for inspection and copying at
the principal office of the Phlx. All
appropriate to approve the proposed
comments received will be posted
rule change on an accelerated basis to
without change; the Commission does
allow the Phlx to compete more
not edit personal identifying
effectively for larger-sized orders in
information from submissions. You
open outcry transactions on the floor of
should submit only information that
the Exchange.
you wish to make available publicly. All
V. Conclusion
submissions should refer to File
Number SR–Phlx–2006–18 and should
It is therefore ordered, pursuant to
be submitted on or before June 23, 2006.
Section 19(b)(2) of the Act,19 that the
IV. Commission’s Findings and Order
proposed rule change, as amended
Granting Approval of the Proposed
(Phlx–2006–18), is hereby approved on
Rule Change
an accelerated basis until the expiration
After careful consideration, the
of the current split price priority pilot
Commission finds that the proposed
program on June 30, 2006.
rule change, as amended, is consistent
For the Commission, by the Division of
with the requirements of the Act and the
Market Regulation, pursuant to delegated
rules and regulations thereunder,
authority.20
applicable to a national securities
J. Lynn Taylor,
exchange, and, in particular with the
Assistant Secretary.
requirements of Section 6(b)(5) of the
Act.16 The proposed rule change would [FR Doc. E6–8550 Filed 6–1–06; 8:45 am]
provide a limited exception to the
BILLING CODE 8010–01–P
Exchange’s split price priority rule by
allowing a Floor Broker and a contraside participant in the trading crowd to
have priority over an out-of-crowd SQT
16 In approving this proposed rule change, as
amended, the Commission notes that it has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Aug<31>2005
18:05 Jun 01, 2006
Jkt 208001
17 See
supra note 13.
18 Id.
19 15
20 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00146
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32173
DEPARTMENT OF STATE
[Public Notice 5433]
Notice of Public Meeting on FY 2007
Refugee Admissions Program
There will be a meeting on the
President’s FY 2007 Refugee
Admissions Program on Wednesday,
June 28, 2006 from 2 p.m. to 4 p.m. The
meeting will be held at the Refugee
Processing Center, 1401 Wilson
Boulevard, Suite 700, Arlington,
Virginia. The meeting’s purpose is to
hear the views of attendees on the
appropriate size and scope of the FY
2007 Refugee Admissions Program.
Seating is limited. Persons wishing to
attend this meeting must notify the
Bureau of Population, Refugees, and
Migration at telephone (202) 663–1045
by 5 p.m. Wednesday, June 21, 2006, to
arrange for admission. Persons wishing
to present oral comments, or to submit
written comments for consideration,
must provide them in writing by 5 p.m.
Wednesday, June 21, 2006. All
comments should be faxed to PRM at
(202) 663–1364.
Any questions about the public
meeting should be directed to Kelly
Gauger, PRM/Admissions Program
Officer at (202) 663–1055. Information
about the Refugee Admissions Program
may be found at https://www.state.gov/g/
prm/.
Dated: May 24, 2006.
Kelly Ryan,
Deputy Assistant Secretary, Department of
State.
[FR Doc. E6–8624 Filed 6–1–06; 8:45 am]
BILLING CODE 4710–33–P
TENNESSEE VALLEY AUTHORITY
Environmental Impact Statement for
Bear Creek Dam Leakage Resolution
Tennessee Valley Authority.
Notice of intent.
AGENCY:
ACTION:
SUMMARY: The Tennessee Valley
Authority (TVA) will prepare an
environmental impact statement (EIS)
addressing the proposed resolution of
leakage problems at Bear Creek Dam,
Franklin County, Alabama. Since the
dam was completed in 1969, there has
been excessive leakage of water through
its foundation and TVA seeks a longterm resolution of this leakage. TVA
will use the EIS process to obtain public
involvement on this proposal. Public
comment is invited concerning both the
scope of the EIS and environmental
issues that should be addressed as a part
of this EIS.
E:\FR\FM\02JNN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 106 (Friday, June 2, 2006)]
[Notices]
[Pages 32171-32173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-8550]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53874; File No. SR-Phlx-2006-18]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change and Amendment No. 1 Thereto Relating to Split Price
Priority in Options
May 25, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on March 2, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. On May 9,
2006, Phlx filed an amendment to the proposed rule change (``Amendment
No. 1'').\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons and is
approving the proposal on an accelerated basis.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange revised the rule text of
the proposed rule change to clarify its meaning and revised the
purpose section to clarify the operation of the Exchange's current
split price priority rule and the proposed modification to that
rule.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Phlx Rule 1014(g)(i)(C) \4\ to adopt
a new split price priority provision that establishes priority for in-
crowd participants in split price transactions over the quotations of
participants that are not located in the crowd (i.e., out-of-crowd
Streaming Quote Traders (``SQTs'') \5\ and Remote Streaming Quote
Traders (``RSQTs'') \6\) even where the market has a bid/ask
differential of one minimum trading increment.\7\ The text of the
proposed rule change, as amended, is set forth below. Proposed new
language is in italics; deleted language is in brackets.\8\
---------------------------------------------------------------------------
\4\ Phlx Rule 1014(g)(i)(C) is subject to a pilot program
scheduled to expire on June 30, 2006. See infra Section II. A.1.
\5\ An SQT is an 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).
\6\ 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).
\7\ Generally, all options on stocks, indexes, and Exchange
Traded Funds quoting in decimals at $3.00 or higher have a minimum
increment of $.10, and those quoting in decimals under $3.00 have a
minimum increment of $.05. See Phlx Rule 1034(a).
\8\ The bracketed word ``and'' in the final sentence of the rule
text set forth below is indicated in Exhibit 4 of the proposed rule
change.
---------------------------------------------------------------------------
* * * * *
Obligations and Restrictions Applicable to Specialists and Registered
Options Traders
Rule 1014. (a)-(f) No change.
(g) Equity Option and Index Option Priority and Parity
(i) (A)-(B)
(C) Purchase or sale priority for orders of 100 contracts or more.
If a member purchases (sells) 50 or more option contracts of a
particular series at a particular price or prices, he shall, at the
next lower (higher) price have priority in purchasing (selling) up to
the equivalent number of option contracts of the same series that he
purchased (sold) at the higher (lower) price or prices, but only if his
bid (offer) is made promptly and the purchase (sale) so effected
represents the opposite side of a transaction with the same order or
offer (bid) as the earlier purchase or purchases (sale or sales).
When the market has a bid/ask differential of one minimum trading
increment and the bid and/or offer represent the quotation of an out-
of-crowd SQT or an RSQT, such member shall have priority over such SQT
and/or RSQT with respect to both the bid and the offer.
The Options Committee may increase the ``minimum qualifying order
size'' above 100 contracts for all products under its jurisdiction.
Announcements regarding changes to the minimum qualifying order size
shall be made via an Exchange circular. This paragraph is subject to a
pilot scheduled to expire June 30, 2006, and shall only apply to
transactions in equity options (including [and] options overlying
Exchange Traded Fund Shares (``ETFs'')) and only to such transactions
that are effected in open outcry.
(h) No change.
Commentary: No change.
* * * * *
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 proposed rule change, as
amended, and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item III 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 modify an existing
pilot program concerning split-price transactions (``pilot''),\9\ which
by virtue of their size and the need to execute them at multiple prices
may be difficult to execute without a limited exception to current
Exchange priority rules, as described below. The pilot is scheduled to
expire on June 30, 2006.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 53021 (December 23,
2005), 70 FR 77435 (December 30, 2005) (SR-Phlx-2005-86).
---------------------------------------------------------------------------
The Exchange proposes to modify the pilot such that when the market
has a bid/ask differential of one minimum trading increment and the bid
and/or offer represent the quotation of an out-of-crowd SQT or an RSQT,
the rule would apply to grant priority over such
[[Page 32172]]
SQT and/or RSQT with respect to the bid and/or the offer. Thus, the
Exchange is expanding the pilot to include priority in both trades of
the split price transaction where there is a minimum trading increment
market, but only over an out-of-crowd SQT or an RSQT. Such priority
would apply only when the bid and/or ask, as applicable, represent the
quotation of an out-of-crowd SQT or an RSQT.
Current Pilot
The current pilot, applicable to equity options (including options
overlying Exchange Traded Fund Shares, permits a member with an order
for at least 100 contracts \10\ who buys (sells) at least 50 contracts
at a particular price to have priority over all others in purchasing
(selling) up to an equivalent number of contracts of the same order at
the next lower (higher) price without being required to yield priority,
including to existing customer interest in the limit order book. Absent
this rule, such orders would be required to yield priority.\11\
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\10\ Orders for a size of less than 100 contracts are not
eligible for the current pilot and would not be affected by this
proposed rule change.
\11\ See Phlx Rule 119(a).
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For example, where the market is $.25-$.35, a Floor Broker who is
representing an order to purchase 100 contracts and executes a purchase
of 50 of those contracts at a price of $.30 has priority over all
market participants to purchase the remaining 50 contracts in the order
at $.25. Two trades would be reported to the tape, one a purchase of 50
contracts at $.30 and the other a purchase of 50 contracts at $.25. The
Floor Broker's customer thus would receive a net purchase price of
$.275 for 100 contracts.
In this example, the Floor Broker would not be able to use this
provision in a minimum increment market (e.g., $.25-$.30), because he
or she could not execute the first trade at $.30 at all, regardless of
the current split price priority provision, because that provision does
not give priority over whoever is offering at $.30 until the second
trade. Accordingly, the Exchange is proposing to amend the split price
priority provision, as described below.
Proposed Modification to the Current Pilot
As stated above, the current pilot contemplates that a member who
purchases (sells) 50 or more option contracts of a particular series at
a particular price or prices has priority at the next lower (higher)
price in purchasing (selling) up to the equivalent number of option
contracts of the same series that he or she purchased (sold) at the
higher (lower) price or prices. The proposed rule change would afford
priority to members physically located in the crowd with respect to
split price transactions in those instances when the market has a bid/
ask differential of one minimum trading increment and the bid and/or
ask represent quotations of members physically located outside of the
crowd. The Exchange believes that this provision should enable it to
compete for order flow in situations where Floor Brokers seek split
price executions in open outcry when the bid and/or ask consists of
RSQT quotations and/or the quotations of an out-of-crowd SQT and there
is a bid/ask differential of one minimum trading increment.
The Exchange provides the following example: assume a Floor Broker
represents an order to purchase 100 contracts in a series where the
market is $0.25 bid, $0.30 offer, and both the bid and offer represent
quotations submitted by out of-crowd SQTs \12\ or RSQTs. Under the
proposal, the Floor Broker and contra-side participant in the trading
crowd would be afforded priority over the out-of-crowd SQT or RSQT at
both $0.25 and $0.30, because the bid/ask differential is one minimum
trading increment ($.05). This would enable the Floor Broker to execute
a split-price order at a net price ($0.275) that improves the market.
According to the Phlx, the effect (and ultimate benefit) to that Floor
Broker's customer would be a net purchase price of $.275 for 100
contracts. The proposed rule change would apply only with respect to
quotations submitted by out-of-crowd SQTs and RSQTs, and thus would not
operate to afford priority over, for example, customer or broker-dealer
orders or in-crowd SQT quotes.
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\12\ The specialist and/or SQTs participating in a trading crowd
may, in response to a verbal request for a market by a Floor Broker,
state a bid or offer that is different than their electronically
submitted bid or offer, provided that such stated bid or offer is
not inferior to such electronically submitted bid or offer. See Phlx
Rule 1014, Commentary .05(c).
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The Exchange believes that, in situations where the market has a
bid/ask differential of one minimum trading increment, it is
potentially difficult for the Floor Broker to achieve price improvement
for the Floor Broker's customer on the Phlx. Instead, the order might
trade at another exchange that has no impediments, i.e., rules that
afford priority to in-crowd participants over out-of-crowd participants
generally, regardless of split price priority.\13\ Accordingly, the
Exchange has proposed a limited exception to its priority rule in the
context of split price transactions.
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\13\ The Phlx cites to Chicago Board Options Exchange,
Incorporated (``CBOE'') Rule 6.45A, which provides that only in-
crowd market participants are eligible to participate in open outcry
trade allocations. See Securities Exchange Act Release No. 51366
(March 14, 2005), 70 FR 13217 (March 18, 2005) (SR-CBOE-2004-75).
The Phlx notes that CBOE Rule 6.45A affords priority over out-of-
crowd participants even where there is no split price priority
situation. CBOE Rule 6.47 contains CBOE's split price provision,
which is similar to current Phlx Rule 1014(g)(i)(C).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \14\ in general, and furthers the objectives of Section
6(b)(5) of the Act \15\ in particular, in that 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. According to the Exchange, the rule would enable Floor
Brokers representing split price orders in open outcry to provide
split-price executions at improved prices on behalf of customers by
establishing a limited priority rule regarding split-price transactions
when the bid/ask differential is one minimum trading increment and the
bid and/or ask represent the quotation of an out-of-crowd participant.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any 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
No written comments were either solicited or received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether 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 (https://
www.sec.gov/rules/sro.shtml); or
[[Page 32173]]
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2006-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2006-18. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of the
filing also will be available for inspection and copying at the
principal office of the Phlx. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-Phlx-2006-18 and should be submitted on or before June
23, 2006.
IV. Commission's Findings and Order Granting Approval of the Proposed
Rule Change
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder, applicable to a national
securities exchange, and, in particular with the requirements of
Section 6(b)(5) of the Act.\16\ The proposed rule change would provide
a limited exception to the Exchange's split price priority rule by
allowing a Floor Broker and a contra-side participant in the trading
crowd to have priority over an out-of-crowd SQT or an RSQT when there
is a bid/ask differential of one minimum trading increment that is
established by the quotes of such SQT or RSQT. The Commission believes
that the proposed rule change should help facilitate better priced
executions for larger-sized orders on the floor of the Exchange. The
Commission notes that it has previously approved rule proposals that
permit an exchange to grant priority to in-crowd participants in open
outcry auctions on its floor over market participants who are not
physically present in the crowd.\17\
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\16\ In approving this proposed rule change, as amended, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\17\ See supra note 13.
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The Exchange has requested accelerated approval of the proposed
rule change. The Commission finds good cause, consistent with Section
19(b)(2) of the Act, to approve the proposed rule change, as amended,
prior to the 30th day after the date of publication of the notice of
filing thereof in the Federal Register. As noted above, the Exchange's
proposal yields a result similar to that of CBOE rules previously
approved by the Commission that permit a Floor Broker and a contra-side
participant in the trading crowd to have priority in split price
transactions over out-of-crowd participants when there is a bid/ask
differential of one trading increment.\18\ Accordingly, the Commission
believes that it is appropriate to approve the proposed rule change on
an accelerated basis to allow the Phlx to compete more effectively for
larger-sized orders in open outcry transactions on the floor of the
Exchange.
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\18\ Id.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change, as amended (Phlx-2006-18), is
hereby approved on an accelerated basis until the expiration of the
current split price priority pilot program on June 30, 2006.
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\19\ 15 U.S.C. 78s(b)(2).
\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-8550 Filed 6-1-06; 8:45 am]
BILLING CODE 8010-01-P
