Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Assignments in Options Based on Root Symbol, 69173-69176 [E6-20212]

Download as PDF Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices and (C) below, of the most significant aspects of these statements.3 jlentini on PROD1PC65 with NOTICES (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In a cash-out merger, the common equity of the acquired company (‘‘Security’’) is converted into a right to receive a fixed amount of cash. On the day after the announced consummation date for the merger, the stock exchanges on which the Security is traded suspend all trading in the Security. Concurrently, the option exchanges discontinue trading in options overlying the Security. If a customer does not liquidate an out-of-the-money option position before the exchange halts trading, its broker must carry the position until it expires. With increasing volume and the proliferation of options with long expiration dates, clearing members’ cost and operational overhead of carrying these positions is significant. In an effort to reduce these costs, OCC adopted Rule 807 in 1998 to provide for acceleration of the expiration date of European-style equity options that have been converted to a cash deliverable. OCC now proposes to extend Rule 807 to cover American-style equity options. Under the proposed rule change, OCC typically would accelerate the expiration date of American-style and European-style equity options that are adjusted to call for a cash deliverable to the earliest practicable regular expiration date. OCC proposes to set the exercise by exception price threshold for the adjusted contracts at $.01 per share of the amount of the cash deliverable.4 OCC proposes to implement the rule change on January 1, 2008, to allow clearing members and customers sufficient time to prepare for the change of methodology. OCC will not implement the proposed rule change until definitive copies of an appropriate revision of or supplement to the options disclosure document, Characteristics and Risks of Standardized Options, are available for distribution. OCC believes the proposed rule change is consistent with the requirements of Section 17A of the Act 5 and the rules and regulations 3 The Commission has modified the text of the summaries prepared by OCC. 4 OCC also proposes to make a conforming change to Rule 1106. Every option contract that has an exercise price below (in the case of a call) or above (in the case of a put) the amount of the cash deliverable by $.01 or more will be deemed to have been exercised immediately prior to the accelerated expiration time unless the clearing member directs otherwise. 5 15 U.S.C. 78q–1. VerDate Aug<31>2005 15:37 Nov 28, 2006 Jkt 211001 thereunder because it would eliminate inefficient procedures for clearance and settlement that impose unnecessary costs on investors and persons facilitating transactions by and acting on behalf of investors. As such, OCC believes it is designed to promote the prompt and accurate clearance and settlement of securities transactions. (B) Self-Regulatory Organization’s Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five 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 ninety 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: (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 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–OCC–2006–20 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. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 69173 All submissions should refer to File Number SR–OCC–2006–20. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filings also will be available for inspection and copying at the principal office of OCC and on OCC’s Web site at https:// www.optionsclearing.com/publications/ rules/proposed_changes/ sr_occ_06_20.pdf. 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–OCC– 2006–20 and should be submitted on or before December 20, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority.6 Nancy M. Morris, Secretary. [FR Doc. E6–20209 Filed 11–28–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54807; File No. SR–Phlx– 2006–53] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Assignments in Options Based on Root Symbol November 21, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 6 17 CFR 200.30–3(a)(12). E:\FR\FM\29NON1.SGM 29NON1 69174 Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 18, 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, II, and III, below, which Items have been prepared by the Phlx.3 On November 21, 2006, the Exchange filed Amendment No. 1 to the proposed rule change.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Phlx Rule 507, Application for Assignment in Streaming Quote Options, by adopting new Commentary .01 to the rule, which would authorize the Exchange’s Options Allocation, Evaluation and Securities Committee (‘‘OAESC’’),5 to assign trading privileges in options to Streaming Quote Traders (‘‘SQTs’’) 6 and Remote Streaming Quote Traders (‘‘RSQTs’’) 7 by ‘‘root symbol’’ 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 At the Exchange’s request, the Commission has made certain clarifying additions and deletions to the description of the proposed rule change. See Telephone Conversations between Richard S. Rudolph, Vice President and Counsel, Phlx, Cyndi Rodriguez, Special Counsel, Division of Market Regulation (‘‘Division’’), Commission and Johnna B. Dumler, Special Counsel, Division, Commission, on September 14, 2006 and September 20, 2006. 4 In Partial Amendment No. 1, the Exchange clarified in the proposed rule text that root symbols are assigned to series by the Options Clearing Corporation. 5 The OAESC is a standing committee of the Exchange that has jurisdiction over the allocation, retention and transfer of the privileges to deal in all options to, by and among members on the options and foreign currency options trading floors. It is responsible for appointing specialists, alternate or assistant specialists or odd-lot dealers on the options and foreign currency options trading floors. It also establishes standards for the periodic review and evaluation of their performance and is empowered to suspend or revoke their appointments upon showing of reasonable cause therefore. See Phlx By-Law Article X, Section 10– 7(a). See also Phlx Rule 500. 6 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). 7 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). jlentini on PROD1PC65 with NOTICES 2 17 VerDate Aug<31>2005 15:37 Nov 28, 2006 Jkt 211001 Current Assignment Rule Phlx Rule 507 currently provides the solicitation, application and review process to be followed by the OAESC when an SQT or RSQT submits an application for assignment in an option. Under Phlx Rule 507, an application for assignment must be submitted in Application for Assignment in writing to the Exchange’s designated Streaming Quote Options staff and would be required to include, at a minimum, the name of the SQT or Rule 507. (a)—(g) No change. RSQT applicant and written verification Commentary: from the Exchange’s Membership .01. An applicant may request Services Department that such SQT or assignment by ‘‘root symbol,’’ such that RSQT applicant is qualified as a ROT. an SQT or RSQT may be assigned in To ensure an SQT or RSQT only certain series of an option. A root applicant’s technological readiness to symbol is the options trading mnemonic submit electronic quotes, Phlx Rule used for each option. The Exchange 507(b)(ii) mandates that no application may list different root symbols, as for assignment in Streaming Quote Options would be approved by the applied by the Options Clearing Corporation (‘‘OCC’’), in series overlying OAESC without written certification the same underlying security depending, signed by an officer (Vice President or without limitation, on the strike price of above) of the Exchange’s Financial Automation Department 8 indicating the series, the expiration of the series, that the SQT or RSQT applicant has the price of the underlying security, and/or mergers and acquisitions relating sufficient technological ability to support his/her continuous quoting to the underlying security. requirements as set forth in Phlx Rule * * * * * 1014(b)(ii), and the SQT or RSQT II. Self-Regulatory Organization’s applicant has successfully completed, or Statement of the Purpose of, and is scheduled to complete, testing of its Statutory Basis for, the Proposed Rule quoting system with the Exchange. Change SQT and RSQT Quoting Requirements In its filing with the Commission, the Currently, SQTs and RSQTs that do Phlx included statements concerning not receive Directed Orders 9 in a the purpose of and basis for the Streaming Quote Option 10 are proposed rule change, as amended, and responsible to quote continuous, twodiscussed any comments it received on sided markets in not less than 60% of the proposed rule change, as amended. the series in each Streaming Quote The text of these statements may be Option in which such SQT or RSQT is examined at the places specified in Item assigned.11 IV below. The Phlx has prepared An SQT or RSQT that receives summaries, set forth in Sections A, B, Directed Orders (‘‘DSQT’’ or ‘‘DRSQT’’, and C below, of the most significant respectively) is responsible to quote aspects of such statements. continuous, two-sided markets in not A. Self-Regulatory Organization’s 8 The Exchange’s Financial Automation Statement of the Purpose of, and Department is responsible for the design, Statutory Basis for, the Proposed Rule development, implementation, testing and Change maintenance of the Exchange’s automated trading (as defined more fully below), such that an SQT or RSQT may be assigned in only certain series of an option. The text of the proposed rule change, as amended, is set forth below. Italic indicates new text. * * * * * 1. Purpose The purpose of the proposed rule change, as amended, is to mitigate quote traffic and address quote capacity issues by reducing the number of quotations required to be submitted on the Exchange. The proposal would permit the OAESC to assign trading privileges to SQTs and RSQTs, upon their request, only in specific series of a particular option based on the ‘‘root symbol’’ of the series, instead of assigning trading privileges in all series of such option. Thus, as described below, SQTs and RSQTs would be required to submit quotations in fewer series. PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 systems, surveillance systems, and back office systems, and for monitoring the quality of performance and operational readiness of such systems, in addition to user training and validation of user technology as it pertains to such users’ interface with the Exchange’s systems. 9 The term ‘‘Directed Order’’ means any customer order (other than a stop or stop-limit order as defined in Phlx Rule 1066) to buy or sell which has been directed to a particular specialist, RSQT, or SQT by an Order Flow Provider. See Phlx Rule 1080(l)(i)(A). 10 A Streaming Quote Option is an option in which SQTs may generate and submit option quotations if such SQT is physically present on the Exchange floor, and RSQTs may generate and submit option quotations from off the floor of the Exchange, electronically. See Phlx Rule 1080(k). Currently, all options trading on the Exchange are Streaming Quote options. 11 See Phlx Rule 1014(b)(ii)(D)(1). E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices less than 99% of the series listed on the Exchange in at least 60% of the options in which such DSQT or DRSQT is assigned.12 Whenever a DSQT or DRSQT enters a quotation in an option in which such DSQT or DRSQT is assigned, such DSQT or DRSQT must maintain continuous quotations for not less than 99% of the series of the option listed on the Exchange until the close of that trading day.13 The Proposal The Exchange proposes to permit SQT and RSQT applicants to request assignment in an option by ‘‘root symbol.’’ Today, all assignments are by overlying option, meaning the SQT and RSQT applicants that are assigned in a particular option are assigned in all series of such option. Therefore, the calculation of the percentage of series required to be quoted is based on every series listed in such option, thus requiring SQTs and RSQTs to quote most series. Root symbols are the basic symbols used to identify an option, such as, for example, ‘‘ABQ’’ for options on fictitious ‘‘ABC Corporation.’’ The various series of options on ABC Corporation are identified with two additional symbols reflecting the expiration month and the strike price, which also indicate whether it is a put or call option. ABC Corporation may have different root symbols other than ABQ because of the number of strike prices (there are not enough letters in the alphabet to capture all potential strike prices), the expiration months available, and whether any mergers or acquisitions have occurred. Thus, an option on the Exchange overlying a single underlying security could have several different root symbols. The Exchange anticipates that, if options can be assigned by root symbol, SQTs and RSQTs may more carefully tailor their requests to the specific roots in which they are interested, which should encourage quality quoting. According to the Exchange, SQTs and RSQTs often submit quotes with bid/ask differentials as wide as the Exchange’s rules permit in series that they have no interest in quoting.14 The effect of this is that, in order to meet their quoting continuity requirements, SQTs and 12 See Phlx Rule 1014(b)(ii)(D)(1). Phlx Rule 1014(b)(ii)(D)(1). 14 Streaming Quote Options trading on the Exchange’s fully electronic trading platform for options, Phlx XL, may be quoted electronically with a difference not to exceed $5 between the bid and offer regardless of the price of the bid. The $5 bid/ ask differentials only apply to Streaming Quote Options trading on Phlx XL and only following the opening rotation in each security. See Phlx Rule 1014(c)(i)(A)(2). jlentini on PROD1PC65 with NOTICES 13 See VerDate Aug<31>2005 15:37 Nov 28, 2006 Jkt 211001 RSQTs submit continuous quotations that are not at or even near the best bid or offer on the Exchange, nor the National Best Bid or Offer. Such quotations result in unnecessary quote traffic on the Exchange, often causing issues of concern respecting quote capacity. This proposal should reduce the number of series assigned to SQTs and RSQTs by the OAESC, and consequently reduce the number of quotes submitted by SQTs and RSQTs. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) of the Act 15 in general, and furthers the objectives of Section 6(b)(5) of the Act 16 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 reducing the number of options quotations required to be submitted, which should enable the Exchange to mitigate quote traffic and capacity. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, 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 Written comments on the proposed rule change, as amended, were neither solicited nor received. 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 Phlx consents, the Commission will: (A) By order approve such proposed rule change, as amended, or, (B) Institute proceedings to determine whether the proposed rule change, as amended, should be disapproved. 15 15 16 15 PO 00000 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2006–53 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–2006–53. 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, as amended, that are filed with the Commission, and all written communications relating to the proposed rule change, as amended, 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–2006–53 and should be submitted on or before December 20, 2006. U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00079 Fmt 4703 Sfmt 4703 69175 E:\FR\FM\29NON1.SGM 29NON1 69176 Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.17 Nancy M. Morris, Secretary. [FR Doc. E6–20212 Filed 11–28–06; 8:45 am] Docket Number: OST–2006–26243. Date Filed: October 30, 2006. Parties: Members of the International Air Transport Association. Subject: BILLING CODE 8011–01–P MAIL VOTE NUMBER A 132, PAC2 (Mail A132), Reporting & Remittance Cycle for Russia. Intended effective date: 1 January 2007. DEPARTMENT OF TRANSPORTATION Office of the Secretary jlentini on PROD1PC65 with NOTICES Aviation Proceedings, Agreements Filed the Week Ending November 3, 2006 The following Agreements were filed with the Department of Transportation under the Sections 412 and 414 of the Federal Aviation Act, as amended (49 U.S.C. 1382 and 1384) and procedures governing proceedings to enforce these provisions. Answers may be filed within 21 days after the filing of the application. Docket Number: OST–2006–26276. Date Filed: November 3, 2006. Parties: Members of the International Air Transport Association. Subject: CBPP/17 teleconference on 06 September 2006. CBPP/17/Meet/003/06 dated 17 October 2006. Finally Adopted Resolutions: 600a. Intended effective date: 3 February 2007. Docket Number: OST–2006–26263. Date Filed: November 1, 2006. Parties: Members of the International Air Transport Association. Subject: Mail vote 519—Resolution 002ii, TC2 Europe between points in the ECAA, (Memo 0642), Mail vote 520—Resolution 002jj, TC2 Europe except between points in the ECAA, (Memo 0643), Intended effective date: 1 December 2006. Docket Number: OST–2006–26245. Date Filed: Ocotober 31, 2006. Parties: Members of the International Air Transport Association. Subject: Mail Vote 516—Resolution 010e, TC3 Japan, Korea-South East Asia, Special Passenger Amending Resolution between Korea (Rep. of) and China excluding Hong Kong SAR and Macao SAR, Philippines (Memo 1003). Intended effective date: 6 November 2006. 17 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 15:37 Nov 28, 2006 Renee V. Wright, Program Manager, Docket Operations, Federal Register Liaison. [FR Doc. E6–20179 Filed 11–28–06; 8:45 am] BILLING CODE 4910–9X–P DEPARTMENT OF TRANSPORTATION Office of the Secretary Aviation Proceedings, Agreements Filed the Week Ending November 10, 2006 The following Agreements were filed with the Department of Transportation under the Sections 412 and 414 of the Federal Aviation Act, as amended (49 U.S.C. 1382 and 1384) and procedures governing proceedings to enforce these provisions. Answers may be filed within 21 days after the filing of the application. Docket Number: OST–2006–26297. Date Filed: 11–7–2006. Parties: Members of the International Air Transport Association. Subject: TC23 Africa—South East Asia Expedited Resolution 002c (Memo 0312) Intended effective date: 1 November 2006. Docket Number: OST–2006–26289. Date Filed: 11–6–2006. Parties: Members of the International Air Transport Association. Subject: Mail Vote 517—Resolution 010f PTC3/23/31/123 Special Amending Resolution—Sri Lanka (Memo 1364) Intended effective date: 17 November 2006. Renee V. Wright, Program Manager, Docket Operations, Federal Register Liaison. [FR Doc. E6–20232 Filed 11–28–06; 8:45 am] BILLING CODE 4910– 9X–P Jkt 211001 PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 DEPARTMENT OF TRANSPORTATION Office of the Secretary Aviation Proceedings, Agreements Filed the Week Ending October 27, 2006 The following Agreements were filed with the Department of Transportation under the Sections 412 and 414 of the Federal Aviation Act, as amended (49 U.S.C. 1382 and 1384) and procedures governing proceedings to enforce these provisions. Answers may be filed within 21 days after the filing of the application. Docket Number: OST–2006–26167. Date Filed: 10–23–2006. Parties: Members of the International Air Transport Association. Subject: Mail Vote 514—Resolution 010c, TC3 Japan, Korea-South East Asia, Special Passenger Amending Resolution between Japan and China excluding Hong Kong SAR and Macao SAR (Memo 1002). Intended effective date: 01 November 2006. Docket Number: OST–2006–26186. Date Filed: 10–25–2006. Parties: Members of the International Air Transport Association. Subject: TC23/TC123 Mail Vote 511, Between Africa and South West Pacific, Except between South Africa and Australia (Memo 0315). Technical Correction: TC23/TC123 Mail Vote 511 Between Africa and South West Pacific Except between South Africa and Australia (Memo 0317). Intended effective date: 01 April 2007. Docket Number: OST–2006–26188. Date Filed: 10–25–2006. Parties: Members of the International Air Transport Association. Subject: TC23/TC123 Mail Vote 512. Between South Africa and Australia (Memo 0316). Technical Correction: TC23/TC123 Mail Vote 512. Between South Africa and Australia (Memo 0318). Intended effective date: 01 April 2007. Docket Number: OST–2006–26189. Date Filed: 10–25–2006. Parties: Members of the International Air Transport Association. Subject: PTC23/TC123 Middle East Japan/Korea. Expedited Resolution 002ff. (Memo 0311). Intended effective date: 01 December 2007. E:\FR\FM\29NON1.SGM 29NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 71, Number 229 (Wednesday, November 29, 2006)]
[Notices]
[Pages 69173-69176]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-20212]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54807; File No. SR-Phlx-2006-53]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Assignments in Options Based on Root Symbol

November 21, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 69174]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 18, 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, II, 
and III, below, which Items have been prepared by the Phlx.\3\ On 
November 21, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ At the Exchange's request, the Commission has made certain 
clarifying additions and deletions to the description of the 
proposed rule change. See Telephone Conversations between Richard S. 
Rudolph, Vice President and Counsel, Phlx, Cyndi Rodriguez, Special 
Counsel, Division of Market Regulation (``Division''), Commission 
and Johnna B. Dumler, Special Counsel, Division, Commission, on 
September 14, 2006 and September 20, 2006.
    \4\ In Partial Amendment No. 1, the Exchange clarified in the 
proposed rule text that root symbols are assigned to series by the 
Options Clearing Corporation.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 507, Application for 
Assignment in Streaming Quote Options, by adopting new Commentary .01 
to the rule, which would authorize the Exchange's Options Allocation, 
Evaluation and Securities Committee (``OAESC''),\5\ to assign trading 
privileges in options to Streaming Quote Traders (``SQTs'') \6\ and 
Remote Streaming Quote Traders (``RSQTs'') \7\ by ``root symbol'' (as 
defined more fully below), such that an SQT or RSQT may be assigned in 
only certain series of an option. The text of the proposed rule change, 
as amended, is set forth below. Italic indicates new text.
---------------------------------------------------------------------------

    \5\ The OAESC is a standing committee of the Exchange that has 
jurisdiction over the allocation, retention and transfer of the 
privileges to deal in all options to, by and among members on the 
options and foreign currency options trading floors. It is 
responsible for appointing specialists, alternate or assistant 
specialists or odd-lot dealers on the options and foreign currency 
options trading floors. It also establishes standards for the 
periodic review and evaluation of their performance and is empowered 
to suspend or revoke their appointments upon showing of reasonable 
cause therefore. See Phlx By-Law Article X, Section 10-7(a). See 
also Phlx Rule 500.
    \6\ 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).
    \7\ 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).
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* * * * *
Application for Assignment in Streaming Quote Options
    Rule 507. (a)--(g) No change.
    Commentary:
    .01. An applicant may request assignment by ``root symbol,'' such 
that an SQT or RSQT may be assigned in only certain series of an 
option. A root symbol is the options trading mnemonic used for each 
option. The Exchange may list different root symbols, as applied by the 
Options Clearing Corporation (``OCC''), in series overlying the same 
underlying security depending, without limitation, on the strike price 
of the series, the expiration of the series, the price of the 
underlying security, and/or mergers and acquisitions relating to the 
underlying security.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Phlx included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV below. The Phlx has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change, as amended, is to mitigate 
quote traffic and address quote capacity issues by reducing the number 
of quotations required to be submitted on the Exchange. The proposal 
would permit the OAESC to assign trading privileges to SQTs and RSQTs, 
upon their request, only in specific series of a particular option 
based on the ``root symbol'' of the series, instead of assigning 
trading privileges in all series of such option. Thus, as described 
below, SQTs and RSQTs would be required to submit quotations in fewer 
series.
Current Assignment Rule
    Phlx Rule 507 currently provides the solicitation, application and 
review process to be followed by the OAESC when an SQT or RSQT submits 
an application for assignment in an option. Under Phlx Rule 507, an 
application for assignment must be submitted in writing to the 
Exchange's designated staff and would be required to include, at a 
minimum, the name of the SQT or RSQT applicant and written verification 
from the Exchange's Membership Services Department that such SQT or 
RSQT applicant is qualified as a ROT.
    To ensure an SQT or RSQT applicant's technological readiness to 
submit electronic quotes, Phlx Rule 507(b)(ii) mandates that no 
application for assignment in Streaming Quote Options would be approved 
by the OAESC without written certification signed by an officer (Vice 
President or above) of the Exchange's Financial Automation Department 
\8\ indicating that the SQT or RSQT applicant has sufficient 
technological ability to support his/her continuous quoting 
requirements as set forth in Phlx Rule 1014(b)(ii), and the SQT or RSQT 
applicant has successfully completed, or is scheduled to complete, 
testing of its quoting system with the Exchange.
---------------------------------------------------------------------------

    \8\ The Exchange's Financial Automation Department is 
responsible for the design, development, implementation, testing and 
maintenance of the Exchange's automated trading systems, 
surveillance systems, and back office systems, and for monitoring 
the quality of performance and operational readiness of such 
systems, in addition to user training and validation of user 
technology as it pertains to such users' interface with the 
Exchange's systems.
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SQT and RSQT Quoting Requirements
    Currently, SQTs and RSQTs that do not receive Directed Orders \9\ 
in a Streaming Quote Option \10\ are responsible to quote continuous, 
two-sided markets in not less than 60% of the series in each Streaming 
Quote Option in which such SQT or RSQT is assigned.\11\
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    \9\ The term ``Directed Order'' means any customer order (other 
than a stop or stop-limit order as defined in Phlx Rule 1066) to buy 
or sell which has been directed to a particular specialist, RSQT, or 
SQT by an Order Flow Provider. See Phlx Rule 1080(l)(i)(A).
    \10\ A Streaming Quote Option is an option in which SQTs may 
generate and submit option quotations if such SQT is physically 
present on the Exchange floor, and RSQTs may generate and submit 
option quotations from off the floor of the Exchange, 
electronically. See Phlx Rule 1080(k). Currently, all options 
trading on the Exchange are Streaming Quote options.
    \11\ See Phlx Rule 1014(b)(ii)(D)(1).
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    An SQT or RSQT that receives Directed Orders (``DSQT'' or 
``DRSQT'', respectively) is responsible to quote continuous, two-sided 
markets in not

[[Page 69175]]

less than 99% of the series listed on the Exchange in at least 60% of 
the options in which such DSQT or DRSQT is assigned.\12\ Whenever a 
DSQT or DRSQT enters a quotation in an option in which such DSQT or 
DRSQT is assigned, such DSQT or DRSQT must maintain continuous 
quotations for not less than 99% of the series of the option listed on 
the Exchange until the close of that trading day.\13\
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    \12\ See Phlx Rule 1014(b)(ii)(D)(1).
    \13\ See Phlx Rule 1014(b)(ii)(D)(1).
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The Proposal
    The Exchange proposes to permit SQT and RSQT applicants to request 
assignment in an option by ``root symbol.'' Today, all assignments are 
by overlying option, meaning the SQT and RSQT applicants that are 
assigned in a particular option are assigned in all series of such 
option. Therefore, the calculation of the percentage of series required 
to be quoted is based on every series listed in such option, thus 
requiring SQTs and RSQTs to quote most series.
    Root symbols are the basic symbols used to identify an option, such 
as, for example, ``ABQ'' for options on fictitious ``ABC Corporation.'' 
The various series of options on ABC Corporation are identified with 
two additional symbols reflecting the expiration month and the strike 
price, which also indicate whether it is a put or call option. ABC 
Corporation may have different root symbols other than ABQ because of 
the number of strike prices (there are not enough letters in the 
alphabet to capture all potential strike prices), the expiration months 
available, and whether any mergers or acquisitions have occurred. Thus, 
an option on the Exchange overlying a single underlying security could 
have several different root symbols.
    The Exchange anticipates that, if options can be assigned by root 
symbol, SQTs and RSQTs may more carefully tailor their requests to the 
specific roots in which they are interested, which should encourage 
quality quoting. According to the Exchange, SQTs and RSQTs often submit 
quotes with bid/ask differentials as wide as the Exchange's rules 
permit in series that they have no interest in quoting.\14\ The effect 
of this is that, in order to meet their quoting continuity 
requirements, SQTs and RSQTs submit continuous quotations that are not 
at or even near the best bid or offer on the Exchange, nor the National 
Best Bid or Offer. Such quotations result in unnecessary quote traffic 
on the Exchange, often causing issues of concern respecting quote 
capacity. This proposal should reduce the number of series assigned to 
SQTs and RSQTs by the OAESC, and consequently reduce the number of 
quotes submitted by SQTs and RSQTs.
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    \14\ Streaming Quote Options trading on the Exchange's fully 
electronic trading platform for options, Phlx XL, may be quoted 
electronically with a difference not to exceed $5 between the bid 
and offer regardless of the price of the bid. The $5 bid/ask 
differentials only apply to Streaming Quote Options trading on Phlx 
XL and only following the opening rotation in each security. See 
Phlx Rule 1014(c)(i)(A)(2).
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \15\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \16\ 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 reducing the number of options 
quotations required to be submitted, which should enable the Exchange 
to mitigate quote traffic and capacity.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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, as 
amended, 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

    Written comments on the proposed rule change, as amended, were 
neither solicited nor received.

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 Phlx consents, the Commission will:
    (A) By order approve such proposed rule change, as amended, or,
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, 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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2006-53 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-2006-53. 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, as 
amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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-2006-53 and should be 
submitted on or before December 20, 2006.


[[Page 69176]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20212 Filed 11-28-06; 8:45 am]
BILLING CODE 8011-01-P

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