Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Make Permanent a Pilot Program Relating to Split Price Priority in Open Outcry, 37301-37303 [E7-13157]

Download as PDF Federal Register / Vol. 72, No. 130 / Monday, July 9, 2007 / Notices Surveillance The Commission notes that the • Send paper comments in triplicate Exchange has represented that it has an to Nancy M. Morris, Secretary, adequate surveillance program in place Securities and Exchange Commission, for options based on Commodity Pool Station Place, 100 F Street, NE., ETFs. The Exchange may obtain trading Washington, DC 20549–1090. information via the ISG from other All submissions should refer to File exchanges who are members or affiliates Number SR–Phlx–2007–35. This file of the ISG and expects that it will enter number should be included on the into numerous comprehensive subject line if e-mail is used. To help the surveillance sharing agreements with Commission process and review your various commodity futures exchanges comments more efficiently, please use worldwide. Prior to listing and trading only one method. The Commission will options on Commodity Pool ETFs, the post all comments on the Commission’s Exchange represented that it will either Internet Web site (https://www.sec.gov/ have the ability to obtain specific rules/sro.shtml). Copies of the trading information via ISG or through a comprehensive surveillance sharing submission, all subsequent agreement with the primary exchange or amendments, all written statements exchanges where the particular with respect to the proposed rule commodity futures and/or options on change that are filed with the commodity futures are traded. In Commission, and all written addition, the Exchange represented that communications relating to the the addition of Commodity Pool ETF proposed rule change between the Commission and any person, other than options will not have any effect on the rules pertaining to position and exercise those that may be withheld from the limits 14 or margin.15 public in accordance with the provisions of 5 U.S.C. 552, will be Listing and Trading of Options on available for inspection and copying in Commodity Pool ETFs the Commission’s Public Reference The Commission notes that, pursuant Room. Copies of such filing also will be to the proposed rule change, a available for inspection and copying at Commodity Pool ETF will be subject to the principal office of the Phlx. All the provisions of Exchange Rules 1009 comments received will be posted and 1010. These provisions include without change; the Commission does requirements regarding initial and not edit personal identifying continued listing standards, as well as information from submissions. You the creation/redemption process for should submit only information that Commodity Pool ETFs. All Commodity you wish to make available publicly. All Pool ETFs must be traded through a submissions should refer to File national securities exchange or through Number SR–Phlx–2007–07 and should the facilities of a national securities be submitted on or before July 30, 2007. association and reported as a national market system security. IV. Commission Findings The Commission believes that this proposal is necessary to enable the After careful consideration, the Exchange to list and trade options on an Commission finds that the proposed expanding range of Commodity Pool rule change is consistent with the ETFs currently approved for trading and requirements of the Act and rules and that it is reasonable to expect other regulations thereunder applicable to a types of Commodity Pool ETFs to be national securities exchange 11 and, in particular, the requirements of Section 6 introduced for trading in the future. This proposal would help ensure that of the Act.12 Specifically, the the Exchange will be able to list options Commission finds that the proposed on Commodity Pool ETFs that have rule change is consistent with Section been recently launched, as well as any 6(b)(5) of the Act,13 which requires, other similar Commodity Pool ETFs that among other things, that the rules of a may be listed and traded in the future national securities exchange be designed to remove impediments to and thereby offering investors greater option choices. perfect the mechanism of a free and open market and a national market Acceleration system and, in general, to protect The Commission finds good cause, investors and the public interest. pursuant to Section 19(b)(2) of the Act,16 for approving the proposed rule 11 In approving this proposal, the Commission has rwilkins on PROD1PC63 with NOTICES Paper Comments considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 12 15 U.S.C. 78f. 13 15 U.S.C. 78f(b)(5). VerDate Aug<31>2005 16:59 Jul 06, 2007 Jkt 211001 PO 00000 14 See Phlx Rules 1001 and 1002. Phlx Rule 722. 16 15 U.S.C. 78s(b)(2). 15 See Frm 00120 Fmt 4703 Sfmt 4703 37301 change, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice in the Federal Register. The Commission notes that the proposal is consistent with previously approved proposals to enable the listing and trading of options on interests in Commodity Pool ETFs that trade directly or indirectly commodity futures products.17 Therefore, the Commission does not believe that the proposed rule change, as amended, raises novel regulatory issues. Consequently, the Commission believes that it is appropriate to permit investors to benefit from the flexibility afforded by trading these products without delay. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR–Phlx–2007– 35), as amended, is hereby approved on an accelerated basis.18 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.19 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–13155 Filed 7–6–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55993; File No. SR–Phlx– 2007–44] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Make Permanent a Pilot Program Relating to Split Price Priority in Open Outcry June 29, 2007. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 2 thereunder, notice is hereby given that on June 21, 2007, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Phlx. The Exchange filed the proposed rule 17 See Securities Exchange Act Release Nos. 55547 (March 28, 2007), 72 FR 16388 (April 4, 2007) (SR–Amex–2006–110); 55630 (April 13, 2007), 72 FR 19993 (April 20, 2007) (SR–CBOE– 2007–21); and 55635 (April 16, 2007), 72 FR 19999 (April 20, 2007) (SR–ISE–2007–16). 18 15 U.S.C. 78s(b)(2). 19 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\09JYN1.SGM 09JYN1 37302 Federal Register / Vol. 72, No. 130 / Monday, July 9, 2007 / Notices change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) 4 thereunder, which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to adopt, on a permanent basis, a rule that is currently subject to a pilot program (‘‘pilot’’) as set forth in Rule 1014(g)(i)(B) relating to priority on split-price transactions in open outcry. The pilot currently affords priority to a member with an order for at least 100 contracts 5 who buys (sells) at least 50 contracts at a particular price to have priority over all others in purchasing (selling) up to an equivalent number of contracts of the same order at the next lower (higher) price without being required to yield priority, including to existing customer interest in the limit order book. The pilot also establishes priority for in-crowd participants in split price transactions represented in open outcry over the quotations of participants that are not located in the crowd (i.e., out-of-crowd Streaming Quote Traders (‘‘SQTs’’) 6 and Remote Streaming Quote Traders (‘‘RSQTs’’) 7) even where the market has a bid/ask differential of one minimum trading increment.8 The current pilot is scheduled to expire June 30, 2007. The text of the proposed rule change is available on the Phlx Web site (https:// www.phlx.com), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. 3 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 5 Orders for a size of less than 100 contracts are not affected by the current pilot and would not be affected by this proposed rule change. 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. (AUTOM is Phlx’s Automated Options Market.) 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). 8 Generally, all options on stocks, indexes, and exchange traded funds quoting in decimals at $3.00 or higher have a minimum increment of $.10, and those quoting in decimals under $3.00 have a minimum increment of $.05. See Phlx Rule 1034(a). rwilkins on PROD1PC63 with NOTICES 4 17 VerDate Aug<31>2005 19:01 Jul 06, 2007 Jkt 211001 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, on a permanent basis, Exchange Rule 1014(g)(i)(C), concerning priority in split-price transactions, which by virtue of their size and the need to execute them at multiple prices, may be difficult to execute without a limited exception to current Exchange priority rules, as described below. The pilot is scheduled to expire June 30, 2007. The pilot was originally adopted in June 2005,9 and subsequently extended in December 2005.10 In May 2006, the pilot was expanded to include priority for in-crowd participants in both trades of the split price transaction where there is a minimum trading increment market, but only over RSQTs and out-of-crowd SQTs in that circumstance.11 Such priority applies only when the bid and/ or offer, as applicable, represent the quotation of an out-of-crowd SQT or RSQT. The current rule is applicable to equity options (including options overlying Exchange Traded Fund Shares (‘‘ETFs’’)).12 The rule operates in two ways. First, it permits a member with an order for at least 100 contracts 13 who buys (sells) at least 50 contracts at a particular price to have priority over all 9 See Securities Exchange Act Release No. 51820 (June 10, 2005), 70 FR 35759 (June 21, 2005) (SR– Phlx–2005–28). 10 See Securities Exchange Act Release No. 53021 (December 23, 2005), 70 FR 77435 (December 30, 2005) (SR–Phlx–2005–86). 11 See Securities Exchange Act Release No. 53874 (May 25, 2006), 71 FR 32171 (June 2, 2006) (SR– Phlx–2006–18). 12 In a separate filing, the Exchange has requested approval of an amendment that would standardize the rule such that it would apply equally to options on equities, ETFs and index options. See SR–Phlx– 2007–27. 13 Orders for a size of less than 100 contracts are not affected by the current pilot and would not be affected by this proposed rule change. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 others in purchasing (selling) up to an equivalent number of contracts of the same order at the next lower (higher) price without being required to yield priority, including to existing customer interest in the limit order book. Absent this rule, such orders would be required to yield priority.14 For example, where the market is $.25—$.35, a Floor Broker representing an order to purchase 100 contracts that executes a purchase of 50 of those contracts at a price of $.30 has priority over all market participants to purchase the remaining 50 contracts in the order at $.25. Two trades would be reported to the tape, one a purchase of 50 contracts at $.30, and the other a purchase of 50 contracts at $.25. The effect to that Floor Broker’s customer would be a net purchase price of $.275 for 100 contracts. Second, as stated above, the rule contemplates that a member who purchases (sells) 50 or more option contracts of a particular series at a particular price or prices has priority at the next lower (higher) price in purchasing (selling) up to the equivalent number of option contracts of the same series that he purchased (sold) at the higher (lower) price or prices. The pilot, respecting split price transactions, also affords priority to members physically located in the crowd even where the market has a bid/ask differential of one minimum trading increment. The Exchange believes that this provision should enable it to compete for order flow in situations where Floor Brokers seek split price executions in open outcry when the market consists of RSQT quotations and/or SQT quotations where the SQT is located out of that trading crowd with a bid/ask differential of one minimum trading increment, and the bid and/or offer represent quotations of members physically located out of the crowd. For example, assume a Floor Broker represents an order to purchase 100 contracts in a series where the market is $.25 bid, $.30 offer, and both the bid and offer represent quotations submitted by out-of-crowd SQTs 15 or RSQTs. Under the proposal, the Floor Broker and the contra-side participant in the trading crowd would be afforded priority over the out-of-crowd SQT or RSQT at both $.25 and $.30, because the bid/ask differential is one minimum 14 See e.g. Phlx Rule 119(a). specialist and/or SQTs participating in a trading crowd may, in response to a verbal request for a market by a floor broker, state a bid or offer that is different than their electronically submitted bid or offer, provided that such stated bid or offer is not inferior to such electronically submitted bid or offer. See Phlx Rule 1014, Commentary .05(c). 15 The E:\FR\FM\09JYN1.SGM 09JYN1 Federal Register / Vol. 72, No. 130 / Monday, July 9, 2007 / Notices trading increment ($.05). This would enable the Floor Broker to execute a split-price order at a net price ($.275) that improves the market. The effect (and ultimate benefit) to that Floor Broker’s customer would be a net purchase price of $.275 for 100 contracts. This provision only applies regarding quotations submitted by outof-crowd SQTs and RSQTs, and thus would not operate to afford priority over, for example, customer or brokerdealer orders or in-crowd SQT quotes. The Exchange believes that, in situations where the market has a bid/ ask differential of one minimum trading increment, it is potentially difficult for the Floor Broker to achieve price improvement for the Floor Broker’s customer on the Phlx. Instead, the order might trade at another exchange that has no impediments, i.e., rules that afford priority to in-crowd participants over out-of-crowd participants generally, regardless of split price priority. The Exchange is seeking permanent approval of the pilot in order to ensure continuity of the rule and to eliminate the need for continued pilot extensions. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 16 in general, and furthers the objectives of Section 6(b)(5) of the Act 17 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, enabling Floor Brokers representing split price orders in open outcry to provide split-price executions at improved prices on behalf of customers by establishing a limited priority rule regarding split-price transactions. B. Self-Regulatory Organization’s Statement on Burden on Competition rwilkins on PROD1PC63 with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 16 15 17 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Aug<31>2005 16:59 Jul 06, 2007 Jkt 211001 Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) Impose any significant burden on competition; and (iii) Become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act,18 and Rule 19b–4(f)(6) thereunder.19 At any time within 60 days of the filing of the proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. A proposed rule change filed under Rule 19b–4(f)(6) 20 normally does not become operative prior to 30 days after the date of filing. However, pursuant to Rule 19b–4(f)(6)(iii),21 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day pre-operative delay. The Commission believes that implementing the pilot program on a permanent basis does not present any new issues, and waiving the 30-day preoperative delay is consistent with the protection of investors and the public interest because it will allow the Exchange’s split-price priority rule in its present form to remain in effect without interruption. For these reasons, the Commission designates the proposed rule change to be effective upon filing with the Commission.22 IV. Solicitation of Comments 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. No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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: U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 20 17 CFR 240.19b–4(f)(6). 21 17 CFR 240.19b–4(f)(6)(iii). 22 For purposes only of accelerating the operative date of this proposal, the Commission has considered the rule’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). PO 00000 18 15 19 17 Frm 00122 Fmt 4703 Sfmt 4703 37303 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–2007–44 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–2007–44. 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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–2007–44 and should be submitted on or before July 30, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.23 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–13157 Filed 7–6–07; 8:45 am] BILLING CODE 8010–01–P 23 17 E:\FR\FM\09JYN1.SGM CFR 200.30–3(a)(12). 09JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 130 (Monday, July 9, 2007)]
[Notices]
[Pages 37301-37303]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-13157]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55993; File No. SR-Phlx-2007-44]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Make Permanent a Pilot Program Relating to Split Price Priority in Open 
Outcry

June 29, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on June 21, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Phlx. The 
Exchange filed the proposed rule

[[Page 37302]]

change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) \4\ thereunder, which renders the proposed rule change 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to adopt, on a permanent basis, a rule that is 
currently subject to a pilot program (``pilot'') as set forth in Rule 
1014(g)(i)(B) relating to priority on split-price transactions in open 
outcry. The pilot currently affords priority to a member with an order 
for at least 100 contracts \5\ who buys (sells) at least 50 contracts 
at a particular price to have priority over all others in purchasing 
(selling) up to an equivalent number of contracts of the same order at 
the next lower (higher) price without being required to yield priority, 
including to existing customer interest in the limit order book. The 
pilot also establishes priority for in-crowd participants in split 
price transactions represented in open outcry over the quotations of 
participants that are not located in the crowd (i.e., out-of-crowd 
Streaming Quote Traders (``SQTs'') \6\ and Remote Streaming Quote 
Traders (``RSQTs'') \7\) even where the market has a bid/ask 
differential of one minimum trading increment.\8\ The current pilot is 
scheduled to expire June 30, 2007.
---------------------------------------------------------------------------

    \5\ Orders for a size of less than 100 contracts are not 
affected by the current pilot and would not be affected by this 
proposed rule change.
    \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. (AUTOM is Phlx's Automated Options 
Market.) 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).
    \8\ Generally, all options on stocks, indexes, and exchange 
traded funds quoting in decimals at $3.00 or higher have a minimum 
increment of $.10, and those quoting in decimals under $3.00 have a 
minimum increment of $.05. See Phlx Rule 1034(a).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Phlx Web 
site (https://www.phlx.com), at the Exchange's Office of the Secretary, 
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, on a 
permanent basis, Exchange Rule 1014(g)(i)(C), concerning priority in 
split-price transactions, which by virtue of their size and the need to 
execute them at multiple prices, may be difficult to execute without a 
limited exception to current Exchange priority rules, as described 
below. The pilot is scheduled to expire June 30, 2007.
    The pilot was originally adopted in June 2005,\9\ and subsequently 
extended in December 2005.\10\ In May 2006, the pilot was expanded to 
include priority for in-crowd participants in both trades of the split 
price transaction where there is a minimum trading increment market, 
but only over RSQTs and out-of-crowd SQTs in that circumstance.\11\ 
Such priority applies only when the bid and/or offer, as applicable, 
represent the quotation of an out-of-crowd SQT or RSQT.
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    \9\ See Securities Exchange Act Release No. 51820 (June 10, 
2005), 70 FR 35759 (June 21, 2005) (SR-Phlx-2005-28).
    \10\ See Securities Exchange Act Release No. 53021 (December 23, 
2005), 70 FR 77435 (December 30, 2005) (SR-Phlx-2005-86).
    \11\ See Securities Exchange Act Release No. 53874 (May 25, 
2006), 71 FR 32171 (June 2, 2006) (SR-Phlx-2006-18).
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    The current rule is applicable to equity options (including options 
overlying Exchange Traded Fund Shares (``ETFs'')).\12\ The rule 
operates in two ways. First, it permits a member with an order for at 
least 100 contracts \13\ who buys (sells) at least 50 contracts at a 
particular price to have priority over all others in purchasing 
(selling) up to an equivalent number of contracts of the same order at 
the next lower (higher) price without being required to yield priority, 
including to existing customer interest in the limit order book. Absent 
this rule, such orders would be required to yield priority.\14\
---------------------------------------------------------------------------

    \12\ In a separate filing, the Exchange has requested approval 
of an amendment that would standardize the rule such that it would 
apply equally to options on equities, ETFs and index options. See 
SR-Phlx-2007-27.
    \13\ Orders for a size of less than 100 contracts are not 
affected by the current pilot and would not be affected by this 
proposed rule change.
    \14\ See e.g. Phlx Rule 119(a).
---------------------------------------------------------------------------

    For example, where the market is $.25--$.35, a Floor Broker 
representing an order to purchase 100 contracts that executes a 
purchase of 50 of those contracts at a price of $.30 has priority over 
all market participants to purchase the remaining 50 contracts in the 
order at $.25. Two trades would be reported to the tape, one a purchase 
of 50 contracts at $.30, and the other a purchase of 50 contracts at 
$.25. The effect to that Floor Broker's customer would be a net 
purchase price of $.275 for 100 contracts.
    Second, as stated above, the rule contemplates that a member who 
purchases (sells) 50 or more option contracts of a particular series at 
a particular price or prices has priority at the next lower (higher) 
price in purchasing (selling) up to the equivalent number of option 
contracts of the same series that he purchased (sold) at the higher 
(lower) price or prices. The pilot, respecting split price 
transactions, also affords priority to members physically located in 
the crowd even where the market has a bid/ask differential of one 
minimum trading increment. The Exchange believes that this provision 
should enable it to compete for order flow in situations where Floor 
Brokers seek split price executions in open outcry when the market 
consists of RSQT quotations and/or SQT quotations where the SQT is 
located out of that trading crowd with a bid/ask differential of one 
minimum trading increment, and the bid and/or offer represent 
quotations of members physically located out of the crowd.
    For example, assume a Floor Broker represents an order to purchase 
100 contracts in a series where the market is $.25 bid, $.30 offer, and 
both the bid and offer represent quotations submitted by out-of-crowd 
SQTs \15\ or RSQTs. Under the proposal, the Floor Broker and the 
contra-side participant in the trading crowd would be afforded priority 
over the out-of-crowd SQT or RSQT at both $.25 and $.30, because the 
bid/ask differential is one minimum

[[Page 37303]]

trading increment ($.05). This would enable the Floor Broker to execute 
a split-price order at a net price ($.275) that improves the market. 
The effect (and ultimate benefit) to that Floor Broker's customer would 
be a net purchase price of $.275 for 100 contracts. This provision only 
applies regarding quotations submitted by out-of-crowd SQTs and RSQTs, 
and thus would not operate to afford priority over, for example, 
customer or broker-dealer orders or in-crowd SQT quotes.
---------------------------------------------------------------------------

    \15\ The specialist and/or SQTs participating in a trading crowd 
may, in response to a verbal request for a market by a floor broker, 
state a bid or offer that is different than their electronically 
submitted bid or offer, provided that such stated bid or offer is 
not inferior to such electronically submitted bid or offer. See Phlx 
Rule 1014, Commentary .05(c).
---------------------------------------------------------------------------

    The Exchange believes that, in situations where the market has a 
bid/ask differential of one minimum trading increment, it is 
potentially difficult for the Floor Broker to achieve price improvement 
for the Floor Broker's customer on the Phlx. Instead, the order might 
trade at another exchange that has no impediments, i.e., rules that 
afford priority to in-crowd participants over out-of-crowd participants 
generally, regardless of split price priority.
    The Exchange is seeking permanent approval of the pilot in order to 
ensure continuity of the rule and to eliminate the need for continued 
pilot extensions.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \16\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \17\ 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, enabling Floor Brokers representing split price orders in 
open outcry to provide split-price executions at improved prices on 
behalf of customers by establishing a limited priority rule regarding 
split-price transactions.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act,\18\ 
and Rule 19b-4(f)(6) thereunder.\19\ At any time within 60 days of the 
filing of the proposed rule change the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \20\ normally 
does not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day pre-operative delay. The Commission 
believes that implementing the pilot program on a permanent basis does 
not present any new issues, and waiving the 30-day pre-operative delay 
is consistent with the protection of investors and the public interest 
because it will allow the Exchange's split-price priority rule in its 
present form to remain in effect without interruption. For these 
reasons, the Commission designates the proposed rule change to be 
effective upon filing with the Commission.\22\
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    \20 \ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
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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-2007-44 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-2007-44. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. 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-2007-44 and should be 
submitted on or before July 30, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13157 Filed 7-6-07; 8:45 am]
BILLING CODE 8010-01-P

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