Document ID: SEC-2007-0041-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2007-01-11T05:00Z

[Federal Register: January 11, 2007 (Volume 72, Number 7)]
[Notices]               
[Page 1361-1363]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ja07-76]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55044; File No. SR-Phlx-2006-92]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Use of Benchmark and Qualified Contingent Trades in 
Nasdaq Securities Before the Trading Phase Date of Regulation NMS

January 5, 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 December 28, 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 and 
II, below, which Items have been substantially prepared by the Phlx. 
The Exchange filed the proposal as a ``non-controversial'' rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ which rendered 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 185A to add two paragraphs 
reflecting that Phlx will accept Immediate-or-Cancel (``IOC'') Cross 
Orders marked as Benchmark and IOC Cross Orders marked as Qualified 
Contingent Trade, both for Nasdaq Global Market Securities and Nasdaq 
Capital Market Securities (``Nasdaq Securities'') before Rule 611 of 
Regulation NMS is operative on the Exchange (the ``Trading Phase 
Date'').\5\ In addition, the modified rule clarifies the requirements 
for IOC Cross Orders marked as Benchmark and IOC Cross Orders marked as 
Qualified Contingent Trade for Nasdaq Securities before the Trading 
Phase Date. In addition, the title of Phlx Rule 185A is amended to 
reflect the subject matter of the rule. Finally, the paragraphs of the 
rule are being individually identified. 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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    \5\ The Trading Phase Date is currently February 5, 2007. See 
Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 
30038 (May 24, 2006).
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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.

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 clarify the 
requirements for IOC Cross Orders marked Benchmark or Qualified 
Contingent Trade in Nasdaq Securities on XLE before the Trading Phase 
Date. Currently, Phlx Rule 185(c)(3) states ``[a]n IOC Cross Order may 
be marked Benchmark if it meets the requirements of Reg NMS Rule 
611(b)(7). An IOC Cross Order may be marked Qualified Contingent Trade 
if it meets the requirements of an exemption to Reg NMS Rule 611.'' 
Also, Phlx Rule 185(c)(2)(D) states that IOC Cross Orders marked 
Benchmark or Qualified Contingent Trade are permitted to trade through 
the price of the Protected NBBO.\6\ In addition, IOC Cross Orders 
marked Benchmark may be entered \7\ and executed \8\ in sub-penny 
increments.\9\ However, the reference to ``Reg NMS Rule 611'' in Phlx 
Rule 185(c)(3) may be unclear in light of the fact that Rule 611 of 
Regulation NMS is effective, but not operative until the Trading Phase 
Date. Phlx also notes that the use of these orders in Nasdaq Securities 
does not require any relief from any National Market System Plans 
because there is no intermarket trade through prohibition in Nasdaq 
Securities before the Trading Phase Date.
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    \6\ See Phlx Rule 185(c)(2)(D). See also Phlx Rule 1(dd) 
(defining ``Protected NBBO'' as the best Protected Bid and the best 
Protected Offer in a stock).
    \7\ See Phlx Rule 125(b)(2).
    \8\ See Phlx Rule 125(d)(3).
    \9\ See Securities Exchange Act Release No. 54678 (October 31, 
2006), 71 FR 65018 (November 6, 2006).
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    Pursuant to this filing, a XLE Participant could submit an IOC 
Cross Order marked Benchmark in Nasdaq Securities if it is an order: 
(1) At a price that was not based, directly or indirectly, on the 
quoted price of the NMS Stock at the time of the execution; and (2) for 
which the material terms were not reasonably determinable at the time 
the commitment to execute the order was made. This definition is 
identical to the exemption to the trade through rule in Rule 611(b)(7) 
of Regulation NMS, which is not effective until the Trading Phase Date. 
Phlx believes that this will allow XLE Participants to gain valuable 
experience with this order type in Nasdaq Securities prior to the 
Trading Phase Date.
    In addition, a XLE Participant could submit an IOC Cross Order 
marked Qualified Contingent Trade in Nasdaq Securities if it meets the 
seven requirements listed in new Phlx Rule 185A(d).\10\ These 
requirements are

[[Page 1362]]

meant to encompass a trade in Nasdaq Securities that ``is a multi-
component trade involving orders for a security and a related 
derivative, or, in the alternative, orders for related securities, that 
are executed at or near the same time.'' \11\ The Exchange notes that 
the economics of a Qualified Contingent Trade are based on the 
relationship between the prices of the security and the related 
derivative or security, and that the execution of one order is 
contingent upon the execution of the other order. The Exchange also 
notes that the sought-after spread or ratio between the relevant 
instruments is known and specified at the time of the order, and this 
spread or ratio stands regardless of the prevailing price at the time 
of execution. Therefore, the parties to these transactions are focused 
on the spread or ratio between the transaction prices for each of the 
component instruments, rather than on the absolute price of any single 
component instrument. Because the focus of such trades is on the 
relative prices of the component instruments, the price of a component 
of a particular trade may or may not correspond to the prevailing 
market price of the security. For Qualified Contingent Trades in Nasdaq 
Securities, the parties to the trade will not execute one side of the 
trade without the other component or components being executed in full 
(or in ratio) and at the specified spread or ratio.\12\
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    \10\ These seven requirements are taken from the exemption to 
Rule 611 issued by the Commission for Qualified Contingent Trades. 
See Securities Exchange Act Release No. 54389 (August 31, 2006), 71 
FR 52829 (September 7, 2006).
    \11\ Id.
    \12\ See id.
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    Finally, Phlx Rule 185A is being divided into individually 
identified subparagraphs to make the Rule clearer. In addition, the 
name of the rule is being modified to reflect that the rule would refer 
to more than only intermarket sweep orders.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act \13\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act \14\ 
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 allowing XLE 
Participants to gain experience with Benchmark and Qualified Contingent 
Trade order types for Nasdaq Securities prior to the Trading Phase 
Date.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 either solicited or received by the 
Exchange.

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

    Because the foregoing rule (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, provided that the 
Exchange has given the Commission written notice of its intent to file 
the proposed rule change at least five business days prior to the date 
of filing of the proposed rule change or such shorter time as 
designated by the Commission, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\ As required under Rule 19b-4(f)(6)(iii) under 
the Act,\17\ Phlx provided the Commission with written notice of its 
intent to file the proposed rule change, along with a brief description 
and text of the proposed rule change, prior to the date of the filing 
of the proposed rule change.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6)
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) under the Act 
\18\ normally may not become operative prior to 30 days after the date 
of filing. However, Rule 19b-4(f)(6)(iii) under the Act \19\ permits 
the Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay, 
which would make the rule change effective and operative upon filing. 
The Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change clarifies the requirements of an IOC 
Cross Order marked Benchmark in Nasdaq Securities and an IOC Cross 
Order marked Qualified Contingent Trade in Nasdaq Securities for the 
period before the Trading Phase Date. The Commission believes that the 
earlier operative date is consistent with the protection of investors 
and the public interest because there is no intermarket trade-through 
prohibition applicable to Nasdaq Securities before the Trading Phase 
Date. Accordingly, the Commission designates the proposal to be 
effective and operative upon filing with the Commission.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 19 17 CFR 240.19b-4(f)(6)(iii).
    \20\ 20 For the purposes only of accelerating the operative date 
of this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    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.\21\
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    \21\ See 15 U.S.C. 78s(b)(3)(C).
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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-2006-92 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-2006-92. 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

[[Page 1363]]

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-2006-92 and should be submitted on or before February 1, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-235 Filed 1-10-07; 8:45 am]

BILLING CODE 8011-01-P