67610 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices

16 15 U.S.C. 78f(b)(5).

17The Commission notes that trading in Nasdaq/

NM Securities will occur on the Phlx’s equity floor,

which is separate from the Phlx’s options floor.

Therefore, Phlx’s proposal does not raise any sideby-side trading concerns. In addition, Phlx Rule

1014, which prohibits Registered Options Traders

(‘‘ROTs’’) from executing proprietary options

transactions in Phlx-listed options on OTC

securities, if, during the preceding hour, the ROT

was physically at the trading post where such OTC

security trades, will apply during the Pilot.

18 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

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

19The Commission notes that the Phlx’s rules

regarding short sales do not require an exemption

from the Commission’s short sale rule, Rule 10a–

1, since Nasdaq securities currently are excluded

from the Rule. See CFR 240.10a–1(a)(ii), However,

Nasdaq has applied to become a national securities

exchange. See Securities Exchange Act Release No.

44396 (June 7, 2001), 66 FR 31952 (June 13, 2001).

If Nasdaq becomes a registered exchange, Nasdaq

securities will be exchange-listed and the

exemption in subparagraph (ii) of Rule 10a–1 will

no longer be available. Accordingly, trading in

Nasdaq securities would be subject to Rule 10a–1

unless Phlx obtains an exemption from the Rule.

The Commission notes that Nasdaq has requested

an exemption from Rule 10a–1.

20 15 U.S.C. 781(f)(2).

21 15 U.S.C. 78s(b)(2).

22Phlx has advised the Commission that it

expects to begin trading in January 2002.

23 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter from Carla Behnfeldt, Director, Legal

Department New Product Development Group,

PHLX, to Nancy Sanow, Division of Market

Regulation (‘‘Division’’), Commission, dated

September 26, 2000 (‘‘Amendment No. 1’’). In

Amendment No. 1, the PHLX indicated that in the

event the PHLX proposes to list and trade a series

of Trust Shares that do not satisfy the generic

criteria provided in the proposal, the PHLX will

submit to the Commission a proposed rule change

pursuant to Rule 19b–4 with respect to the series.

4See letter from Carla Behnfeldt, Director, Legal

Department New Product Development Group,

PHLX, to Yvonne Fraticelli, Special Counsel,

Division, Commission, dated September 12, 2001

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

that: (1) The PHLX currently does not list any Trust

Shares, although it trades shares of the Nasdaq 100

Trust pursuant to unlisted trading privileges

(‘‘UTP’’); (2) the PHLX is amending PHLX Rule

803(i)(11)(e) to indicate that the minimum trading

increment for a series of Trust Shares will be $0.01;

(3) the PHLX will issue a circular to members for

each Trust Shares series listed pursuant to Rule

19b–4(e) under the Act, which will describe the

unique characteristics and risks of Trust Shares,

and inform members of any obligation to deliver a

written product description or prospectus, as

applicable to purchasers of Trust Shares, and

inform members of their responsibilities under

PHLX Rules 746, ‘‘Diligence as to Accounts,’’ and

747, ‘‘Approval of Accounts,’’ in connection with

customer transactions in Trust Shares; (4) Trust

Shares are subject to, among others, the PHLX’s

general agency-auction rules, trading rules,

clearance and settlement rules, equity margin rules,

priority, parity, and precedence rules, rules

governing the responsibilities of specialists, trading

halt rules and procedures, and account opening

requirements; (5) any series of Trust Shares traded

pursuant to the standards in PHLX Rule 803(i)(11)

must meet the eligibility criteria in PHLX Rule

803(i)(11) as of the date of the initial deposit of

securities and cash into the trust; (6) the initial

deposit of a specified portfolio of securities in

connection with the issuance of shares of a series

of Trust Shares must be made before the start of

trading on the PHLX; (7) unless the PHLX maintains

an index, the current index value will be

disseminated every 15 seconds over the

Consolidated Tape Association’s (‘‘CTA’’) Network

B by or through the primary exchange or an entity

working with that exchange; and (8) Trust Shares

are subject to PHLX Rules 133, ‘‘Trading Halts Due

to Extraordinary Market Volatility,’’ and 136,

‘‘Trading Halts in Certain Exchange Traded Funds.’’

5See letter from Carla Behnfeldt, Director, Legal

Department New Product Development Group,

PHLX, to Yvonne Fraticelli, Special Counsel,

Division, Commission, dated December 17, 2001

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

PHLX revised the text of PHLX Rule 803(i)(11) to

indicate: (1) that the provisions of PHLX Rule

803(i)(11) apply to Trust Shares listed or traded

pursuant to UTP; and (2) that the minimum trading

increment for Trust Shares will be $0.01. In

addition, in Amendment No. 3 the PHLX

represented that it will use its existing surveillance

procedures for Trust Shares to monitor trading in

Trust Shares traded pursuant to Rule 19b–4(e).

Amendment No. 3 also stated that the PHLX will

issue a circular to members for each Trust Shares

series listed or traded on a UTP basis pursuant to

Rule 19b–4(e) under the Act, and reiterated the

Securities to eVWAP. Ashton stated that

many eVWAP participants have

requested the addition of Nasdaq issues

for eVWAP matching.

Ashton also responded to the Knight

Letter. In the Ashton Letter, Ashton

counters two of Knight’s arguments by

contending that: (1) The SEC has

already determined that UTP trading of

Nasdaq/NM securities is in furtherance

of fair and orderly markets; and (2) the

federal statutory and regulatory scheme

dictates that self-regulatory

organizations’ rules govern their own

members (Ashton questions whether

Knight is requesting a complete

overhaul of the Act to impose a single

self-regulatory, NASDR, over all market

participants trading Nasdaq/NM

Securities).

IV. Discussion

The Commission finds that the

proposed rule change, as needed, is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange, and in particular,

with the requirements of section 6(b)(5)

of the Act.16 The Commission believes

that Phlx has proposed rules that should

ensure that trading in Nasdaq/NM

Securities on its floor occurs in an

orderly fashion,17 consistent with the

requirements of the Act. The

Commission, therefore, believes that the

proposal should remove impediments to

and perfect the mechanism of a free and

open market in a manner that is

consistent with the protection of

investors and the public interest.18 The

Commission also notes that Phlx’s

response to the comments raised in the

Knight Letter were sufficient.19

Furthermore, the proposed rule

change is consistent with section

12(f)(2) of the Act,20 which grants the

Commission explicit authority to

approve UTP in OTC securities. Section

12(f)(2) of the Act requires the

Commission, before approving UTP, to

determine that the granting of UTP is

consistent with the maintenance of fair

and orderly markets and the protection

of investors. The Commission believes

that the proposed rule change is

consistent with these goals and thus, the

Commission is approving the proposed

rule change, subject to the Phlx

complying with the requirements of the

OTC/UTP Plan.

V. Conclusion

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,21 that the

proposed rule change (SR–Phlx–2000–

20), as amended, is approved on a pilot

basis effective for a six month period

beginning on the date trading begins.22

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.23

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–32031 Filed 12–23–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45178; File No. SR–PHLX–

00–68]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change and Amendment Nos. 1,

2, and 3 by the Philadelphia Stock

Exchange, Inc. Related to Generic

Listing Standards Applicable to Trust

Shares Pursuant to Rule 19–4(e) Under

the Securities Exchange Act of 1934

December 20, 2001.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’),1 and Rule 19b–4

thereunder,2 notice is hereby given that

on September 7, 2000, the Philadelphia

Stock Exchange, Inc. (‘‘PHLX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by the PHLX. The PHLX filed

Amendment Nos. 1, 2, and 3 to the

proposal on September 7, 2000,3

September 12, 2001,4 and December 18,

2001,5 respectively. The Commission is

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices 67611

statements made in Amendment No. 2 concerning

the information that the circular will provide.

6 17 CFR 240.19b–4(e). Rule 19b–4(e) under the

Act permits self-regulatory organizations (‘‘SROs’’)

to list and trade new derivatives products that

comply with existing SRO trading rules,

procedures, surveillance programs and listing

standards without submitting a proposed rule

change under section 19(b) of the Act. See

Securities Exchange Act Release No. 40761

(December 8, 1998), 63 FR 70952 (December 22,

1998) (‘‘1998 Release’’).

7 15 U.S.C. 78s(b).

8See 1998 Release, supra note 6.

9See Securities Exchange Act Release No. 43717

(December 13, 2000), 65 FR 80976 (December 22,

2000) (order approving File No. SR–PHLX–00–54)

(‘‘Trust Shares Order’’). The PHLX currently does

not list any Trust Shares. The PHLX trades shares

of the Nasdaq 100 Trust on a UTP basis pursuant

to the Trust Shares Order. See Amendment No. 2,

supra note 4.

10See Amendment No. 2, supra note 4.

11See Amendment No. 2, supra note 4.

12Unless the PHLX maintains the index, the

PHLX understands that the primary exchange or

another entity working with that exchange will

disseminate the current value of the index. See

Amendment No. 2, supra note 4.

13The Reporting Authority with respect to a

series of Trust Shares is the PHLX, a wholly-owned

subsidiary of the PHLX, an institution (including

the Trustee for Trust Shares), or a reporting service

designated by the PHLX or its subsidiary or by the

Continued

publishing this notice to solicit

comments on the proposed rule change

and on Amendment Nos. 1, 2, and 3

from interested persons and to approve

the proposal, as amended, on an

accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PHLX proposes to amend PHLX

Rule 803(i), ‘‘Trust Shares,’’ by adopting

PHLX Rule 803(i)(11), which will

provide standards to permit the trading,

whether by listing or pursuant to UTP,

of Trust Shares pursuant to Rule 19b–

4(e) under the Act.6

The text of the proposed rule change

is available at the PHLX and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

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 III 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

PHLX Rule 803(i) accommodates the

trading on the PHLX of Trust Shares,

which represent interests in a unit

investment trust (‘‘Trust’’) that operates

on an open-end basis and holds a

portfolio of securities. Each Trust is

designed to provide investors with an

instrument that closely tracks the

underlying securities portfolio, trades

like a share of common stock, and pays

to holders of Trust Shares periodic

dividends proportionate to those paid

with respect to the underlying portfolio

of securities, less expenses, as described

in the applicable Trust prospectus.

The PHLX proposes to amend PHLX

Rule 803(i) by adopting proposed PHLX

Rule 803(i)(11), which will provide

standards to permit the listing and

trading, including trading on a UTP

basis, of Trust Shares pursuant to rule

19b–4(e) under the Act. Rule 19b–4(e)

states that the listing and trading of a

new derivative securities product by a

SRO shall not be deemed a proposed

rule change if the Commission has

approved, pursuant to Section 19(b) of

the Act,7 the SRO’s trading rules,

procedures, and listing standards for the

product class that would include the

new derivative securities product and

the SRO has a surveillance program for

the product class.8

The PHLX adopted PHLX Rule 803(i)

to permit the listing and trading of Trust

Shares.9 Under PHLX Rule 803(i), the

PHLX had anticipated filing proposed

rule changes pursuant to Rule 19b–4

under the Act for each series of Trust

Shares to be traded on the PHLX. The

PHLX now believes, however, that the

adoption of proposed PHLX Rule

803(i)(11) will further the intent of

PHLX Rule 803(i) by facilitating the

commencement of trading in Trust

Shares, subject to the generic standards

for Trust Shares in proposed PHLX Rule

803(i)(11), without the need for notice

and comment and Commission approval

under Section 19(b) of the Act. The

PHLX believes that this has the

potential to reduce the time frame for

bringing Trust Shares to market.

The PHLX proposes that Trust Shares

listed or traded on a UTP basis pursuant

to Rule 19b–4(e) be subject to the

specific generic criteria set forth in

proposed PHLX Rule 803(i)(11). The

PHLX notes that all other provisions of

PHLX Rule 803(i) would continue to

apply to such securities.

Proposed PHLX Rule 803(i)(11) sets

forth generic listing criteria that are

intended to ensure that a substantial

portion of the weight of an index or

portfolio underlying Trust Shares is

accounted for by stocks with substantial

market capitalization and trading

volume. Proposed PHLX Rule 803(i)(11)

provides that, upon the initial listing of

a series of Trust Shares pursuant to Rule

19b–4(e), the component stocks that in

the aggregate account for at least 90% of

the weight of the index or portfolio must

have minimum market value of at least

$75 million. In addition, the component

stocks in the index or portfolio must

have a minimum monthly trading

volume during each of the last six

months of at least 250,000 shares for

stocks representing at least 90% of the

weight of the index or portfolio.

The most heavily weighted

component stock in an underlying index

cannot exceed 25% of the weight of the

index or portfolio, and the five most

heavily weighted component stocks

cannot exceed 65% of the weight of the

index or portfolio. The underlying index

or portfolio must include a minimum of

13 stocks, which is the minimum

number to permit qualification as a

regulated investment company under

subchapter M of the Internal Revenue

Code. All securities in an underlying

index or portfolio must be listed on a

national securities exchange or the

Nasdaq Stock Market (including the

Nasdaq SmallCap Market).

Any series of Trust Shares traded

pursuant to the standards in proposed

PHLX Rule 803(i)(11) must meet the

eligibility criteria in proposed PHLX

Rule 803(i)(11) as of the date of the

initial deposit of securities and cash

into the trust.10 The PHLX will request

issuers of a series of Trust Shares listed

under PHLX Rule 803(i)(11) to represent

to the PHLX that the index or portfolio

of securities underlying the series will

comply with the applicable eligibility

criteria as of the date of the initial

deposit.11

Proposed PHLX Rule 803(i)(11)

provides that the underlying index will

be calculated based on either the market

capitalization, modified market

capitalization, price, equal-dollar, or

modified equal-dollar weighting

methodology. In addition, if the index is

maintained by a broker-dealer, the

broker-dealer must erect a ‘‘fire wall’’

around the personnel who have access

to information concerning changes and

adjustments to the index, and the index

shall be calculated by a third party who

is not a broker-dealer. The current index

value must be disseminated every 15

seconds over the CTA’s Network B.12

The Reporting Authority 13 will

disseminate for each series of Trust

67612 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices

exchange that lists a particular series of Trust

Shares (if the PHLX is trading a series of Trust

Shares pursuant to UTP) as the official source for

calculating and reporting information relating to the

series, including any current index or portfolio

value; the current value of the portfolio of securities

required to be deposited to the Trust in connection

with the issuance of Trust Shares; the amount of

any dividend equivalent payment or cash

distribution to holders of Trust Shares, net asset

value or other information relating to the creation,

redemption, or trading of Trust Shares. See PHLX

Rule 803(i)(1)(ii).

14The initial deposit of a specified portfolio of

securities in connection with the issuance of the

minimum of 100,000 shares of a series of Trust

Shares must be made before the start of trading on

the PHLX. See Amendment No. 2, supra note 4.

15See Amendment Nos. 2 and 3, supra notes 4

and 5.

16See Amendment No. 3, supra note 5.

17See Amendment No. 2, supra note 4.

18See Amendment No. 2, supra note 4.

19See Amendment No. 2, supra note 4.

20See Amendment No. 2, supra note 4.

21See Amendment Nos. 2 and 3, supra notes 4

and 5.

22See Amendment Nos. 2 and 3, supra notes 4

and 5.

23See Amendment Nos. 2 and 3, supra notes 4

and 5.

24See Amex Rule 1000, Commentary .03. See also

Securities Exchange Act Release No. 42787 (May

15, 2000), 65 FR 33598 (May 24, 2000) (order

approving File No. SR–Amex–00–14) (‘‘Amex

Order’’). The Amex Order also approved standards

to permit the listing and trading of Index Fund

Shares pursuant to the Rule 19b–4(e).

Shares an estimate, updated every 15

seconds, of the value of a share of each

series. This may be based, for example,

upon the index value or upon current

information regarding the required

deposit of securities and cash to permit

creation of new shares of the series.

Proposed PHLX Rule 803(i)(11)(d)

provides that a minimum of 100,000

shares of a series of Trust Shares must

be outstanding at the start-up of

trading.14 The PHLX believes that this

minimum number will be sufficient to

establish a liquid PHLX market at the

start of trading.

The minimum trading increment for a

series of Trust Shares will be $0.01.15

The original listing fee for each series

of Trust Shares will be $7,500, with an

annual maintenance listing fee of

$1,250.

The PHLX represents that it will

implement written surveillance

procedures for Trust Shares and that it

will use its existing surveillance

procedures for Trust Shares to monitor

trading in Trust Shares traded pursuant

to Rule 19b–4(e).16 In addition, the

PHLX states that it will comply with all

of the recordkeeping requirements of

Rule 19b–4(e) and that it will file Form

19b–4(e) for each series of Trust Shares

listed under Rule 19b–4(e) within five

business days of the commencement of

trading.

The provisions of PHLX Rule

803(i)(11) will apply to all series of

Trust Shares listed or traded on a UTP

basis pursuant to Rule 19b–4(e). In

addition to the requirements of

proposed PHLX Rule 803(i)(11), Trust

Shares also will be subject to other

PHLX rules. Specifically, the PHLX

notes that dealings in Trust Shares on

the PHLX are conducted pursuant to the

PHLX’s general agency-auction trading

rules.17 In addition, Trust Shares are

subject to, among others, the general

dealing and settlement rules of the

PHLX, including the PHLX’s rules on

clearance and settlement of securities

transactions and the PHLX’s equity

margin rules; the PHLX’s rules

governing priority, parity, and

precedence of orders; the PHLX’s rules

regarding responsibilities of the

specialist; and the PHLX’s account

opening requirements.18

Trust Shares also are subject to PHLX

Rule 133, ‘‘Trading Halts due to

Extraordinary Market Volatility,’’ and

PHLX Rule 136, ‘‘Trading Halts in

Certain Exchange Traded Funds.’’ 19 In

exercising discretion under PHLX Rule

136, PHLX officials may consider a

variety of factors, including the extent to

which trading has been halted or

suspended in the market that is the

primary market for a plurality of the

underlying stocks, and whether other

unusual conditions or circumstances

detrimental to the maintenance of a fair

and orderly market are present.20

The PHLX will issue a circular to

members for each series of Trust Shares

listed, or traded on a UTP basis,

pursuant to Rule 19b–4(e).21 The

circular will describe the unique

characteristics and risks of Trust Shares

and will inform members of any

obligation to deliver a written product

description or prospectus, as applicable,

to purchasers of Trust Shares.22 The

circular will inform members of their

responsibilities under PHLX Rule 746,

‘‘Diligence as to Accounts,’’ and PHLX

Rule 747, ‘‘Approval of Accounts,’’ in

connection with customer transactions

in Trust Shares.23

(2) Basis

The PHLX believes that the proposed

rule change is consistent with Section

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

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

Act, in particular, in that it is designed

to prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to and facilitating transactions

in securities, and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The PHLX does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received with respect to

the proposed rule change.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change and Amendment Nos. 1, 2, and

3 are 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 number

SR–PHLX–00–68 and should be

submitted by January 22, 2002.

IV. Commission Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The PHLX has asked the Commission

to approve the proposal on an

accelerated basis because the PHLX has

proposed standards for Trust Shares that

are substantially similar to those

adopted by the American Stock

Exchange, LLC (‘‘Amex’’) for the listing

and trading of Portfolio Depository

Receipts (‘‘PDRs’’) pursuant to Rule

19b–4(e).24 The PHLX does not believe

that its proposal presents any new

investor protection issues that were not

addressed during the notice and

comment period for the Amex’s

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices 67613

25 15 U.S.C. 78f(b)(5).

26 In approving the proposed rule change, the

Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

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

27See Trust Shares Order, supra note 9.

28See Trust Shares Order, supra note 9.

29See 1998 Release, supra note 6.

30See Amendment No. 2, supra note 4.

31See Amendment No. 3, supra note 5.

32See PHLX Rule 803(i)(3).

33See PHLX Rule 803(i)(3).

proposal to provide standards to permit

the listing and trading of PDRs pursuant

to Rule 19b–4(e).

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange and, in particular, with the

requirements of Section 6(b)(5) of the

Act 25 in that it is designed to promote

just and equitable principles of trade, to

foster cooperation and coordination

with persons engaged in regulating,

clearing, settling, processing

information with respect to, and

facilitating transactions in securities,

and, in general, to protect investors and

the public interest.26

Trust Shares are securities that are

interests in a Trust that holds a portfolio

of securities linked to an index. Each

Trust is designed to provide investors

with an instrument that closely tracks

the underlying portfolio of securities,

trades like a share of common stock, and

pays holders of the instrument periodic

dividends proportionate to those paid

with respect to the underlying portfolio

of securities, less certain expenses, as

described in the Trust prospectus.27

As noted above, the Commission

previously approved a PHLX proposal

that permits the listing and trading, or

trading pursuant to UTP, of Trust Shares

on the PHLX.28 In approving these

securities of trading, the Commission

considered the structure of these

securities, their usefulness to investors

and to the markets, and the PHLX rules

that govern their trading. The

Commission’s approval of the current

proposal, which establishes generic

listing standards for Trust Shares, will

allow series of Trust Shares that satisfy

the generic listing standards in PHLX

Rule 803(i)(11) to begin trading under

Rule 19b–4(e) without the need for

notice and comment and Commission

approval. As noted above, Rule 19b–4(e)

provides that the listing and trading of

a new derivative securities product by a

SRO shall not be deemed a proposed

rule change pursuant to Rule 19b–

4(c)(1) if the Commission has approved,

pursuant to Section 19(b) of the Act, the

SRO’s trading rules, procedures and

listing standards for the product class

that includes the new derivative

securities product class, and the SRO

has a surveillance program for the

product class.29 The PHLX’s ability to

rely on Rule 19b–4(e) for Trust Shares

potentially reduces the time frame for

bringing Trust Shares to the market or

for permitting the trading of Trust

Shares pursuant to UTP, and thus

enhances investors’ opportunities. The

Commission notes that while the

proposal will reduce the PHLX’s

regulatory burden, the Commission

maintains regulatory oversight over any

products listed under the generic

standards through regular inspection

oversight.

The Commission also finds that the

proposal contains adequate rules and

procedures to govern the trading of

Trust Shares under rule 19b–4(e). All

series of Trust Shares listed under the

generic standards will be subject to the

full panoply of PHLX rules and

procedures that would govern the

trading of Trust Shares listed on the

PHLX or traded pursuant to UTP.

Accordingly, any series of Trust Shares

listed and traded, or traded on a UTP

basis, under rule 19b–4(e) would be

subject to the PHLX rules governing the

trading of equity securities including,

among others, rules and procedures

governing trading halts, disclosures to

members, responsibilities of the

specialist, account opening and

customer suitability requirements, and

margin.30

In addition, the PHLX has developed

specific listing criteria for series of Trust

Shares qualifying for rule 19b–4(e)

treatment that will help to ensure that

a minimum level of liquidity will exist

to allow for the maintenance of fair and

orderly markets. The Commission

believes that the proposed generic

listing standards ensure that the

securities composing the indexes and

portfolios underlying Trust Shares are

well capitalized and actively traded.

These capitalization and liquidity

criteria should serve to prevent

fraudulent or manipulative acts

involving Trust Shares.

In addition, all series of Trust Shares

listed or traded under the generic

standards will be subject to the PHLX’s

existing continuing listing criteria. This

requirement will allow the PHLX to

consider the suspension of trading and

the delisting of a series if an event

occurs that makes further dealing in

such securities inadvisable. The

Commission believes that this will give

the PHLX flexibility to delist Trust

Shares if circumstances warrant such

action.

The PHLX will use its existing

surveillance procedures for Trust Shares

to monitor trading in Trust Shares

traded pursuant to Rule 19b–4(e).31 The

Commission believes that these

surveillance procedures are adequate to

address concerns associated with listing

and trading Trust Shares under the

generic standards. In addition, the

PHLX represents that it will file Form

19b–4(e) with the Commission within

five business days of the

commencement of trading a series under

the generic standards, and will comply

with all Rule 19b–4(e) recordkeeping

requirements.

The Commission also notes that

certain concerns are raised when a

broker-dealer is involved in both the

development and the maintenance of a

stock index upon which a product such

as Trust Shares is based. The proposal

provides that, in such circumstances,

the broker-dealer must have procedures

in place to prevent the misuse of

material, non-public information

regarding changes and adjustments to

the index and that the index value must

be calculated by a third party who is not

a broker-dealer. The Commission

believes that these requirements should

help to address concerns raised by a

broker-dealer’s involvement in the

management of such an index.

Finally, the Commission believes that

the PHLX’s rules will ensure that

investors have information that will

allow them to be apprised adequately of

the terms, characteristics, and risks of

trading Trust Shares. The PHLX will

require members and member

organizations to provide all purchasers

of Trust Shares with a written

description of the terms and

characteristics of Trust Shares, to

include this written description in sales

materials provided to customers or the

public, to include a specific statement

relating to the availability of the

description in other types of materials

distributed to customers or the public,

and to provide a copy of the prospectus

when requested by a customer.32 A

PHLX member or member organization

carrying an omnibus account for a nonmember broker-dealer must inform a

non-member that the execution of an

order to purchase a series of Trust

Shares for such omnibus account will be

deemed to constitute an agreement by

the non-member to make the written

description available to its customers.33

The Commission also notes that upon

the initial listing, or trading pursuant to

UTP, of any Trust Shares under the

generic standards, the PHLX will issue

a circular to its members explaining the

67614 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices

34See Amendment Nos. 2 and 3, supra notes 4

and 5. 35See Amendment Nos. 2 and 3, supra notes 4

and 5. 36See Amendment Nos. 2 and 3, supra notes 4

and 5. 37See Amex Order, supra notes 24.

38 15 U.S.C. 78f(b)(5) and 78s(b)(2).

39 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3For purposes of the equity option transaction

charge, the Exchange defines the term ‘‘brokerdealer charge’’ as a charge that is applied to

members for orders, entered from other than the

floor of the Exchange, for any account (i) in which

the holder of beneficial interest is a member or nonmember broker-dealer or (ii) in which the holder of

beneficial interest is a person associated with or

employed by a member or non-member brokerdealer. This includes orders for the account of a

Registered Options Trader (‘‘ROT’’) entered from

off-floor. See Securities Exchange Act Release No.

43558 (November 14, 2000), 65 FR 69984

(November 21, 2000) (SR–Phlx–00–85).

4The Exchange states that this fee will continue

to be eligible for the monthly credit of up to $1,000

to be applied against certain fees, dues and charges

and other amounts owed to the Exchange by certain

members. See Securities Exchange Act Release No.

44292 (May 11, 2001), 66 FR 27715 (May 18, 2001)

(SR–Phlx–2001–49).

5According to the Exchange, a firm/proprietary

transaction or comparison charge applies to

members for orders for the proprietary account of

any member or non-member broker-dealer that

derives more than 35 percent of its annual, gross

revenues from commissions and principal

transactions with customers. See Securities

Exchange Release No. 43558 (November 14, 2000),

65 FR 69984 (November 21, 2000) (SR–Phlx–00–

85).

unique characteristics and risks of this

type of security.34 The circular also will

note the PHLX members’ prospectus or

product description delivery

requirements, and highlight the

characteristics of purchases in a

particular series of Trust Shares.35 The

circular also will inform members of

their responsibility under PHLX Rules

746 and 747 in connection with

customer transactions in Trust Shares.36

The Commission believes that these

requirements will help to ensure

adequate disclosure to investors about

the terms and characteristics of a

particular series of Trust Shares.

The Commission finds good cause for

approving the proposed rule change and

Amendment Nos. 1, 2, and 3 prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. The Commission

notes that the proposed rule change is

based on the generic listing standards in

Amex Rule 1000 et seq., which the

Commission approved after soliciting

public comment pursuant to Section

19(b)(1) of the Act.37 The Commission

does not believe that the PHLX’s

proposal raises novel regulatory issues

that were not addressed previously.

Accordingly, the Commission believes it

is appropriate to permit investors to

benefit from the flexibility afforded by

these new instruments by trading them

as soon as possible. Amendment No. 1

strengthens the PHLX’s proposal by

indicating that the PHLX will file a

proposed rule change pursuant to rule

19b–4 if the PHLX proposes to list and

trade a series of Trust Shares that do not

satisfy the proposed generic criteria.

Amendment No. 2 strengthens the

PHLX’s proposal by clarifying, among

other things, that the PHLX will

distribute an information circular to

members for each series of Trust Shares

describing the characteristics and risks

of Trust Shares and by indicating that

Trust Shares will be subject to PHLX

rules governing the trading of equity

securities, including, among others,

rules and procedures governing trading

halts, responsibilities of specialists,

account opening requirements, and

margin. Amendment No. 3 clarifies the

text of PHLX Rule 803(i)(11) and

indicates that the PHLX will use its

existing surveillance procedures for

Trust Shares to monitor trading in Trust

Shares traded pursuant to Rule 19b–

4(e). Accordingly, the Commission

believes that there is good cause,

consistent with Sections 6(b)(5) and

19(b)(2) of the Act,38 to approve the

proposal and Amendment Nos. 1, 2, and

3 to the proposal on an accelerated

basis.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (SR–PHLX–00–

68), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.39

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–32032 Filed 12–28–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45185; File No. SR–Phlx–

2001–113]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Increasing the Equity Option

Transaction Charge for Broker-Dealer

December 21, 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

18, 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 Exchange.

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 Exchange proposed to amend its

schedule of dues, fees, and charges to

increase its equity option transaction

charge on members for off-floor brokerdealer orders3 routed to the Exchange

from $0.20 to $0.25. The Exchange

intends to implement this fee on

transactions settling on or after January

2, 2002.4

The text of the proposed rule change

is available at the Office of the

Secretary, the Phlx, and at the

Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

(1) Purpose

Currently, the Exchange imposes a fee

on its members for off-floor brokerdealer orders routed to the Exchange.

This category includes ROTs that trade

from off-floor and broker-dealers that

route orders through firm, customer, or

market maker accounts carried by a

member clearing firm. This category

does not include firm/proprietary

orders.5 The Exchange states that all

other equity option transaction charges

will remain unchanged.

The Exchange states that the purpose

of the proposed rule change is to

generate additional revenue by

increasing the fee imposed on members

for off-floor broker-dealer orders routed

to the Exchange. Thus, the broker-dealer