Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1 and 2 Thereto, Relating to Options Exchange Officials, 17212-17215 [E7-6496]

Download as PDF 17212 Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices requires that the rules of a clearing agency be designed to provide for the safeguarding of securities and funds which are in its possession or control or for which it is responsible. The proposed rule change will allow OCC’s clearing members and their customers to benefit from the portfolio margining program, which includes having greater liquidity and more efficient use of collateral, in a manner that is consistent with OCC’s overall risk management process. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice of filing because such approval will allow OCC’s members to immediately participate in the expanded portfolio margining pilot scheduled to be implemented on April 2, 2007. 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: pwalker on PROD1PC71 with NOTICES 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–2007–04 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–OCC–2007–04. 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 VerDate Aug<31>2005 18:39 Apr 05, 2007 Jkt 211001 the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing 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. 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–2007–04 and should be submitted on or before April 27, 2007. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR– OCC–2007–04) be and hereby is approved on an accelerated basis. For the Commission by the Division of Market Regulation, pursuant to delegated authority.5 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6493 Filed 4–5–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55552; File No. SR–Phlx– 2006–87] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1 and 2 Thereto, Relating to Options Exchange Officials March 29, 2007. 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 14, 2006, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change. On February 23, 2007, the Exchange filed Amendment No.1 to the proposed rule change. On March 15, 2007, the Exchange filed Amendment No. 2 to the proposed rule change. The proposed rule change is described in Items I, II, and III, below, which Items have been prepared substantially by the Phlx. The Commission is publishing this notice to solicit comments on the proposed rule 5 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend various rules related to dispute resolution, requests for relief from the requirements of certain rules, trading halts and order and decorum, by transferring the responsibilities from Exchange Floor Officials 3 to a new category of Exchange staff that would be known as an Options Exchange Official (‘‘OEO’’), as described more fully below. OEOs would replace, and assume all authority and responsibility currently handled by, Floor Officials. Thus, Floor Officials would cease to exist on the Exchange. The text of the proposed rule change is available on the Exchange’s Web site at https://www.phlx.com, at the Phlx, and at the Commission’s public reference room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 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 is to establish a new category of Exchange staff, the OEO.4 The purpose of Amendment No. 1, which replaces the previous filing in its entirety, is to clarify that OEOs would replace, and assume all authority and responsibility currently handled by, Floor Officials, and to make other technical amendments to the previously submitted rule text. Amendment No. 2 3 See Exchange By–Law Article VIII. jurisdiction would be limited to the Exchange’s options trading floor and systems. While acting in a similar capacity to Equity Exchange Officials, OEOs would not share any responsibilities or authority with Equity Exchange Officials. See Securities Exchange Act Release No. 54538 (September 28, 2006), 71 FR 59184 (October 6, 2006) (SR–Phlx–2006–43) (Order approving the Exchange’s new electronic equity trading system, XLE). 4 OEO E:\FR\FM\06APN1.SGM 06APN1 Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices pwalker on PROD1PC71 with NOTICES makes clarifying changes to the purpose section and technical corrections to the proposed rule text. Pursuant to Exchange By-Law Article VIII, Floor Officials, as designees 5 of the Chairpersons of the Options Committee,6 and Foreign Currency Options Committee,7 respectively, are authorized to administer the provisions of Exchange By-Laws and Rules of the Exchange pertaining to the respective trading floors and the immediately adjacent premises of the Exchange. They may impose penalties, as applicable, for breaches of their rules or regulations relating to order, decorum, health, safety and welfare on the respective trading floors. Additionally, they may rule to nullify, or adjust the terms of, executed trades under specific and limited conditions contained in Exchange rules, and may grant relief from certain requirements of on-floor members and member organizations if authorized to do so by rule. As described more fully below, in some instances an OEO would assume responsibilities of Exchange staff, particularly in the situation where certain current Floor Official decisions require concurrence of a Market Surveillance officer. In other instances, one single OEO would be authorized to rule on matters that currently require a decision from two Floor Officials. The current process for the review of, or appeal from, from Floor Official decisions 8 (which, under the proposal would become OEO decisions) and the role of the Exchange’s Referee 9 would be unchanged. Definition of OEO. Currently, Floor Officials appointed by the respective floor committee chairs, are Exchange members. Under proposed Rule 1(pp), an OEO would be defined as an Exchange staff member or contract employee designated as such by the Exchange’s Chief Regulatory Officer 5 The designees of the respective floor Committee chairpersons are generally members of the respective committees and subcommittees thereof. 6 The Options Committee has general supervision of the dealings of members on the options trading floor. See Exchange By-Law Article X, Section 10– 20. 7 The Foreign Currency Options Committee has general supervision of the dealings of members on the foreign currency options trading floor. See Exchange By-Law Article X, Section 10–17. 8 See Exchange Rule 124(d). 9 The Referee is an Exchange employee or independent contractor who is appointed by the Exchange’s Board of Governors on the recommendation of the Audit Committee to review Floor Official rulings concerning the nullification and adjustment of transactions in accordance with Rule 124(d), and to act in the capacity of a Floor Official respecting initial rulings concerning requests for relief from the requirements of certain Exchange Rules. See Exchange Rule 124, Commentary .02. VerDate Aug<31>2005 18:39 Apr 05, 2007 Jkt 211001 (‘‘CRO’’). A list of individual OEOs would be displayed on the Exchange website, and would be maintained and updated each time a name is added to, or deleted from, the list of OEOs. The Exchange’s Referee would be responsible for maintaining and updating such list. In the event no OEO is available to rule on a particular matter, the CRO or his/her designee would be required to rule on such matter. OEOs would be located on the Exchange’s options trading floor and report to the CRO. OEOs would be members of the Exchange’s regulatory staff, including the on-floor surveillance staff, who have sufficient expertise to act in the capacity of an OEO as determined by the CRO. This could include existing Exchange regulatory staff, new hires, or contract employees. Under the proposal, the Referee may act in the capacity of an OEO respecting initial rulings concerning requests for relief from the requirements of certain enumerated Exchange rules,10 since such rulings are final and not appealable. The Referee could not, however, rule in the capacity of an OEO concerning, for example, a nullified or adjusted trade resulting from trading dispute or an obvious error, because the Referee would have a conflict of interest in ruling on an appeal from his or her own decision to nullify or adjust such a trade.11 Nullification and Adjustment of Transactions. Currently, Exchange Floor Officials are authorized to rule on trading disputes occurring on the options trading floor, which could result in the adjustment or nullification of executed transactions.12 Floor Officials are also currently authorized to nullify or adjust executed transactions in the case of an obvious error as defined in the Exchange’s rules.13 Such rulings can be appealed to the Referee for review. The Referee may uphold, modify, or overturn the ruling. The decision of the Referee concerning these types of rulings is final and may not be appealed to the Exchange’s Board of Governors. 10 See proposed Exchange Rule 124, Commentary .02(a). Telephone conversation on March 19, 2007, between Richard Rudolph, Vice President and Counsel, Phlx and Jennifer Dodd, Special Counsel, Division of Market Regulation, Commission (‘‘Telephone Conversation’’). 11 See proposed Exchange Rule 124, Commentary .01. Telephone Conversation. 12 See Exchange Rule 124. One Floor Official may adjust the terms of a transaction in a dispute; two Floor Officials must determine to nullify a transaction in such a situation. 13 See Exchange Rule 1092. Two Floor Officials must determine that an obvious error (as defined in the rule) occurred in order to nullify a transaction. PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 17213 OEOs would replace Floor Officials respecting initial rulings on adjustment or nullification of transactions. One OEO may adjust a transaction, and the Exchange proposes to require only one OEO to nullify a transaction as well.14 The Exchange believes that this should expedite the decision making process for the nullification of transactions. As stated above, such rulings would continue to be appealable to the Referee. Initial Requests for Relief. Floor Officials and, in some instances the Referee, are currently authorized to rule on initial requests for relief from the requirements of certain rules, including, without limitation, quote spread parameters,15 and disengagement of Exchange automatic execution systems under extraordinary circumstances.16 Such rulings are final and may not be appealed to the Board. Similarly, the proposal would authorize OEOs to replace Floor Officials and to make initial rulings concerning requests for relief from the requirements of other Exchange Rules. For example, the proposal would authorize OEOs to rule on requests for relief from Exchange rules relating to: (i) Bid/ask differentials pursuant to Exchange Rule 1014(c) and Options Floor Procedure Advice (‘‘OFPA’’) F–6; (ii) disengagement of Exchange automatic execution systems pursuant to Exchange Rule 1080(e) and OFPA A– 13; (iii) the determination that quotes in options on the Exchange or another market or markets are subject to relief from the firm quote requirement pursuant to Exchange Rule 1080(c)(i); and (iv) trading halts, openings and reopenings pursuant to Rules 1017, 1047 and 1047A and OFPAs A–12, A–14 and G–2. Rule 1014(c) and OFPA F–6 set forth the maximum allowable bid/ask differentials, or quote widths, that may be disseminated by specialists and ROTs on the Exchange, depending on the price of the series to be quoted. The Exchange believes that these requirements can have the unintended consequence of requiring those making markets to quote at prices that are unnecessarily narrow, thereby exposing them to great risk if markets move quickly.17 Two Floor Officials may 14 Currently, Exchange rules require two Floor Officials to nullify a transaction. See Exchange Rule 124(a). See also Exchange Rule 1092(e)(ii)(B). The instant proposal would require one OEO to nullify a transaction. 15 Relief from the established bid/ask differentials may be granted upon the receipt of an approval of two Floor Officials. See OFPA F–6. 16 See Exchange Rule 1080(e). 17 See, e.g., Securities Exchange Act Release No. 50728 (November 23, 2004), 69 FR 69982 E:\FR\FM\06APN1.SGM Continued 06APN1 17214 Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices pwalker on PROD1PC71 with NOTICES currently grant relief from these differentials during times of peak market activity where options markets and/or the market for securities underlying the option move quickly. Under the proposal, one OEO would be authorized to make such a ruling. The Exchange believes that this should expedite the process for granting or denying such relief by reducing the number of persons required to participate in such a ruling. Openings. Currently, the Exchange provides an automated opening system for options; however, two Floor Officials may direct the manual opening of the affected series where necessary to ensure a fair and orderly market.18 For example, two Floor Officials may authorize the opening of a series at a price that falls outside of the Exchange’s established parameters 19 where necessary to ensure a fair and orderly market. The Exchange proposes to replace the two Floor Officials with a single OEO, who would have the same authority described above concerning openings. The purpose of this provision is to expedite the approval process for manual openings on the Exchange, thereby enabling the Exchange to open the particular series as quickly as possible. Trading Halts, Rotations, and ReOpenings Following a Trading Halt. Currently, two Floor Officials, with the concurrence of a Market Surveillance officer, are currently authorized to rule on trading halts, rotations and reopenings following a trading halt.20 The Exchange proposes to amend the rules so that one OEO could make such a ruling. Further, the Exchange proposes to delete the provisions from the rules requiring the concurrence of a Market Surveillance officer in rulings concerning trading halts and reopenings following a trading halt. The purpose of this deletion is to avoid unnecessary delays in locating and informing a Market Surveillance officer of a situation requiring a halt (such as a halt in trading in the underlying security) while volatile market activity continues. The Exchange believes that the timeliness of such a ruling is critical in such situations, because customers and other market participants could be subject to immeasurable risk during the (December 1, 2004) (SR–Phlx–2004–74) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. Relating to $5 Bid/Ask Differentials). 18 See Exchange Rule 1017(f). 19 See Exchange Rule 1017(e)(ii). 20 See Exchange Rules 1047 and 1047A. See also, OFPA G–2. VerDate Aug<31>2005 18:39 Apr 05, 2007 Jkt 211001 time period between the occurrence of an event requiring a halt or re-opening and the time the decision is made and trading is actually halted. Thus, one OEO could make a prompt ruling without unnecessary delay. Order and Decorum. Currently, a Floor Official may impose on members, member organizations, participants, participant organizations and their associated persons, fines for breaches of regulations that relate to administration of order, decorum, health, safety and welfare on the Exchange.21 Under the proposal, OEOs would have this authority. Currently, two Floor Officials may refer such a matter to the Exchange’s Business Conduct Committee (‘‘BCC’’).22 Under the proposal, OEOs would have this authority, and one OEO could refer such a matter to the BCC. Currently, two Floor Officials and an officer of the Exchange may exclude a member, participant, and any associated person of member organizations and participant organizations from the trading floor for breaches of regulations that relate to administration of order, decorum, health, safety and welfare on the Exchange that occurred on the trading floor or on the premises immediately adjacent to the trading floor if they pose an immediate threat to the safety of persons or property, are seriously disrupting Exchange operations, or are in possession of a firearm.23 The Exchange proposes to authorize one OEO and an officer of the Exchange to do so. Finally, the Exchange proposes a housekeeping amendment to OFPA F–27, to delete the term ‘‘Floor Procedure Committee,’’ because that committee no longer exists on the Exchange.24 The Exchange believes that replacing Floor Officials with OEOs should result in a more neutral, efficient and 21 See Exchange Rule 60. Business Conduct Committee has exclusive jurisdiction to (i) monitor compliance with the Exchange Act, the rules and regulations thereunder, the By-Laws and rules of the Exchange or any interpretation thereof, and the rules, regulations, resolutions and stated policies of the Board of Governors or any committee of the Exchange, by Members, participants, Member Organizations and participant organizations and persons associated with any such persons or organizations; (ii) examine into the business conduct and financial condition of Members, participants, Member Organizations and participant organizations and persons associated with any such persons or organizations; and (iii) authorize the initiation of any disciplinary actions or proceedings brought by the Exchange. See Exchange By-Law Article X, Section 10–11. 23 See Exchange Rule 60(b)(i). 24 See Securities Exchange Act Release No. 54538 (September 28, 2006), 71 FR 59184 (October 6, 2006) (SR–Phlx–2006–43). 22 The PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 streamlined process for the resolution of disputes on the Exchange, together with an expedited process through which the Exchange may rule on matters currently handled by Floor Officials, including the determination to nullify and adjust transactions; to halt and re-open options series for trading; to conduct manual openings where necessary in the interest of a fair and orderly market; to process requests for relief from the requirements of certain rules; and to more efficiently maintain order and decorum on the Exchange’s options trading floor and surrounding areas. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 25 in general, and furthers the objectives of Section 6(b)(5) of the Act 26 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 establishing and authorizing neutral OEOs to rule on matters such as trading disputes, requests for relief, openings, trading halts and reopenings, and to efficiently maintain order and decorum on the options trading floor. The Exchange further believes that the proposal is consistent with Section 6(b)(1) 27 of the Act in that the proposal is designed to enable the Exchange to continue to comply, and to enforce compliance by its members and persons associated with its members, with provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange. 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. 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 25 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 27 15 U.S.C. 78f(b)(1). 26 15 E:\FR\FM\06APN1.SGM 06APN1 Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices 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 Phlx 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: pwalker on PROD1PC71 with NOTICES 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–2006–87 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–2006–87. 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 VerDate Aug<31>2005 18:39 Apr 05, 2007 Jkt 211001 submissions should refer to File Number SR–Phlx–2006–87 and should be submitted on or before April 27, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.28 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–6496 Filed 4–5–07; 8:45 am] BILLING CODE 8010–01–P SOCIAL SECURITY ADMINISTRATION [Docket No. SSA 2007–0023] Privacy Act of 1974, as Amended; Computer Matching Program (SSA/ States, SDX–BENDEX–SVES Files)— Match 6001, 6002 and 6004 AGENCY: Social Security Administration (SSA). Notice of a renewal of an existing computer matching program which is scheduled to expire on June 30, 2007. ACTION: SUMMARY: In accordance with the provisions of the Privacy Act, as amended, this notice announces a renewal of an existing computer matching program that SSA is currently conducting with the States. DATES: SSA will file a report of the subject matching program with the Committee on Homeland Security and Governmental Affairs of the Senate, the Committee on Oversight and Government Reform of the House of Representatives and the Office of Information and Regulatory Affairs, Office of Management and Budget (OMB). The matching program will be effective as indicated below. ADDRESSES: Interested parties may comment on this notice by either telefaxing to (410) 965–8582 or writing to the Associate Commissioner, Office of Income Security Programs, 252 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235–6401. All comments received will be available for public inspection at this address. FOR FURTHER INFORMATION CONTACT: The Associate Commissioner for Income Security Programs as shown above. SUPPLEMENTARY INFORMATION: A. General The Computer Matching and Privacy Protection Act of 1988 (Public Law (Pub.L.) 100–503), amended the Privacy Act (5 U.S.C. 552a) by describing the manner in which computer matching 28 17 PO 00000 CFR 200.30–3(a)(12). Frm 00125 Fmt 4703 Sfmt 4703 17215 involving Federal agencies could be performed and adding certain protections for individuals applying for, and receiving, Federal benefits. Section 7201 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101– 508) further amended the Privacy Act regarding protections for such individuals. The Privacy Act, as amended, regulates the use of computer matching by Federal agencies when records in a system of records are matched with other Federal, State, or local government records. It requires Federal agencies involved in computer matching programs to: (1) Negotiate written agreements with the other agency or agencies participating in the matching programs; (2) Obtain the Data Integrity Boards’ approval of the match agreements; (3) Publish notice of the computer matching program in the Federal Register; (4) Furnish detailed reports about matching programs to Congress and OMB; (5) Notify applicants and beneficiaries that their records are subject to matching; and (6) Verify match findings before reducing, suspending, terminating, or denying an individual’s benefits or payments. B. SSA Computer Matches Subject to the Privacy Act We have taken action to ensure that all of SSA’s computer matching programs comply with the requirements of the Privacy Act, as amended. Dated: March 27, 2007. Manuel J. Vaz, Acting Deputy Commissioner for Disability and Income Security Programs. Notice of Computer Matching Program, Social Security Administration (SSA) With the States A. Participating Agencies SSA and the States. B. Purpose of the Matching Program The purpose of this matching program is to establish the conditions, safeguards and procedures under which the States may obtain SSN verification and certain SSA information relating to the eligibility for, and payment of, Social Security, Supplemental Security Income and Special Veterans Benefits, including certain tax return, quarters of coverage, prisoner and death information. This information is available from various SSA systems of records. Individual agreements with the States will describe the information to be E:\FR\FM\06APN1.SGM 06APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 66 (Friday, April 6, 2007)]
[Notices]
[Pages 17212-17215]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6496]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55552; File No. SR-Phlx-2006-87]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change, and Amendment Nos. 1 and 2 
Thereto, Relating to Options Exchange Officials

March 29, 2007.
    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 14, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change. On February 23, 2007, the 
Exchange filed Amendment No.1 to the proposed rule change. On March 15, 
2007, the Exchange filed Amendment No. 2 to the proposed rule change. 
The proposed rule change is described in Items I, II, and III, below, 
which Items have been prepared substantially by the Phlx. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend various rules related to dispute 
resolution, requests for relief from the requirements of certain rules, 
trading halts and order and decorum, by transferring the 
responsibilities from Exchange Floor Officials \3\ to a new category of 
Exchange staff that would be known as an Options Exchange Official 
(``OEO''), as described more fully below. OEOs would replace, and 
assume all authority and responsibility currently handled by, Floor 
Officials. Thus, Floor Officials would cease to exist on the Exchange.
---------------------------------------------------------------------------

    \3\ See Exchange By-Law Article VIII.
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    The text of the proposed rule change is available on the Exchange's 
Web site at https://www.phlx.com, at the Phlx, and at the Commission's 
public reference room.

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

    In its filing with the Commission, the Phlx included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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 is to establish a new 
category of Exchange staff, the OEO.\4\ The purpose of Amendment No. 1, 
which replaces the previous filing in its entirety, is to clarify that 
OEOs would replace, and assume all authority and responsibility 
currently handled by, Floor Officials, and to make other technical 
amendments to the previously submitted rule text. Amendment No. 2

[[Page 17213]]

makes clarifying changes to the purpose section and technical 
corrections to the proposed rule text.
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    \4\ OEO jurisdiction would be limited to the Exchange's options 
trading floor and systems. While acting in a similar capacity to 
Equity Exchange Officials, OEOs would not share any responsibilities 
or authority with Equity Exchange Officials. See Securities Exchange 
Act Release No. 54538 (September 28, 2006), 71 FR 59184 (October 6, 
2006) (SR-Phlx-2006-43) (Order approving the Exchange's new 
electronic equity trading system, XLE).
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    Pursuant to Exchange By-Law Article VIII, Floor Officials, as 
designees \5\ of the Chairpersons of the Options Committee,\6\ and 
Foreign Currency Options Committee,\7\ respectively, are authorized to 
administer the provisions of Exchange By-Laws and Rules of the Exchange 
pertaining to the respective trading floors and the immediately 
adjacent premises of the Exchange. They may impose penalties, as 
applicable, for breaches of their rules or regulations relating to 
order, decorum, health, safety and welfare on the respective trading 
floors. Additionally, they may rule to nullify, or adjust the terms of, 
executed trades under specific and limited conditions contained in 
Exchange rules, and may grant relief from certain requirements of on-
floor members and member organizations if authorized to do so by rule.
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    \5\ The designees of the respective floor Committee chairpersons 
are generally members of the respective committees and subcommittees 
thereof.
    \6\ The Options Committee has general supervision of the 
dealings of members on the options trading floor. See Exchange By-
Law Article X, Section 10-20.
    \7\ The Foreign Currency Options Committee has general 
supervision of the dealings of members on the foreign currency 
options trading floor. See Exchange By-Law Article X, Section 10-17.
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    As described more fully below, in some instances an OEO would 
assume responsibilities of Exchange staff, particularly in the 
situation where certain current Floor Official decisions require 
concurrence of a Market Surveillance officer. In other instances, one 
single OEO would be authorized to rule on matters that currently 
require a decision from two Floor Officials. The current process for 
the review of, or appeal from, from Floor Official decisions \8\ 
(which, under the proposal would become OEO decisions) and the role of 
the Exchange's Referee \9\ would be unchanged.
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    \8\ See Exchange Rule 124(d).
    \9\ The Referee is an Exchange employee or independent 
contractor who is appointed by the Exchange's Board of Governors on 
the recommendation of the Audit Committee to review Floor Official 
rulings concerning the nullification and adjustment of transactions 
in accordance with Rule 124(d), and to act in the capacity of a 
Floor Official respecting initial rulings concerning requests for 
relief from the requirements of certain Exchange Rules. See Exchange 
Rule 124, Commentary .02.
---------------------------------------------------------------------------

    Definition of OEO. Currently, Floor Officials appointed by the 
respective floor committee chairs, are Exchange members. Under proposed 
Rule 1(pp), an OEO would be defined as an Exchange staff member or 
contract employee designated as such by the Exchange's Chief Regulatory 
Officer (``CRO''). A list of individual OEOs would be displayed on the 
Exchange website, and would be maintained and updated each time a name 
is added to, or deleted from, the list of OEOs. The Exchange's Referee 
would be responsible for maintaining and updating such list. In the 
event no OEO is available to rule on a particular matter, the CRO or 
his/her designee would be required to rule on such matter. OEOs would 
be located on the Exchange's options trading floor and report to the 
CRO.
    OEOs would be members of the Exchange's regulatory staff, including 
the on-floor surveillance staff, who have sufficient expertise to act 
in the capacity of an OEO as determined by the CRO. This could include 
existing Exchange regulatory staff, new hires, or contract employees.
    Under the proposal, the Referee may act in the capacity of an OEO 
respecting initial rulings concerning requests for relief from the 
requirements of certain enumerated Exchange rules,\10\ since such 
rulings are final and not appealable. The Referee could not, however, 
rule in the capacity of an OEO concerning, for example, a nullified or 
adjusted trade resulting from trading dispute or an obvious error, 
because the Referee would have a conflict of interest in ruling on an 
appeal from his or her own decision to nullify or adjust such a 
trade.\11\
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    \10\ See proposed Exchange Rule 124, Commentary .02(a). 
Telephone conversation on March 19, 2007, between Richard Rudolph, 
Vice President and Counsel, Phlx and Jennifer Dodd, Special Counsel, 
Division of Market Regulation, Commission (``Telephone 
Conversation'').
    \11\ See proposed Exchange Rule 124, Commentary .01. Telephone 
Conversation.
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    Nullification and Adjustment of Transactions. Currently, Exchange 
Floor Officials are authorized to rule on trading disputes occurring on 
the options trading floor, which could result in the adjustment or 
nullification of executed transactions.\12\ Floor Officials are also 
currently authorized to nullify or adjust executed transactions in the 
case of an obvious error as defined in the Exchange's rules.\13\ Such 
rulings can be appealed to the Referee for review. The Referee may 
uphold, modify, or overturn the ruling. The decision of the Referee 
concerning these types of rulings is final and may not be appealed to 
the Exchange's Board of Governors.
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    \12\ See Exchange Rule 124. One Floor Official may adjust the 
terms of a transaction in a dispute; two Floor Officials must 
determine to nullify a transaction in such a situation.
    \13\ See Exchange Rule 1092. Two Floor Officials must determine 
that an obvious error (as defined in the rule) occurred in order to 
nullify a transaction.
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    OEOs would replace Floor Officials respecting initial rulings on 
adjustment or nullification of transactions. One OEO may adjust a 
transaction, and the Exchange proposes to require only one OEO to 
nullify a transaction as well.\14\ The Exchange believes that this 
should expedite the decision making process for the nullification of 
transactions. As stated above, such rulings would continue to be 
appealable to the Referee.
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    \14\ Currently, Exchange rules require two Floor Officials to 
nullify a transaction. See Exchange Rule 124(a). See also Exchange 
Rule 1092(e)(ii)(B). The instant proposal would require one OEO to 
nullify a transaction.
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    Initial Requests for Relief. Floor Officials and, in some instances 
the Referee, are currently authorized to rule on initial requests for 
relief from the requirements of certain rules, including, without 
limitation, quote spread parameters,\15\ and disengagement of Exchange 
automatic execution systems under extraordinary circumstances.\16\ Such 
rulings are final and may not be appealed to the Board.
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    \15\ Relief from the established bid/ask differentials may be 
granted upon the receipt of an approval of two Floor Officials. See 
OFPA F-6.
    \16\ See Exchange Rule 1080(e).
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    Similarly, the proposal would authorize OEOs to replace Floor 
Officials and to make initial rulings concerning requests for relief 
from the requirements of other Exchange Rules. For example, the 
proposal would authorize OEOs to rule on requests for relief from 
Exchange rules relating to: (i) Bid/ask differentials pursuant to 
Exchange Rule 1014(c) and Options Floor Procedure Advice (``OFPA'') F-
6; (ii) disengagement of Exchange automatic execution systems pursuant 
to Exchange Rule 1080(e) and OFPA A-13; (iii) the determination that 
quotes in options on the Exchange or another market or markets are 
subject to relief from the firm quote requirement pursuant to Exchange 
Rule 1080(c)(i); and (iv) trading halts, openings and re-openings 
pursuant to Rules 1017, 1047 and 1047A and OFPAs A-12, A-14 and G-2.
    Rule 1014(c) and OFPA F-6 set forth the maximum allowable bid/ask 
differentials, or quote widths, that may be disseminated by specialists 
and ROTs on the Exchange, depending on the price of the series to be 
quoted. The Exchange believes that these requirements can have the 
unintended consequence of requiring those making markets to quote at 
prices that are unnecessarily narrow, thereby exposing them to great 
risk if markets move quickly.\17\ Two Floor Officials may

[[Page 17214]]

currently grant relief from these differentials during times of peak 
market activity where options markets and/or the market for securities 
underlying the option move quickly. Under the proposal, one OEO would 
be authorized to make such a ruling. The Exchange believes that this 
should expedite the process for granting or denying such relief by 
reducing the number of persons required to participate in such a 
ruling.
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    \17\  See, e.g., Securities Exchange Act Release No. 50728 
(November 23, 2004), 69 FR 69982 (December 1, 2004) (SR-Phlx-2004-
74) (Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. 
Relating to $5 Bid/Ask Differentials).
---------------------------------------------------------------------------

    Openings. Currently, the Exchange provides an automated opening 
system for options; however, two Floor Officials may direct the manual 
opening of the affected series where necessary to ensure a fair and 
orderly market.\18\ For example, two Floor Officials may authorize the 
opening of a series at a price that falls outside of the Exchange's 
established parameters \19\ where necessary to ensure a fair and 
orderly market.
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    \18\ See Exchange Rule 1017(f).
    \19\ See Exchange Rule 1017(e)(ii).
---------------------------------------------------------------------------

    The Exchange proposes to replace the two Floor Officials with a 
single OEO, who would have the same authority described above 
concerning openings. The purpose of this provision is to expedite the 
approval process for manual openings on the Exchange, thereby enabling 
the Exchange to open the particular series as quickly as possible.
    Trading Halts, Rotations, and Re-Openings Following a Trading Halt. 
Currently, two Floor Officials, with the concurrence of a Market 
Surveillance officer, are currently authorized to rule on trading 
halts, rotations and re-openings following a trading halt.\20\ The 
Exchange proposes to amend the rules so that one OEO could make such a 
ruling. Further, the Exchange proposes to delete the provisions from 
the rules requiring the concurrence of a Market Surveillance officer in 
rulings concerning trading halts and re-openings following a trading 
halt. The purpose of this deletion is to avoid unnecessary delays in 
locating and informing a Market Surveillance officer of a situation 
requiring a halt (such as a halt in trading in the underlying security) 
while volatile market activity continues. The Exchange believes that 
the timeliness of such a ruling is critical in such situations, because 
customers and other market participants could be subject to 
immeasurable risk during the time period between the occurrence of an 
event requiring a halt or re-opening and the time the decision is made 
and trading is actually halted. Thus, one OEO could make a prompt 
ruling without unnecessary delay.
---------------------------------------------------------------------------

    \20\ See Exchange Rules 1047 and 1047A. See also, OFPA G-2.
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    Order and Decorum. Currently, a Floor Official may impose on 
members, member organizations, participants, participant organizations 
and their associated persons, fines for breaches of regulations that 
relate to administration of order, decorum, health, safety and welfare 
on the Exchange.\21\ Under the proposal, OEOs would have this 
authority. Currently, two Floor Officials may refer such a matter to 
the Exchange's Business Conduct Committee (``BCC'').\22\ Under the 
proposal, OEOs would have this authority, and one OEO could refer such 
a matter to the BCC.
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    \21\ See Exchange Rule 60.
    \22\ The Business Conduct Committee has exclusive jurisdiction 
to (i) monitor compliance with the Exchange Act, the rules and 
regulations thereunder, the By-Laws and rules of the Exchange or any 
interpretation thereof, and the rules, regulations, resolutions and 
stated policies of the Board of Governors or any committee of the 
Exchange, by Members, participants, Member Organizations and 
participant organizations and persons associated with any such 
persons or organizations; (ii) examine into the business conduct and 
financial condition of Members, participants, Member Organizations 
and participant organizations and persons associated with any such 
persons or organizations; and (iii) authorize the initiation of any 
disciplinary actions or proceedings brought by the Exchange. See 
Exchange By-Law Article X, Section 10-11.
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    Currently, two Floor Officials and an officer of the Exchange may 
exclude a member, participant, and any associated person of member 
organizations and participant organizations from the trading floor for 
breaches of regulations that relate to administration of order, 
decorum, health, safety and welfare on the Exchange that occurred on 
the trading floor or on the premises immediately adjacent to the 
trading floor if they pose an immediate threat to the safety of persons 
or property, are seriously disrupting Exchange operations, or are in 
possession of a firearm.\23\ The Exchange proposes to authorize one OEO 
and an officer of the Exchange to do so.
---------------------------------------------------------------------------

    \23\ See Exchange Rule 60(b)(i).
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    Finally, the Exchange proposes a housekeeping amendment to OFPA F-
27, to delete the term ``Floor Procedure Committee,'' because that 
committee no longer exists on the Exchange.\24\
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    \24\ See Securities Exchange Act Release No. 54538 (September 
28, 2006), 71 FR 59184 (October 6, 2006) (SR-Phlx-2006-43).
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    The Exchange believes that replacing Floor Officials with OEOs 
should result in a more neutral, efficient and streamlined process for 
the resolution of disputes on the Exchange, together with an expedited 
process through which the Exchange may rule on matters currently 
handled by Floor Officials, including the determination to nullify and 
adjust transactions; to halt and re-open options series for trading; to 
conduct manual openings where necessary in the interest of a fair and 
orderly market; to process requests for relief from the requirements of 
certain rules; and to more efficiently maintain order and decorum on 
the Exchange's options trading floor and surrounding areas.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \25\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \26\ 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 establishing and authorizing neutral OEOs to rule on 
matters such as trading disputes, requests for relief, openings, 
trading halts and reopenings, and to efficiently maintain order and 
decorum on the options trading floor. The Exchange further believes 
that the proposal is consistent with Section 6(b)(1) \27\ of the Act in 
that the proposal is designed to enable the Exchange to continue to 
comply, and to enforce compliance by its members and persons associated 
with its members, with provisions of the Act, the rules and regulations 
thereunder, and the rules of the Exchange.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------

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. 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

[[Page 17215]]

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 Phlx 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 rule-comments@sec.gov. Please include 
File Number SR-Phlx-2006-87 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-2006-87. 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-2006-87 and should be submitted on or before April 27, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-6496 Filed 4-5-07; 8:45 am]
BILLING CODE 8010-01-P

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