[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Notices]
[Pages 39622-39623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40222; File No. SR-Phlx-98-19]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to When a Security is 
Considered Open For Trading

July 16, 1998.

I. Introduction

    On May 1, 1998, 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 clarify when a security is 
considered open for trading. On May 26, 1998, the Phlx filed Amendment 
No. 1 to the

[[Page 39623]]

proposal.\3\ The proposed rule change and Amendment No. 1 were 
published for comment in the Federal Register on June 18, 1998.\4\ No 
comments were received regarding the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Linda S. Christie, Counsel, Phlx, to Yvonne 
Fraticelli, Attorney, Division of Market Regulation (``Division''), 
Commission (May 22, 1998) (``Amendment No. 1''). In Amendment No. 1, 
Phlx replaces the phrase ``principal exchange'' in Rule 1047 with 
the phrase ``primary market'' to provide consistency with the 
language in the proposed amendments to Phlx Rule 1047A and Options 
Floor Procedure Advice G-2. Corresponding with Amendment No. 1, the 
word ``exchange'' should be replaced by the word ``market'' in the 
amended portion of Phlx Rule 1047. Telephone conversation between 
Linda S. Christie, Counsel, Phlx, and Marc McKayle, Attorney, 
Division, Commission (May 26, 1998).
    \4\ See Securities Exchange Act Release No. 40082 (June 10, 
1998), 63 FR 33430 (June 18, 1998).
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II. Description of the Proposal

    The Phlx proposes to amend Phlx Rules 1047 (Trading Rotations, 
Halts and Suspensions),\5\ 1047A (Trading Rotations, Halts or 
Reopenings),\6\ and Options Floor Procedure Advice G-2 (``Advice G-2'') 
(Trading Rotations, Halts or Reopenings) to clarify when a security is 
open for trading. Currently, Commentary .01(a) of Rule 1047 states the 
opening rotation in each class of options shall be held promptly 
following the opening of the underlying security on the principal 
market where it is traded. However, neither Commentary .01 of Phlx Rule 
1047, Phlx Rule 1047A, or Advice G-2 specifies when a security is 
considered open for trading. To clarify its rules, the Phlx proposes to 
amend Phlx Rule 1047, Commentary .01(a), Phlx Rule 1047A,\7\ and Advice 
G-2 to indicate that an underlying security shall be deemed to have 
opened on the primary market where it is traded if such market has 
either (1) reported a transaction in the underlying security, or (2) 
disseminated an opening quotation for the underlying security and given 
no indication of a delayed opening. Thus, the proposal is intended to 
correct an ambiguity and expressly provide in Exchange rules that an 
opening quote may signal the opening of a security.
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    \5\ Phlx Rule 1047 applies to equity options and to foreign 
currency options.
    \6\ Phlx Rule 1047A applies to index options.
    \7\ See Amendment No. 1, supra note 3.
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III. Discussion

    After careful review, 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. The Commission believes that the proposed rule change is 
consistent with Section 6 of the Act, in general,\8\ and Section 
6(b)(5),\9\ in particular, in that it is designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts and practices, to foster cooperation and coordination with persons 
engaged in regulating and facilitating transactions in securities, 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. The Commission believes that the 
proposed rule change is consistent with the Act in that it conforms the 
Phlx's rules to the rules of the other options exchanges,\10\ thereby 
contributing to a fair and orderly market. Specifically, the Phlx's 
proposal will permit options opening rotations to commence upon the 
earlier of either a reported transaction in the underlying security or 
a reported market quote for the security, provided that the primary 
market has not indicated a delayed opening. Accordingly, the proposal 
will allow the Phlx to commence opening rotations after the primary 
market disseminates opening quotations for the underlying security, 
rather than waiting for an opening transaction in the underlying 
security.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ See American Stock Exchange Rule 918(a)(1); Chicago Board 
Options Exchange Rule 6.2, Interpretation and Policy .01; and 
Pacific Exchange Rule 6.64, Commentary .01.
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    The Commission believes that the proposed rule change should help 
to alleviate the risk of pricing disparities among the options 
exchanges and should allow the Phlx to compete effectively with the 
other options exchanges for order flow. In addition, by allowing the 
Phlx to commence opening rotations after the opening of the underlying 
security on the primary market where it is traded, the Commission 
believes that the proposal should decrease the time required to obtain 
opening market quotations and should allow free trading to commence as 
quickly as possible after the opening. As the Commission has noted 
previously, expedited free trading allows market makers to engage in 
hedging strategies as soon as possible after the opening and should 
promote the prompt execution of customer orders.\11\
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    \11\ See Securities Exchange Act Release Nos. 33494 (January 19, 
1994), 59 FR 3889 (January 27, 1994) (order approving proposed rule 
change SR-CBOE-93-41 amending CBOE Rule 6.62, Interpretation and 
Policy .01 relating to opening transactions in Exchange-traded 
options); and 29652 (September 4, 1991), 56 FR 46454 (September 12, 
1991) (order approving proposed rule change SR-CBOE-91-29 adding 
interpretation to CBOE Rule 6.1 relating to the posting of pre-
opening market quote indications in designated options classes).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-98-19) is approved.

    \12\ 15 U.S.C. 78s(b)(2).
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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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Jonathan G. Katz,
Secretary.
[FR Doc. 98-19569 Filed 7-22-98; 8:45 am]
BILLING CODE 8010-01-M