Document ID: SEC-2006-0480-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-04-12T04:00Z

[Federal Register: April 12, 2006 (Volume 71, Number 70)]
[Notices]               
[Page 18801-18802]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ap06-131]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53604; File No. SR-Phlx-2006-19]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Orders Marked Sell Short Entered Before the Opening

April 5, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 22, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Phlx. The Phlx has designated the proposed rule change as constituting 
a stated policy, practice, or interpretation with respect to the 
meaning, administration, or enforcement of an existing rule series 
under paragraph (f)(1) of Rule 19b-4 under the Act,\3\ which renders 
the proposal effective upon filing with the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

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

    The Phlx, pursuant to Section 19(b)(1) of the Act \4\ and Rule 19b-
4 thereunder,\5\ proposes to interpret its rules to make certain market 
and limit orders in Short Sale Exempt Securities \6\ received prior the 
opening pursuant to Phlx Rule 229, Supplementary Material .06 and 
.10(a)(iv), eligible for automatic execution, even though such orders 
are marked sell short.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ The Commission's Division of Market Regulation (the 
``Division'') issued two no-action letters (the ``Two No-Action 
Letters'') regarding broker-dealer marking requirements under Rule 
200(g) of Regulation SHO. See Letter from James A. Brigagliano, 
Assistant Director, Securities and Exchange Commission, to Ira 
Hammerman, Senior Vice President and General Counsel, Securities 
Industry Association, dated January 3, 2005 and letter from James A. 
Brigagliano, Assistant Director, Commission, to Ira Hammerman, 
Senior Vice President and General Counsel, Securities Industry 
Association, dated April 15, 2005. As used in this proposed rule 
change, Short Sale Exempt Securities means those securities traded 
on the Phlx and described in one of the Two No-Action Letters.
---------------------------------------------------------------------------

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
    The purpose of the proposed rule change is to treat orders received 
over

[[Page 18802]]

PACE \7\ prior to the opening in a manner consistent with the treatment 
expected by the member organizations entering the orders. Pursuant to 
Phlx Rule 229, Supplementary Material .06 and .10(a)(iv), certain 
market and limit orders received prior to the opening are eligible for 
automatic execution at the opening price of the New York market, 
unless, among other things, those orders are marked sell short.\8\ 
According to the Phlx, the reason for not automatically executing 
orders marked sell short is to prevent a possible violation of the tick 
test in Rule 10a-1 under the Act \9\ if an order marked sell short were 
executed on an impermissible tick. However, in 2005, the Division 
issued Two No-Action Letters, which allowed broker-dealers, such as 
Phlx member organizations, to mark sell short orders in Short Sale 
Exempt Securities that are not subject to any other exemption as ``sell 
short'' instead of ``sell short exempt'' if those orders were sent to 
exchanges which, among other things, ``have instituted procedures to 
`mask' the short sale character of the transaction so they are executed 
as short exempt.'' \10\ The Phlx has implemented such procedures to 
mask the short sale character of transactions in Short Sale Exempt 
Transactions so they are executed as short exempt. The Phlx notes that, 
therefore, in reliance on the Two No-Actions Letters, Phlx member 
organizations can mark such orders ``sell short''.
---------------------------------------------------------------------------

    \7\ PACE is the Exchange's automated order routing, delivery, 
execution and reporting system for equities. See Phlx Rule 229.
    \8\ See Securities Exchange Act Release No. 52495 (September 22, 
2005), 70 FR 56961 (September 29, 2005) (SR-Phlx-2005-14).
    \9\ 17 CFR 240.10a-1.
    \10\ See the Two No-Action Letters.
---------------------------------------------------------------------------

    Accordingly, in accordance with the Division's Two No-Action 
Letters, eligible sell short orders received prior to the opening in 
Short Sale Exempt Securities could now, by law, be automatically 
executed on the Phlx without applying the tick test. However, pursuant 
to Phlx's own rules, Phlx Rule 229, Supplementary Material .06 and 
.10(a)(iv), orders marked ``sell short exempt'' are eligible for 
automatic execution and orders marked ``sell short'' are not.
    The Phlx now proposes to interpret Phlx Rule 229, Supplementary 
Material .06 and .10(a)(iv) to consider orders in Short Sale Exempt 
Securities that are marked sell short as if they were marked sell short 
exempt. The Phlx, therefore, notes that such orders in Short Sale 
Exempt Securities that are marked sell short, if otherwise eligible, 
would execute automatically, pursuant to Phlx Rule 229, Supplementary 
Material .06 and .10(a)(iv). The Phlx believes that this interpretation 
conforms to the intention of member organizations entering orders 
marked sell short in Short Sale Exempt Securities, because, relying on 
the Two No-Action Letters, such member organization would expect such 
order to be treated as if it were, in fact, marked sell short exempt.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ in particular, in that it 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 treating orders entered by member organizations in a 
manner consistent with their expectations.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f)(1) of Rule 19b-4 thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission may summarily abrogate such rule change if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.

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-2006-19 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-2006-19. 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 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-2006-19 and should be submitted on or before May 3, 
2006.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Nancy M. Morris,
Secretary.
[FR Doc. E6-5367 Filed 4-11-06; 8:45 am]

BILLING CODE 8010-01-P