55650 Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 

12Securities Exchange Act Release No. 47467 

(March 7, 2003), 68 FR 12134 (March 13, 2003) (SR–

PCX–2002–75). 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(6). 

15 17 CFR 240.19b–4(f)(6)(iii). 

16For purposes of waiving the 30-day operative 

delay, the Commission has considered the proposed 

rule’s impact on efficiency, competition, and capital 

formation. 15 U.S.C. 78c(f). 

17The effective date of the original proposed rule 

is September 8, 2005. The effective date of 

Amendment No. 1 is September 14, 2005. For 

purposes of calculating the 60-day period within 

which the Commission may summarily abrogate the 

proposed rule change under Section 19(b)(3)(C) of 

the Act, the Commission considers the period to 

commence on September 14, 2005, the date on 

which Nasdaq submitted Amendment No. 1. See 15 

U.S.C. 78s(b)(3)(C). 

18 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Form 19b–4, dated June 1, 2005 

(‘‘Amendment No. 1’’). Amendment No. 1 replaced 

the original filing in its entirety. 

4See Form 19b–4, dated September 1, 2005 

(‘‘Amendment No. 2’’). Amendment No. 2 replaced 

Amendment No. 1 in its entirety. 

5See Form 19b–4, dated September 14, 2005 

(‘‘Amendment No. 3’’). In Amendment No. 3, Phlx, 

in part, deleted proposed rule text to clarify that 

during a manual opening all market orders are to 

be executed at one price. 

offered by at least one other market 

center to be consistent with the Act.12

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, as amended. 

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 

Because the foregoing proposed rule 

change, as amended: (1) Does not 

significantly affect the protection of 

investors or the public interest; (2) does 

not impose any significant burden on 

competition; and (3) by its terms does 

not become operative for 30 days after 

the date of this filing, or such shorter 

time as the Commission may designate 

if consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 

19(b)(3)(A) 13 of the Act and Rule 19b–

4(f)(6) thereunder.14

Nasdaq has requested that the 

Commission waive the 30-day operative 

delay, as specified in Rule 19b–

4(f)(6)(iii),15 and designate the proposed 

rule change to become operative upon 

filing with the Commission. The 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because the proposed 

rule change is similar to order types 

already in use in the marketplace. 

Therefore the Commission designates 

the proposal to be effective and 

operative upon filing with the 

Commission.16

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.17

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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASD–2005–107 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–NASD–2005–107. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 also will be 

available for inspection and copying at 

the principal office of the NASD. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR-NASD–2005–107 and 

should be submitted on or before 

October 13, 2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.18

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18898 Filed 9–21–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 52448; File No. SR–Phlx–2005–

25] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change and 

Amendments No. 1, 2, and 3 Thereto 

by the Philadelphia Stock Exchange, 

Inc. Relating to the Adoption of New 

Rules That Would Establish an 

Automated Opening System on the 

Exchange 

September 15, 2005. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–42 thereunder, 

notice is hereby given that on April 21, 

2005, the Philadelphia Stock Exchange, 

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change. The Exchange 

submitted Amendment No. 1,3

Amendment No. 2,4 and Amendment 

No. 3 5 to its proposal on June 1, 2005, 

September 1, 2005, and September 14, 

2005, respectively. The proposed rule 

change, as amended, is 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, as amended, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Phlx proposes to adopt new rules 

that would establish an automated 

opening system on the Exchange. The 

Exchange also proposes to make 

Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 55651 

6See Securities Exchange Act Release No. 50100 

(July 27, 2004), 69 FR 44612 (August 3, 2004) (SR–

Phlx–2003–59). 

7Currently, all equity and index options, and 

options overlying Exchange Traded Fund Shares 

(‘‘ETFs’’) that are listed on the Exchange are traded 

on Phlx XL. 

8An SQT is an Exchange Registered Options 

Trader (‘‘ROT’’) who has received permission from 

the Exchange to generate and submit option 

quotations electronically through AUTOM in 

eligible options to which such SQT is assigned. An 

SQT may only submit such quotations while such 

SQT is physically present on the floor of the 

Exchange. See Exchange Rule 1014(b)(ii)(A). 

9An RSQT is a ROT that is a member or member 

organization with no physical trading floor 

presence who has received permission from the 

Exchange to generate and submit option quotations 

electronically through AUTOM in eligible options 

to which such RSQT has been assigned. An RSQT 

may only submit such quotations electronically 

from off the floor of the Exchange. See Exchange 

Rule 1014(b)(ii)(B). 

10A non-SQT ROT is a ROT who is neither an 

SQT nor an RSQT. See Exchange Rule 

1014(b)(ii)(C). 

11Exchange Rule 1014(b)(ii)(E) requires non-SQT 

ROTs who transact more than 20% of their contract 

volume in an option electronically versus in open 

outcry during a particular calendar quarter to 

submit proprietary electronic quotations in such an 

option during the subsequent calendar quarter for 

a certain number of series in such option, 

depending on the percent of total volume transacted 

electronically versus in open outcry on the 

Exchange in such option. 

12Exchange Rule 1014(B)(ii)(D) requires 

specialists to quote continuous, two-sided markets 

in not less than 100% of the series in each 

Streaming Quote Option in which such specialist is 

assigned, and requires an SQT and an RSQT quote 

continuous, two-sided markets in not less than 60% 

of the series in each Streaming Quote Option (as 

defined in Rule 1080(k)) in which such SQT or 

RSQT is assigned. 

13An example of a 100% participant is a new 

category of ROT on the Exchange known as a 

‘‘Directed SQT’’ or a ‘‘Directed RSQT,’’ defined as 

an SQT or RSQT that receives a Directed Order. See 

Securities Exchange Act Release No. 51759 (May 

27, 2005), 70 FR 32860 (June 6, 2005) (SR–Phlx–

2004–91). 

conforming amendments to various 

existing rules and Option Floor 

Procedure Advices (‘‘OFPAs’’). The text 

of the proposed rule change is available 

on the Exchange’s Web site (http:// 

www.phlx.com), at the Exchange’s 

Office of the Secretary, and at the 

Commission’s Public Reference Room. 

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 increase the number of 

option orders and transactions handled 

and executed electronically on the 

Exchange by establishing a fully 

automated opening system. 

Background 

In July, 2004, the Exchange began 

trading options on its new electronic 

options trading platform, Phlx XL.6

Because Phlx XL does not currently 

include an automated opening 

functionality, specialists are currently 

required to open option series manually. 

The proposed rule change would 

establish a fully automated opening 

system for options traded on Phlx XL 7

as part of the Phlx XL system. 

Pre-Opening 

For a period of time before the 

scheduled opening in the underlying 

security (and not less than one hour as 

determined by the Options Committee 

with notice to the membership via 

Exchange circular), Phlx XL will accept 

orders and quotes during the ‘‘PreOpening Phase.’’ The Phlx XL system 

will disseminate to specialists, 

Streaming Quote Traders (‘‘SQTs’’),8

Remote Streaming Quote Traders 

(‘‘RSQTs’’),9 and non-SQT ROTs 10 who 

are required to submit continuous twosided electronic quotations pursuant to 

Exchange Rule 1014(b)(ii)(E) 11

(collectively, for purposes of proposed 

Rule 1017, ‘‘Phlx XL participants’’) 

information about resting orders on the 

book that remain from the previous 

trading session and orders submitted 

prior to the opening. 

The purpose of this provision is to 

establish that a pre-opening phase must 

occur each day and to make Exchange 

members and member organizations 

aware of the time the Exchange will 

begin accepting pre-opening orders and 

quotes. 

A further purpose of this provision is 

to establish by rule that the Exchange 

will provide information to Phlx XL 

participants about orders on the limit 

order book during the pre-opening 

phase. Such information would include, 

without limitation, the option symbol, 

the limit price and the size of the limit 

order, the terms of the order (i.e., day, 

good-till-cancelled), buy or sell, call or 

put, and any other conditions applicable 

to the limit order. 

Calculation of Opening Price 

The system will calculate an 

Anticipated Opening Price (‘‘AOP’’) and 

Anticipated Opening Size (‘‘AOS’’) 

when a quote or trade has been 

disseminated by the primary market for 

the underlying security, and under the 

conditions set forth below. The 

specialist assigned in the particular 

option must enter opening quotes not 

later than one minute following the 

dissemination of a quote or trade by the 

primary market for the underlying 

security. The purpose of this provision 

is to ensure that the specialist is able to 

accurately quote the option overlying 

the underlying security once such 

underlying security has opened, and to 

ensure that the specialist promptly 

satisfies his or her quoting obligations 

established under Exchange rules.12 The 

specialist may submit opening quotes 

prior to this time; the proposed rule is 

intended to establish the time within 

which the specialist must submit 

opening quotes and not to preclude the 

specialist from submitting such quotes 

prior to that time. 

An AOP may only be calculated if: (i) 

the Exchange has received market 

orders, or the book is crossed (highest 

bid is higher than the lowest offer) or 

locked (highest bid equals the lowest 

offer); and (ii) either (A) the specialist’s 

quote has been submitted; (B) the quotes 

of at least two Phlx XL participants that 

are required to submit continuous, twosided quotes in 100% of the series in all 

option issues in which such Phlx XL 

participant is assigned (‘‘100% 

participants’’),13 have been submitted 

within two minutes of the opening trade 

or quote on the primary market for the 

underlying security (or such shorter 

time as determined by the Options 

Committee and disseminated to the 

membership via Exchange Circular); or 

(C) if neither the specialist’s quote nor 

the quotes of two 100% participants 

have been submitted within two 

minutes of the opening trade or quote 

on the primary market for the 

underlying security (or such shorter 

time as determined by the Options 

Committee and disseminated to the 

membership via Exchange Circular), one 

100% participant has submitted their 

quote. 

The purpose of this provision is to 

ensure that the affected series will open 

regardless of whether the specialist has 

submitted a quotation (the specialist 

may not submit his or her quote due to, 

for example, system malfunctions), 

provided that a 100% participant is 

quoting in the affected series. The 

55652 Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 

14A specialist that fails to submit opening quotes 

within one minute of the opening on the primary 

market would be subject to possible disciplinary 

action. 

15Telephone conversation between Richard S. 

Rudolph, Vice President and Counsel, Phlx, and 

Terri L. Evans, Special Counsel, Division of Market 

Regulation (‘‘Division’’), on September 6, 2005 

(clarifying that Phlx XL participants that have 

previously submitted opening quotes may submit 

revised quotes). 

16 In January, 2005, the Exchange adopted rules 

regarding the immediate display of limit orders, 

requiring Floor Brokers and Registered Options 

Traders that wish to place limit orders onto the 

limit order book to do so electronically. See 

Securities Exchange Act Release No. 51064 (January 

21, 2005), 70 FR 4180 (January 28, 2005) (SR–Phlx–

2004–73). See also, Exchange Rules 1080, 

Commentary .02; 1014, Commentary .18; and 1063, 

Commentary .01. 

Exchange believes that when a Phlx XL 

participant is quoting in 100% of the 

series in a particular option, the series 

should be opened as soon as possible 

regardless of whether the specialist has 

submitted a quotation.14 The 100% 

participant’s quotations enable the 

Exchange to disseminate continuous 

quotations in each underlying option 

series, thus ensuring that the Exchange 

will provide liquid markets in such 

series once the series has opened. 

Opening Order/Quote Imbalance 

In situations where an AOP may be 

calculated (i.e., when the conditions 

described above are present) and there 

is an order/quote imbalance, the system 

will immediately send an imbalance 

notice indicating the imbalance side 

(buy or sell) and the AOP and AOS (an 

‘‘Imbalance Notice’’) to Phlx XL 

participants provided that the primary 

market for the underlying security has 

disseminated the opening quote or 

trade. Phlx XL participants that have not 

submitted opening quotes will then 

submit their opening quotes and Phlx 

XL participants that have submitted 

opening quotes may submit revised 

opening quotes,15 and thereafter the 

system will disseminate an updated 

Imbalance Notice every five seconds (or 

such shorter period as determined by 

the Options Committee and 

disseminated to membership via 

Exchange Circular) until the series is 

open. If no imbalance exists, no 

Imbalance Notice will be sent, and the 

system will establish an opening price 

as described below. 

The system will calculate the AOP 

and AOS based on quotes, market orders 

and current resting orders on the limit 

order book. The Exchange believes that 

the calculation and dissemination of the 

AOP and AOS to Phlx XL participants 

should provide such Phlx XL 

participants with sufficient information 

to determine whether or not to submit 

revised quotations in order to 

participate in the opening, based on the 

dynamic movement of the AOS as 

additional quotes and market orders are 

received. 

Actual Opening Price 

The proposal would establish the 

opening price of a series in situations 

where there is no opening quote/order 

imbalance. Proposed Rule 1017(c)(i) 

would define the opening price as the 

price at which the maximum quantity of 

contracts will be traded. Because the 

Exchange believes that an option series 

should open if at all possible to ensure 

fair and orderly markets in such series, 

the proposed rule would establish a 

series of ‘‘tie-breakers’’ that the system 

will follow in establishing the opening 

price when two or more prices would 

satisfy the maximum quantity criteria. 

Specifically, when two or more prices 

would be the price at which the 

maximum quantity of contracts will be 

traded, the system will establish the 

opening price based on the following 

criteria, in order: (1) The price at which 

the greatest number of customer orders 

will be traded; (2) the price at which the 

maximum number of Phlx XL 

participants will trade; and, should 

there continue to be two or more prices 

that satisfy the maximum quantity 

criteria, the opening price will be (3) the 

price that is closest to the closing price 

from the previous trading session. 

The Exchange believes that the third 

‘‘tie-breaker,’’ specifying that the 

opening price would be the price at 

which the greatest number of Phlx XL 

participants will trade (once it is 

established that the opening price 

would be the price at which the 

maximum quantity of contracts and the 

greatest number of customer orders will 

trade) should ensure that the opening 

price would reflect the actual state of 

the market, i.e., the price at which more 

Phlx XL participants are willing to 

trade. 

The Exchange believes that these ‘‘tiebreaking’’ rules should enable the 

Exchange to open trading expeditiously 

in a series despite the fact that there 

may be two or more prices that would 

result in the maximum quantity of 

contracts being traded under a variety of 

scenarios, which the system will 

account for in automatically 

determining an opening price. 

Priority on Openings 

The system will give priority to 

market orders first (including a limit 

order to buy which is at a higher price 

than the price at which the option is to 

be opened and a limit order to sell 

which is at a lower price than the price 

at which the option is to be opened, 

which will be treated as market orders), 

then to resting limit orders at the 

opening price. The purpose of this 

provision is to ensure that the maximum 

number of contracts trade at the opening 

price. The inclusion of limit orders that 

are at a better price than the opening 

price in the pool of market orders 

should ensure that all such orders trade 

at the opening price before limit orders 

with a limit price that is equal to the 

opening price. 

Contingency, Hedge, and Synthetic 

Option Orders 

Contingency Orders, Hedge Orders, 

and Synthetic Option Orders, as defined 

in Exchange Rule 1066, are not 

considered in the determination of the 

opening price, and do not participate in 

the opening trade because such order 

types generally include two or more 

option components, and may also 

include a stock component. 

Floor-Brokered Orders 

To be considered in the determination 

of the opening price and to participate 

in the opening trade, orders represented 

by Floor Brokers must be entered onto 

the book electronically. The purpose of 

this provision is to ensure that limit 

orders represented by Floor Brokers at 

the opening are captured electronically 

at the opening price for inclusion in the 

opening.16 Otherwise, a limit order held 

by a Floor Broker in the trading crowd 

that is not placed onto the limit order 

book electronically would not be 

included in the automated opening 

because such a limit order would not be 

incorporated into the Phlx XL system. 

Inbound Orders and Quotes Received 

While the System Completes the 

Opening Trade 

Inbound orders and quotes will not be 

included in the calculation of the 

opening price for a brief period 

established by the system (and thus not 

within the discretion of any Phlx XL 

participant) while the system is in the 

process of completing the opening trade. 

During such brief period, such inbound 

orders and quotes will be entered into 

the Phlx XL system in order of their 

arrival. The purpose of the brief interval 

during which such inbound quotes and 

orders will not be included in the 

calculation of the opening price is to 

allow the system to calculate the 

opening price after the underlying 

security opens in the primary market 

using the quotes and orders received up 

to the time of the brief interval, so that 

dynamic quotations and orders received 

while the system is calculating the 

opening price do not have the effect of 

Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 55653 

17See, e.g., the Commentary to Rule 1017, Rules 

1047, 1047A, and OFPAs A–12, A–14 and G–2. 

18See Exchange Rule 1047A(a)(i) and OFPA G–

2. 

19An Industry Index is defined as an index 

designed to be representative of price movements 

in particular categories of stocks. See Exchange 

Rule 1000A(b)(11). 

20A Market Index an index designed to be 

representative of general price movements in the 

stock market. Id. 

continually changing the calculated 

opening price. If there were no such 

brief interval, it is possible that such 

dynamic quotes and orders, if not 

excluded, could cause the series never 

to open because the system could 

continue to calculate the opening price 

indefinitely. 

Proposed Rule 1017(d) would provide 

that, as the opening price is determined 

by series, the system will disseminate 

through OPRA the opening trade price, 

if any, and then the quote after the 

series is open. The system will process 

and open the series for a given option 

in random order. If there are no orders 

in a particular series when the 

underlying security opens, the Exchange 

will disseminate quotations at the best 

bid and offer in such series submitted 

by Phlx XL participants assigned in the 

particular option. 

Situations in Which the Option Series 

Will Not Open 

The proposed rule would set forth 

three conditions under which the 

system will not open a series. 

First, the system will not open a series 

when there is no quote from the 

specialist or a 100% participant. The 

purpose of this provision is to ensure 

that a series will not open if there is no 

Phlx XL participant that is providing 

continuous, two-sided quotations in a 

particular series. 

Second, the system will not open a 

series when the opening price is not 

within an acceptable range (as 

determined by the Options Committee 

and announced to Exchange members 

and member organizations by way of 

Exchange Circular) compared to the 

highest offer and the lowest bid (e.g., the 

upper boundary of the acceptable range 

may be 125% of the highest quote offer 

and the lower boundary may be 75% of 

the lowest quote bid). This is to provide 

a limitation on the range of the opening 

price in an option so that it is 

reasonably aligned with the opening 

price in the underlying security, and so 

that the opening price does not fall 

significantly outside of the bids/offers 

entered during the pre-opening phase. 

The Exchange proposes a similar 

conforming amendment to Commentary 

.15 to Exchange Rule 1014. 

Third, the system will not open a 

series when the opening trade would 

leave a market order imbalance (i.e., 

there are more market orders to buy or 

to sell for the particular series than can 

be satisfied by the limit orders, market 

orders and quotes on the other side of 

the market). This is to ensure that no 

market orders that would be eligible for 

execution at the opening price would be 

left unexecuted, while other market 

orders receive executions. 

No Specialist or 100% Participant 

Quote or Quote Outside Acceptable 

Range 

If the specialist or a Phlx XL 

participant with a 100% quoting 

requirement is not quoting as described 

in proposed Rule 1017(e)(i), or if the 

opening price is not within an 

acceptable range as described in 

proposed Rule 1017(e)(ii), proposed 

Rule 1017(f) would provide that two 

Floor Officials may authorize the 

manual opening of the affected series 

where necessary to ensure a fair and 

orderly market. In such a circumstance, 

the Exchange’s existing rules concerning 

manual openings would apply.17

Manual Opening by Specialist 

Proposed Rule 1017(g)(i) would 

provide that if a condition or the 

absence of a required condition not 

otherwise covered by the proposed rule 

would prevent an opening trade to 

occur, the specialist may, with prior 

notification to Market Surveillance staff, 

determine to open a series manually in 

the interest of a fair and orderly market, 

subject to the approval of two Floor 

Officials within five minutes of the 

opening of the affected series. Manual 

openings would be required to be 

conducted in accordance with current 

Commentary .01–.03 of Exchange Rule 

1017. 

A further purpose of this provision is 

to enable the specialist to conduct a 

manual opening in a timely fashion 

without undertaking the timeconsuming burden of seeking out two 

Floor Officials prior to such manual 

opening. If the specialist were required 

to do so, it is highly likely that the time 

required to seek approval of two Floor 

Officials would unduly delay such a 

manual opening. The Exchange believes 

that the required prior notification to 

Market Surveillance staff, coupled with 

the requirement to obtain the approval 

of two Floor Officials within five 

minutes of the opening of the affected 

series, provides the Exchange with 

sufficient regulatory oversight to 

monitor such activity. A specialist 

would be subject to disciplinary action 

if it is determined that the specialist 

violated the rule. 

As a housekeeping matter, to conform 

the existing rule to current Exchange 

definitions, Commentary .03 to 

Exchange Rule 1017 would be amended 

to provide that Contingency Orders, 

Hedge Orders, and Synthetic Option 

Orders, as defined in Exchange Rule 

1066 do not participate in opening 

rotations or in the determination of an 

opening price. 

Index Options 

Respecting options overlying an 

index, the proposal would permit the 

specialist to engage the automated 

opening system to open such options 

when at least 50% of the current index 

value of all the securities underlying the 

index have opened for trading on the 

primary market. This is consistent with 

current Exchange rules concerning the 

manual opening and re-opening of 

Industry Index options (as defined 

below).18

The Exchange notes that current 

Exchange Rule 1047A and OFPA G–2, 

respecting the opening of index options, 

distinguish between an Industry 

Index,19 which as stated above, may be 

opened when at least 50% of the current 

index value of all the securities 

underlying the index have opened for 

trading on the primary market, and 

which must currently be opened when 

at least 90% of the current index value 

of all the securities underlying the index 

have opened for trading on the primary 

market; and a Market Index 20 by 

requiring the opening rotation for 

Market Index options to be held at or as 

soon as practicable after the opening of 

business on the Exchange, with no 

similar requirements as to the 

percentage of the current index value of 

all the securities underlying the index 

which must be opened for the option 

overlying such index to open. The 

proposal would apply this distinction 

respecting manual openings only, 

whereas the system will not make a 

distinction between an Industry Index 

option and a Market Index option in 

determining to open such an option 

automatically based on the percentage 

of the current index value of all the 

securities underlying the index that 

must be opened. 

Under the proposal, with respect to 

automated openings in an Industry or 

Market Index conducted pursuant to 

Rule 1017, the specialist may engage the 

automated opening system to open such 

options when underlying securities 

representing 50% of the current index 

value of all the securities underlying the 

index have opened for trading on the 

55654 Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 

21A SORT opening, which is no longer 

implemented on the Exchange, was one where the 

specialist opened all series in an options class 

simultaneously after rotating only those series for 

which a SORT was received. The SORT is a form 

that was submitted by a member with interest in a 

particular series to the specialist, at least five 

minutes prior to the opening of trading, and 

signaled the specialist to rotate that series. Prior to 

conducting a SORT procedure, the specialist would 

announce to the crowd that such a procedure was 

to be utilized, and in which series, if any, a SORT 

had been received. 

primary market. The Exchange proposes 

to amend Rule 1047A and OFPA G–2 to 

require the opening of an Industry Index 

when 100% of the current index value 

of all the securities underlying the index 

have opened for trading on the primary 

market. The system thus will 

automatically open all index options 

when underlying securities representing 

100% of the current index value of all 

the securities underlying the index have 

opened for trading on the primary 

market. 

Therefore, when at least 50% of the 

current index value of all the securities 

underlying an index have opened for 

trading on the primary market, the 

specialist may determine to engage the 

automated opening system to open it for 

trading; when 100% of the current 

index value of all the securities 

underlying an index have opened for 

trading on the primary market, the 

system will automatically open it for 

trading. 

Reopening Following a Trading Halt 

The procedure described in the 

proposed Rule may be used to reopen an 

option after a trading halt. 

Conforming Amendments to Current 

Exchange Rules and OFPAs 

The Exchange proposes to delete 

Commentary .03(d)(iii) from Exchange 

Rule 1017, which currently states that 

the specialist will not open a series 

when there is a market on opening order 

with no corresponding order. The 

Exchange currently does not accept 

market on opening orders and thus 

Commentary .03(d)(iii) is unnecessary. 

In addition to the proposed 

amendments to Exchange Rule 1017, the 

Exchange is proposing various 

conforming amendments to current 

Exchange rules and OFPAs that relate to 

openings and re-openings following a 

trading halt. 

The Exchange proposes to amend 

Exchange Rule 1047, Trading Rotations, 

Halts and Suspensions, to reflect an 

automated opening conducted pursuant 

to Exchange Rule 1017 shall be 

considered a ‘‘trading rotation’’ for 

purposes of these rules. Thus, any 

requirement to conduct a rotation under 

the rule could be fulfilled by initiating 

an automated opening or re-opening by 

the system. 

Exchange Rule 1047(c) would be 

amended to reflect that two Floor 

Officials (with the concurrence of a 

Market Surveillance officer (and not the 

appropriate Floor Standing Committee 

as reflected in the current rule) would 

have the authority, respecting a 

particular class or series of options, to 

delay the opening, to halt and reopen 

after a halt, to open where the 

underlying stock or ETF has not opened. 

The Exchange believes that it is more 

expedient and less cumbersome for two 

Floor Officials to make such decisions, 

rather than convening the full 

Committee to make such a decision. 

Exchange Rule 1047 would be further 

amended to delete all references to the 

Series Opening Request Ticket 

(‘‘SORT’’) Procedure,21 an obsolete 

procedure that is no longer in use on the 

Exchange. The Exchange proposes a 

similar amendment to OFPA A–12 

Opening Rotations and SORT 

Procedures. 

Commentary .02 to Exchange Rule 

1047 would be amended to require the 

specialist to inform the Market 

Surveillance staff in the event that 

trading in an underlying stock or 

Exchange-Traded Fund Share has not 

opened in the primary market for such 

stock or Exchange-Traded Fund Share 

within a reasonable time after the 

opening of business, or, in the event that 

current quotations for any underlying 

foreign currency are for any reason 

unavailable. The purpose of this 

proposed amendment is to clarify that 

the Market Surveillance staff would 

then take the appropriate steps to 

determine the cause of such delay or 

unavailability, rather than the chairman 

of the appropriate Floor Standing 

Committee or his delegate on the floor, 

as the rule currently provides. The 

Exchange believes that it is more 

practical and efficient for the specialist 

to report any such delay or 

unavailability to the Market 

Surveillance staff, who are located on 

the floor and are readily available to the 

specialist in such circumstances. 

The Exchange also proposes to amend 

Exchange Rule 1047A, Trading 

Rotations, Halts or Reopenings, which 

governs index options. As described 

above, one substantive change involves 

the current requirement to open an 

Industry Index option when underlying 

securities representing 90% of the 

current index value of all the securities 

underlying the index have opened for 

trading on the primary market. The 

Exchange proposes to amend this 

provision to require the opening of an 

index when 100% of the current index 

value of all the securities underlying the 

index have opened for trading on the 

primary market. The purpose of this 

proposal is to eliminate any uncertainty 

as to what the underlying index value 

would be once the remaining 10% of the 

underlying index value has opened on 

the primary market, thus enabling the 

specialist to price the option overlying 

the index accurately and with a 

reasonable degree of certainty. 

For clarity, the sentence providing 

that it is the responsibility of the 

specialist to arrange the price at which 

an option series opens and re-opens on 

the Exchange would be deleted, as this 

provision is currently found and will be 

retained in Commentary .03 to Exchange 

Rule 1017 concerning manual openings, 

and the system, not the specialist, 

would establish the opening price in an 

automated opening. 

For consistency, OFPA A–12 would 

be amended to establish that the 

acceptable range within which the 

opening price must be established, 

would apply to both automated 

openings and manual openings 

conducted pursuant to Exchange Rule 

1017 and the Commentary thereto. A 

similar amendment is proposed 

respecting OFPA A–14, Equity Option 

and Index Option Opening Parameters. 

OFPA G–2, Trading Rotations, Halts 

or Reopenings, would be amended to 

reflect that an Industry Index option 

must open once the underlying 

securities representing 100% (a 

proposed increase from 90%) of the 

current index value of all the securities 

underlying the index have opened for 

trading on the primary market, and that 

respecting automated openings the 

system will automatically open an index 

when 100% of the current index value 

of all the securities underlying the index 

have opened for trading on the primary 

market. The OFPA would continue to 

provide that the specialist in an 

Industry Index option may conduct a 

manual opening rotation or may engage 

the system for an automated opening in 

such option when 50% of the current 

index value of all the securities 

underlying the index have opened for 

trading on the primary market (either by 

way of a manual rotation or by engaging 

the system). The Exchange also 

proposes to delete references to Super 

Cap Index options from OFPA G–2, 

because the Exchange no longer lists 

this product. 

Exchange Rules 1047 and 1047A, and 

OFPAs A–12 and G–2 would be 

amended to include the provision that 

an automated opening conducted 

pursuant to Exchange Rule 1017 would 

be considered a ‘‘rotation’’ for purposes 

Federal Register / Vol. 70, No. 183 / Thursday, September 22, 2005 / Notices 55655 

22 15 U.S.C. 78f(b). 

23 15 U.S.C. 78f(b)(5). 

24Telephone conversation between Richard S. 

Rudolph, Vice President and Counsel, Phlx, and 

Terri L. Evans, Special Counsel, Division, 

Commission on September 14, 2005 (clarifying 

Phlx’s statement on burden on competition). 25 17 CFR 200.30–3(a)(12). 

of the rules and OFPAs. Finally, these 

rules would also be amended to include 

the term ‘‘Market Surveillance officer’’

to conform to the current Exchange staff 

structure. 

Deployment of the Automated Opening 

System 

The Exchange will deploy the 

automated opening system on an issueby-issue basis. The Exchange anticipates 

that at least 10 issues will be deployed 

on the system within four weeks from 

the date of approval of the rules relating 

to the system by the Commission, and 

that the system will be deployed for all 

options traded on the Exchange within 

twelve weeks of such approval. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 22 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 23

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and the national market 

system, and, in general, to protect 

investors and the public interest, by 

establishing rules for an automated 

opening system, thereby increasing the 

number of option orders handled 

electronically on 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 not 

necessary or appropriate in furtherance 

of the purposes of the Act.24

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 

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, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–Phlx–2005–25 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–Phlx–2005–25. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 the filing also will be 

available for inspection and copying at 

the principal office of the Phlx. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–Phlx–2005–25 and should 

be submitted on or before October 13, 

2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.25

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18899 Filed 9–21–05; 8:45 am] 

BILLING CODE 8010–01–P 

SMALL BUSINESS ADMINISTRATION 

Notice Seeking Exemption Under 

Section 312 of the Small Business 

Investment Act, Conflicts of Interest 

Notice is hereby given that Harbert 

Mezzanine Partners SBIC II, L.P. 

(‘‘Applicant’’), One Riverchase Parkway 

South, Birmingham, AL 35244, an SBIC 

Applicant under the Small Business 

Investment Act of 1958, as amended 

(‘‘the Act’’), in connection with the 

financing of a small concern, has sought 

an exemption under section 312 of the 

Act and section 107.730, Financings 

which Constitute Conflicts of Interest, of 

the Small Business Administration 

(‘‘SBA’’) rules and regulations (13 CFR 

107.730 (2004)). Harbert Mezzanine 

Partners SBIC II, L.P. proposes to 

provide financing in the form of 

subordinated debt and Series B 

convertible preferred stock to Optical 

Experts Manufacturing, Inc. (‘‘OEM’’), 

8500 Tyron Street, Charlotte, NC 28273. 

The proceeds will be used to finance the 

recapitalization of OEM. 

This investment requires an 

exemption from the prohibitions in 13 

CFR 107.730, Conflicts of Interest, 

because OEM is an Associate of the 

Applicant by virtue of the greater than 

10 percent ownership interest held by 

Harbinger Mezzanine Partners, L.P. 

(‘‘Harbinger’’). 

Notice is hereby given that any 

interested person may submit written 

comments on the transaction to the 

Associate Administrator for Investment, 

U.S. Small Business Administration, 

409 Third Street, SW., Washington, DC 

20416. 

Jaime Guzman-Fournier, 

Associate Administrator for Investment. 

[FR Doc. 05–18888 Filed 9–21–05; 8:45 am] 

BILLING CODE 8025–01–P 

SMALL BUSINESS ADMINISTRATION 

Audit and Financial Management 

Advisory (AFMAC) 

Committee Meeting 

The U.S. Small Business 

Administration’s Audit and Financial