[Federal Register Volume 66, Number 94 (Tuesday, May 15, 2001)]
[Notices]
[Pages 26901-26903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12132]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44285; File No. SR-Phlx-2001-02]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the Philadelphia Stock Exchange, Inc. Codifying Formal 
Procedures for Members To Submit Proposals To List Option Classes on 
the Exchange

May 9, 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 January 11, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Phlx. The Phlx 
filed amendment Nos. 1\3\ and 2\4\ to the proposed rule change on 
February 21, 2001 and May 2, 2001, respectively. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Richard Rudolph, Counsel, Phlx, to Nancy 
Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated February 20, 2001 (``Amendment No. 
1''). Among other things, Amendment No. 1 clarifies that the 
Exchange: (i) may consider bona fide business interests in 
determining whether to list an option; (ii) must send letters to 
members setting forth in reasonable detail the basis on which a 
decision not to list a proposed option was made; and (iii) must 
forward its written response within 3 business days of its 
determination to deny a proposed listing.
    \4\ See letter from Richard Rudolph, Counsel, Phlx, to Nancy 
Sanow, Assistant Director, Division, Commission, dated May 1, 2001 
(``Amendment No. 2''). Amendment No. 2 revises Section (c)(ii) of 
proposed Commentary .02 to Phlx Rule 1009 to clarify that the 
Exchange must notify the member in writing if the Exchange 
determines not to list, or to place conditions or limitations upon, 
a proposed listing. Amendment No. 2 also amends Section (e) of 
proposed Commentary .02 to clarify that the Exchange will maintain a 
record of any bona fide business interests supporting a decision not 
to list, or to place conditions or limitations upon, a proposed 
listing.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 1009 to codify and 
implement procedures to be carried out when an Exchange member, member 
organization, or other person requests that the Exchange list options 
not currently traded on the Exchange. The proposed rule change is set 
forth below. New text is in italics.
* * * * *

Criteria for Underlying Securities

    Rule 1009. (a)-(c) No change.
Commentary
    .01  No change
    .02  (a) Members, member organizations or any person proposing to 
list any option not currently listed on the Exchange shall submit a 
form of request (a ``Request to List an Option''), available from the 
Exchange's Business and Operations Planning Department (BOP), to BOP 
staff.
    (b) As soon as practicable, but not later than three (3) business 
days following receipt of the Request to List an Option, BOP staff 
shall review the proposed option's eligibility for listing, using the 
objective listing criteria set forth in Commentary .01 of this Rule. If 
BOP staff determines that the proposed option does not meet the 
objective

[[Page 26902]]

listing criteria set forth in Commentary .01 of this Rule, BOP staff 
shall prepare a responsive form (a ``Notification Memorandum'') stating 
the reason(s) why the proposed option is not eligible for listing. BOP 
staff shall forward the Notification Memorandum to the member or member 
organization that submitted the Request to List an Option within three 
(3) business days of its determination that the proposed option does 
not meet objective listing criteria. BOP staff shall maintain all 
Requests to List an Option and Notification Memoranda in a central file 
for a period of not less than five (5) years.
    (c) If BOP staff determines that the proposed option meets the 
objective listing criteria set forth in Commentary .01 of this Rule, 
BOP staff shall present the initial Request to List an Option and the 
subsequent review to the Chairman of the Board of Governors or his 
designee, who shall, within ten (10) business days of receipt of the 
Request to List an Option, instruct BOP staff to:
    (i) solicit options specialists to submit applications for 
specialist privileges in the option; or
    (ii) within three (3) business days, prepare and forward a letter 
to the member or member organization that submitted the Request to List 
an Option, setting forth in reasonable detail the basis on which the 
decision not to list, or to place limitations or conditions upon, the 
proposed option was made.
    (d) In considering underlying securities, the Exchange shall 
ordinarily rely on information made publicly available by the issuer 
and/or the markets in which the security is traded.
    (e) In determining whether to list an option that otherwise meets 
objective listing criteria, the Chairman of the Board of Governors or 
his designee may consider such factors as the Exchange's current and 
projected computer capacity, and the current and projected demands for 
that capacity, including telecommunications and Option Price Reporting 
Authority (``OPRA'') inbound and outbound message capacity or message 
volume restrictions placed on the Exchange by OPRA; the projected 
likely number of series and open interest in the option; the projected 
likely volatility of the option; the projected likely liquidity of the 
option; name recognition of the option or underlying security; the 
projected volume of trading in the option that is likely to occur on 
the Exchange; the projected share of total trading in the option that 
is likely to occur at the Exchange; whether any intellectual property 
right or license thereof exists with respect to the option; whether the 
proposal is consistent with Exchange rules and/or the Securities 
Exchange Act of 1934 and the rules, regulations, and orders thereunder; 
whether unusual or unfavorable market conditions exist with respect to 
the option; and whether it is in the bona fide business interest of the 
Exchange to list the option. If, in denying a request or approving a 
request subject to conditions or limitations, the Exchange relies upon 
a factor of other bona fide business interests, the Exchange shall, in 
addition to providing the member with a written response specifying 
that the Exchange has relied upon other bona fide business interests, 
maintain a record of the bona fide business interests supporting its 
decision.
    .03-.05  No change.
* * * * *

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 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 IV below. The Phlx 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 establish a procedure 
to be followed when an Exchange member requests the Exchange to list 
options not currently traded on the Exchange.\5\ The proposed changes 
to Commentary .02 to Exchange Rule 1009 address member requests to list 
options and would apply to members and member organizations. In a 
separate filing, the Exchange also proposes to include these procedures 
in the Exchange's Codes of Conduct \6\ so that these procedures would 
be applicable to, and violations thereof enforceable against, Exchange 
officers, directors, governors, employees, committee members, or 
agents.
---------------------------------------------------------------------------

    \5\ As part of a settlement of an enforcement action by the 
Commission, four of the five options exchanges, including the Phlx, 
are required to adopt rules to codify listing procedures to be 
carried out when a member or member organization requests the 
exchange to list options not currently trading on the exchange. See 
Order Instituting Public Administrative Proceedings Pursuant to 
Section 19(h)(1) of the Securities Exchange Act of 1934, Making 
Findings and Imposing Remedial Sanctions. Securities Exchange Act 
Release No. 43268 (September 11, 2000).
    \6\ See Securities Exchange Act Release No. 44057 (March 9, 
2001), 66 FR 15312 (March 16, 2001) (SR-Phlx-01-03).
---------------------------------------------------------------------------

    The proposed rule change would require members, member 
organizations or any person proposing to list any option not currently 
listed on the Exchange to submit a form of request (``Request to List 
an Option''), available from the Exchange's Business and Operations 
Planning Department (``BOP''), to BOP staff. The purpose of this 
provision is to provide a uniform process, format, and record of 
requests for the listing of options not currently listed on the 
Exchange.
    As soon as practicable, but not later than three business days 
following receipt of the Request to List an Option, BOP staff would be 
required to review the proposed option's eligibility for listing, using 
the objective listing criteria for underlying securities set forth in 
Commentary .01 of Phlx Rule 1009 for equity options, and the objective 
criteria set forth in Exchange Rule 1009A for underlying securities for 
index options.
    The three-day period within which the BOP staff must review the 
Request to List an Option is intended to provide a reasonably prompt 
timeframe within which to determine if the securities underlying the 
proposed option meet the Exchange's objective listing criteria. If the 
BOP staff determines that the securities underlying the proposed option 
do not meet the objective listing criteria set forth in Commentary .01, 
they would be required to prepare a responsive form (a ``Notification 
Memorandum'') stating the reason(s) why the requested option is not 
eligible for listing. BOP staff would be required to forward the 
Notification Memorandum to the member or member organization that 
submitted the Request to List an Option within three days of the 
determination that the requested option does not meet the objective 
listing criteria. This provision is intended to provide a prompt 
response to the requesting member or member organization of the 
requested option's ineligibility for listing based on the Phlx's 
listing standards. The Exchange would be required to maintain all 
Requests to List an Option and Notification Memoranda in a central file 
for at least five years.\7\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Rule 17a-1(b). The Exchange 
would be required to maintain these records for the first two years 
in an easily accessible location.
---------------------------------------------------------------------------

    A determination by the BOP staff that the securities underlying a 
proposed option meet objective listing criteria

[[Page 26903]]

would not require the Exchange to list the option. The proposed rule 
contemplates a variety of legitimate business reasons why the Exchange 
would choose not to list certain proposed options. If BOP staff 
determines that the proposed option meets the Exchange's objective 
listing criteria set forth in Commentary .01 of Phlx Rule 1009, BOP 
staff would be required to present the proposal to the Chairman of the 
Board of Governors or his designee \8\ within ten business days of the 
determination. The Chairman or his designee would be required to 
instruct BOP staff either to: (i) Solicit options specialists to submit 
applications for specialist privileges in the option; or (ii) within 
three business days, prepare and forward a letter to the member that 
submitted the listing proposal, setting forth in reasonable detail the 
basis on which the decision not to list, or to place limitations or 
conditions upon, the proposed option was made. These letters would be 
maintained in a central file for a period of not less than five years. 
If the Exchange decides to list the requested option, it would forward 
a Notification Memorandum advising the requesting member that they will 
be notified when applications for trading privileges in the requested 
option are solicited.
---------------------------------------------------------------------------

    \8\ Such designee may be a member of the Exchange's Board of 
Governors or a member of the Exchange's Senior Staff.
---------------------------------------------------------------------------

    In determining whether to list an option that otherwise meets 
objective listing criteria, the Chairman of the Board of Governors or 
his designee would consider: (i) The Exchange's current and projected 
computer capacity or message volume restrictions placed on the Exchange 
by the Option Price Reporting Authority (``OPRA''), and the current and 
projected demands for that capacity, including telecommunications and 
OPRA inbound and outbound message capacity; (ii) the projected likely 
number of series and open interest in the option; (iii) the projected 
likely volatility of the option; (iv) the projected likely liquidity of 
the option; (v) name recognition of the option or underlying security; 
(vi) the projected volume of trading in the option that is likely to 
occur on the Exchange; (vii) the projected share of total trading in 
the option that is likely to occur on the Exchange; (viii) whether any 
intellectual property right or license thereof exists or would be 
required with respect to the option; (ix) whether the proposal is 
consistent with Exchange rules and/or the Act and the rules, 
regulations, and orders thereunder; (x) whether unusual or unfavorable 
market conditions exist with respect to the option; and (xi) whether it 
is in the bona fide business interest of the Exchange to list the 
option. If, in denying a request or approving a request subject to 
conditions or limitations, the Exchange relies upon a factor of other 
bona fide business interests, the Exchange would be required, in 
addition to providing the member with a written response specifying 
that the Exchange has relied upon other bona fide business interests, 
to maintain a record of the bona fide business interests supporting its 
decision. According to the Phlx, the proposed provisions codify the 
list of legitimate business concerns normally reviewed when the 
Exchange makes a decision about whether to list an option that 
otherwise meets its listing criteria.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general and furthers the objectives 
of Section 6(b)(5) \10\ in particular in that it is designed to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and protect investors and 
the public interest by providing a uniform process for members to 
submit, and the Exchange to review, listing proposals.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change, as 
amended, will impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.

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

    The Phlx did not solicit or receive written comments on the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Phlx consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 
filings will be available for inspection and copying at the principal 
office of the Phlx. All submissions should refer to the File No. SR-
Phlx-2001-02 and should be submitted by June 5, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-12132 Filed 5-14-01; 8:45 am]
BILLING CODE 8010-01-M