[Federal Register Volume 65, Number 94 (Monday, May 15, 2000)]
[Notices]
[Pages 31037-31039]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-12135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42764; File No. SR-PHLX-00-06]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to Giving Preference to 
Options Specialist Units Which Resign From Option Trading Privileges in 
the Best Interest of the Exchange in Future Allocation Decisions 
Regarding Such Options

May 8, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\1\ notice is hereby given that 
on February 1, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. For the reasons discussed 
below, the Commission is granting accelerated approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Phlx proposes new Rule 513, Voluntary Resignation of Options 
Privileges, which provides that when an option specialist unit 
voluntarily resigns from trading privileges in an option in the best 
interest of the Exchange, the option specialist unit which last traded 
that option will be given preference in any future allocation decision 
regarding that option, barring any performance or disciplinary issues. 
The text of the proposed rule is as follows:

Voluntary Resignation of Options Privileges

    Rule 513. (a) If an option specialist unit voluntarily resigns from 
registration in a particular option and the Committee determines such 
resignation to be in the best interest of the Exchange, and that option 
is subsequently delisted, barring any specialist performance or 
disciplinary issues, the option specialist unit which last traded that 
option will be given preference in any future allocation decision 
regarding that option.
    (b) The preference set forth in Section (a) of this rule shall be 
in effect for a period of one year from the date of resignation from 
trading privileges by the specialist unit.

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 III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    Currently, the Exchange and the Options Price Reporting Authority 
(``OPRA'') have serious concerns regarding mitigation of quote traffic 
and maximizing computer capacity. To address those concerns, proposed 
Rule 513 is intended to provide incentive for options specialists to 
create more computer capacity by resigning from relatively low volume/
high quote traffic options. To provide that incentive, proposed Rule 
513 states that the specialist unit which last traded that option will 
be given preference in any future allocation decision regarding that 
option.
    Mitigation of excessive quote traffic and concomitant preservation 
of computer capacity is currently an industry-wide concern, and the 
Exchange believes that a preference provision such as the one 
contemplated

[[Page 31038]]

in the proposed rule addresses this concern. In this context, the 
``best interest of the Exchange'' is served by specialist units that 
voluntarily resign from trading privileges in options that trade at a 
relatively low volume, but which generate a high number of quotes to be 
disseminated from, and received by, the Exchange.
    The rule does not provide an absolute guarantee that the specialist 
unit that last traded the option will be allocated the option in the 
event that it is certified and resolicited to the Exchange's options 
specialist units. All options specialist units will be allowed to apply 
for trading privileges in relisted options, and all applications will 
be considered by the Exchange's Allocation, Evaluation and Securities 
Committee (``Committee'').\3\ The proposed rule contemplates that the 
Committee may review the performance of a specialist unit that applies 
for an option from which it had previously resigned (``applicant''). In 
order to qualify for preferential treatment in the allocation of a 
relisted option, the performance of the applicant must be consistent 
with the standards set forth in the Exchange's rules.\4\ The Committee 
will also take into account the disciplinary record of the applicant 
when considering the application, and preferential treatment of the 
specialist unit applicant will not be given if the applicant 
demonstrates the inability to adhere to the Exchange's disciplinary 
rules and those of the Commission.
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    \3\ See Phlx Rule 506. This rule provides that the Committee 
will solicit applications from all eligible specialist units.
    \4\ See Phlx Rules 511 and 515.
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    In approving Rule 513 for filing with the Commission, the 
Exchange's Board of Governors has determined that specialist units 
would be more willing to resign from trading privileges in options in 
order to mitigate quote traffic and to conserve computer capacity on 
the Exchange, if they are given some form of preference in the event 
that the options from which they have resigned in the best interest of 
the Exchange are to be relisted on the Exchange in the future.
    Over time, material changes in the composition, personnel, 
capitalization, and other aspects of specialist units which resign from 
option trading privileges may occur, which would affect the Committee's 
decisions regarding future allocations to those specialist units. For 
this reason, the proposed rule limits the Committee's preference in 
such future allocations to one year.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\5\ in general, and Section 6(b)(5) 
of the Act,\6\ in particular, in that it is designed to perfect the 
mechanisms of a free and open market and a national market system, and 
to protect investors and the public interest. By giving Exchange option 
specialists incentive to resign from trading privileges in certain high 
quote/low volume options, the Exchange will continue to serve the 
investing public and its markets by mitigating quote traffic and, thus, 
providing the most current quote and execution information possible.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Phlx has neither solicited nor received written comments on the 
proposed rule change.

III. 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. 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 such filing will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-00-06 and should 
be submitted by June 5, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange and, in 
particular, with the requirements of Section 6(b).\7\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
\8\ requirements that the rules of an exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and to 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public 
interest.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    The Commission has previously note that the aggregate message 
traffic generated by the options exchanges is rapidly approaching the 
outside limit of OPRA's systems capacity.\10\ OPRA's processor has 
informed the Commission that current plans to enhance OPRA's systems 
are not expected to be completed before the end of the second quarter 
of this year, at the earliest. Accordingly, proposals that may mitigate 
quote traffic and conserve computer capacity, such as proposed Phlx 
Rule 513, should benefit investors and other participants in the 
options markets.
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    \10\ See Securities Exchange Act Release No. 42493 (March 3, 
2000), 65 FR 12597 (March 9, 2000).
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    Pursuant to Section 19(b)(2), \11\ the Commission finds good cause 
for approving the proposed rule change prior to the thirtieth day after 
the date of publication of notice of the filing in the Federal 
Register. The Commission believes that granting accelerated approval of 
the proposal will allow Phlx to expeditiously implement the incentive 
program without any unnecessary delay.
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    \11\ 15 U.S.C. 78s(b)(2).
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    It Is Therefore Ordered, pursuant to Section 19(b)(2) \12\ of the 
Act, that the proposed rule change (SR-Phlx-00-06) is approved on an 
accelerated basis.
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    \12\ Id.


[[Page 31039]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-12135 Filed 5-12-00; 8:45 am]
BILLING CODE 8010-01-M