Federal Register / Vol. 66, No. 117 / Monday, June 18, 2001 / Notices 32857

4 15 U.S.C. 78f(b).

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

6 15 U.S.C. 78f(b)(6).

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 17 CFR 240.19b–4(f)(6).

4AUTOM is the Exchange’s electronic order

delivery and reporting system, which provides for

the automatic entry and routing of equity option

and index option orders to the Exchange trading

floor. Orders delivered through AUTOM may be

executed manually or routed to AUTOM’s

automatic execution feature, AUTO–X, if they are

eligible for execution on AUTO–X. Equity option

and index option specialists are required by the

Exchange to participate in AUTOM and its features

and enhancements. Option orders entered by

Exchange members into AUTOM are routed to the

appropriate specialist unit on the Exchange trading

floor.

5See Securities Exchange Act Release No. 43515

(November 3, 2000), 65 FR 69114 (November 15,

2000) (File No. SR–Phlx–99–32) (order approving

maximum order size eligibility of 75 contracts for

AUTO–X).

(‘‘EFPA’’) that correspond to the

increased Minor Rule Plan fines.

The Exchange believes that adoption

of the proposed rule change will serve

to significantly strengthen the ability of

the Exchange to carry out its oversight

responsibilities as a self-regulatory

organization. The rule also should aid

the Exchange in carrying out its

compliance and surveillance functions.

2. Basis

The Exchange believes that this

proposal is consistent with section 6(b) 4

of the Act, in general, and furthers the

objectives of section 6(b)(5) 5 and

6(b)(6),6 in particular, in that it is

designed to facilitate transactions in

securities, to prevent fraudulent and

manipulative acts and practices, and to

promote just and equitable principles of

trade and provides that Exchange

members shall be appropriately

disciplined for violations of the rules of

the Exchange.

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

Written comments on the proposed

rule change were neither solicited nor

received.

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 self-regulatory

organization 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 it 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, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PCX. All submissions

should refer to File No. SR–PCX–2001–

19 and should be submitted by July 9,

2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15219 Filed 6–15–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44404; File No. SR–Phlx–

2001–51]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Increasing the Maximum Guaranteed

AUTO–X Size to 100 Contracts

June 11, 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 May 21,

2001, the Philadelphia Stock Exchange,

Inc. (‘‘Exchange’’ or ‘‘Phlx’’) 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

proposed rule change has been filed by

the Phlx as a ‘‘non-controversial’’ rule

change under Rule 19b–4(f)(6) under the

Act.3 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 proposed to amend Phlx

Rule 1080(c) to increase to 100 contracts

the maximum order size of option

contracts that are eligible to be executed

on the Exchange’s automatic execution

system (‘‘AUTO–X’’), which is part of

the Exchange’s Automated Options

Market (‘‘AUTOM’’) System.4 Currently,

customer market and marketable limit

orders of up to 75 contracts are eligible

for AUTO–X.5

Phlx also proposed to delete a section

of Phlx Rule 1080(c) that states that

orders for OTC Prime Index (‘‘OTX’’)

options are eligible for AUTO–X

execution for up to 100 contracts.

Below is the text of the proposed rule

change. Proposed new language is

italicized and proposed deletions are in

brackets.

* * * * *

Rule 1080. Philadelphia Stock Exchange

Automated Options Market (AUTOM) and

Automatic Execution System (AUTO–X)

(a)–(b) No change.

(c) AUTO–X–AUTO–X is a feature of

AUTOM that automatically executes public

customer market and marketable limit orders

up to the number of contracts permitted by

the Exchange for certain strike prices and

expiration months in equity options and

index options, unless the Options Committee

determines otherwise. AUTO–X

automatically executes eligible orders using

the Exchange disseminated quotation and

then automatically routes execution reports

to the originating member organization.

AUTOM orders not eligible for AUTO–X are

executed manually in accordance with

Exchange rules. Manual execution may also

occur when AUTO–X is not engaged. An

order may also be executed partially by

AUTO–X and partially manually.

The Options Committee may for any period

restrict the use of AUTO–X on the Exchange

in any option or series. Currently, orders up

to [75] 100 contracts, subject to the approval

32858 Federal Register / Vol. 66, No. 117 / Monday, June 18, 2001 / Notices

6 Id.

7See Phlx Rule 1080(c).

8The Exchange notes that the Commission has

approved increases in the automatic execution

levels from 75 contracts to 100 contracts on the

American Stock Exchange, LLC (‘‘Amex’’); the

Pacific Exchange, Inc. (‘‘PCX’’); and the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’). See

Securities Exchange Act Release Nos. 43887

(January 25, 2001), 66 FR 8831 (February 2, 2001)

(order jointly approving File Nos. SR–Amex–00–57

and SR–PCX–00–18); 44008 (February 27, 2001), 66

FR 13599 (March 6, 2001) (order approving File No.

SR–CBOE–01–03).

9Unlike ROTs, specialists are required to

participate on the Wheel. See Phlx Rule 1080(g).

10See Exchange Options Floor Procedure Advice

F–24(e)(i).

11See Phlx Rule 1080(e) and Options Floor

Procedure Advice A–13.

12See Phlx Rule 703.

13 15 U.S.C. 78f(b).

14 15 U.S.C. 78f(b)(5).

of the Options Committee, are eligible for

AUTO–X. [With respect to OTC Prime Index

(‘‘OTX’’) options, orders of up to 100

contracts are eligible for AUTO–X.] The

Options Committee may, in its discretion,

increase the size of orders in one or more

classes of multiply-traded equity options

eligible for AUTO–X to the extent necessary

to match the size of orders in the same

options eligible for entry into the automated

execution system of any other options

exchange, provided that the effectiveness of

any such increase shall be conditioned upon

its having been filed with the Securities and

Exchange Commission pursuant to Section

19(b)(3)(A) of the Securities Exchange Act of

1934.

(c)(i)(A)–(E) No change.

(d)–(j) No change.

Commentary. 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 propose 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 Items 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 Phlx proposes to increase the

maximum order size for eligibility for

AUTO–X from 75 contracts to 100

contracts.6 Under the rules of the

Exchange, through AUTOM, orders are

routed from member firms directly to

the appropriate specialist on the trading

floor. Of the public customer market

and marketable limit orders routed

through AUTOM, certain orders are

eligible for AUTOM’s automatic

execution feature, AUTO–X. These

orders are automatically executed at the

disseminated quotation price on the

Exchange and reported back to the

originating firm.7

The Exchange represents that AUTO–

X affords prompt and efficient

automatic executions at the

disseminated quotation price on the

Exchange. Therefore, the Exchange

believes that increasing automatic

execution levels should provide the

benefits of automatic execution to a

larger number of customer orders.

Further, the Exchange notes that this

increase from 75 contracts to 100

contracts is consistent with similar

Commission-approved increases to the

automatic executions levels on other

options exchanges.8

The Exchange notes that there are

many safeguards incorporated into

Exchange rules to ensure the

appropriate handling of AUTO–X

orders. For example, Phlx Rule

1080(f)(iii) states that the specialist is

responsible for the remainder of an

AUTOM order where a partial execution

has occurred. Phlx Rule 1015 governs

execution guarantees and requires the

trading crowd to ensure that public

orders are filled at the best market to a

minimum of the disseminated size. In

addition, Options Floor Procedure

Advice F–7 provides that the size of any

disseminated bid or offer shall be equal

to the AUTO–X guarantee for the quoted

options and shall be firm, except that

the disseminated size of bids and offers

of limit orders on the book shall be 10

contracts and shall be firm. Violations of

any of these provisions could be

referred to the Business Conduct

Committee for disciplinary action.

The Wheel is a mechanism that

allocates AUTO–X trades among

specialists and Registered Options

Traders (‘‘ROTs’’).9 An ROT has

discretion to participate on the Wheel to

trade any option class to which he is

assigned. An increase in the maximum

AUTO–X order size does not prevent an

ROT from declining to participate on

the Wheel.10 Because the Wheel rotates

in 2-lot to 10-lot increments depending

upon the size of the order, no single

ROT will be allocated the entire 100

contracts.

The Exchange also has procedures

that permit a specialist to suspend

AUTO–X in extraordinary

circumstances.11 AUTOM users are

notified of such circumstances.

With respect to financial

responsibility issues, the Exchange

notes that it has a minimum net capital

requirement respecting ROTs.12

Furthermore, an ROT’s clearing firm

performs risk management functions to

ensure that the ROT has sufficient

financial resources to cover positions

throughout the day. In this regard, the

function includes real-time monitoring

of positions. The Exchange believes that

clearing firm procedures address the

issue of whether an ROT has the

financial capability to support trading of

options orders as large as 100 contracts.

The Exchange believes that the

increase in order size eligibility for

AUTO–X orders should provide

customers with quicker executions for a

larger number of orders, by providing

automatic rather than manual

executions, thereby reducing the

number of orders subject to manual

processing. The Exchange also believes

that increasing the AUTO–X maximum

order size should not impose a

significant burden on operation or

capacity of the AUTOM System and will

give the Exchange better means of

competing with other options exchanges

for order flow.

Additionally, the Exchange proposes

to delete a section of Phlx Rule 1080(c)

that sates that orders for OTX options

are eligible for AUTO–X execution for

up to 100 contracts, in order to

eliminate any potential for confusion

over the permissible parameters

applicable to AUTO–X eligible orders

for both equity and index options.

2. Statutory Basis

The Exchange believes the proposed

rule change is consistent with section

6(b) of the Act 13 in general, and furthers

the objectives of section 6(b)(5) of the

act 14 in particular, because it is

designed to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, as well as

to protect investors and the public

interest by enhancing efficiency by

providing automatic executions to a

larger number of options orders.

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 that is not necessary in

furtherance of the purposes of the Act.

Federal Register / Vol. 66, No. 117 / Monday, June 18, 2001 / Notices 32859

15As required under Rule 19b–4(f)(6)(iii), the

Exchange provided the Commission with written

notice of its intent to file the proposed rule change

at least five business days prior to the filing date

or such shorter period as designated by the

Commission.

16 15 U.S.C. 78s(b)(3)(A).

17 17 CFR 240.19b–4(f)(6).

18See supra note 8.

19For purposes only of accelerating the operative

date of this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

20See Section 19(b)(3)(C) of the Act, 15 U.S.C.

78(b)(3)(C).

21 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. 44102

(March 26, 2001), 66 FR 17591 (April 2, 2001).

4 15 U.S.C. 78s(b)(2).

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

Because the foregoing proposed rule

change: (1) Does not significantly affect

the protection of investors or the public

interest; (2) does not impose any

significant burden on competition; and

(3) does not become operative for 30

days after the date of filing, or such

shorter time as the Commission may

designate if consistent with the

protection of investors and the public

interest,15 the proposed rule change has

become effective pursuant to section

19(b)(3)(A) 16 of the Act and Rule 19b–

4(f)(6) 17 thereunder.

A proposed rule change filed under

Rule 19b–4(f)(6) normally does not

become operative prior to 30 days after

the date of filing. However, Rule 19b–

4(f)(6)(iii) permits the Commission to

designate a shorter time if such action

is consistent with the protection of

investors and the public interest. The

Phlx seeks to have the proposed rule

change become operative immediately

in order to remain competitive with

other exchanges with similar rules in

effect.18

The Commission, consistent with the

protection of investors and the public

interest, has determined to make the

proposed rule change operative

immediately upon filing as of May 21,

2001, to allow the Phlx to compete with

other options exchanges that currently

have a maximum automatic execution

eligibility limit of 100 contracts.19 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.20

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 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 Phlx. All

submissions should refer to File No.

SR–Phlx–2001–51 and should be

submitted by July 9, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15222 Filed 6–15–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44405; File No. SR–Phlx–

2001–08]

Self-Regulatory Organizations; Order

Approving and Notice of Filing and

Other Granting Accelerated Approval

of Amendment No. 1 to the Proposed

Rule Change of the Philadelphia Stock

Exchange, Inc. Concerning the

Maintenance, Retention, and

Furnishing of Records and Other

Information Related to Payment for

Order Flow Arrangements

June 11, 2001.

On January 19, 2001, pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (Act) 1 and Rule

19b–4 thereunder,2 the Philadelphia

Stock Exchange, Inc. (Phlx) filed with

the Securities and Exchange

Commission a proposed rule change to

amend Phlx Rule 760 to require Phlx

members and member organizations to

make, keep current, and preserve

records relating to payment for order

flow arrangements and, upon request, to

make those records available to the Phlx

for inspection and review. The proposed

change was published for comment in

the Federal Register on April 2, 2001.3

The Commission received no comments

on the proposal.

On May 22, 2001, the Phlx filed

Amendment No. 1 to the proposed rule

change, which replaced the original

filing in its entirety. Amendment No. 1

added supplemental language to Phlx

Rule 760 to clarify that the

recordkeeping requirement apply only

to Phlx specialists and specialist units

that participate in the Phlx’s payment

for order flow program, and not to all

Phlx members generally. The text of the

proposed rule change is available at the

principal offices of the Phlx and at the

Commission. The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended by Amendment No. 1, and

is issuing this Order approving the

proposed amended rule change.

Pursuant to Section 19(b)(2) of the

Act,4 the Commission has determined to

accelerate approval of the proposed rule

change. The Commission notes that,

prior to the filing of Amendment No. 1,

the proposed rule change was noticed

for public comment and did not attract

any comments. Because Amendment

No. 1 to the proposed rule change

simply clarifies that the proposed

recordkeeping requirements apply only

to Phlx specialists and Phlx specialist

units and not to Phlx members

generally, the Commission finds good

cause to approve the proposed rule

change prior to the thirtieth day after

the date of publication of notice of this

filing in the Federal Register. The

Commission believes that the proposed

rule change, as amended, will assist the

Phlx to review and verify that its

payment for order flow program is being

administered pursuant to the terms that

the Phlx has established.

The Commission finds that the

proposed rule change, as amended by

Amendment No. 1, is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, particularly Section 6 of the