Document ID: SEC-2007-0107-0001
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 3186-3188]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ja07-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55121; File No. SR-Phlx-2006-31]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto, Relating to Limit Orders Submitted by Streaming Quote Traders

January 18, 2007.
    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 May 5, 2006, 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 substantially prepared by the 
Phlx. On December 8, 2006, the Exchange filed Amendment No. 1 to the 
proposed rule change. On January 11, 2007, the Exchange filed Amendment 
No. 2 to the proposed rule change. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend Phlx Rule 1080(b)(i)(B) and Commentary 
.04 thereto to permit Streaming Quote Traders (``SQTs'') \3\ and Remote 
Streaming Quote Traders (``RSQTs'') \4\ to enter Immediate or Cancel 
(``IOC'') \5\ orders for their own account(s) through an electronic 
interface with AUTOM; \6\ to permit non-SQT ROTs \7\ and specialists to 
place proprietary limit orders with a size of 10 contracts or greater 
onto the limit order book; to expand the type of order that non-SQT 
ROTs and specialists may enter to include IOC; and to permit non-SQT 
ROTs and specialists to submit proprietary limit orders with a size of 
less than 10 contracts as IOC only. The Exchange further proposes to 
amend Commentary .02 and .03 of Phlx Rule 1082 to reduce the one-second 
``counting period'' to \1/4\ of one second during which SQTs, RSQTs 
and/or specialists may eliminate the locked or crossed markets caused 
by their electronic quotations.\8\ The text of the proposed rule change 
is available at Phlx, the Commission's Public Reference Room, and 
http://www.phlx.com.

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    \3\ An SQT is a Registered Options Trader (``ROT'') who has 
received permission from the Exchange to generate and submit option 
quotations electronically through AUTOM in eligible options in 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 
Phlx Rule 1014(b)(ii)(A).
    \4\ An 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 Phlx Rule 
1014(b)(ii)(B).
    \5\ An immediate-or-cancel order is an order that is to be 
executed in whole or in part as soon as such order is submitted. Any 
portion not so executed is to be treated as cancelled.
    \6\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. Orders delivered through AUTOM may be 
executed manually, or certain orders are eligible for AUTOM's 
automatic execution features, AUTO-X, Book Sweep and Book Match. 
Equity option and index option specialists are required by the 
Exchange to participate in AUTOM and its features and enhancements. 
Option orders entered by Exchange members into AUTOM are routed to 
the appropriate specialist unit on the Exchange trading floor. AUTOM 
is now commonly referred to as Phlx XL. See Phlx Rule 1080.
    \7\ A ROT is an on-floor options participant of the Exchange who 
has received permission from the Exchange to trade in options for 
his own account in eligible options in which such ROT is assigned. 
See Phlx Rule 1014(b)(i).
    \8\ Any unresolved locked or crossed markets remaining after the 
counting period are automatically executed.
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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.

[[Page 3187]]

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 offer an additional 
mechanism for participants on the Exchange's electronic trading 
platform for options, Phlx XL,\9\ to trade against orders and 
electronic quotations. Currently, only non-SQT ROTs and specialists may 
enter limit orders, and such limit orders may only be submitted with a 
minimum size of 10 contracts as Good-Till-Cancelled, day limit and 
simple cancel orders. Under the proposal, the Exchange would expand 
limit order entry to SQTs and RSQTs, who would be permitted to enter 
IOC orders with no size limitation.
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    \9\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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    The proposal would include limitations on the eligible order type 
and permissible order size, depending on the status of the participant 
submitting the order. Specifically, non-SQT ROTs and specialists would 
be permitted to submit limit orders with a size of 10 contracts or 
greater as Good-Till-Cancelled, day limit, IOC or simple cancel order 
types. Orders for less than 10 contracts submitted by non-SQT ROTs and 
specialists would be required to be submitted as IOC only.\10\
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    \10\ Currently, the IOC order type is not eligible for 
submission by non-SQT ROTs and specialists, and all orders must be 
for a minimum size of 10 contracts. The proposal would permit orders 
with a size of less than 10 contracts, provided that such orders 
must be submitted as IOC only. Orders submitted by non-SQT ROTs and 
specialists with a size of 10 contracts or greater would be eligible 
to be placed on the limit order book.
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    SQTs and RSQTs would be permitted to submit limit orders of any 
size,\11\ provided that all limit orders submitted must be IOC. Thus, 
limit orders submitted by SQTs and RSQTs would not be eligible to rest 
on the limit order book, and would be cancelled if not executed 
immediately. If only a part of such an order is executed immediately, 
the remaining unexecuted contracts in such an order would be cancelled.
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    \11\ Currently, the Exchange permits SQTs to submit electronic 
quotations only. The proposal would permit SQTs to submit IOC limit 
orders in addition to electronic quotations. The quoting obligations 
applicable to SQTs contained in Exchange Rule 1014(b)(ii)(D) would 
be unchanged.
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    Under the proposal, specialists and non-SQT ROTs that submit limit 
orders with a size of less than 10 contracts must submit such orders as 
IOC only. According to the Exchange, this is to ensure that limit 
orders with a size of less than 10 contracts are not placed on the 
limit order book. The Exchange believes that this provision should 
encourage liquidity on the Exchange and limit orders on the limit order 
book that represent the Exchange's best bid or offer and would thus 
result in a disseminated size of at least 10 contracts on the Exchange.
    The purpose of the proposed change to Commentary .02 and .03 of 
Phlx Rule 1082 is to improve the speed by which the Exchange's systems 
can automatically execute locked or crossed quotations against one 
another and eliminate the locked or crossed market situation,\12\ which 
should, in turn, facilitate compliance with firm quote obligations.\13\
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    \12\ Any unresolved locked or crossed markets remaining after 
the counting period are automatically executed.
    \13\ See Phlx Rule 1082.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that the proposal 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 
a national market system, and, in general to protect investors and the 
public interest by increasing the efficiency of options trading on the 
Exchange by allowing on-floor participants to electronically enter an 
additional type of order, which should increase the number of automatic 
executions. The Exchange believes that this new functionality should 
increase order interaction between market participants on the Exchange 
and the electronic limit order book. The Exchange also believes that 
reducing the counting period during which market participants may 
resolve locked and crossed markets should improve market efficiency by 
eliminating locked and crossed markets in a more timely fashion.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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 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

    No written comments were 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-2006-31 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-2006-31. 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

[[Page 3188]]

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-2006-31 and should be submitted on or before February 14, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-977 Filed 1-23-07; 8:45 am]

BILLING CODE 8011-01-P