Document ID: SEC-2007-0108-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2007-01-24T05:00Z

[Federal Register: January 24, 2007 (Volume 72, Number 15)]
[Notices]               
[Page 3185-3186]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ja07-95]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55114; File No. SR-Phlx-2006-81]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to the 
Establishment of a Maximum Number of Quoting Participants Permitted in 
a Particular Option on the Exchange

January 17, 2007.

I. Introduction

    On December 5, 2006, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``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 to amend Phlx Rule 507, which 
governs the assignment of options to Streaming Quote Traders (``SQTs'') 
\3\ and Remote Streaming Quote Traders (``RSQRs''),\4\ by adding 
commentary to the rule establishing a maximum number of quoting 
participants that may be assigned to a particular equity option at any 
one time. The proposed rule change was published for comment in the 
Federal Register on December 18, 2006.\5\ The Commission received no 
comments regarding the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Phlx Rule 1014(b)(ii)(A).
    \4\ See Phlx Rule 1014(b)(ii)(B).
    \5\ See Securities Exchange Act Release No. 54914 (December 11, 
2006), 71 FR 75798.
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II. Description of the Proposal

    The purpose of the proposed rule change is to enable the Exchange 
to manage its quotation traffic and bandwidth capacity by limiting the 
number of streaming quote market participants that may be assigned to a 
particular option at a given point in time. The proposed amendments to 
Phlx Rule 507 would establish: (i) A maximum number of quoters 
(``MNQ'') in equity options based on each option's monthly trading 
volume; (ii) a process for recalculating the MNQ based upon changes in 
an option's monthly trading volume; (iii) an increase to the MNQ due to 
exceptional circumstances; (iv) the process by which the Exchange will 
notify market participants of changes to the MNQ; and (v) additional 
criteria relating to the process by which the Exchange will assign SQT 
and/or RSQT applicants in options in the event that there are more 
applicants for assignment in a particular option than there are 
positions.
    The Exchange proposes to limit the number of participants that may 
be assigned to a particular equity option at any one time based upon 
each option's monthly national volume. Proposed Commentary .02 to Phlx 
Rule 507 sets forth tiered MNQ levels providing for 20 participants for 
the top 5% most actively traded options; 15 participants for next 10% 
most actively traded options, and 10 market participants for all other 
options.\6\ The ranking is based upon the preceding month's national 
volumes. The MNQ would be recalculated within the first five days of 
each month based on the previous month's trading volume (``new MNQ''). 
The Exchange would inform market participants of changes to the MNQ via 
Exchange circular.
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    \6\ The Exchange may increase the MNQ levels by submitting to 
the Commission a rule filing pursuant to Section 19(b)(3)(A) of the 
Act and may decrease the MNQ levels upon Commission approval of a 
rule filing submitted pursuant to 19(b)(2) of the Act. See proposed 
Commentary .05 to Phlx Rule 507.
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    The Exchange's Options Allocation, Evaluation and Securities 
Committee (``OAESC'') \7\ would be able to increase the MNQ in 
exceptional circumstances. Proposed Commentary .04 to Phlx Rule 507 
describes the events that may be considered ``exceptional,'' including 
substantial trading volume (whether actual or expected), a major news 
event, or corporate event. The Exchange would also be permitted to 
reduce the MNQ following the cessation of the exceptional 
circumstances, but would be required to follow the same procedures 
applicable for decreases to the MNQ due to a change in volume.\8\ When 
relying on this provision, the Exchange would submit a rule filing to 
the Commission pursuant to Section 19(b)(3)(A) of the Act.\9\
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    \7\ See Phlx By-Law Article X, Section 10-7. The OAESC has 
jurisdiction over, among other things: The appointment of 
specialists on the options and foreign currency options trading 
floors; allocation, retention and transfer of privileges to deal in 
options on the trading floors; and administration of the 500 series 
of Phlx rules.
    \8\ See proposed Commentary .03 to Phlx Rule 507.
    \9\ 15 U.S.C. 78s(b)(3)(A).
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    The Exchange is also proposing to amend Phlx Rule 507 by adding 
criteria for the OAESC to consider when determining whether to assign 
an option to a member in the situation where there are more applicants 
for assignment in a particular option than there are positions 
available. Specifically, proposed paragraph (b)(iii) of Phlx Rule 507 
would require the OAESC to consider: (i) The financial and technical 
resources available to the applicant; (ii)

[[Page 3186]]

the applicant's experience and expertise in market making or options 
trading; and (iii) the applicant's prior performance as a specialist, 
SQT or RSQT, based on evaluations conducted pursuant to Phlx Rule 510, 
which includes quantified measures of performance.
    Finally, the Exchange represents that members assigned in a 
particular option as of the date of Commission approval of this 
proposed rule change will be guaranteed a position as a quoting 
participant in the particular option.

III. Discussion

    After careful review of the proposal, 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.\10\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \10\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal, to establish 
a maximum number of quoting participants that may be assigned to a 
particular equity option at any one time based on the trading volume of 
that option should enhance the Exchange's ability to manage its 
quotation traffic and bandwidth capacity.
    The Commission further believes that, in the event that there are 
more applicants for assignment in a particular option than there are 
available positions, the financial and technical capacity of SQTs and 
RSQTs, as well as prior performance, are appropriate factors to 
consider and should assist the OAESC in allocating the option on an 
equitable basis to the benefit of the Exchange and the public.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2006-81), be, and 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-957 Filed 1-23-07; 8:45 am]

BILLING CODE 8011-01-P