4882 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

8 In no case shall an obvious error panel include

a person related to a party to the obvious error in

question. To the extent reasonably possible, the

Exchange shall call upon representatives of each

market maker to participate on an obvious error

panel on an equally frequent basis.

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

1 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

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

obviously erroneous as compared to the

price being displayed by the primary

options exchange for the option.

Where a participant enters a quotation

or order in error that executes against

standing interest on the Exchange, the

contra side to the transaction had no

notice of an erroneous price and took no

action to execute at the erroneous price.

In this instance, the adjustment price

will be the bid (offer) price from the

exchange providing the most volume in

the case of an erroneous offer (bid) price

entered on the Exchange. The ISE

believes that this will result in a more

favorable adjustment price for the

participant with standing interest in the

book than the participant that made the

error. As a result, in the previous

example, if the erroneous bid of $7

executed against an offer in the system

at $6.50, the adjustment price would be

$5.20 (the offer price) instead of 5 (the

bid price). Again, the only time an

adjustment will be made to the price of

a transaction is in the case where both

parties were ISE market makers or

where both parties agree to the

adjustment.

Finally, proposed ISE Rule 720

specifies that each market maker firm

will designate at least one person that is

knowledgeable about options market

making on the ISE to be called upon by

the Exchange to participate on an

obvious error panel.8 Proposed ISE Rule

720 provides that an obvious error panel

will have the authority to: (1) Determine

a theoretical price when there is no

quote for an option on another options

exchanges; and (2) upon request by a

party to a potential obvious error,

review whether the correct theoretical

price was used and whether an

adjustment was made at the correct

price. A party to a potential obvious

error may also request that the obvious

error panel provide relief under the

proposed rule in cases where the party

failed to give notice within the required

time periods, but there must be unusual

circumstances to merit this special

consideration. All determinations by an

obvious error panel will be made on the

same day as the transaction in question

and shall be final.

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 prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism for a free an

open market and a national market

system, and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition that is 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 Exchange 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 Exchange 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 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 at

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 No.

SR–ISE–00–19 and should be submitted

by February 8, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.1

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1409 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43831; File No. JR–NASA–

00–72]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Nasdaq’s

Transaction Credit Pilot Program

January 10, 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 December

13, 2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its wholly

owned subsidiary The Nasdaq Stock

Market, Inc. (‘‘NASD’’), 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 Nasdaq. Nasdaq has

designated this proposal as one

establishing or changing a due, fee, or

other charge imposed by the Association

under Section 19(b)(3)(A)(ii) of the Act,3

which renders the proposal effective

upon filing with the Commission. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq proposes to amend NASD

Rule 7010, System Services, to extend

Nasdaq’s transaction credit pilot

program for an additional three months

for Tape A and B reports. The text of the

proposed rule change is below.

Proposed new language is in italics.

Proposed deletions are in brackets.

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices 4883

4The transaction credit can be applied to any and

all charges imposed by the NASD or its non-selfregulatory organization affiliates. Any remaining

balance may be paid directly to the member.

5See Securities Exchange Act Release No. 41174

(March 16, 1999), 64 FR 14034 (March 23, 1999)

(SR–NASD–99–13). The Program was subsequently

extended. See Securities Exchange Act Release Nos.

42095 (November 3, 1999), 64 FR 61680 (November

12, 1999) (SR–NASD–99–59); 42672 (April 12,

2000), 65 FR 21225 (April 20, 2000)(SR–NASD–00–

10); and 42907 (June 7, 2000), 65 FR 37445 (June

14, 2000)(SR–NASD–00–32).

6See Securities Exchange Act Release No. 38237

(February 4, 1997), 62 FR 6592 (February 12, 1997)

(SR–CHX–97–01) and 39395 (December 3, 1997), 62

FR 65113 (December 10, 1997)(SR–CSE–97–12).

7As explained in Nasdaq’s original pilot filing,

the qualification thresholds were selected based on

Nasdaq’s belief that such numbers represent clear

examples of a member’s commitment to operating

in the InterMarket and competing for order flow.

See Securities Exchange Act Release No. 41174

(March 16, 1999), 64 FR 14034 (March 23, 1999)

(SR–NASD–99–13).

8 15 U.S.C. 78o–3(b)(6).

7010. System Services

(a)–(b) No Change.

(c) * * *

(1) No Change.

(2) Exchange-Listed Securities

Transaction Credit. For a pilot period,

qualified NASD members that trade

securities listed on the NYSE and Amex

in over-the-counter transactions

reported by the NASD to the

Consolidated Tape Association may

receive from the NASD transaction

credits based on the number of trades so

reported. To qualify for the credit with

respect to Tape A reports, an NASD

member must account for 500 or more

average daily Tape A reports of overthe-counter transactions as reported to

the Consolidated Tape during the

concurrent calendar quarter. To qualify

for the credit with respect to Tape B

reports, an NASD member must account

for 500 or more average daily Tape B

reports of over-the-counter transactions

as reported to the Consolidated Tape

during the concurrent calendar quarter.

If an NASD member is so qualified to

earn credits based either on its Tape A

activity, or its Tape B activity, or both,

that member may earn credits from one

or both pools maintained by the NASD,

each pool representing 40% of the

revenue paid by the Consolidated Tape

Association to the NASD for each of

Tape A and Tape B transactions. A

qualified NASD member may earn

credits from the pools according to the

member’s pro rata share of the NASD’s

over-the-counter trade reports in each of

Tape A and Tape B for each calendar

quarter starting with July 1, 2000 for

Tape A reports (April 1, 2000 for Tape

B reports) and ending with the calendar

quarter starting on [October 1, 2000]

January 1, 2001.

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq 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. Nasdaq 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

Nasdaq proposes to extend through

March 31, 2001, its pilot program to

provide a transaction credit 4 to NASD

members that exceed certain levels of

trading activity in exchange-listed

securities. Nasdaq’s InterMarket is a

quotation, communication, and

execution system that allows NASD

members to trade stocks listed on the

New York Stock Exchange (‘‘NYSE’’)

and the American Stock Exchange

(‘‘Amex’’). The InterMarket competes

with regional exchanges like the

Chicago Stock Exchange (‘‘CHX’’) and

the Cincinnati Stock Exchange (‘‘CSE’’)

for retail order flow in stocks listed on

the NYSE and the Amex. The NASD

collects trade reports from brokerdealers trading these securities in the

over-the-counter (‘‘OCTC’’) market and

provides the trade reports to the

Consolidated Tape Association (‘‘CTA’’)

for inclusion in the Consolidated Tape.

As a participant in the CTA Plan, the

NASD is entitled to a portion of the

revenue that the CTA generates by

selling this market data information.

NASD’s share of the revenues is based

on trades that it reports on behalf of

these broker-dealers in NYSE-listed

securities (‘‘Tape A’’) and in Amexlisted securities (‘‘Tape B’’).

The Transaction Credit Pilot Program

began in 1999.5 Under the Program,

NASD shares a portion of these tape

revenues by providing a transaction

credit to NASD members who exceed

certain levels of OTC trading activity in

NYSE and Amex securities. The

Program helps InterMarket market

makers and investors lower costs

associated with trading listed securities.

The Program also is an important tool

for Nasdaq to compete against other

exchanges (particularly CSE and CHX)

that offer similar programs 6 and thereby

maintain market share in listed

securities.

The Program works as follows:

Nasdaq calculates two separate pools of

revenue from which credits can be

earned: one representing 40% of the

gross revenues received by the NASD

from the CTA for providing trade

reports in NYSE-losted securities

executed in the InterMarket for

dissemination by CTA (Tape A), and the

other representing 40% of the gross

revenue received from the CTA for

reporting Amex trades (Tape B).

Eligibility for transaction credits is

based on concurrent quarterly trading

activity. For example, an InterMarket

participant that enters the market for

Tape A or Tape B securities during a

particular quarter and prints an average

of 500 daily trades of Tape A securities

during the time it is in the market, or

that averages 500 Tape B prints during

such quarter, would be eligible to

receive transaction credits based on its

trades during the third quarter. Only

those NASD members who continue to

average an appropriate daily execution

level are eligible for transaction credits

and thus able to receive a pro-rata

portion of the appropriate pool.7 These

thresholds permit the NASD to recover

appropriate administrative costs related

to NASD members that do not exceed

the threshold and to provide an

incentive for NASD members to actively

trade in these securities.

The current Program will expire on

December 31, 2000. Because the

Program has helped Nasdaq maintain

market share in listed securities, Nasdaq

proposes to extend the current Program

through the first quarter of 2001.

Nasdaq’s transaction credit program is

being proposed on a pilot basis only.

There can be no guarantee that

transaction credits will be available to

qualifying NASD members beyond the

term of the pilot.

2. Statutory Basis

Nasdaq believes the proposed rule

change is consistent with section

15A(b)(6) of the Act 8 in the proposal is

designed to promote just and equitable

principles of trade and to remove

impediments to and perfect the

mechanism of a national market system

and, in general, to protect investors and

the public interest. Nasdaq also believes

4884 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Notices

9 15 U.S.C. 78o–3(b)(5).

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b–4(f)(2).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Exchange Act Rule 11Ac1–1; 17 CFR

240.11Ac1–1; see Securities Exchange Act Release

No. 43591 (November 17, 2000), 65 FR 75439

(December 1, 2000) (File No. S7–17–00).

the proposal is consistent with Section

15A(b)(5) of the Act 9 in that it provides

for the equitable allocation of reasonable

dues, fees and other charges among

members and issuers and other persons

using any facility of system which the

Association operates or controls.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq does not believe that the

proposed rule change will result in any

burden on competition that is 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

Written comments were neither

solicited nor 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)(ii) of the Act10 and

subparagraph (f)(2) of Rule 19b–4

thereunder,11 because it establishes or

changes a due, fee, or other charge

imposed by the Association. 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.

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 NASD. All

submissions should refer to file number

SR–NASD–00–72 and should be

submitted by February 8, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–1410 Filed 1–17–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43822; File No. SR–PHLX–

01–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Dissemination of

Options Quotations With Size

January 8, 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 8,

2001, 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 Phlx. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx, pursuant to Rule 19b–4 of

the Act, proposes to amend, on a

temporary basis, Exchange Options

Floor Procedure Advice (‘‘OFPA’’) F–7,

Bids and Offers, to state that the size of

any bid or offer in a quotation

disseminated by the Exchange shall be

equal to the AUTO–X guarantee for the

quoted option and shall be firm, except

that the disseminated size of bids and

offers of customer limit orders shall be

ten (10) contracts and shall be firm,

regardless of the actual size of such

orders.

The complete text of the proposed

rule change is available at the Office of

the Secretary, 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

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 codify the Exchange’s

initial program for the dissemination of

options quotations with size. It is

anticipated that, on or about January 22,

2001, the Option Price Reporting

Authority (‘‘OPRA’’) will begin to

support the dissemination of options

quotations that include the size, or the

number of contracts, represented in

disseminated bids and offers on the

Exchange.

On November 17, 2000, the

Commission amended the Quote Rule 3

to require options exchanges and

options market makers to publish firm

quotes. The amended Quote Rule will

require options exchanges to either: (1)

Comply with the Quote Rule as it

applies in the equity markets and collect

from their members and make available

to vendors the size associated with each

quotation; or (2) establish by rule and

periodically publish the quotation size

for which their members’ quotations are

firm. The compliance date for the

amendments to the Quote Rule is April

1, 2000.

While it is anticipated that OPRA will

have the necessary systems capacity to

accept and disseminate quotations with

size by late January 2001, and that one

or more options exchanges will be in a

position to disseminate actual quotation

size at that time, the Phlx will not have

completed its application of the systems

changes necessary to permit it to

disseminate actual quotation size for a

number of months.

Therefore, until the Exchange’s

systems disseminate actual quotation

size on a quote-by-quote basis, the Phlx

seeks herein to establish by rule and