[Federal Register Volume 66, Number 83 (Monday, April 30, 2001)]
[Notices]
[Pages 21427-21428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44203; File No. SR-Phlx-2001-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Philadelphia Stock Exchange, Inc. To Amend Phlx Rule 237 To Expand the 
Securities Eligible for eVWAP Trading

April 19, 2001.
    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 5, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On April 13, 2001, the Exchange amended the proposal.\3\ The 
Exchange has designated this proposal as one affecting a change in an 
existing order entry or trading system of the Phlx that (i) does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not have the effect of limiting the access to or 
availability of the system under Section 19(b)(3)(A) of the Act,\4\ 
which renders the proposal 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ <IT>See <RM>April 12, 2001 letter and attachments from 
Murray L. Ross, Phlx to Nancy Sanow, Division of Market Regulation, 
SEC (``Amendment No. 1''). In Amendment No. 1, the Phlx limited the 
new securities eligible for eVWAP to exchange traded component 
issues of the Standard & Poor's 500 index, and made other technical, 
non-substantive changes to the original proposal. For purposes of 
calculating the 60-day abrogation period, the Commission considers 
the period to commence on April 13, 2001, the date the Phlx filed 
Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 237, eVWAP Morning 
Session,\5\ to expand the securities eligible for eVWAP trading to 
include additional exchange traded component issues of the Standard and 
Poor's (``S&P'') 500 index. Specifically, the Exchange proposes to 
adopt paragraph (b), which states the following:
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    \5\ eVWAP was developed by Universal Trading Technologies 
Corporation, and was approved by the Commission to operate as a 
facility of the Exchange. <IT>See <RM>Securities Exchange Act 
Release No. 41210 (March 24, 1999), 64 FR 15857 (April 1, 1999)(SR-
Phlx-96-14). The original pilot program was extended until November 
30, 2001. <IT>See <RM>Securities Exchange Act Release No. 43477 
(October 23, 2000), 65 FR 64734 (October 30, 2000)(SR-Phlx-00-84).
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    <IT>(b) Eligible Securities. The following securities will be 
eligible for execution in the System:
    (i) Exchange listed component issues of the Standard & Poor's 500 
index and any exchange listed issue that has been designated by the 
compiler of such index for inclusion in such index.
    (ii) Any of 300 New York Stock Exchange (NYSE) issues selected as 
follows: the 400 NYSE issues with the highest market capitalization 
excluding the 100 issues that have the lowest average daily dollar 
trading volume over 20 days preceding the eligibility determination, 
with eligibility determined at least semiannually.
    <RM>The Exchange also proposes technical amendments to Phlx Rule 
237 relating to decimal reporting and a minor change to the calculation 
methodology, as described further below. The complete text of the 
proposal is available at the Phlx and at the Commission.

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 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
    The purpose of the proposed rule change is to expand the number of 
highly capitalized and actively traded securities eligible to 
participate in eVWAP pursuant to Phlx Rule 237. The eVWAP is a pre-
opening order matching session for the electronic execution of large-
sized stock orders at a standardized volume weighted average price 
(``eVWAP Price'').
    The proposed expansion of eligible securities would include those 
exchange

[[Page 21428]]

listed and Consolidated Tape Association (``CTA'') reported securities 
that are component issues of the S&P 500 index. This expansion would 
increase the number of securities available for eVWAP participation by 
169 exchange listed securities that are not presently eVWAP eligible, 
but are component issues of the S&P 500 index. A number of eVWAP 
participants have requested that the Exchange make these issues 
eligible for inclusion in the system pursuant to Phlx Rule 237 issue 
eligibility procedures.
    The Exchange notes that the additional eligible securities may not 
be securities that the Exchange otherwise trades on its equity floor. 
These securities may instead only be traded through the eVWAP System; 
thus, they would be traded on an unlisted trading privileges basis, but 
without trading during regular trading hours pursuant to regular 
trading rules and thus without the concomitant quoting obligations. 
Nevertheless, these eVWAP trades will be reported pursuant to the 
applicable reporting channel, the CTA Tape.
    The Exchange notes that the additional securities that it has 
requested to be eligible for eVWAP matching are all high capitalization 
issues, enjoying active trading volume. The S&P 500 index is a key 
benchmark of large capitalization securities followed actively by 
institutional money managers and investment fiduciaries that seek to 
trade component issues relative to their index weightings. Certain of 
these market participants, among others, have indicated that they see 
considerable utility in extending the benefits now afforded to a 
limited group of listed issues to a more expansive eVWAP eligibility 
list, including all exchange listed component issues of the S&P 500 
index. Additionally, the eligibility of these additional issues is 
critical to developing eVWAP order flow connected with certain index-
linked stock basket transactions.
    The Exchange also notes that it has eliminated the exclusion of 
issues that have a market price of $200 or more per share in 
determining eligibility for listed issues. Originally the $200 market 
price exclusion was designed to eliminate very highly priced issues 
such as Washington Post and Berkshire Hathaway. The Exchange believes 
that the existing dollar volume criteria has and will continue to 
eliminate very highly priced issues which possess limited trading 
activity outside of the system while permitting certain actively traded 
high priced issues to be eVWAP eligible.
    The Exchange notes that several major broker-dealers sponsor 
alternative trading systems, which currently provide crossing networks 
that offer the opportunity to trade any listed or Nasdaq reported 
securities. For example, ITG (POSIT) and Instinet operate crossing 
systems that offer trade matching in thousands of reported securities 
without regard to capitalization or dollar volume. As a competitive 
matter, the Phlx believes that eVWAP needs to offer, at a minimum, the 
component securities of the S&P 500 index and those issues among the 
largest NYSE securities by market capitalization weight.
    The Exchange also has amended paragraph (g) of Phlx Rule 237 to 
reflect decimalization of price reporting as well as the ability to 
recognize and include only those trades occurring during the regular 
primary market trading session in the eVWAP calculation. In this 
regard, recent modifications to the CTA Networks A and B now 
distinguish trade reports reflective of executions during regular 
trading hours as differentiated from those occurring in after hours 
trading sessions, which are reported with ``T'' indicators. The latter 
trades are not intended to be included in the eVWAP calculation. 
Additionally minor technical amendments to Phlx Rule 237 to eliminate 
references to UTS and insert eVWAP have been made.\6\
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    \6\ Previously all references to UTS were to be eliminated and 
replaced by eVWAP, however, two references were not changed. <IT>See 
<RM>Securities Exchange Act Release No. 42702 (April 19, 2000), 65 
FR 24528 (April 26, 2000)(SR-Phlx 00-19).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) \7\ of the Act in general, and Section 6(b)(5) \8\ in 
particular in that it is designed to promote just and equitable 
principles of trade, prevent fraudulent and manipulative acts and 
practices and protect investors and the public interest by expanding 
the number of highly capitalized, actively traded securities eligible 
for eVWAP trading.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \9\ and subparagraph (f)(5) of Rule 19b-4 
thereunder,\10\ because it effects a change in an existing order entry 
or trading system of the Phlx that (i) does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not have 
the effect of limiting the access to or availability of the system. At 
any time within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate such 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(5).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 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 Exchange. All 
submissions should refer to file number SR-Phlx 2001-10, and should be 
submitted by May 21, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-10606 Filed 4-27-01; 8:45 am]
BILLING CODE 8010-01-M