Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77295

14 15 U.S.C. 78f(b).

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

17 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19–4.

would also address who is eligible to 

open a portfolio margin account, the 

instruments that are allowed, and when 

deposits to meet margin and minimum 

equity are required. 

Included within the portfolio margin 

section of the disclosure statement 

would be a list of certain of the risks 

unique to portfolio margin accounts, 

such as: Increased leverage; shorter time 

for meeting margin; involuntary 

liquidation if margin not received; 

inability to calculate future margin 

requirements because of the data and 

calculations required; and that long 

positions are subject to a lien. The risks 

and operation of a cross-margin feature 

are delineated in the cross-margin 

section of the disclosure statement, and 

a list of certain of the risks associated 

with cross-margining will be included 

as well. 

In addition, at or prior to the time a 

portfolio margin account is initially 

opened, members and member 

organizations would be required to 

obtain a signed acknowledgement 

regarding certain implications of 

portfolio margining (e.g., treatment 

under SEC Rules 8c–1, 15c2–1 and 

15c3–3 under the Act) from the 

customer. Further, prior to providing 

cross-margining, members and member 

organizations would be required to 

obtain a second signed customer 

acknowledgement relative to the 

segregation treatment for futures 

contracts and SIPC coverage. 

Amendment No. 2 reflects changes to 

the risk disclosure statement and 

acknowledgement forms to reflect 

proposed amendments to the rule 

language concerning separation of crossmargining from all other portfolio 

margining. The acknowledgement form 

in Amendment No. 2 will require that 

by signing the cross-margin agreement, 

the signer acknowledges that all 

positions carried in a cross-margin 

account will be immediately liquidated 

or transferred to another broker-dealer 

eligible to carry cross-margin accounts 

in the event that the carrying brokerdealer becomes insolvent.

2. Statutory Basis 

The Exchange believes the proposed 

rule change, as amended, is consistent 

with Section 6(b) of the Act 14 in 

general, and furthers the objectives of 

Section 6(b)(5) of the Act 15 in 

particular, because it is designed to 

prevent fraudulent and manipulative 

acts and practices, 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. In addition, the 

Exchange believes that Section 6(b)(5) of 

the Act 16 requires that the rules of an 

exchange foster cooperation and 

coordination with persons engaged in 

regulating transactions in securities.

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 the 

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 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission will: 

(A) By order approve such proposed 

rule change, as amended, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

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 (http://www.sec.gov/

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSE–2002–19 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609.

All submissions should refer to File 

Number SR–NYSE–2002–19. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Section, 450 Fifth Street, NW., 

Washington, DC 20549. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the NYSE. 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–NYSE–

2002–19 and should be submitted on or 

before January 18, 2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.17

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–28183 Filed 12–23–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No.34–50877; File No. SR–Phlx–

2004–90] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change by 

the Philadelphia Stock Exchange, Inc. 

Relating to Remote Streaming Quote 

Traders 

December 17, 2004. 

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 December 

9, 2004, the Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

77296 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III, below, which Items 

have been prepared by Phlx. 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 

Phlx proposes to amend the 

Exchange’s rules to establish a new 

category of option market-making 

participant on the Exchange, a Remote 

Streaming Quote Trader (‘‘RSQT’’). An 

RSQT would be defined as a Registered 

Options Trader (‘‘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. The 

Exchange is also proposing to amend 

various Exchange rules to apply to and 

govern RSQTs. 

The text of the proposed rule change 

is set forth below. Brackets indicate 

deletions; italics indicates new text. 

Obligations and Restrictions 

Applicable to Specialists and Registered 

Options Traders Rule 1014. (a) General. 

Transactions of a Specialist and a 

Registered Options Trader (ROT) should 

constitute a course of dealings 

reasonably calculated to contribute to 

the maintenance of a fair and orderly 

market, and those members should not 

enter into transactions or make bids or 

offers that are inconsistent with such a 

course of dealings. 

(b) ROT. (i) An ROT is a regular 

member or a foreign currency options 

participant of the Exchange located on 

the trading floor who has received 

permission from the Exchange to trade 

in options for his own account. For 

purposes of this Rule 1014, the term 

‘‘ROT’’ shall include a Streaming Quote 

Trader, and a Remote Streaming Quote 

Trader, as defined below. 

Each ROT electing to engage in 

Exchange options transactions shall be 

assigned by the Exchange one or more 

classes of options, and Exchange 

options transactions initiated by such 

ROT on the Floor for any account in 

which he had an interest shall to the 

extent prescribed by the Exchange be in 

such assigned classes. 

(ii) (A) Streaming Quote Trader 

(‘‘SQT’’). An SQT is an ROT who has 

received permission from the Exchange 

to generate and submit option 

quotations electronically through [an 

electronic interface with] AUTOM [via 

an Exchange approved proprietary 

electronic quoting device] in eligible 

options to which such SQT is assigned. 

An SQT may only submit such 

quotations while such SQT is physically 

present on the floor of the Exchange. 

(B) Remote Streaming Quote Trader 

(‘‘RSQT’’). 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. 

Notwithstanding the provisions of 

sub-paragraph (b)(i) above, an RSQT 

may only submit such quotations 

electronically from off the floor of the 

Exchange. No person who is either 

directly or indirectly affiliated with an 

RSQT shall submit quotations as a 

specialist, SQT, RSQT or non-SQT ROT 

in options in which such affiliated 

RSQT is assigned. An RSQT may only 

trade in a market making capacity in 

classes of options in which he is 

assigned.

(C) Non-SQT ROT. A non-SQT ROT is 

an ROT who is neither an SQT nor an 

RSQT.

([B]D) Market Making Obligations 

Applicable in Streaming Quote Options. 

In addition to the other requirements for 

ROTs set forth in this Rule 1014, an 

SQT and an RSQT shall be responsible 

to quote continuous, two-sided markets 

in not less than 60% of the series in 

each Streaming Quote Option (as 

defined in Rule 1080(k)) in which such 

SQT or RSQT is assigned, provided that 

a Directed SQT or RSQT (as defined in 

Rule 1080(l)(i)(C)) shall be responsible 

to quote continuous, two-sided markets 

in not less than 100% of the series in 

each Streaming Quote Option in which 

they receive Directed Orders (as defined 

in Rule 1080(l)(i)(A)). The specialist 

shall be responsible to quote 

continuous, two-sided markets in not 

less than 100% of the series in each 

Streaming Quote Option in which such 

specialist is assigned. 

(1) During a six month period 

commencing on the date of the initial 

deployment of Phlx XL (the ‘‘initial sixmonth period’’), any SQT or RSQT

assigned in a Streaming Quote Option 

(and the specialist assigned in such 

Streaming Quote Option) may submit 

electronic quotations with a size of 

fewer than 10 contracts for a period of 

sixty days after such option begins 

trading as a Streaming Quote Option. 

Beginning on the sixty-first day after 

such option begins trading as a 

Streaming Quote Option, SQTs, RSQTs

and the specialist assigned in such 

Streaming Quote Option shall submit 

electronic quotations with a size of not 

less than 10 contracts. 

(2) During a six month period 

commencing on the first day following 

the expiration of the initial six-month 

period, any SQT or RSQT assigned in a 

Streaming Quote Option (and the 

specialist assigned in such Streaming 

Quote Option) may submit electronic 

quotations with a size of fewer than 10 

contracts for a period of thirty days after 

such option begins trading as a 

Streaming Quote Option. Beginning on 

the thirty-first day after such option 

begins trading as a Streaming Quote 

Option, SQTs, RSQTs and the specialist 

assigned in such Streaming Quote 

Option shall submit electronic 

quotations with a size of not less than 

10 contracts. 

(3) Thereafter, any SQT or RSQT

assigned in a Streaming Quote Option 

that is newly deployed on Phlx XL (and 

the specialist assigned in such 

Streaming Quote Option) shall submit 

electronic quotations with a size of not 

less than 10 contracts beginning on the 

date on which such Streaming Quote 

Option begins trading on Phlx XL. 

[An SQT may only submit such 

quotations while such SQT is physically 

present on the floor of the Exchange.] 

([C]E) Non-SQT ROTs Trading 

Streaming Quote Options. These 

requirements are applicable on a per 

option basis depending upon the 

percentage of volume a non-SQT ROT 

transacts electronically (i.e., by way of 

placing limit orders on the limit order 

book that are executed electronically 

and allocated automatically in 

accordance with Rule 1014(g)(vii)) 

versus in open outcry. With respect to 

making this determination, the 

Exchange will monitor the non-SQT 

ROT’s trading activity every calendar 

quarter to determine whether they 

exceed the thresholds established in this 

sub-paragraph (C). If a non-SQT ROT 

exceeds the threshold established 

below, the obligations contained in subparagraph (C)(2) will be effective the 

next calendar quarter. 

For a period of 90 days commencing 

immediately after an option begins 

trading as a Streaming Quote Option, 

the provisions of sub-paragraph (C)(1) 

below shall govern trading in that 

Streaming Quote Option. 

(1) No change. 

(2)(a) and (b) No change. 

(c) Continuous Open Outcry Quoting 

Obligation: In response to any request 

for quote by a Floor Broker, specialist, 

Floor Official, [or other ROT (including 

an] SQT or other non-SQT ROT [)], nonSQT ROTs must provide a two-sided 

market complying with the quote spread 

parameter requirements contained in 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77297

Rule 1014(c)(i). During a six month 

period commencing on the date of the 

initial deployment of Phlx XL (the 

‘‘initial six-month period’’), for a period 

of sixty days commencing immediately 

after an option begins trading as a 

Streaming Quote Option, such non-SQT 

ROTs may provide such quotations with 

a size of fewer than 10 contracts. 

Beginning on the sixty-first day after 

such option begins trading as a 

Streaming Quote Option, such 

quotations shall be for a size of at least 

10 contracts. During a six month period 

commencing on the first day following 

the expiration of the initial six-month 

period, such non-SQT ROT may provide 

such quotations with a size of fewer 

than 10 contracts for a period of thirty 

days after such option begins trading as 

a Streaming Quote Option. Beginning on 

the thirty-first day after such option 

begins trading as a Streaming Quote 

Option, such quotations shall be for a 

size of at least 10 contracts. Thereafter, 

such non-SQT ROTs shall provide such 

quotations with a size of not less than 

10 contracts beginning on the date on 

which such Streaming Quote Option 

begins trading on Phlx XL. 

(c) In Classes of Option Contracts to 

Which Assigned —Affirmative 

Obligations. With respect to classes of 

option contracts to which his 

assignment extends, a Specialist and an 

ROT, whenever the ROT (except an 

RSQT) enters the trading crowd in other 

than a floor brokerage capacity or is 

called upon by a Floor Official or a 

Floor Broker, to make a market, are 

expected to engage, to a reasonable 

degree under the existing 

circumstances, in dealing for his own 

account when there exists, or it is 

reasonably anticipated that there will 

exist, a lack of price continuity, a 

temporary disparity between the supply 

of and demand for a particular option 

contract, or a temporary distortion of the 

price relationships between option 

contracts of the same class. Without 

limiting the foregoing, a Specialist and 

an ROT is expected to perform the 

following activities in the course of 

maintaining a fair and orderly market: 

(i)–(ii) No change. 

(d) In Classes of Option Contracts 

Other Than Those Which Appointed. 

With respect to classes of option 

contracts other than those to which his 

appointment extends, an ROT (other 

than an RSQT), whenever he enters the 

trading crowd in other than a floor 

brokerage capacity or is called upon by 

a floor official or a floor broker to make 

a market, shall undertake the obligations 

specified in paragraph (c) of this rule. 

Furthermore, an ROT should not:

(i) Individually or as a group, 

intentionally or unintentionally, 

dominate the market in option contracts 

of a particular class; or 

(ii) Effect purchases or sales on the 

floor of the Exchange except in a 

reasonable and orderly manner. 

(iii) Be conspicuous in the general 

market or in the market in a particular 

option. 

(e)–(f) No change. 

(g) Equity Option and Index Option 

Priority and Parity 

(i)–(iv) No change. 

(v) Allocation of the Remainder of the 

Order Among Specialists and ROTs on 

Parity. After the application of Rule 

1014(g)(i) to an Initiating Order, the 

Remainder of the Order shall be 

allocated by the Allocating Participant 

(as defined in Rule 1014(g)(vi)) as 

follows: 

(A) Entitlement. ROTs and specialists 

on parity are entitled to their Defined 

Participation (as described below), 

subject to: (1) Any Waiver, as described 

below; and (2) rounding, as described 

below. 

(B) Size. The term ‘‘stated size’’ [in 

relation to a crowd participant and] in 

respect of an order or electronic 

quotation shall mean: 

(1) In the case of orders handled 

manually by the specialist: (a)(i) If a 

crowd participant (including the 

specialist) has actually stated a size 

(‘‘Actual Size’’), such crowd 

participant’s stated size shall be his or 

her Actual Size; 

(ii) if the specialist, an SQT or RSQT 

is disseminating an electronic quotation 

at the Exchange’s disseminated price in 

a particular series at the time of the 

execution of an Initiating Order in such 

series, such specialist, SQT or RSQT’s 

disseminated size at the Exchange’s 

disseminated price shall be his or her 

Actual Size, and such specialist, SQT 

and/or RSQT shall be deemed a ‘‘crowd 

participant’’ for purposes of this Rule 

1014(g)(v); 

(b)–(c) No change. 

(2) No change. 

(C) No change. 

(D) Waiver. (1) An[y] ROT (other than 

an RSQT) or specialist may, in his or 

her sole discretion, offer to waive, in 

whole or in part, any part of a trade to 

which they were entitled to be allocated 

(an ‘‘Offer to Waive’’). 

(a)–(c) No change. 

(E)–(G) No change. 

(vi) In order to facilitate timely tape 

reporting of executed trades, it is the 

duty of the persons identified below to 

allocate, match and time stamp 

manually executed trades as well as to 

submit the matched trade to the 

appropriate person at the respective 

specialist post immediately upon 

execution: 

([i]a) In a trade involving a floor 

broker, the floor broker shall so do, 

provided that a floor broker may 

delegate this responsibility to the 

specialist (or an assistant to the 

specialist under the specialist’s direct 

supervision) if the specialist agrees to 

accept such responsibility, and, in the 

event of such delegation, the specialist 

(or an assistant to the specialist under 

the specialist’s direct supervision) shall 

do so: 

([ii]b) In all other cases where the 

specialist is a participant (i.e., where 

there is no floor broker), the specialist 

(or an assistant to the specialist under 

the specialist’s direct supervision) shall 

do so; 

([iii]c) in any other case (i.e., where 

there is no floor broker and no specialist 

is involved), the largest on-floor

participant shall do so (for example, 

where several Registered Options 

Traders are involved)[:]; and 

([iv]d) if there is only one seller and 

one buyer (no floor broker and no 

specialist is involved), the seller shall 

do so (for example, where only two 

Registered Options Traders are 

involved) , unless either the seller or the 

buyer is an RSQT, in which case the onfloor participant in the transaction shall 

do so. 

The person responsible for trade 

allocation (the ‘‘Allocating Participant’’) 

shall, for each trade allocated by such 

Allocating Participant, circle his or her 

badge identification number on the 

trade tickets, identifying himself or 

herself as the Allocating Participant in 

the particular trade. If the Allocating 

Participant is not a participant in the 

trade to be allocated, he/she shall 

identify himself/herself by initiating the 

trade tickets. In the case of a trade in 

which a Floor Broker is the Allocating 

Participant, such Floor Broker shall 

allocate the trade using the Options 

Floor Broker Management System. 

(vii) Allocation of Automatically 

Executed Trades in Streaming Quote 

Options. Solely with respect to 

Streaming Quote Options approved by 

the Exchange to be traded on Phlx XL 

[by Streaming Quote Traders (‘‘SQTs’’)] 

pursuant to Exchange Rule 1080(k), after 

public customer market and marketable 

limit orders have been executed, trades 

automatically executed in such options 

shall be allocated automatically in the 

following manner: 

(A) If the specialist, an SQT, RSQT or 

a non-SQT ROT that has placed a limit 

order on the limit order book (‘‘Phlx XL 

Participant’’) is quoting alone at the 

disseminated price and their quote is 

not matched by another Phlx XL 

77298 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

participant prior to execution, such Phlx 

XL Participant shall be entitled to 

receive a number of contracts up to the 

size associated with his/her quotation. 

(B) Parity. Quotations entered 

electronically by the specialist, an 

RSQT or an SQT that do not cause an 

order resting on the limit order book to 

become due for execution may be 

matched at any time by quotations 

entered electronically by the specialist 

and/or other SQTs and RSQTs, and by 

ROT limit orders entered via electronic 

interface and shall be deemed to be on 

parity, subject to the requirement that 

orders of controlled accounts must yield 

priority to customer orders as set forth 

in Rule 1014(g)(i)(A). 

(1) (a)–(e) No change. (2)–(4) No 

change. 

(h) No change. 

Commentary 

.01 An ROT electing to engage in 

Exchange Options transactions is 

designated as a specialist on the 

Exchange for all purposes under the 

Securities Exchange Act of 1934 and the 

rules and regulations thereunder with 

respect to options transactions initiated 

and effected by him on the floor in his 

capacity as an ROT. For purposes of this 

commentary, the term ‘‘transactions 

initiated and effected on the floor’’ shall 

not include transactions initiated by an 

ROT off the floor, but which are 

considered ‘‘on-floor’’ pursuant to 

Commentaries .07 and .08 of Rule 1014. 

Similarly, an RSQT electing to engage in 

Exchange Options transactions is 

designated as a specialist on the 

Exchange for all purposes under the 

Securities Exchange Act of 1934 and the 

rules and regulations thereunder with 

respect to options transactions initiated 

and effected by him in his capacity as 

an ROT.

However, in order for an ROT (other 

than an RSQT) to receive specialist 

margin treatment for off-floor orders in 

any calendar quarter, the ROT must 

execute the greater of 1,000 contracts or 

80% of his total contracts that quarter in 

person (not through the use of orders) 

and 75% of his total contracts that 

quarter in assigned options. The offfloor orders for which an ROT receives 

specialist margin treatment shall be 

subject to the obligations of Rule 1014(a) 

and, in general, be effected for the 

purpose of hedging, reducing risk of, or 

rebalancing positions of the ROT. An 

ROT is responsible for evidencing 

compliance with these provisions. The 

Options Committee may exempt one or 

more classes of options from this 

calculation. 

.02 No change. 

.03 The Exchange has determined for 

purposes of paragraph (c) of this Rule 

that, except for unusual circumstances, 

at least 50% of the trading activity in 

any quarter (measured in terms of 

contract volume) of an ROT (other than 

an RSQT) shall ordinarily be in classes 

of options to which he is assigned. 

Temporarily undertaking the obligations 

of paragraph (c) at the request of a 

member of the Committee on Options in 

non assigned classes of options shall not 

be deemed trading in non assigned 

option contracts. 

The Exchange may, in computing the 

percentage specified herein, assign a 

weighting factor based upon relative 

inactivity to one or more classes or 

series of option contracts.

.04 No change. 

.05 (a) Assignment in non-Streaming 

Quote Options. With respect to options 

that are not eligible to be traded by 

SQTs and RSQTs (‘‘non-Streaming 

Quote Options’’), the Exchange will 

assign an ROT to act in one or more 

classes of option contracts. In making 

such assignments, the Exchange shall 

give attention to (i) the preference of 

applicants; (ii) assuring that financial 

resources available to an ROT enable 

him to satisfy the obligations set forth in 

Rule 1014 with respect to each class of 

option contracts to which he is 

assigned; (iii) the applicant’s expertise 

in options trading; and (iv) the 

applicant’s prior market performance. 

The Exchange may suspend or terminate 

any assignment of an ROT under this 

Rule and may make additional 

assignments whenever, in the 

Exchange’s judgment, the interests of a 

fair and orderly market are best served 

by such action. 

(b) Assignment in Streaming Quote 

Options. The Options Allocation, 

Evaluation and Securities Committee 

(‘‘OAESC’’) or its designee shall assign 

SQTs and RSQTs in one or more 

Streaming Quote Options in accordance 

with Rule 507. An SQT or RSQT may 

be assigned to (and thus submit quotes 

electronically in) any option traded on 

Phlx XL for which they are approved by 

the OAESC. 

[up to all of the options located 

within a specified physical zone on the 

Exchange Options Floor (an ‘‘SQT 

Zone’’) provided that such SQT is 

physically present in such SQT Zone. 

Each member organization must have at 

least one SQT physically present in 

each SQT Zone in which such member 

organization submits electronic 

quotations. The number and location of 

SQT Zones will be determined by the 

Options Committee. Initially, there will 

be one single SQT Zone encompassing 

the entire options floor. In the event the 

Options Committee determines to 

change the number and/or location of 

SQT Zones, the effectiveness of any 

such change shall be conditioned upon 

its having been approved by the 

Securities and Exchange Commission 

pursuant to Section 19(b) of the 

Securities Exchange Act of 1934, as 

amended, and the rules and regulations 

thereunder.] 

(c) Non-Electronic Orders. In the 

event that a Floor Broker or specialist 

presents a non-electronic order in a[n 

option] Streaming Quote Option in 

which an RSQT is assigned, and/or in 

which an SQT assigned in such 

Streaming Quote Option is not a crowd 

participant, [but which is traded in the 

SQT Zone where such SQT is located,] 

such SQT and/or RSQT may not 

participate in trades stemming from 

such a non-electronic order unless such 

non-electronic order is executed at the 

price quoted by the non-crowd 

participant SQT and/or RSQT at the 

time of execution. 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, except when 

such stated bid or offer is made in 

response to a floor broker’s solicitation 

of a single bid or offer as set forth in 

Rule 1033(a)(ii). For purposes of this 

Rule, an SQT or non-SQT ROT shall be 

deemed to be participating in a crowd 

if such SQT is, at the time an order is 

represented in the crowd, physically 

located in a specific ‘‘Crowd Area.’’ A 

Crowd Area shall consist of a specific 

physical location marked with specific, 

visible physical boundaries on the 

options floor, as determined by the 

Options Committee. An SQT or nonSQT ROT who is physically present in 

such Crowd Area may engage in options 

transactions in assigned issues as a 

crowd participant in such a Crowd 

Area, provided that such SQT or nonSQT ROT fulfills the requirements set 

forth in this Rule 1014. An SQT or nonSQT ROT shall be deemed to be 

participating in a single Crowd Area. 

.06 An RSQT shall be required to 

maintain information barriers that are 

reasonably designed to prevent the 

misuse of material, non-public 

information with any affiliates that may 

conduct a brokerage business in options 

assigned to the RSQT or act as a 

specialist or market maker in any 

security underlying options assigned to 

the RSQT, and otherwise comply with 

the requirements of Rule 1020 regarding 

restrictions on the flow of privileged 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77299

information between the affiliate and 

the specialist organization.

.07 No change. 

.08 An off-Floor order for an account 

in which a member has an interest is to 

be treated as an on-Floor order if it is 

executed by the member who initiated 

it. 

In addition to transactions originated 

on the Floor by an ROT for an account 

in which he has an interest, the 

following transactions are considered 

on-Floor trading: 

(a)–(b) No change. 

(c) Any transaction for the account of 

an RSQT.

.09 Orders given out by an ROT to 

commission brokers—An on-Floor order 

given by an ROT [Trader] to a 

commission broker, for an account in 

which the ROT has [I]an interest, is 

subject to all the Rules restricting ROTs. 

When an ROT gives out such an order 

on the Floor to another member, the 

order must be so marked to indicate that 

it is for an account in which the ROT 

has [i]an interest, unless it is exempt 

from this Rule, in order that the other 

member may know whether it may be 

entitled to priority or parity. 

.10 RESERVED [Orders given out by 

an ROT to specialists—An on-Floor 

order given to a specialist by an ROT for 

an account in which he has an interest 

may not have the privilege of a ‘‘Stop’’

and it is subject to the provisions of 

paragraphs (d) and (e) of this Rule. In 

addition, such order which establishes 

or increases a position is subject to the 

provisions of Commentary .12 of this 

Rule.] 

.11 Pair-offs before opening—An ROT 

cannot acquire a ‘‘long’’ option by 

pairing off with a sell order before the 

opening, unless all off-Floor bids at that 

price are filled. 

.12 The number of ROT[’]s in a 

trading crowd who are establishing or 

increasing a position may temporarily 

be limited when, in the judgment of two 

Floor Officials, the interests of a fair and 

orderly market are served by such 

limitation. 

.13 Within each quarter an ROT must 

execute in person, and not through the 

use of orders, a specified number of 

contracts, such number to be 

determined from time to time by the 

Committee on Options. 

.14–.17 No change. 

.18 RESERVED

Openings In Options 

Rule 1017. (a)—(d) No change. 

(e) With respect to Streaming Quote 

Options, SQTs and RSQTs may 

participate in opening transactions by 

submitting electronic quotations to 

interact with opening orders. 

(f) This Rule 1017 shall be effective as 

a pilot, which will expire 180 days 

following the initial deployment of the 

Exchange’s electronic options trading 

platform, Phlx XL. 

Commentary 

.01 Pre-Opening. (i) Prior to the 

opening of the underlying security on 

the primary market, the specialist shall:

(A) determine from Floor Brokers, and 

from orders resting on the limit order 

book, the size and prices of those orders 

which are near the previous closing 

prices of those options in which the 

specialist is assigned. 

(B) consider markets from ROTs in the 

crowd in addition to electronic 

quotations submitted by SQTs and 

RSQTs (‘‘SQT/RSQT Quotations’’). 

(C) determine the specialist’s own 

quote in each series. 

(ii) No change. 

.02 No change. 

.03 Opening Price. (a) No change. 

(b) (i)–(v) No change. 

(vi) Once the opening trade price in a 

series has been disseminated to OPRA, 

the specialist, ROTs, RSQTs and SQTs 

trading such series shall be required to 

fulfill their respective quoting 

obligations under Rule 1014.

(c) No change. 

(d) The specialist will not open a 

series if one of the following conditions 

is met: 

(i) The opening price is not within an 

acceptable range, as described in 

Commentary .03(a) above, unless a 

specific exemption is given by a Floor 

Official in the interest of a fair and 

orderly market; 

(ii) The opening trade would leave a 

market order imbalance (i.e., there are 

more market orders to buy or to sell for 

the particular series than can be 

satisfied by the market orders, limit 

orders and specialist, [or] SQT and 

RSQT quotations on the opposite side). 

(iii) No change. 

(e) If one of the conditions described 

in sub-paragraphs (d)(i)–(iii) above is 

met, the specialist will request bids and 

offers from ROTs in the crowd and, in 

the case of Streaming Quote Options, 

SQTs and RSQTs that are assigned in 

the option. Such ROTs, RSQTs and/or 

SQTs shall respond to such a request 

immediately. The opening will be 

delayed until responses to the 

specialist’s request have been received 

and the consequent opening price is 

deemed by a Floor Official to be 

compatible with a fair and orderly 

market. 

(f) No change. 

Philadelphia Stock Exchange 

Automated Options Market (AUTOM) 

and Automatic Execution System 

(AUTO–X) 

Rule 1080. (a)–(b) No change. 

(c) * * * 

(i)–(ii) No change. 

(iii) Book Sweep. Book Sweep is a 

feature of AUTOM which, when 

engaged, does the following: 

(A) Respecting non-Streaming Quote 

Options, when the bid or offer generated 

by the Exchange’s Auto-Quote system 

(or by a proprietary quoting system 

provided for in Commentary .02 of this 

Rule called ‘‘Specialized Quote Feed’’ or 

‘‘SQF’’), matches or crosses the 

Exchange’s best bid or offer in a 

particular series as established by an 

order on the limit order book, orders on 

the limit order book in that series will 

be automatically executed and allocated 

among crowd participants signed onto 

the Wheel. If Book Sweep is not engaged 

at the time the Auto-Quote or SQF bid 

or offer matches or crosses the 

Exchange’s best bid or offer represented 

by a limit order on the book, the 

specialist may manually initiate the 

Book Sweep feature. Book Sweep shall 

be engaged when AUTO–X is engaged, 

and shall be disengaged when AUTO–

X is disengaged in accordance with Rule 

1080(c)(iv) and Rule 1080(e). Eligible 

orders on the limit order book will be 

automatically executed up to the size 

associated with the quote that matches 

or crosses such limit orders. 

(B) Respecting Streaming Quote 

Options, when the bid or offer generated 

by the Exchange’s Auto-Quote system, 

SQF, or by an SQT or RSQT (as defined 

in Rule 1014(b)(ii)) matches or crosses 

the Exchange’s best bid or offer in a 

particular series as established by an 

order on the limit order book, orders on 

the limit order book in that series will 

be automatically executed and 

automatically allocated in accordance 

with Exchange rules. If Book Sweep is 

not engaged at the time the Auto-Quote, 

SQF, RSQT or SQT bid or offer matches 

or crosses the Exchange’s best bid or 

offer represented by a limit order on the 

book, the specialist, RSQT, or SQT may 

manually initiate the Book Sweep 

feature. 

(iv) No change. 

(d)–(e) No change. 

(f) No change. 

(g) AUTO–X Contra-Party 

Participation—The contra-side to 

automatically executed orders may be: 

(i) A Wheel Participant; or (ii) a booked 

customer limit order.

(A) No change. 

(B) Book Match—For purposes of this 

sub-paragraph, the contra-side to 

77300 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

automatically executed inbound 

marketable orders shall be a limit order 

on the book or specialist, RSQT and/or 

SQT electronic quotes (‘‘electronic 

quotes’’) at the disseminated price 

where: (1) the Exchange’s disseminated 

size includes limit orders on the book 

and/or electronic quotes at the 

disseminated price; and (2) the 

disseminated price is the National Best 

Bid or Offer. This feature is called Book 

Match. 

(h)–(j) No change. 

(k) Electronic Streaming Quotations. 

The Options Committee may, on an 

issue-by-issue basis, determine the 

specific issues in which [Streaming 

Quote Traders (‘‘]SQTs[’’), as defined in 

Exchange Rule 1014(b)(ii)] may generate 

and submit option quotations if such 

SQT is physically present on the 

Exchange floor, and RSQTs may 

generate and submit option quotations 

from [on] off the floor of the Exchange, 

electronically [through an electronic 

interface with AUTOM, via an Exchange 

approved proprietary electronic quoting 

device]. Such issues shall be known as 

‘‘Streaming Quote Options.’’

Commentary 

.01 (a)–(b) No change. 

(i) No change. 

(ii) Respecting non-Streaming Quote 

Options, [S]specialists [and SQTs, 

respectively,] determine which model to 

select per option and may change 

models during the trading day. Each 

pricing model requires the specialist 

[and SQT, respectively,] to input 

various parameters, such as interest 

rates, volatilities (delta, vega, theta, 

gamma, etc.) and dividends. [Respecting 

non-Streaming Quote Options, t]The 

specialist may, but is not required to: (a) 

consult with and/or (b) agree with the 

trading crowd in setting these 

parameters or selecting a model, but the 

members of the trading crowd are not 

required to provide input in these 

decisions, and in all cases, the specialist 

has the responsibility and authority to 

make the final determination. 

(c)–(d) No change. 

.02–.07 No change. 

Firm Quotations 

Rule 1082. (a) Definitions. 

(i) No change. 

(ii) The term ‘‘disseminated size’’

shall mean with respect to the 

disseminated price for any quoted 

options series: 

(A) Respecting non-Streaming Quote 

options (as defined in Rule 1080(k)), at 

least the sum of the size associated with: 

(1) Limit orders; and (2) specialists’

quotations generated by Auto-Quote or 

Specialized Quote Feed as described in 

Rule 1080, Commentary .01 (which 

represents the collective quotation size 

of the specialist and any ROTs bidding 

or offering at the disseminated price 

unless an ROT has expressly indicated 

otherwise in a clear and audible 

manner). 

(B) respecting Streaming Quote 

Options, at least the sum of the size 

associated with limit orders, specialists’

quotations, [and Streaming Quote 

Traders’] SQTs’ quotations, and RSQTs’

(as defined in Rule 1014(b)(ii)(B)) 

quotations. 

(C) (1) If an SQT or RSQT’s (other 

than a Directed SQT or RSQT) quotation 

size in a particular series in a Streaming 

Quote Option is exhausted, such SQT or 

RSQT’s quotation shall be deleted from 

the Exchange’s disseminated quotation 

until the time the SQT or RSQT revises 

his/her quotation. 

(2) If the Exchange’s disseminated 

size in a particular series in a Streaming 

Quote Option is exhausted at that 

particular price level, and [the Exchange 

shall disseminate the next best available 

quotation. If] no specialist, [or] SQT or 

RSQT has revised their quotation 

immediately following the exhaustion of 

the Exchange’s disseminated size at 

such price level, the Exchange shall 

automatically disseminate the 

specialist’s most recent disseminated 

price prior to the time of such 

exhaustion with a size of one contract. 

(iii)–(iv) No change. 

(b) (i) No change. 

(ii) With respect to Streaming Quote 

Options, in the event an SQT, RSQT or 

specialist in a Streaming Quote Option 

has electronically submitted on the 

Exchange bids or offers for a Streaming 

Quote Option, each such SQT, RSQT or 

specialist member shall be considered a 

‘‘responsible broker or dealer’’ for that 

bid or offer, up to the size associated 

with such responsible broker or dealer’s 

bid or offer. 

(c)–(d) No change. 

Commentary 

.01 No change. 

.02 Locked Markets. In the event that 

an SQT, RSQT, and/or specialist’s 

electronically submitted quotations in 

Streaming Quote Options interact with 

the electronically submitted quotations 

of other SQTs, RSQTs and/or the 

specialist, resulting in the dissemination 

of a ‘‘locked’’ quotation (e.g., $1.00 

bid—$1.00 offer), the following shall 

occur: 

(a) The Exchange will disseminate the 

locked market and both quotations will 

be deemed ‘‘firm’’ disseminated market 

quotations; 

(b) A ‘‘counting period’’ of one second 

will begin during which SQTs, RSQTs

and/or specialists whose quotations are 

locked may eliminate the locked market. 

Provided, however, that in accordance 

with subparagraph (a) above, such SQT, 

RSQT and/or specialist shall be 

obligated to execute orders at their 

disseminated quotation. During the 

‘‘counting period’’ SQTs and specialists 

located in the Crowd Area in which the 

option that is the subject of the locked 

market is traded will continue to be 

obligated to respond to Floor Brokers as 

set forth in Rule 1014, Commentary 

.05(c), and will continue to be obligated 

for one contract in open outcry to other 

SQTs, non-SQT ROTs, and specialists. If 

at the end of the one-second counting 

period the quotations remain locked, the 

locked quotations will automatically 

execute against each other in 

accordance with the allocation 

algorithm set forth in Rule 1014(g)(vii). 

The quotation that is locked may be 

executed by an order during the onesecond counting period. 

.03 Crossed Markets. The Exchange 

will not disseminate an internally 

crossed market (e.g., $1.10 bid, $1.00 

offer). If an SQT, RSQT or specialist 

electronically submits a quotation in a 

Streaming Quote Option (‘‘incoming 

quotation’’) that would cross an existing 

quotation (‘‘existing quotation’’), the 

Exchange will: (i) change the incoming 

quotation such that it locks the existing 

quotation; (ii) send a notice to the SQT, 

RSQT or specialist that submitted the 

existing quotation indicating that its 

quotation was crossed; and (iii) send a 

notice to the specialist, [or] SQT or 

RSQT that submitted the incoming 

quotation, indicating that its quotation 

crossed the existing quotation and was 

changed. Such a locked market shall be 

handled in accordance with 

Commentary .01 above. During the onesecond counting period, if the existing 

quotation is cancelled subsequent to the 

time the incoming quotation is changed, 

the incoming quotation will 

automatically be restored to its original 

terms. 

Application for Assignment in 

Streaming Quote Options 

Rule 507. (a) When a Streaming Quote 

Option, as defined in Rule 1080(k), is to 

be assigned or reassigned by the 

Committee, the Committee will solicit 

applications from all eligible Streaming 

Quote Traders (‘‘SQTs’’) and Remote 

Streaming Quote Traders (‘‘RSQTs’’), as 

defined in Rule 1014(b)(ii). 

(b)(i) An application for assignment in 

Streaming Quote Options shall be 

submitted in writing to the Exchange’s 

designated staff and shall include, at a 

minimum, the name of the SQT or 

RSQT applicant and written verification 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77301

from the Exchange’s Membership 

Services Department that such SQT or 

RSQT applicant is qualified as a 

Registered Options Trader. 

(ii) No application for assignment in 

Streaming Quote Options shall be 

approved by the Committee without 

written certification signed by an officer 

(Vice President or above) of the 

Exchange’s Financial Automation 

Department indicating that (A) the SQT 

or RSQT applicant has sufficient 

technological ability to support his/her 

continuous quoting requirements as set 

forth in Rule 1014(b)(ii), and (B) the 

SQT or RSQT applicant has successfully 

completed, or is scheduled to complete, 

testing of its quoting system with the 

Exchange. 

(iii) (A) This Rule 507 places no limit 

on the number of qualifying ROTs that 

may become SQTs or RSQTs; any 

applicant that is qualified as an ROT in 

good standing, and that satisfies the 

technological readiness and testing 

requirements described in subparagraph (b)(ii) above, shall be 

approved as an SQT. However, based on 

system constraints, capacity restrictions 

or other factors relevant to the 

maintenance of a fair and orderly 

market, the Board may defer, for a 

period to be determined in the Board’s 

discretion, approval of qualifying 

applications for SQT or RSQT status 

pending any action required to address 

the issue of concern to the Board. The 

Board may not defer a determination of 

the approval of the application of any 

SQT or RSQT applicant or place any 

limitation(s) on access to Phlx XL on 

any SQT or RSQT applicant unless the 

basis for such limitation(s) or deferral 

have been objectively determined by the 

Board, subject to Securities and 

Exchange Commission approval or 

effectiveness pursuant to a rule change 

filing under Section 19(b) of the 

Securities Exchange Act of 1934, as 

amended. The Committee shall provide 

written notification to any SQT or RSQT

applicant whose application is the 

subject of such limitation(s) or deferral, 

describing the objective basis for such 

limitation(s) or deferral. 

(B) In addition to the above 

requirements, an RSQT applicant must 

demonstrate to the Committee that it 

has:

(1) Significant market-making and/or 

specialist experience in a broad array of 

securities;

(2) Superior resources, including 

capital, technology and personnel;

(3) Demonstrated history of stability, 

superior electronic capacity, and 

superior operational capacity;

(4) Proven ability to interact with 

order flow in all types of markets;

(5) Existence of order flow 

commitments;

(6) Willingness to accept allocations 

as an RSQT in options overlying 400 or 

more securities; and

(7) Willingness and ability to make 

competitive markets on the Phlx and 

otherwise to promote the Phlx in a 

manner that is likely to enhance the 

ability of the Phlx to compete 

successfully for order flow in the options 

it trades.

(c)–(d) No change. 

(e) If an SQT or RSQT seeks to 

withdraw from acting as such in a 

Streaming Quote Option, it should so 

notify the Committee at least three 

business days prior to the desired 

effective date of such withdrawal. 

(f) During the first six months of the 

Exchange’s program to allow SQTs and 

RSQTs to submit electronic option 

quotations, an SQT or RSQT applicant 

member or member organization that 

has, for at least the immediately 

preceding twelve months: (i) been a 

member of the Exchange; and (ii) 

maintained a continuous presence as an 

ROT in the trading crowd associated 

with the Streaming Quote Option(s) that 

are the subject of the application, shall 

be guaranteed an assignment in the 

Streaming Quote Option, provided that 

such member organization has satisfied 

the requirements set forth in paragraph 

(b)(ii) of this Rule 507. SQT and RSQT

applicants that have been granted 

trading privileges in Streaming Quote 

Options pursuant to this Rule 507(f) 

shall not be required to re-apply for 

such privileges after the initial sixmonth period. 

(g) No change. 

Amendments to Option Floor Procedure 

Advices 

A–12 Opening Rotations and SORT 

Procedures 

It is the responsibility of the 

Specialist to arrange the price at which 

an option series opens and re-opens on 

the Exchange. Unless a specific 

exemption is given by a Floor Official, 

an opening transaction in an equity 

option series may only be arranged at a 

price that does not fall outside of the 

previous session’s closing quote in the 

option by more than the differential 

between the closing sale in the 

underlying security and the opening 

sale in the underlying security. 

The Specialist must accept and 

include in the opening for equity 

options all market orders which are 

placed on the book five minutes or more 

prior to the opening of the underlying 

security, unless exempted by a Floor 

Official. Market orders have precedence 

over limit orders at an opening 

regardless of account type (i.e.

customer, firm, market maker, 

specialist) except that a limit order to 

buy which is at a higher limit than the 

price at which the option is to be 

opened and a limit order to sell which 

is at a lower limit than the price at 

which the option is to be opened are to 

be treated as market orders in 

connection with an opening (PHLX Rule 

1017). Limit orders at the opening price 

are afforded participation on the 

opening in accordance with the 

Exchange’s parity/priority rule (PHLX 

Rule 1014). 

Openings and re-openings in options 

are to be conducted by way of rotation 

procedures or by way of SORT 

procedures, as provided by Exchange 

Rule 1047. Rotation procedures allow a 

brief period of auction pricing for each 

option series during which bids and 

offers, including, with respect to 

Streaming Quote Options, bids and 

offers submitted electronically by SQTs 

and/or RSQTs, and transactions for that 

option class may normally only occur in 

that series. SORT procedures allow, but 

do not require, a Specialist in any series 

for which no opening interest to buy or 

sell has been received to open such 

series with a quote without prior 

auction pricing. To ensure that buy and 

sell interests are properly represented in 

those series in which received, 

Specialists must follow the procedures 

below: 

(i)–(iii) No change. 

FINE SCHEDULE No change. 

B–3 Trading Requirements 

(a) An ROT (other than an RSQT) is 

required to trade in person, and not 

through the use of orders, the greater of 

1,000 contracts or 50% of his contract 

volume on the Exchange each quarter. 

Also, at least 50% of an ROT’s trading 

activity in each quarter must be in 

assigned options. No application by an 

ROT to change options assignments will 

be approved unless such ROT is in 

compliance with the above 

requirements at the time the application 

for change is made. 

FINE SCHEDULE No change. 

(b) For any calendar quarter, in 

addition to the requirements of 

paragraph (a) above, in order for an ROT 

(other than an RSQT) to receive 

specialist margin treatment for off-floor 

orders in accordance with Rule 1014, 

Commentary .01, the ROT must execute 

the greater of 1,000 contracts or 80% of 

his total contracts that quarter in person 

(not through the use of orders) and 75% 

of his total contracts that quarter in 

assigned options. Violations of this 

77302 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

3An SQT is an ROT who has received permission 

from the Exchange to generate and submit option 

quotations electronically through an electronic 

interface with AUTOM via an Exchange approved 

proprietary electronic quoting device in eligible 

options to which such SQT is assigned. See

Exchange Rule 1014(b)(ii)(A).

4The term ‘‘member’’ means a holder of a permit 

which has not been terminated in accordance with 

the By-Laws and the rules of the Exchange. See

Exchange By-Law Article I, Section 1–1(p).

5The term ‘‘member organization’’ means a 

corporation, partnership (general or limited), 

limited liability partnership, limited liability 

company, business trust, or similar organization, 

transacting business as a broker or a dealer in 

securities and which has the status of a member 

organization. See Exchange By-Law Article I, 

Section 1–1(q).

6See Exchange Rule 908(b).

7Exchange Rule 1014 defines an ROT as a regular 

member or a foreign currency options participant of 

the Exchange located on the trading floor. 

Notwithstanding this provision, an RSQT would be 

permitted only to submit electronic quotations from 

off the floor of the Exchange.

8The OAESC has jurisdiction over the allocation, 

retention, and transfer of the privileges to deal in 

all options to, by, and among members on the 

options and foreign currency options trading floors. 

See Exchange By-Law Article X, Section 10–7. See

also Exchange Rule 500.

9Streaming Quote Options are the specific issues 

in which SQTs may generate and submit option 

quotations from on the floor of the Exchange. See

Exchange Rule 1080(k). The proposed rule change 

trading requirement are subject to 

Business Conduct Committee review. 

B–6 Priority of Options Orders for 

Equity Options and Index Options by 

Account Type 

(EQUITY OPTION AND INDEX OPTION 

ONLY) 

Section A–D No change. 

Section E 

Allocation of the Remainder of the 

Order Among Specialist and ROTs on 

Parity. After the application of this 

Advice to an Initiating Order, the 

Remainder of the Order shall be 

allocated by the Allocating Participant 

(as defined in Rule 1014(g)(vi)) as 

follows: 

(A) No change. 

(B) Size. The term ‘‘stated size’’ [in 

relation to a crowd participant and] in 

respect of an order or electronic 

quotation shall mean: 

(1) In the case of orders handled 

manually by the specialist: 

(a)(i) If a crowd participant (including 

the specialist) has actually stated a size 

(‘‘Actual Size’’), such crowd 

participant’s stated size shall be his or 

her Actual Size; 

(ii) if the specialist, an SQT or RSQT 

is disseminating an electronic quotation 

at the Exchange’s disseminated price in 

a particular series at the time of the 

execution of an Initiating Order in such 

series, such specialist, SQT or RSQT’s 

disseminated size at the Exchange’s 

disseminated price shall be his or her 

Actual Size, and such specialist, SQT 

and/or RSQT shall be deemed a ‘‘crowd 

participant’’ for purposes of this Advice;

(b)–(c) No change. 

(2) No change. 

(C) No change. 

(D) Waiver. (1) Any ROT (other than 

an RSQT) or specialist may, in his or 

her sole discretion, offer to waive, in 

whole or in part, any part of a trade to 

which they were entitled to be allocated 

(an ‘‘Offer to Waive’’). 

(a)–(c) No change. 

(E)–(G) 

Section F No change. 

FINE SCHEDULE No change.

F–7 [Bids and Offers] Size of Exchange’s 

Disseminated Bid or Offer 

[All bid and offer prices shall be 

general ones and shall not be specified 

for acceptance by particular members. 

In the absence of a stated size to any 

bid or offer voiced or displayed on the 

Options Floor, the person responsible 

for such bid and offer is deemed to be 

quoting for one contract, except in those 

instances where predetermined volume 

guarantees are provided for the 

facilitation of specific account types. 

Floor traders (Specialists and ROTs) are, 

however, required to trade more than 

one contract in connection with the 

execution of a customer order pursuant 

to Advice A–11.] 

The size of any disseminated bid or 

offer by the Exchange shall be, with 

respect to the disseminated price for any 

quoted options series, equal to: 

(a) Respecting non-Streaming Quote 

options (as defined in Rule 1080(k), at 

least the sum of the size associated with: 

(1) Limit orders; and (2) specialists’

quotations generated by Auto-Quote or 

Specialized Quote Feed as described in 

Rule 1080, Commentary .01 (which 

represents the collective quotation size 

of the specialist and any ROTs bidding 

or offering at the disseminated price 

unless an ROT has expressly indicated 

otherwise in a clear and audible 

manner). 

(b) respecting Streaming Quote 

Options, at least the sum of the size 

associated with limit orders, specialists’

quotations, [and] SQTs’ quotations, and 

RSQTs’ quotations. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

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. 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 market-making participant on 

the Phlx XL trading platform—the 

RSQT. 

Definitions 

Proposed Phlx Rule 1014(b)(ii)(C) 

would define a ‘‘non-SQT ROT’’ as an 

ROT who is neither a Streaming Quote 

Trader (‘‘SQT’’) 3 nor an RSQT. 

Proposed Phlx Rule 1014(b)(ii)(B) would 

define an RSQT as an ROT that is a 

member 4 or member organization 5 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 

could be an individual or a member 

organization, whereas an SQT must be 

an individual. Under the Exchange’s 

rules, such member or member 

organization must have a natural person 

or person associated with that member 

organization who is a permit holder.6

Proposed Phlx Rule 1014(b)(ii)(B) 

would also make clear that, although an 

RSQT is a new category of ROT, an 

RSQT may only submit such quotations 

electronically from off the floor of the 

Exchange.7 Further, the rule would 

prohibit any person who is either 

directly or indirectly affiliated with an 

RSQT to be a specialist, RSQT, SQT, or 

non-SQT ROT in options in which such 

affiliated RSQT is assigned. The 

purpose of this provision is to prevent 

multiple affiliated parties from quoting 

electronically in the same option and 

thus receiving multiple automatic 

allocations for the same or affiliated 

beneficial account owners. Finally, an 

RSQT may trade in a market-making 

capacity only in classes of options in 

which he is assigned, because the RSQT 

is an ROT with market-making 

obligations.

Appointment of RSQTs 

Currently, the Options Allocation, 

Evaluation and Securities Committee 

(‘‘OAESC’’) 8 has the authority to 

appoint on-floor SQTs under Exchange 

Rule 507 and to assign SQTs in one or 

more Streaming Quote Options.9 The 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77303

would expand the definition of Streaming Quote 

Options to include those issues in which RSQTs 

may submit electronic quotations from off the floor 

of the Exchange.

10The Exchange’s Financial Automation 

Department is responsible for the design, 

development, implementation, testing, and 

maintenance of the Exchange’s automated trading 

systems, surveillance systems, and back office 

systems. It is also responsible for monitoring the 

quality of performance and operational readiness of 

such systems, in addition to user training and 

validation of user technology as it pertains to such 

users’ interface with the Exchange’s systems.

11This is similar to Chicago Board Options 

Exchange, Inc. (‘‘CBOE’’) Rule 8.92.

12For example, if an RSQT is assigned in one 

Streaming Quote Option that includes five series 

(A, B, C, D, and E), such RSQT would be required 

to quote continuous, two-sided markets in three of 

those series in order to fulfill the 60% quoting 

requirement. If such an RSQT initially submits 

quotations in series A, B, and C, and the size 

associated with the quotation in Series A is 

exhausted, such SQT would be required either to 

refresh its quotation in Series A while continuing 

to submit quotations in Series B and C, or to submit 

new quotations in any three of the five series, in 

order to fulfill the 60% quoting requirement.

13See SR–Phlx–2004–73.

proposed amendments to Phlx Rule 507 

would authorize the OAESC to appoint 

and assign RSQTs in one or more 

Streaming Quote Options in a similar 

fashion to the current practice of 

assigning SQTs in Streaming Quote 

Options. Proposed Phlx Rule 507 would 

set forth the solicitation, application, 

and review process to be followed by 

the OAESC in appointing RSQTs.

The current requirements for SQT 

applicants for assignment in Streaming 

Quote Options would apply to RSQT 

applicants as well. Specifically, RSQTs 

would be required to submit an 

application for assignment in writing to 

the Exchange, and the proposed 

amendments to Phlx Rule 507(b)(ii) 

would mandate that no application for 

assignment as an RSQT in Streaming 

Quote Options would be approved by 

the OAESC without written certification 

signed by an officer (Vice President or 

above) of the Exchange’s Financial 

Automation Department 10 indicating 

that the RSQT applicant has sufficient 

technological ability to support his/her 

continuous quoting requirements as set 

forth in Phlx Rule 1014(b)(ii) and the 

RSQT applicant has successfully 

completed, or is scheduled to complete, 

testing of its quoting system with the 

Exchange.

The Exchange expects to approve and 

appoint RSQTs who demonstrate 

additional qualifications that would 

serve to enhance the overall business of 

the Exchange. Accordingly, in addition 

to the above requirements, an RSQT 

applicant must demonstrate to the 

OAESC that it has: (1) Significant 

market-making and/or specialist 

experience in a broad array of securities; 

(2) superior resources, including capital, 

technology, and personnel; (3) 

demonstrated history of stability, 

superior electronic capacity, and 

superior operational capacity; (4) 

proven ability to interact with order 

flow in all types of markets; (5) 

existence of order flow commitments; 

(6) willingness to accept assignments as 

an RSQT in options overlying 400 or 

more securities; and (7) willingness and 

ability to make competitive markets on 

Phlx and otherwise to promote Phlx in 

a manner that is likely to enhance the 

ability of Phlx to compete successfully 

for order flow in the options it trades.11

‘‘Willingness to promote Phlx’’ includes 

assisting in meeting and educating 

market participants, maintaining 

communications with member firms in 

order to be responsive to suggestions 

and complaints, responding to 

suggestions and complaints, and other 

like activities.

The Exchange represents that it 

intends to use the final factor listed 

above to take into consideration which 

of the applicants would best be able to 

enhance the competitiveness of the 

Exchange. The Exchange would not 

apply this factor in any way to restrict, 

either directly or indirectly, RSQTs’

activities as market makers or specialists 

on other exchanges or to restrict how 

RSQTs handle orders held by them in a 

fiduciary capacity to which they owe a 

duty of best execution. 

The Exchange would use the factor 

relating to the existence of order flow 

commitments to evaluate existing order 

flow commitments between the RSQT 

applicant and order flow providers. A 

future change to, or termination of, any 

such commitments would not be used 

by the Exchange at any point in the 

future to terminate or take remedial 

action against an RSQT. Furthermore, 

the Exchange would not take remedial 

action solely because orders subject to 

any such commitments were not 

subsequently routed to the Exchange. As 

part of the approval of an RSQT, the 

Exchange would be permitted to place 

conditions on the approval based on the 

operations of the applicant and the 

number of options in which the RSQT 

applicant may be assigned. 

Additionally, an RSQT would not be 

permitted to transfer its approval to act 

as an RSQT unless permitted to do so 

by the Exchange.

The proposed amendments to Phlx 

Rule 507(b)(iii) would clarify that, as in 

the case of SQTs, the Exchange’s Board 

of Governors may defer qualifying 

applications for RSQT status, based on 

system constraints, capacity restrictions, 

or other factors relevant to the 

maintenance of a fair and orderly 

market. The basis for such deferral, 

however, would be required to have 

been objectively determined by the 

Board, subject to Commission approval 

or effectiveness pursuant to a filing 

under Section 19(b) of the Act, as 

amended. In such an event, the OAESC 

would be required to provide written 

notification to any SQT or RSQT 

applicant whose application is the 

subject of such limitation(s) or deferral, 

describing the objective basis for such 

limitation(s) or deferral. 

RSQT Obligations 

An RSQT would be responsible to 

quote continuous, two-sided markets in 

not less than 60% of the series in each 

Streaming Quote Option in which such 

RSQT is assigned.12 RSQTs’ obligation 

would increase, however, for RSQTs 

who receive Directed Orders (as defined 

in Phlx Rule 1080(l)(i)(A)).13

Specifically, a Directed RSQT (as 

defined in Phlx Rule 1080(l)(i)(C)) 

would be responsible to quote 

continuous, two-sided markets in not 

less than 100% of the series in each 

Streaming Quote Option in which such 

Directed RSQT receive Directed Orders.

RSQT quotations would be subject to 

the same minimum size requirement as 

that imposed on SQTs. Current Phlx 

Rule 1014(b)(ii)(B) allows SQTs to 

stream electronic quotations with a 

minimum size of one contract for a 

period of time following the deployment 

of an option as a Streaming Quote 

Option trading on Phlx XL, after which 

such quotation must be for a minimum 

of 10 contracts. The rule would be 

amended to impose the same minimum 

size requirements on RSQTs and 

renumbered as Phlx Rule 1014(b)(ii)(D). 

ROT Obligations and RSQTs 

Exchange Rule 1014 and the 

commentaries thereto impose certain 

rights and obligations on ROTs. Because 

of the unique nature of an RSQT (i.e., 

participating as an Exchange market 

maker from off the floor of the 

Exchange), the proposal would amend 

various sections of the Commentary to 

Phlx Rule 1014 to clarify the obligations 

that would apply to RSQTs. 

First, for clarity, Commentary .01 to 

Phlx Rule 1014 would be amended to 

state that an RSQT electing to engage in 

Exchange options transactions is 

designated as a specialist on the 

Exchange for all purposes under the Act 

and the rules and regulations 

thereunder with respect to options 

77304 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

14See Section 11(b) of the Act, 15 U.S.C. 78k(b), 

and Rule 11b–1 thereunder, 17 CFR 240.11b–1.

15See SR–Phlx–2004–73.

16Phlx Rules 119, 120, and 1014(g) are the 

general rules concerning the establishment of parity 

and priority in the execution of orders on the 

options floor. The trade allocation algorithm in Phlx 

Rule 1014(g)(vii) generally does not contemplate 

that price-time priority applies to quotes and orders 

in Streaming Quote Options. Accordingly, Phlx 

Rule 1014(g)(vii)(B)(3) states that, notwithstanding 

the first sentence of Phlx Rule 1014(g)(i), neither 

Phlx Rule 119(a)–(d) and (f), nor Phlx Rule 120 

(insofar as it incorporates those provisions by 

reference) shall apply to the allocation of 

automatically executed trades in Streaming Quote 

Options.

17See Securities Exchange Act Release No. 50788 

(December 3, 2004), 69 FR 71860 (December 10, 

2004) (SR–Phlx–2004–57).

18See SR–Phlx–2004–91.

transactions initiated and effected by 

him in his capacity as an ROT.14

Commentary .01 also imposes certain 

minimum ‘‘in-person’’ trading 

requirements applicable to ROTs in 

order to preserve specialist margin 

treatment. Because RSQTs submitting 

electronic quotations from off the floor 

of the Exchange could not possibly 

fulfill the ‘‘in-person’’ requirement, the 

Exchange proposes to amend 

Commentary .01 to exclude RSQTs from 

this requirement. 

Similarly, Commentary .03 requires 

that at least 50% of the trading activity 

in any quarter (measured in terms of 

contract volume) of an ROT must 

ordinarily be in classes of options to 

which he is assigned. RSQTs may only 

submit electronic quotations from off 

the floor in options in which they are 

assigned (resulting in 100% of their 

quarterly trading activity measured in 

terms of contract volume). Therefore, 

the Exchange proposes to amend 

Commentary .03 to exclude RSQTs from 

the 50% obligation, because it does not 

make sense to apply such a requirement. 

The Exchange also proposes to adopt 

Commentary .06 to Phlx Rule 1014. 

Commentary .06 requires RSQTs to 

maintain information barriers that are 

reasonably designed to prevent the 

misuse of material, non-public 

information with any affiliates that may 

conduct a brokerage business in options 

assigned to the RSQT or act as a 

specialist or market maker in any 

security underlying options assigned to 

the RSQT, and otherwise comply with 

the requirements of Phlx Rule 1020 

regarding restrictions on the flow of 

privileged information between the 

affiliate and the specialist organization. 

Commentary .08 currently describes 

certain ROT transactions that are 

deemed ‘‘on-floor’’ trading for purposes 

of the rule. The Exchange proposes to 

adopt Commentary .08(c) to deem any 

transaction for the account of an RSQT 

as on-floor trading in order to ensure 

that RSQTs may effect off-floor 

transactions in their market maker 

accounts as for purposes of margin 

treatment. 

As a housekeeping matter, the 

Exchange proposes to delete 

Commentary .10 to Phlx Rule 1014, 

relating to orders given out by an ROT 

to specialists. The purpose of this 

proposal is to remain consistent with 

the Exchange’s current proposed rule 

change relating to limit order display, 

which requires ROTs who wish to place 

limit orders on the limit order book to 

do so electronically via interface with 

the AUTOM System.15 An ROT can no 

longer ‘‘give out’’ an order to a specialist 

but instead must place the order on the 

limit order book electronically, thus 

obviating the need for Commentary .10.

Trade Allocation 

Currently, Exchange Rule 1014(g)(vii) 

governs the allocation of trades 

executed in Streaming Quote Options 

traded on Phlx XL. The proposed rule 

change would afford RSQTs the same 

entitlement to receive contracts under 

the algorithm described in the rule as 

SQTs. 

Phlx Rule 1014(g)(vii)(A) currently 

provides that, if one Phlx XL Participant 

(including the specialist, an SQT, or a 

non-SQT ROT) is quoting alone at the 

disseminated price and his quote is not 

matched by another Phlx XL Participant 

prior to execution, such Phlx XL 

Participant would be entitled to receive 

a number of contracts up to the size 

associated with his/her quote. The 

proposed rule change would expand the 

definition of ‘‘Phlx XL Participant’’ to 

include an RSQT. 

Currently, Phlx Rule 1014(g)(vii)(B) 

governs the automatic allocation 

algorithm that applies to orders or 

electronic quotes in Streaming Quote 

Options that result in automatic 

executions when two or more Phlx XL 

Participants have quotes or booked limit 

orders at the Exchange’s disseminated 

price.16 Under current Exchange rules, 

orders in Streaming Quote Options 

traded on Phlx XL for 5 contracts or 

fewer are allocated first to the specialist, 

provided that the specialist is quoting at 

the Exchange’s disseminated price. 

Other Phlx XL Participants quoting at 

the execution price are entitled to 

receive contracts under the algorithm 

contained in Exchange Rule 

1014(g)(vii)(B)(1)(b), which includes a 

weighted percentage of contracts to be 

allocated among Phlx XL Participants 

on parity (including the specialist) on 

an equal basis and a weighted 

percentage of contracts to be allocated 

among Phlx XL Participants on parity 

on a size pro rata basis.17 The proposed 

rule change would include RSQTs in 

this algorithm applicable to orders for 

greater than 5 contracts. The algorithm 

in Phlx Rule 1014(g)(vii)(B)(1)(b) would 

not apply to a Directed Specialist, SQT, 

or RSQT. The algorithm applicable to 

Phlx XL trades that involve a Directed 

Specialist, SQT, or RSQT is contained 

in Phlx Rule 1080(l).18

Trade Allocation of Non-Electronic 

Orders 

The proposed rule change would 

provide that current rules applicable to 

out-of-crowd SQTs regarding 

participation in non-electronic orders 

traded in the crowd would apply to 

RSQTs as well. Specifically, RSQTs 

would not be permitted to participate in 

trades stemming from such a nonelectronic order unless the order is 

executed at the price quoted by the 

RSQT at the time of execution. 

The proposal would further clarify the 

allocation algorithm to be applied by the 

person responsible to allocate such 

orders by adding a new definition of 

‘‘Actual Size’’ to Phlx Rule 

1014(g)(v)(B), the Exchange’s rule 

governing the allocation of orders traded 

in the crowd. Specifically, if the 

specialist, an SQT, or RSQT is 

disseminating an electronic quotation at 

the Exchange’s disseminated price in a 

particular series at the time of the 

execution of an order in such series, 

such specialist, SQT, or RSQT’s 

disseminated size at the Exchange’s 

disseminated price would be his or her 

Actual Size. Actual Size is the number 

of contracts for each crowd participant 

on which the person responsible for 

allocating the trade (‘‘Allocating 

Participant’’) bases allocation of the 

order among crowd participants on 

parity. The purpose of this provision is 

to establish a definition of Actual Size 

for specialists, out-of crowd SQTs, and 

RSQTs whose electronically submitted 

quotations are on parity with other 

crowd participants. Because the rest of 

Phlx Rule 1014(g)(v) refers to allocation 

of orders to ‘‘crowd participants’’ on 

parity, such specialist, SQT, and/or 

RSQT would be deemed a crowd 

participant for purposes of this rule.

The Exchange proposes to amend 

Phlx Rule 1014(g)(v)(D) which permits 

any ROT or specialist to, in his or her 

sole discretion, offer to waive, in whole 

or in part, any part of a trade to which 

he was entitled to be allocated (‘‘Offer 

to Waive’’). The proposed rule change 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77305

19The Exchange believes that it is more practical 

to require the on-floor participant to allocate the 

transaction, because the RSQT is not physically 

present on the floor of the Exchange.

20Exchange Rule 1080(b)(i)(C) defines an ‘‘offfloor broker-dealer’’ as a broker-dealer that delivers 

orders from off the floor of the Exchange for the 

proprietary account(s) of such broker-dealer, 

including a market maker located on an exchange 

or trading floor other than the Exchange’s trading 

floor who elects to deliver orders via AUTOM for 

the proprietary account(s) of such market maker.

would exclude RSQTs from the 

provisions of the rule. An RSQT would 

not be permitted to waive any part of a 

trade to which he is entitled to be 

allocated. Because an RSQT is not 

physically present on the floor of the 

Exchange, it would be impractical to 

permit an RSQT to offer to waive all or 

a portion of his entitlement, since he 

could not verbalize such an offer and 

would not be able to communicate such 

an offer to waive electronically. 

Furthermore, the crowd participants 

would have no means to communicate 

their acceptance or rejection of such an 

offer to waive. Therefore, as a practical 

matter, the Exchange proposes to 

exclude RSQTs from the provisions 

contained in Phlx Rule 1014(g)(v)(D). 

Finally, the proposal would amend 

Exchange Rule 1014(g)(vi), which 

describes who must function as the 

Allocating Participant in non-electronic 

orders executed in the crowd. Generally, 

the Floor Broker representing the order 

or the specialist is required to be the 

Allocating Participant. Current Phlx 

Rule 1014(g)(vi)(iii), however, states that 

where there is no floor broker and no 

specialist is involved in the transaction, 

the largest participant must be the 

Allocating Participant. The rule would 

be amended to provide that the largest 

on-floor participant must be the 

Allocating Participant, because if an 

RSQT or out-of-crowd SQT is the largest 

participant, it is virtually impossible to 

allocate the order from another crowd 

on the floor or from a remote location 

off the floor. Similarly, current Phlx 

Rule 1014(g)(vi)(iv) states that if there is 

only one seller and one buyer (no Floor 

Broker and no specialist is involved) the 

seller must be the Allocating 

Participant. However, if the seller is an 

RSQT (and thus not on the floor of the 

Exchange), the RSQT could not allocate 

the order in the crowd. Accordingly, the 

Exchange proposes to amend Phlx Rule 

1014(g)(vi)(iv) to provide that, if the 

seller or the buyer is an RSQT, the onfloor participant in the transaction 

would be required to be the Allocating 

Participant.19 This provision would 

now cover each trading situation.

As a housekeeping matter, Phlx Rule 

1014(g)(vi)(i)–(iv) would be renumbered 

for consistency with the numbering of 

other Exchange rules. 

Elimination of ‘‘SQT Zones’’

Currently, Commentary .05(b) to Phlx 

Rule 1014 provides that an SQT may be 

assigned to (and thus submit quotes 

electronically in) all of the options 

located within a specified physical zone 

on the Exchange Options Floor (‘‘SQT 

Zone’’), provided that such SQT is 

physically present in such SQT Zone. 

Each member organization must 

currently have at least one SQT 

physically present in each SQT Zone in 

which such member organization 

submits electronic quotations. The 

number and location of SQT Zones will 

be determined by the Options 

Committee. 

Currently, the entire Exchange floor is 

considered one SQT Zone. Therefore, 

the proposed rule change would delete 

the rule concerning SQT Zones and 

establish that an SQT or RSQT may be 

assigned to (and thus submit quotes 

electronically in) any option traded on 

Phlx XL for which they are approved by 

the Exchange. The elimination of this 

provision would allow SQTs and RSQTs 

to stream electronic quotations floorwide without consideration of physical 

boundaries. SQTs would continue to be 

required to be physically present on the 

Exchange floor in order to submit 

electronic quotations in Streaming 

Quote Options. Because the entire 

exchange has been considered one SQT 

Zone, this deletion would have no 

practical effect. The Exchange no longer 

envisions dividing the options trading 

floor into various SQT Zones. 

RSQT Participation in Openings 

Phlx Rule 1017 currently permits 

SQTs to participate in opening 

transactions by submitting electronic 

quotations to interact with opening 

orders. Under the proposed rule change, 

RSQTs would be permitted to 

participate in openings in the same 

manner as SQTs. Commentary .01 to 

Phlx Rule 1017 currently requires 

specialists to consider markets from 

ROTs in the crowd in addition to 

electronic quotations submitted by 

SQTs prior to the opening of the 

underlying security on the primary 

market. Phlx Rule 1017 would be 

amended to require specialists to 

consider RSQT quotations in the preopening period. Phlx Rule 1017 would 

also be amended to require RSQTs to 

fulfill their quoting requirements under 

Phlx Rule 1014, as discussed above, 

once the opening trade price in a series 

has been disseminated to the Option 

Price Reporting Authority. Finally, if the 

specialist determines that a series will 

not open due to an opening price that 

is not within an acceptable range or an 

order imbalance, the specialist currently 

requests bids and offers from ROTs in 

the crowd and, in the case of Streaming 

Quote Options, SQTs. Phlx Rule 1017 

would be amended to provide that the 

specialist would also request bids and 

offers from RSQTs that are assigned in 

the option. As with the current rules 

applicable to ROTs and SQTs, RSQTs 

would be required to respond to such a 

request immediately. The opening 

would be delayed until responses to the 

specialist’s request have been received 

and the consequent opening price is 

deemed by a Floor Official to be 

compatible with a fair and orderly 

market. 

Book Sweep 

Currently, Exchange Rule 

1080(c)(iii)(B) governs a feature of 

AUTOM known as ‘‘Book Sweep’’ as it 

relates to Streaming Quote Options 

trading on Phlx XL. When the specialist 

or an SQT has engaged the Book Sweep 

feature, and when such a specialist or 

SQT submits a quotation that locks or 

crosses a limit order on the book that 

represents the Exchange’s best bid or 

offer, such limit order would be 

executed automatically up to the size 

associated with the specialist or SQT’s 

quotation and would be automatically 

allocated in accordance with Exchange 

rules. Book Sweep functions only in 

situations where the Exchange’s 

disseminated best bid or offer is 

represented by a limit order on the limit 

order book and such bid or offer is or 

is equal to the National Best Bid/Offer 

(‘‘NBBO’’). The proposed rule change 

would amend Phlx Rule 1080(c)(iii)(B) 

to state that an RSQT quotation would 

also initiate the Book Sweep Function 

under these conditions. The specialist, 

RSQT, or SQT may manually initiate the 

Book Sweep feature by sending a 

manual quote in situations where the 

specialist, SQT, or RSQT’s automatic 

generation of electronic quotations is 

suspended due to, for example, a system 

malfunction. Eligible orders on the limit 

order book would be automatically 

executed up to the size associated with 

the quote that matches or crosses such 

limit orders. Orders on the limit order 

book are not eligible for Book Sweep 

when the NBBO is crossed (i.e., 2.10 

bid, 2 offer). 

Book Match 

Book Match is a feature of AUTOM 

that currently provides automatic 

executions for inbound AUTOMdelivered customer and off-floor brokerdealer 20 orders against customer limit 

77306 Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 

21Rotation procedures allow a brief period of 

auction pricing for each option series during which 

bids and offers, including, with respect to 

Streaming Quote Options, bids and offers submitted 

electronically by SQTs (and, under the proposal, 

RSQTs), and transactions for that option class may 

normally only occur in that series. See Exchange 

Rule 1047 and OFPA A–12. 22See SR–Phlx–2004–91.

orders on the book. Phlx Rule 1080(g) 

states that in Streaming Quote Options 

the contra-side to automatically 

executed inbound eligible orders can be 

a limit order on the book or specialist 

and/or SQT electronic quotes 

(‘‘electronic quotes’’) at the 

disseminated price, where the 

Exchange’s disseminated size includes a 

limit order on the book and/or 

electronic quotes at the disseminated 

price. Phlx Rule 1080 would be 

amended to provide that the contra-side 

to an inbound eligible order can be an 

RSQT electronic quote. As with Book 

Sweep, Book Match would not be 

engaged when the Exchange’s 

disseminated price represented by a 

limit order on the book is not the NBBO. 

In these situations, incoming orders 

would be subject to manual handling by 

the specialist.

Additional Amendment to Phlx Rule 

1080 

Phlx Rule 1080, Commentary .01(b)(ii) 

would be amended in order to clarify 

that the specialist determines which 

options pricing model to select per 

option in non-Streaming Quote Options 

only. Respecting Streaming Quote 

Options, each specialist, SQT, and 

RSQT is a ‘‘responsible broker or 

dealer’’ (as described below) for his 

proprietary electronic quotation. 

Therefore, each specialist, SQT, and 

RSQT may select the options pricing 

model that is appropriate for him. 

Firm Quotations 

Exchange Rule 1082, Firm Quotations, 

would be amended in a number of ways 

to capture the firm quote requirements 

applicable to RSQTs. First, Phlx Rule 

1082(a)(ii)(B), which currently defines 

the Exchange’s ‘‘disseminated size’’

respecting Streaming Quote Options as 

at least the sum of the size associated 

with limit orders, specialists’

quotations, and SQT quotations, would 

be amended to expand the definition of 

disseminated size to include RSQT 

quotations. Second, the proposed 

amended Phlx Rule 1082 would be 

applied to RSQT quotations in 

Streaming Quote Options in the same 

manner as it is applied to SQT 

quotations. Specifically:

• If an SQT or RSQT’s (other than a 

Directed SQT or RSQT’s) quotation size 

in a particular series in a Streaming 

Quote Option is exhausted, such 

RSQT’s quotation would be deleted 

from the Exchange’s disseminated 

quotation until the time the RSQT 

revises his/her quotation. 

• If the Exchange’s disseminated size 

in a particular series in a Streaming 

Quote Option is exhausted at that 

particular price level, and no specialist, 

SQT, or RSQT has revised their 

quotation immediately following the 

exhaustion of the Exchange’s 

disseminated size, the Exchange would 

automatically disseminate the 

specialist’s most recent disseminated 

price (which was that particular price 

level) prior to the time of such 

exhaustion with a size of one contract. 

• In the event an SQT, RSQT, or 

specialist in a Streaming Quote Option 

has electronically submitted on the 

Exchange bids or offers for a Streaming 

Quote Option, each such SQT, RSQT, or 

specialist member would be considered 

a ‘‘responsible broker or dealer’’ for that 

bid or offer, up to the size associated 

with such responsible broker or dealer’s 

bid or offer. 

• In the event that an RSQT bid or 

offer locks another Phlx XL Participant’s 

electronic bid or offer, a ‘‘counting 

period’’ of one second would begin 

during which Phlx XL Participants, 

including the RSQT whose quotation is 

locked, may eliminate the locked 

market. Provided, however, that such 

RSQT (and any Phlx XL Participant 

whose electronic bid or offer is locked 

with another electronic bid/offer) would 

be required to execute orders at their 

disseminated quotation. 

• In the event of a crossed market 

(i.e., 1.10 bid, 1 offer) wherein an 

incoming quotation crosses an existing 

quotation, the Exchange would: (i) 

Change the incoming quotation such 

that it locks the existing quotation; (ii) 

send a notice to the SQT, RSQT, or 

specialist that submitted the existing 

quotation indicating that its quotation 

was crossed; and (iii) send a notice to 

the specialist, SQT, or RSQT that 

submitted the incoming quotation, 

indicating that its quotation crossed the 

existing quotation and was changed. 

Such a locked market is handled in 

accordance with the rules relating to 

locked quotations as stated above. 

Amendments to Option Floor Procedure 

Advices 

In addition to the proposed 

amendments to Exchange rules, the 

Exchange also proposes amendments to 

certain Exchange Option Floor 

Procedure Advices (‘‘OFPAs’’) in order 

to make them applicable to RSQTs. The 

Exchange proposes to amend OFPA A–

12, Opening Rotations and SORT 

Procedures, to clarify that bids and 

offers may be submitted by RSQTs 

during opening rotations.21 The 

Exchange also proposes amendments to 

OFPA B–3, Trading Requirements, 

which includes the same ‘‘in-person’’

trading requirement applicable to ROTs 

that is included in current Commentary 

.01 to Phlx Rule 1014 and the same 

obligation for ROTs to conduct 50% of 

their quarterly trading activity in 

assigned options contained in 

Commentary .03 to such Phlx Rule. 

Because, as stated above, the in-person 

requirement and the 50% quarterly 

volume requirement in assigned issues 

would not apply to RSQTs, OFPA B–3 

would be amended to exclude RSQTs 

from those requirements.

OFPA B–6, Priority of Options Orders 

for Equity Options and Index Options 

by Account Type, includes the same 

trade allocation algorithm for orders 

represented in the crowd by Floor 

Brokers and specialists as contained in 

Phlx Rule 1014(g)(v). Therefore, the 

Exchange proposes to amend the 

provisions in Section E of OFPA B–6 

relating to Actual Size and Waiver that 

are identical to the proposed 

amendments to Phlx Rule 1014(g)(v). 

Finally, the Exchange proposes to 

amend OFPA F–7, Bids and Offers, in a 

number of ways. As a housekeeping 

matter, the Exchange proposes to delete 

the paragraphs in current OFPA F–7 

that provide that all bid and offer prices 

are general and shall not be specified for 

acceptance by particular members and, 

that in the absence of a stated size to 

any bid or offer voiced or displayed on 

the Options Floor, the person 

responsible for such bid and offer is 

deemed to be quoting for one contract. 

The purpose of this provision is to make 

OFPA F–7 consistent with another 

Exchange proposal relating to the 

acceptance by particular members of 

Directed Orders 22 and to make it 

consistent with Phlx Rule 1014(g)(v) 

and OFPA B–6, each of which addresses 

crowd participants’ ‘‘stated size’’

differently. The Exchange proposes to 

further amend OFPA F–7 to define the 

Exchange’s disseminated size as defined 

in proposed Phlx Rule 1082(a)(ii). 

Finally, in order to more specifically 

describe the content of proposed 

amended OFPA F–7, the Exchange 

proposes to change the title from ‘‘Bids 

and Offers’’ to ‘‘Size of Exchange’s 

Disseminated Bid or Offer.’’

Summary 

The Exchange believes that its 

proposal to adopt rules respecting 

RSQTs is an important step forward in 

Federal Register / Vol. 69, No. 247 / Monday, December 27, 2004 / Notices 77307

23 15 U.S.C. 78f(b).

24 15 U.S.C. 78f(b)(5). 25 17 CFR 200.30–3(a)(12).

the evolution of the Exchange’s trading 

systems towards more electronic trading 

of options on the Exchange via Phlx XL. 

1. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 23 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 24

in particular, in that it is designed to 

promote just and equitable principles of 

trade, remove impediments to and 

perfect the mechanisms of a free and 

open market and a national market 

system, and to protect investors and the 

public interest, by allowing a new 

category of market maker, the RSQT, to 

quote competitively from off the floor of 

the Exchange, thereby increasing the 

depth and liquidity in the Exchange’s 

markets, and allowing the Exchange to 

remain competitive for order flow by 

adding additional liquidity to the 

Exchange’s markets, enhancing the 

ability of order flow providers to fulfill 

their duty of best execution on behalf of 

their customers.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any inappropriate burden on 

competition. 

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 

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 shall: (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 (http://www.sec.gov/

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–Phlx–2004–90 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609. 

All submissions should refer to File 

Number SR–Phlx–2004–90. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of the filing also will be 

available for inspection and copying at 

the principal office of 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–2004–90 and should 

be submitted on or before January 18, 

2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.25

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–28149 Filed 12–23–04; 8:45 am] 

BILLING CODE 8010–01–P

SOCIAL SECURITY ADMINISTRATION

Rate for Attorney Fee Assessment 

Beginning in 2005

AGENCY: Social Security Administration 

(SSA).

ACTION: Notice.

SUMMARY: The Social Security 

Administration is announcing that the 

attorney-fee assessment percentage rate 

under section 206(d) of the Social 

Security Act (the Act), 42 U.S.C. 406(d), 

is 6.3 percent for 2005.

FOR FURTHER INFORMATION CONTACT:

James A. Winn, Associate General 

Counsel for Program Law, Office of the 

General Counsel, Social Security 

Administration, Phone: (410) 965–3137, 

email jim.winn@ssa.gov.

SUPPLEMENTARY INFORMATION: Section 

406 of Public Law No. 106–170, the 

Ticket to Work and Work Incentives 

Improvement Act of 1999, established 

an assessment for the services required 

to determine and certify payments to 

attorneys from the benefits due 

claimants under Title II of the Act. This 

provision is codified in section 206 of 

the Act (42 U.S.C. 406). The legislation 

set the assessment for the calendar year 

2000 at 6.3 percent of the amount that 

would be required to be certified for 

direct payment to the attorney under 

section 206(a)(4) or 206(b)(1) before the 

application of the assessment. For 

subsequent years, the legislation 

requires the Commissioner of Social 

Security to determine the percentage 

rate necessary to achieve full recovery of 

the costs of determining and certifying 

fees to attorneys, but not in excess of 6.3 

percent. The Commissioner of Social 

Security has determined, based on the 

best available data, that the current rate 

of 6.3 percent will continue for 2005. 

During the calendar year 2005, we will 

begin directly paying fees to attorneys in 

cases under Title XVI of the Act and to 

eligible non-attorney representatives in 

cases under Title II and/or Title XVI of 

the Act, as provided in sections 302 and 

303 of Public Law No. 108–203, the 

Social Security Protection Act of 2004. 

Once these new programs begin, we will 

use the 6.3 percent rate announced in 

this notice when calculating 

assessments on direct payments made 

under these new statutory provisions 

during the calendar year 2005. 

We will continue to review our costs 

on a yearly basis.