Document ID: SEC-2006-0133-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: PhiladelphiaStock Exchange, Inc.
Posted Date: 2006-02-06T05:00Z

[Federal Register: February 6, 2006 (Volume 71, Number 24)]
[Notices]               
[Page 6122-6123]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe06-96]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53188; File No. SR-Phlx-2005-70]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to the Deletion of 
Phlx Rule 454, ``Limitations on Members'' Trading Because of Options, 
etc.''

January 30, 2006.
    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 November 9, 2005, 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 Phlx. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to delete Phlx Rule 454, ``Limitations on 
Members'' Trading Because of Options, etc.'' The text of Phlx Rule 454 
is set forth below, with [brackets] indicating its proposed deletion.
[Rule 454. Limitations on Members' Trading Because of Options, etc.
    No member, while on the floor, shall initiate the purchase or sale 
on the Exchange for his own account or for any account in which he, or 
the organization of which he is a partner or officer, or any partner or 
officer of such organization, is directly or indirectly interested, of 
any security in which he holds or has granted any put, call, straddle 
or option, or in which he has knowledge that the organization of which 
he is a partner or officer, or any partner or officer of such 
organization holds or has granted any put, call, straddle or option, 
unless such put, call, straddle or option position is in an exchange-
traded option issued by the Options Clearing Corporation and is 
immediately reported to the Exchange.
* * * Supplementary Material: * * *
    .01 A member who issues a commitment to trade from the Exchange 
through ITS or any other Application of the System shall, as a 
consequence thereof, be deemed to be initiating a purchase or a sale of 
a security on the Exchange as referred to in this Rule.]
* * * * *

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
    Phlx Rule 454 prohibits a member on the floor from initiating the 
purchase or sale of stock on the Exchange for his own or a related 
account if he or a related account holds or has granted an option on 
it. According to a 1976 Commission approval order, Phlx Rule 454 was 
originally adopted at the urging of the Commission in 1935 for the 
purpose of deterring options-related manipulation of underlying stocks 
by specialists, odd-lot dealers, and floor traders.\3\ The rule change 
approved by this 1976 approval order carved out Options Clearing 
Corporation (``OCC'')-issued options from the coverage of the rule. The 
approval order stated that because the Phlx's share of the total market 
volume in securities for which options trading would be permitted by 
the proposed rule change averaged less than 1.7 percent, the 
manipulative potential inherent in changing the restrictions appeared 
insignificant.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 13016 (November 29, 
1976), 41 FR 53383 (December 6, 1976) (order approving File No. SR-
Phlx-76-15).
    \4\ Id.
---------------------------------------------------------------------------

    The Exchange is now proposing to delete Phlx Rule 454 in its 
entirety because the Phlx believes that the likelihood that any 
options-related manipulation of an underlying stock could occur through 
an equities trade initiated on the Phlx floor is extremely remote. The 
Exchange believes that the costs of manipulating the price of a 
security to produce a gain in a pre-established options position would 
outweigh the benefits due to the capital that would be required to 
manipulate the price of a security in the National Market System today. 
The Exchange notes that it is required to take into account the 
consolidated national best bid and offer quotations of the National 
Market System. As such, any attempt to manipulate the price of a 
security would involve moving the price not only on the Phlx but on 
other exchanges as well. The Phlx believes that even in less liquid 
securities this seems unlikely, and there are other rules and 
mechanisms to capture such activity. As with the 1976 proposed rule 
change, the Phlx believes that the manipulative potential inherent in 
eliminating Phlx Rule 454's restrictions appears insignificant. The 
Exchange notes that it has found no comparable rule for Nasdaq market 
makers, who can have over-the-counter or ``OTC'' (non-OCC-issued, non-
exchange traded) options on either Nasdaq or listed stocks. 
Furthermore, Phlx Rule 454 does not in any event prohibit the Phlx 
member from buying stock first, prior to obtaining an OTC option on it. 
Thus, the Exchange believes that the rule is of little real usefulness 
and therefore unnecessarily restricts its floor members from engaging 
in productive business on the floor of the Exchange.\5\
---------------------------------------------------------------------------

    \5\ Note that Phlx Rule 213, ``Puts and Calls,'' will continue 
to apply to Phlx specialists. Phlx Rule 213 provides that ``[n]o 
specialist, no organization of which he is a partner or officer and 
no partner or officer of such organization shall acquire, hold or 
grant, directly or indirectly, any interest in any put, call, 
straddle, or option in any security in which such specialist is 
registered by the Exchange, unless such put, call, straddle or 
option position is in any exchange-traded option issued by the 
Options Clearing Corporation and is immediately reported to the 
Exchange.''
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\6\ in general, and furthers the objectives of section 
6(b)(5) of the Act,\7\ in particular, in that it eliminates an outdated 
prohibition which imposes an unnecessary burden on floor members and 
serves no real useful purpose. The Phlx believes that lifting the 
prohibition should result in enhanced market depth and liquidity, which 
should benefit investors.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 6123]]

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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 Phlx 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. 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 rule-comments@sec.gov. Please include 

File Number SR-Phlx-2005-70 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR--Phlx-2005-70. 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 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-2005-70 and should be submitted on or before 
February 27, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-1538 Filed 2-3-06; 8:45 am]

BILLING CODE 8010-01-P