36878 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

8 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

9Section 11A(a)(1)(C)(v) of the Act.

10NYSE Approval Order at 30179.

11 15 U.S.C. 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42458

(February 25, 2000), 65 FR 11628.

4Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42459 (February 25, 2000), 65 FR

11619 (March 3, 2000) (File No. SR–CHX–99–28).

5Securities Exchange Act Release No. 42661

(April 10, 2000), 65 FR 20497 (April 17, 2000) (File

No. SR–BSE–00–02); Securities Exchange Act

Release No. 42660 (April 10, 2000), 65 FR 21052

(April 19, 2000) (File No. SR–PCX–00–11).

6The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release No. 34–42758 (May 5, 2000), 65 FR 30175

(May 10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for pubic comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78k–1.

economically efficient execution of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.8

As discussed more fully in the NYSE

Approval order, the existence of offboard trading restrictions can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Rules 5.43–5.49 directly restrict a

certain type of market center

competition—competition between

exchange markets and markets other

than exchange markets. Their rescission

today eliminates an inappropriate

regulatory burden on competition that

runs contrary to the objectives set forth

in the Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.9 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Rules 5.43–5.49 may have in enhancing

the interaction of investor orders can no

longer justify their anticompetitive

nature. To the extent off-board trading

rules enhance order interaction, they do

so in an undesirable way—by

attempting a direct restriction on

competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market centers should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task is

removing unwarranted regulatory

barriers to competition between market

centers. As stated in the NYSE Approval

Order, the rescission of off-board trading

rules is ‘‘intended solely to free the

forces of competition and allow investor

interests to control the success or failure

of individual market centers.’’ 10 The

same nationale and motivation support

the Commission’s action today.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (SR–PCX–00–11)

is approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14722 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42889; File No. SR–Phlx–

00–12]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Ordering Approving Proposed Rule

Change to Rescind Rule 132, the

Exchange’s Off-Board Trading Rule

June 2, 2000.

I. Introduction

On February 10, 2000, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder,2 a proposed rule

change to rescind Rule 132, the

Exchange’s off-board trading rule. The

proposed rule change was published for

comment in the Federal Register on

March 3, 2000.3 Proposed rule changes

filed by the American Stock Exchange

and the Chicago Stock Exchange to

rescind their off-board trading rules

were published on the same date as the

Phlx proposing release.4 Shortly

thereafter, the Boston Stock Exchange

and the Pacific Exchange filed similar

proposed rule changes.5 The

Commission received no comments on

any of these proposals. Today, in

separate orders, the Commission is

approving the proposed rule changes to

rescind off-board trading rules filed by

the exchanges noted above.6

II. Description of the Proposal

Exchange Rule 132 restricts a

member’s ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release the Exchange noted that the

‘‘staff of the Commission recently asked

the Exchange to review its off-board

trading restrictions and consider

measures to repeal such restrictions.’’

Therefore, the Exchange proposed

rescinding Rule 132 to ‘‘broaden the free

market trading activities of Exchange

members and the investors they

represent by removing restrictions on

over-the-counter trading in listed

securities.’’

III. Discussion

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. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 7 which requires, among other

things, that the rules of an exchange be

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 8

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading

Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36879

9 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

10Section 11A(a)(1)(C)(v) of the Act.

11NYSE Approval Order at 30179.

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.16b–4.

3See April 19, 2000 letter from Richard S.

Rudolph, Counsel, Exchange, to Rebekah Liu,

Special Counsel, Division of Market Regulation,

SEC (‘‘Amendment No. 1’’ ). In Amendment No. 1,

the Exchange requested that the proposed rule

change be filed under Section 19(b)(3)(A) of the Act

and Rule 19b–4(f)(6) thereunder. 15 U.S.C.

78s(b)(3)(A) and 17 CFR 240.19b–4(f)(6). The

Exchange also requested that the Commission waive

the 5-day notice of its intent to file the proposal,

and requested that the Commission waive the 30-

day period before the proposal becomes effective to

permit the proposed rule change to become

immediately effective.

4 15 U.S.C. 78s(b)(3)(A).

5 17 CFR 240.19b–4(f)(6).

6See Exchange Act Release No. 42272 (December

23, 1999), 65 FR 153 (January 3, 2000) SR–Phlx–99–

42).

7The amendments replaced the President, which

the Exchange no longer has, with the On-Floor Vice

Chairman of the Board of Governors.

restrictions will help further the

national market system objective in

Section 11A(a)(1)(C)(i) to assure the

economically efficient executive of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.9

As discussed more fully in the NYSE

Approval Order, the existence of offboard trading restrictions can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Rule 132 directly restrict a certain type

of market center competition—

competition between exchange markets

and markets other than exchange

markets. Their rescission today

eliminates an inappropriate regulatory

burden on competition that runs

contrary to the objectives set forth in the

Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.10 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Rule 132 may have in enhancing the

interaction of investor orders can no

longer justify their anticompetitive

nature. To the extent off-board trading

rules enhance order interaction, they do

so in an undesirable way—by

attempting a direct restriction on

competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market center should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task is

removing unwarranted regulatory

barriers to competition between market

centers. As stated in the NYSE Approval

Order, the rescission of off-board trading

rules is ‘‘intended solely to free the

forces of competition and allow investor

interests to control the success or failure

of individual market centers.’’ 11 The

same rationale and motivation support

the Commission’s action today.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–Phlx–00–12)

is approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14725 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 42898; File No. SR–Phlx–00–

41]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Extending the Pilot Program Regarding

Exchange Rule 98, Emergency

Committee, Until August 21, 2000

June 5, 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 April 18,

2000, the Philadelphia Stock Exchange,

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

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’). The

proposed rule change is described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

On April 20, 2000, the Exchange filed

Amendment No. 1 to the proposed rule

change.3 The Exchange filed the

proposed rule change, as amended,

pursuant to Section 19(b)(3)(A) of the

Act,4 and Rule 19b–4(f)(6) thereunder,5

which renders the proposed rule change

effective upon filing with the

Commission. The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is proposing to extend

the pilot program relating to Exchange

Rule 98, Emergency Committee, for an

additional 120 days, or until August 21,

2000. No changes to the existing rule

language are being proposed.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change, as amended,

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

On December 23, 1999, the

Commission granted approval to

amendments to Exchange Rule 98,

Emergency Committee (the

‘‘Committee’’) on a 120-day pilot basis.6

In general, the Committee is authorized

to determine the existence of, and take

action with respect to, extraordinary

market conditions or other emergencies

at the Exchange. The amendments to

Exchange Rule 98 updated the

composition of the Committee to reflect

the current governance structure of the

Exchange,7 clarified that the Committee

was authorized to act in the event of any

emergency condition created by the

Year 200 date change, and deleted a

provision referencing CENTRAMART,

an equity order entry system which is

no longer used on the Exchange. The

Committee is now composed of five

individuals: the Chairman of the Board

of Governors; the On-Floor Vice

Chairman of the Board of Governors;