[Federal Register Volume 65, Number 111 (Thursday, June 8, 2000)]
[Notices]
[Pages 36492-36493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42866; File No. SR-Phlx-00-27]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Codifying a Provision Implementing a Closing Rotation on 
the Last Day of Each Calendar Quarter

May 30, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 16, 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, II, and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Phlx Rule 1047 to codify a provision 
implementing a closing rotation on the last trading day of each 
calendar quarter. Specifically, Phlx Rule 1047, Commentary .01(e) would 
provide that on the last day of each calendar quarter, a closing 
rotation for some equity options series may be commenced at 4:02 p.m. 
or after the closing price of the stock in its primary market is 
established, whichever is later. Orders will not be accepted at or 
after 4:02 p.m. The trading floor will be given prior notice regarding 
which options series will be subject to a closing rotation. The text of 
the proposed rule is available at the Exchange and at the Commission.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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, under Phlx Rule 1047, Commentary .01, two Floor 
Officials, with the concurrence of a Market Regulation Officer, may 
direct that a trading rotation be employed to aid in producing a fair 
and orderly market and shall specify for each trading rotation, the 
options contracts to be included and the sequence of such options 
contracts in the rotation. According to the Phlx, this provision is 
commonly relied upon to permit quarterly rotations.
    The Phlx is proposing to amend its Rule 1047 to expressly provide 
for closing rotations on the last trading day of each calendar quarter, 
for certain equity options traded on the Phlx. The Exchange will 
provide prior notice to the trading floor of which options series will 
be subject to a closing rotation. As with other rotations, the 
procedures governing quarterly closing rotations will require that two 
Floor Officials and a Market Regulation Officer may direct that the 
rotation take place. They will specify the particular equity options 
contracts to be included and the sequence of such options contracts in 
the rotation.
    The Exchange believes that on the last day of the calendar quarter 
there is increased order flow in exchange-traded options and in the 
underlying securities, particularly at the end of the trading day. For 
instance, many large money managers adjust their positions at the end 
of the calendar quarter for tax reasons. As a result of this activity 
in both the underlying and the options market, the last sale print for 
many stocks is often delayed. Therefore, the Exchange believes that it 
is important to provide the opportunity for a closing rotation at the 
end of each calendar quarter to account for late prints and increased 
order flow. These rotations will allow the Exchange members to

[[Page 36493]]

adjust options prices in line with the closing prices of the underlying 
securities.
    In addition, quarterly rotations allow the execution at the end of 
the day of orders at a single price more efficiently. The closing 
rotation will also give investors and other interested parties more 
accurate closing prices for Phlx options on these high volume days. The 
Exchange believes that a specific rule governing quarterly closing 
rotation acts as notification to the investing public that a quarterly 
rotation may take place. However, the Exchange believes that the 
procedure described above also allows flexibility for those equity 
options series which do not experience increased activity, and, thus, 
will not be subject to a closing rotation.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act \3\ in general, and furthers the 
objectives of Section 6(b)(5) \4\ in particular, in that it is designed 
to promote just and equitable principles of trade and provide for a 
fair and orderly market by codifying specific provisions which allow 
the Exchange to conduct quarterly rotations in order to account for 
late prints and high amounts of order flow.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx represents that it does not believe that the proposed rule 
change will impose any burden on competition that is not necessary or 
appropriate in furtherance of the Act.

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

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

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \5\ and Rule 19b-4(f)(1) \6\ thereunder because 
it constitutes a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule. Phlx Rule 1047 currently provides the authority to floor 
officials to direct trading rotations in specific option classes, thus 
the Exchange believes the proposal satisfies the requirements of Rule 
19b-4(f)(1). This proposed rule change serves as clarification to note 
that there may be closing rotations in certain equity options on the 
last day of the calendar quarter.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the proposed rule change 
if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Act.

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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 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 coping 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-00-27 and should 
be submitted by June 29, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14403 Filed 6-07-00; 8:45 am]
BILLING CODE 8010-01-M