67606 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices

19The NASD requested a 45 day comment period

and has consented to the extension of the time for

Commission action on this filing until 30 days after

the end of the comment period. See Section III.

20 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter dated December 10, 2001 from Cindy

Sink, Senior Attorney, Regulatory Policy, PCX, to

Joe Morra, Special Counsel, Division of Market

Regulation, Commission and attachments

(‘‘Amendment No. 1’’). In Amendment No. 1, the

PCX: (1) Clarified the intent of the rule that after

the proper request has been completed, a transfer

will be automatically permitted when the transfer

satisfies one of the specified categories set forth in

proposed Rule 6.78(d)(1); (2) revised Item 8 to state

that the proposed rule change is based, in part, on

Chicago Board Options Exchange Rule 6.49A; and

(3) made technical changes to the rule text.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation 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

See discussion of comment letters in

Item II(A)(1) above.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 30 days after the expiration of

the comment period following

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 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 NASD. All

submissions should refer to the file

number in the caption above and should

be submitted by February 14, 2002.19

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–32077 Filed 12–28–01; 8:45 am]

BILLING CODE 8010–01–U

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45188; File No. SR–PCX–

2001–33]

Self-Regulatory Organizations; Notice

of filing of Proposed Rule Change and

Amendment No. 1 by the Pacific

Exchange, Inc. To Adopt Procedures

for the Transfer of Options Positions

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 August

10, 2001, the Pacific Exchange, Inc.

(‘‘PCX’’ 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 PCS. The Exchange amended the

proposed rule change on December 11,

2001.3 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 PCX proposes to establish

procedures for the transfer of options

positions. The text of the proposed rule

change, as amended, is below. Proposed

new language is italicized.

Rule 6.78 (a)–(c) No change.

Transfer of Positions

(d) Transfer of Positions off the Floor.

‘‘Transfer of positions off the floor’’ is

defined as moving a member’s

ownership interest in securities from its

account to an account of another

member or person in a manner other

than trading on the floor of a securities

exchange.

(1) Transfers off the Floor.

Notwithstanding the prohibition set

forth in subsection (a), an Exchange

member may transfer positions off the

floor if the transfer involves one or more

of the following events: (i) The

dissolution of a joint account in which

the remaining member assumes the

positions of the joint account; (ii) the

dissolution of a corporation or

partnership in which a former nominee

of that corporation or partnership

assumes the positions; (iii) positions

transferred as part of a member’s capital

contribution to a new joint account,

partnership, or corporation; (iv) the

donation of positions to a not-for-profit

corporation; (v) the transfer of positions

to a minor under the Uniform Gifts to

Minors Act; (vi) a merger or acquisition

resulting in a continuity of ownership or

management; or (vii) consolidation of

accounts within a member organization.

(2) Written Request. No member or

member organization may effect a

transfer of positions off the floor in any

security listed on the Exchange without

the prior submission of a completed

written request to the Exchange. This

requirement applies regardless of

whether the transfer is permitted under

subsection (d)(1) or (f).

(e) Transfer of Positions Offered on

the Floor. ‘‘Transfer of positions offered

on the floor’’ is defined as moving a

member’s ownership interest in

securities from its account to an account

of another member or person in

circumstances other than those set forth

in subsection (d)(1).

(1) Transfer Procedure for Positions

Offered on the Floor. A member seeking

a transfer must offer the positions on the

floor in the following manner:

(A) A member or member

organization seeking to transfer

positions on the floor (‘‘Transferor’’)

must specify the securities positions to

be transferred that are traded on the

Exchange or at another securities

exchange (‘‘Transfer Positions’’). In

offering Transfer Positions to the floor,

the Transferor must offer a set of

options or other financial products

being offered by the Transferor as a

package (‘‘Transfer Package’’), to be bid

upon at a net debit or credit for the

entire Transfer Package. A single

Transfer Package must include no more

than one option issue listed on the

Exchange, but may also include stock or

other securities. A Transferor may offer

multiple Transfer Packages on the floor

at the same time or on the same day.

These offers must be made in a form

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices 67607

4The rule is based, in part, on the Chicago Board

Options Exchange Rule 6.49A.

and manner prescribed by the

Exchange.

(F) Acceptance of the best bid or offer

(‘‘BBO’’) creates a binding contract

under Rule 6.77. The Transferor is not

obligated to accept the BBO. If the

Transferor does not accept the BBO, the

Transferor may request an exemption

pursuant to paragraph (f) of this Rule,

or may offer the Transfer Package(s) (or

the Transfer Positions in any other

allowable combination) on the floor the

next day pursuant to the procedures in

this Rule. If the Transferor decides not

to accept a BBO on a second day, the

Transferor must request permission of

two Floor Officials to offer the Transfer

Positions on any subsequent day(s). 

(G) The ‘‘Request Response Time’’ for

a ‘‘Request for Quotes’’ for Transfer

Packages is two hours. The transferor

may apply to two Floor Officials to have

a Request Response Time for a transfer

procedure that is less than two hours,

where the Transfer Package is not

complicated, or that is greater than two

hours, where the complexity of the

particular Transfer Package warrants

the additional time.

(H) A Request for Quotes that is to be

submitted later than 11:00 a.m. Pacific

Time must have the approval of two

Floor Officials. In no event may a

Request for Quotes be submitted to the

floor later than 12:30 p.m. Pacific Time.

(I) The Transferor may accept a bid or

offer for one or more of the Transfer

Packages he/she has offered on the

floor, if the accepted bid or offer for the

combination of the Transfer Packages is

equal to or better than the total of the

individual BBOs for the particular

Transfer Package combination and

equal to or greater than any bid or offer

for the same combination of Transfer

Packages.

(J) All transactions (including stock

positions or other positions that must be

transacted on another exchange)

required to be completed in order to

effectuate the transfer of the Transfer

Package must be completed in time for

the option portion to be transacted by

the end of the trading day.

(K) If equal bids or offers are received

for a Transfer Package at a price

accepted by the Transferor, the Transfer

Package will be divided equally among

all members submitting the bids or

offers to the extent possible unless the

parties submitting the bids or offers

agree to a division in another manner.

Two Floor Officials will resolve Transfer

Package division disputes.

(f) Exemptions. The Exchange’s Chief

Executive Officer or designee thereof

may grant an exemption from the

requirements of subsection (e), upon

that person’s own motion or upon

application of a Transferor, when, in the

judgment of the Chief Executive Officer

or designee, the market value of the

Transferor’s business will be

compromised by having to comply with

subsection (e) or when, in the judgment

of the Chief Executive Officer or

designee market conditions make

position transfer offers on the floor

impractical. The Chief Executive Officer

or designee will consider effects on open

interest and other factors deemed

necessary to ensure fair and orderly

market conditions.

Commentary:

.01 No change.

.02 Acquisitions and dissolutions

which all or substantially all of the

assets of one member or member

organization are required by another or,

where there remains no continuity of

ownership or management are examples

of situations that normally would be

required to be subjected to the transfer

process set forth in subsections (e) and

(f). This list is not meant to be

exhaustive, however, and there may be

other situations in which there is a

discontinuation of ownership or

management of the positions that may

require that the positions be brought to

the floor for transfer. Questions on

whether a transfer should be brought to

the floor may be directed to the

Exchange’s Options Surveillance

Department.

.03 To the extent applicable, all other

Exchange rules, including Rule 6.49,

Solicited Transactions, will apply to the

transfer procedure set forth in

subsections (d) through (f). The

following Rules do not apply to transfer

procedures: 6.71 (Meaning of Premium

Bids and Offers); 6.74 (Bids and Offers

in Relation to Units of Trading); 6.75

(Priority of Bids and Offers); 6.76

(Priority of Split Price Transactions);

6.47 (‘‘Crossing’’ Orders and Stock/

Option Orders); and 7.9 (Meaning of

Premium Bids and Offers, Index

Options).

.04 The procedure established by

subsections (d) through (f) may also be

used by Market Makers who, for reasons

other than a forced liquidation, such as

an extended vacation, wish to liquidate

their entire, or nearly their entire

position in a single set of transactions.

However, this procedure is not to be

used repeatedly or routinely in

circumvention of the normal auction

market process.

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

PCX 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 PCX has prepared

summaries, set forth in Sections A, B,

and C below, of the most significant

aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to establish which position

transfers may occur off the floor and

which position transfers must be offered

to the floor.4 All transfers require a

written request to the Exchange. To

initiate transfers, the member submits a

written request to the Financial and

Operational Compliance Department

(‘‘FOCD’’).

(1) Transfer of Positions off the Floor.

Transfers involving the following will

be approved by the FOCD:

(A) Joint account dissolution with

remaining member assuming the

positions;

(B) Business dissolution with a former

nominee assuming the positions;

(C) Positions transferred as capital

contribution to a new joint account,

partnership, or corporation;

(D) Donation of positions to a not-forprofit corporation;

(E) Transfer to a minor under the

Uniform Gifts to Minors Act;

(F) Merger or acquisition with

continuity of ownership or

management; or

(G) Accounts consolidation within a

member organization.

Transfers that fall under one or more

of these seven categories ((A) through

(G)) that submit the proper request

information qualify for transfer off the

Floor. However, the transferor may elect

to present to the floor.

(2) Transfer of Positions Offered on

the Floor. Transfers not involving one of

the above seven categories ((1)(A)

through (G)) will be sent to the Options

Surveillance Department (OSD’’) by the

FOCD for assistance in offering the

transfer to the floor. When a transfer is

offered to the floor, the procedure

detailed in proposed subsection (e)

applies. Specifically, a member or

member organization seeking to transfer

positions on the floor (‘‘Transferor’’)

must specify the securities positions to

be transferred that are traded on the

Exchange or at another securities

67608 Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices

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

6 15 U.S.C. 78f(b)(5).

exchange (‘‘Transfer Positions’’). In

offering Transfer Positions to the floor,

the Transferor must offer a set of options

or other financial products being offered

by the Transferor as a package

(‘‘Transfer Package’’), to be bid upon at

a net debit or credit for the entire

Transfer Package. A single Transfer

Package must include no more than one

option issue listed on the Exchange, but

may also include stock or other

securities. A Transferor may offer

multiple Transfer Packages on the floor

at the same time or on the same day.

These offers must be made in a form and

manner prescribed by the Exchange.

A Transfer Package consisting solely

of positions in one option issues and no

other securities will be offered by the

Transferor at the post at which that

option issue is traded (‘‘Post-Specific

Transfer Packages’’). Post-Specific

Transfer Package must be individually

priced and reported. Post-Specific

Transfer Packages are subject to the

ordinary procedures for trading options,

and not those set forth in proposed

subsection (e), unless a bid or offer is

made for a combination of Transfer

Packages pursuant to proposed

subsection (e)(1)(I).

A Transfer Package consisting of

positions in an option issue and other

financial instruments must be offered at

the FLEX Post. In addition, notice must

be given to the order book official

(‘‘OBO’’) of each post (or the lead

market maker for the particular issue, as

appropriate) where a component of the

Transfer Package trades. The OBO will

announce the pending transfer of

positions prior to the offer being made

at the FLEX post.

A member submitting a Transfer

Package must designate a member of the

Exchange (‘‘Transferor Designeer’’) to

represent the order on the floor. The

Transferor Designee must be available to

answer questions regarding the Transfer

Package during the entire Request

Response Time (as defined in proposed

subsection (e)(1)(G)).

To the extent applicable and as

modified by proposed subsection (e),

Transfer Packages offered at the FLEX

post will be subject to the procedures

set forth in PCX Rule 8.103 (FLEX

Trading Procedures and Principles)

paragraphs (a) through (c).

Acceptance of the best bid or offer

(‘‘BBO’’) creates a binding contract

under PCX Rule 6.77. The Transferor is

not obligated to accept the BBO. If the

Transferor does not accept the BBO, the

Transferor may request an exemption

pursuant to proposed subsection (f), or

may offer the Transfer Package(s) (or the

Transfer Positions in any other

allowable combination) on the floor the

next day pursuant to the procedures in

proposed subsection (d). If the

Transferor decides not to accept a BBO

on a second day, the Transferor must

request permission of two Floor

Officials to offer the Transfer Positions

on any subsequent day(s).

The ‘‘Request Response Time’’ for a

‘‘Request for Quotes’’ for Transfer

Packages is two hours. The Transferor

may apply to two Floor Officials to have

a Request Response Time for a transfer

procedure that is less than two hours,

where the Transfer Package is not

complicated, or that is greater than two

hours, where the complexity of the

particular Transfer Package warrants the

additional time.

A Request for Quotes that is to be

submitted later than 11:00 a.m. Pacific

Time must have the approval of two

Floor Officials. In no event may a

Request for Quotes be submitted to the

floor later than 12:30 p.m. Pacific Time.

The Transferor may accept a bid or

offer for one or more of the Transfer

Packages he/she has offered on the floor,

if the accepted bid or offer for the

combination of the Transfer Package is

equal to or better than the total of the

individual BBOs for the particular

Transfer Package combination and equal

to or greater than any bid or offer for the

same combination of Transfer Packages.

All transactions (including stock

positions or other positions that must be

transacted on another exchange)

required to be completed in order to

effectuate the transfer of the Transfer

Package must be completed in time for

the option portion to be transacted by

the end of the trading day.

If equal bids or offers are received for

a Transfer Package at a price accepted

by the Transferor, the Transfer Package

will be divided equally among all

members submitting the bids or offers to

the extent possible unless the parties

submitting the bids or offers agree to a

division in another manner. Two Floor

Officials will resolve Transfer Package

division disputes.

The Exchange’s Chief Executive

Officer or designee thereof may grant an

exemption from the requirement of

proposed subsection (e), upon that

person’s own motion or upon

application of a Transferor, when, in the

judgment of the Chief Executive Officer

or designee, the market value of the

Transferor’s business will compromised

by having to comply with proposed

subsection (e) or when, in the judgment

of the Chief Executive Officer or

Designee market conditions make

position transfer offers on the floor

impractical. The Chief Executive Officer

or designee will consider effects on

open interest and other factors deemed

necessary to ensure fair and orderly

market conditions.

2. Basis

The Exchange believes that the

proposed rule change, as amended, is

consistent with Section 6(b) of the Act,5

in general, and furthers the objectives of

Section 6(b)(5),6 in particular, because it

is designed to promote just and

equitable principles of trade, to enhance

competition and to protect investors and

the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change, as amended,

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 PCX consents, the

Commission will:

(A) By order approve the proposed

rule change, as amended, or

(B) Institute proceedings to determine

whether the proposed rule change, as

amended, should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change, as amended,

Federal Register / Vol. 66, No. 250 / Monday, December 31, 2001 / Notices 67609

7 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. 43692 (Dec.

8, 2000), 65 FR 78240.

4See Form 19b–4 dated May 14, 2001

(‘‘Amendment No. 1’’).

5Securities Exchange Act Release No. 44533 (July

10, 2001), 66 FR 37083.

6See letter from Diana Tenenbaum, Phlx, to

Nancy J. Sanow, Senior Special Counsel [sic],

Division of Market Regulation, SEC, dated June 21,

2001 (‘‘Amendment No. 2’’). In Amendment No. 2,

the Exchange corrected a citation to SEC ‘‘Rule

11Ac1–1’’ on page 22 of the amended Form 19b–

4, deleted a reference to subsection ‘‘(ii)’’ on page

25 of the amended Form 19b–4, and changed all

references to ‘‘issue’’ and ‘‘issues’’ in the proposed

Rule 516 to read ‘‘security’’ and ‘‘securities,’’

respectively.

7See letters to Jonathan G. Katz, Secretary, SEC,

from Michael T. Dorsey, Senior Vice President and

General Counsel, Knight Trading Group, Inc., dated

December 19, 2000 (‘‘Knight Letter’’); William W.

Uchimoto, Executive Vice President and General

Counsel, Ashton Technology Group, Inc., dated

February 23, 2001 (‘‘Ashton Letter’’); and Edith

Hallahan, Deputy General Counsel, Phlx, dated

April 2, 2001 (‘‘Phlx Letter’’).

8 15 U.S.C. 781(f).

9The Commission notes that the Phlx began

trading Nasdaq/NM Securities pursuant to the Pilot

in February 1993. See Securities Exchange Act

Release No. 31672 (Dec. 30, 1992), 58 FR 3054 (Jan.

7, 1993). The effectiveness of the Pilot was

extended four times before the Phlx decided to

cease trading such securities pending

reorganization of its OTC/UTP Pilot Program as a

whole. See Securities Exchange Act Release No.

36087 (Aug. 10, 1995), 60 FR 42637, 42638 (Aug.

16, 1995). The Phlx OTC/UTP Pilot Program

expired on February 12, 1996. Id.

10See note 7 supra.

11 15 U.S.C. 781(f)(1)(E)(i).

12 17 CFR 240.11Ac1–1.

13NASD Rule 4613(e).

14NASD Rule 4613(b)(2).

15The OTC/UTP Plan refers to the Joint SelfRegulatory Organization Plan Governing the

Collection, Consolidation, and Dissemination of

Quotation and Transaction Information for NasdaqListed Securities Traded on Exchanges on an

Unlisted Trading Privileges Basis. The participants

of the OTC/UTP Plan are the American Stock

Exchange LLC, the Chicago Stock Exchange, Inc.,

the Cincinnati Stock Exchange, Inc., the National

Association of Securities Dealers, Inc., the Pacific

Exchange, Inc., and the Philadelphia Stock

Exchange, Inc.

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 PCX. All

submissions should refer to File No.

SR–PCX–2001–33 and should be

submitted by January 22, 2002.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–32083 Filed 12–28–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–45182; File No. SR–PHLX–

2000–20]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Approving Proposed Rule

Change and Amendment Nos. 1 and 2

Thereto Relating to the Trading of

Nasdaq Securities on the Floor of the

Exchange

December 20, 2001.

I. Introduction

On November 16, 2000, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) submitted to the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’), pursuant to

section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’),1 and rule

19b–4 thereunder,2 a proposed rule

change regarding the trading of Nasdaq

securities on the floor of the Exchange,

pursuant to unlisted trading privileges

(‘‘UTP’’). Notice of the proposed rule

change was published in the Federal

Register on December 14, 2000.3 On

May 14, 2001, the Exchange submitted

Amendment No. 1 to the proposed rule

change.4 Amendment No. 1 was

published in the Federal Register on

July 16, 2001.5 On June 22, 2001, the

Exchange submitted Amendment No. 2

to the proposed rule change.6 The

Commission received two comment

letters on the proposed rule change and

a response from Phlx.7 This order

approves the proposed rule change, as

amended.

II. Description of the Proposal

The Phlx proposes to reinstate trading

in certain over-the-counter (‘‘OTC’’)

securities, i.e., Nasdaq National Market

Securities (‘‘Nasdaq/NM Securities’’), on

the floor of the Exchange, pursuant to

UTP under section 12(f) of the Act.8

Therefore, Phlx seeks reinstatement of

the pilot program and accompanying

rules to permit the trading of Nasdaq/

NM Securities on the Exchange

pursuant to UTP (‘‘Phlx OTC/UTP Pilot

Program’’ or ‘‘Pilot’’).9 Generally, the

Exchange proposes to make only minor

changes to the Phlx rules that

specifically govern trading of Nasdaq/

NM Securities, such as to revise the

term ‘‘Nasdaq/NM Securities.’’ The Phlx

has, however, proposed a new

allocation procedure for Nasdaq/NM

Securities. The Phlx has proposed to

reinstate its Pilot to trade Nasdaq/NM

Securities on a six-month pilot basis.

III. Summary of Comments

The Commission received two

comments on the proposed rule change

and a response from Phlx.10 One

commenter, Knight, opposed the

proposal. In its letter, Knight argued that

the proposal should not be approved

because: (1) Phlx has failed to

demonstrate how permitting Phlx

specialists to trade certain Nasdaq/NM

Securities pursuant to the Pilot will

maintain fair and orderly markets (as

required by section 12(f)(1)(E)(i) of the

Act 11) (of particular concern to Knight

is the fact that members of regional UTP

exchanges will be held to the less

stringent rules of regional exchanges

than NASD market maker members); (2)

members of regional UTP exchanges

trading Nasdaq/NM Securities currently

act in a manner inconsistent with the

SEC Rule 11Ac1–1 12 (the ‘‘Firm Quote

Rule’’), by failing to execute transactions

at prices that were displayed in the

Nasdaq Montage; and (3) members of

regional UTP exchanges trading Nasdaq/

NM Securities currently act in a manner

inconsistent with NASD’s Locked/

Crossed Market Rule 13 and Trade-orMove Rule.14

The Phlx responded to the Knight

Letter. In its response letter, the Phlx

countered each of Knight’s arguments

by contending that: (1) The SEC has

already determined that permitting

regional exchanges and their specialists

and dealers to trade Nasdaq/NM

Securities pursuant to the OTC/UTP

Plan 15 is consistent with fair and

orderly markets; (2) the Knight Letter

offers no evidence that members of

regional UTP exchanges routinely

violate the Firm Quote Rule; and (3)

even through regional exchange

specialists are not bound by the NASD’s

Locked/Crossed Market and Trade-orMove Rules, regional specialists on a

voluntary basis routinely comply with

Trade-or-Move messages received by

them pre-opening. Moreover, the Phlx

noted that it does not intend to trade or

quote during the pre-opening session.

The other commenter, Ashton,

supported the proposal. Ashton operates

the eVWAP trading system (‘‘eVWAP’’)

as a facility of the Phlx through its

Universal Trading Technologies

Corporation subsidiary. eVWAP is a preopening order matching session for the

electronic execution of large-sized stock

orders at a standardized volume

weighted average price. Ashton noted

that the Phlx soon will be filing

amendments to Phlx Rule 237 (The

eVWAP Morning Session) to expand

eligibility of certain Nasdaq/NM