[Federal Register: April 28, 2003 (Volume 68, Number 81)]
[Notices]
[Page 22447-22449]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap03-125]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47714; File No. SR-Phlx-2003-25]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange,
Inc. Relating to Automatic Price Improvement for Buy Orders in
Securities Exempt for the Short Sale Rule
April 22, 2003.
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 April 3, 2003, 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 Phlx. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Supplementary Material .07 to Phlx
rule 229 to modify the Exchange's Automatic Price Improvement (``API'')
program to allow specialists to choose to improve buy orders in
securities that are exempted from or otherwise not subject to rule 10a-
1 under the Act \3\ (the ``Short Sale rule'').
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\3\ 17 CFR 240.10a-1.
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[[Page 22448]]
The text of the proposed rule change is set forth below. Additions
are in italics. Deletions are in brackets.
Rule 229. Philadelphia Stock Exchange Automated Communication and
Execution System (PACE)
* * * * *
Supplementary Material
* * * * *
.01-.06 No Change
.07 (a)-(b) No Change
(c) Price Improvement for PACE Orders
(i) Automatic Price Improvement--Where the specialist voluntarily
agrees to provide automatic price improvement to all customers and all
eligible market orders in a security, automatically executable market
and marketable limit orders in New York Stock Exchange and American
Stock Exchange listed securities received through PACE for 599 shares
or less shall be provided with automatic price improvement from the
PACE Quote when received either $.01 or a percentage of the PACE Quote
when the order is received for equities trading in decimals beginning
at 9:30 a.m., except where:
(A) A buy order would be improved to a price less than the last
sale (except as provided in (F) below) or a sell order would be
improved to a price higher than the last sale (except as provided in
(E) below); or
(B) A buy order would be improved to the last sale price which is a
downtick (except as provided in (F) below) or a sell order would be
improved to the last sale price which is an uptick (except as provided
in (E) below). The PACE System will determine whether the last sale
price is a downtick or an uptick. The [Pace] PACE System does not
recognize changes from the previous day's close.
In these situations, the order is not eligible for automatic price
improvement, and is, instead, automatically executed at the PACE Quote.
A specialist may voluntarily agree to provide automatic price
improvement to larger orders in a particular security to all customers
under this provision.
A specialist may choose to provide automatic price improvement of:
(i) $.01 where the PACE Quote is either $.05 or greater, or $.03 or
greater, or (ii) where the PACE Quote is $.02 or greater, a percentage
of the PACE Quote when the order is received, up to 50%, rounded to the
nearest penny, and at least $.01, in a particular security to all
customers.
(C) Automatic price improvement will not occur for odd-lot orders,
nor where the execution price before or after the application of
automatic price improvement would be outside the primary market high/
low range for the day, if so elected by the entering member
organization.
(D) The POES window of Supplementary Material .05 above does not
apply where an order is subject to automatic price improvement or
manual price protection.
(E) Sell Order Enhancement I--A specialist may choose to give
automatic price improvement to all sell orders of 100 shares or more,
as determined by the specialist, in a particular security which would
be improved to the last sale on an uptick; or
Sell Order Enhancement II--A specialist may choose to give
automatic price improvement to all sell orders of 100 shares or more,
as determined by the specialist, in a particular security which would
be improved to a price higher than the last sale.
(F) Buy Order Enhancement--A specialist may choose to give
automatic price improvement to all buy orders, as determined by the
specialist, in any security that is exempted from or otherwise not
subject to Securities Exchange Act rule 10a-1.
.08-.22 No Change.
* * * * *
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 Exchange 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 expand the number of
orders eligible to receive price improvement by allowing Exchange
equity specialists to offer API to all buy orders in securities that
are exempted from or otherwise not subject to the Short Sale rule.\4\
The Exchange's API program allows specialists to provide automatic
price improvement to automatically executable market and marketable
limit orders in New York Stock Exchange, Inc. and American Stock
Exchange LLC listed securities received through Phlx's Automated
Communication and Execution System (``PACE'') \5\ for 599 shares or
less of either $.01 or a percentage of the PACE Quote when the order is
received.\6\ Specialists may choose to offer API in each individual
specialty security. If API is offered in an individual security, then
it must offer it to all customers and all eligible market orders in
that security.
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\4\ The Exchange also proposes to correct a typographical error
in the presentation of the word ``PACE'' in Supplementary Material
.07(c)(i)(B) to Phlx rule 229.
\5\ PACE is the Exchange's automated order routing, delivery,
execution and reporting system for listed securities. See Phlx rule
229.
\6\ See Supplementary Material .07 to Phlx rule 229.
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Currently, API is not available to certain buy orders if the
execution price of those buy orders would be less than the last sale or
at the last sale, provided such execution would create a downtick.\7\
The purpose of these restrictions is to prevent the possibility of a
violation of the Short Sale rule on the part of a specialist selling
against the buy order. In securities that are exempted from or
otherwise not subject to the Short Sale rule (such as many of the Index
Fund Shares, Trust Shares and Trust Issued Receipts that are traded or
may be traded on the Phlx),\8\ the Exchange believes that there is no
possibility of a violation of the Short Sale rule by the specialist
when selling to buy orders in these securities.\9\ By allowing API for
buy orders in these securities, the Exchange believes that customers
should receive more opportunities for price improvement. While
specialists in such securities may choose to give price improvement to
all such buy orders under this proposal, this is a voluntary additional
feature of API. The Exchange states that participation in the API
program will remain voluntary, as is participation in PACE.\10\
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\7\ See Supplementary Material .07(c)(i)(A) to Phlx rule 229.
\8\ See Phlx rule 803(i)-(j), (l).
\9\ The Exchange states that it would issue a regulatory
circular to its members informing them of which securities are
exempt from the Short Sale rule, and thus available for API under
the proposed rule change. Telephone conversation between John
Dayton, Assistant Secretary and Counsel, Phlx, and Christopher
Solgan, Attorney, Division, Commission, on April 16, 2003.
\10\ See Phlx rule 229.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the Act, including section 6(b) of the
[[Page 22449]]
Act,\11\ and furthers the objectives of section 6(b)(5) of the Act,\12\
in particular, in that it is intended 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 to protect
investors and the public interest by expanding the opportunity for
price improvement.
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\11\ 15 U.S.C. 78f.
\12\ 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 inappropriate burden on competition.
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 the 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 will also be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-2003-25 and
should be submitted by May 19, 2003.
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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-10380 Filed 4-25-03; 8:45 am]
BILLING CODE 8010-01-P