[Federal Register: August 15, 2003 (Volume 68, Number 158)]
[Notices]
[Page 48978-48980]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au03-131]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48310; File No. SR-Phlx-2002-85]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change, and Amendment No. 1 Thereto, by the Philadelphia Stock
Exchange, Inc. Relating to the Definition of a Wheel Assignment Area
August 8, 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 December 20, 2002, 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 the Exchange. The Phlx
submitted Amendment No. 1 to the proposed rule change on July 28,
2003.\3\ 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.
\3\ Letter from Richard S. Rudolph, Director and Counsel, Phlx,
to Nancy Sanow, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated July 25, 2003 (``Amendment No.
1''). In Amendment No. 1, the Phlx amended the proposed rule change
by clarifying the proposed definition of a ``Wheel Assignment Area''
set forth in paragraph (c)(iii) of OFPA F-24, AUTO-X Contra-Party
Participation (The Wheel). The substance of Amendment No. 1 is
incorporated into the description of the proposed rule change in
Section II.A. below, and the proposed rule text set forth herein
reflects the changes made in Amendment No. 1.
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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 Option Floor Procedure Advice (``OFPA'')
F-24, AUTO-X Contra-Party Participation (The Wheel), to redefine a
``Wheel Assignment Area,'' based on the current configuration of the
Exchange Options Floor. The text of the proposed rule change is set
forth below. Proposed new language is in italics. Proposed deletions
are in brackets.
* * * * *
F-24 AUTO-X Contra-Party Participation (The Wheel)
(a)-(b) No change.
(c) Participation Requirements and Sign-on/off--Specialists on the
Options Floor are required to participate on the Wheel in assigned
issues in accordance with paragraph (e) of this Advice.
(i) An ROT[s] may elect to participate on the Wheel for any or all
[issues] options which such ROT [they] maintains an ROT assignment, as
long as such [those listed] options are located within the Wheel
Assignment Area (as defined below) for the crowd in which such ROT
participates, [within two contiguous quarter turrets of each other] and
the ROT is actively making markets in the specific [issues] options
traded within such Wheel Assignment Area.
(ii) No two associated or dually affiliated ROTs may be on the
Wheel for the same option at the same time. Regardless of [an ROT's]
the total number of options assigned to an ROT [issues], an ROT may
only sign-on the Wheel in one Wheel [a]Assignment [a]Area at any given
time.
(iii) For [the] purposes of this Advice, a Wheel [a]Assignment
[a]Area is [each area on the trading floor constituted by two
contiguous quarter turrets] a location on the trading floor where an
ROT: (1) Is actively making markets by quoting continuous, 2-sided
markets in compliance with Advice B-1 and Rule 1014; (2) can hear and
ascertain the markets that are being made by the specialist and crowd;
(3) is deemed to be quoting the disseminated markets being made by the
specialist in accordance
[[Page 48979]]
with Rule 1080.01(c); and (4) can be heard by the specialist and crowd.
[However, t]The Options Committee may extend the number of options to
be included in a Wheel [a]Assignment [a]Area on a case-by-case basis,
taking into account the activity and trading crowd size in the [those
options] Wheel Assignment Area(s) to be extended [as well as the
intervening posts, if it is determined that the specialist and all
Wheel participants on all Wheels agree that an ROT can be actively
making markets in that particular situation and can thus be considered
presenting such Wheel issues, until either specialist or any such Wheel
participant no longer agree that the circumstances warrant an
extension].
(iv) In order to be placed on the Wheel for an entire trade day,
the respective ROT must sign-on, in person on the trading floor for
that listed option. Although ROTs may sign-on in individual listed
options, a sign-off by an ROT is effective for all options for which
the ROT is on the Wheel. Sign-offs shall become effective immediately
upon being processed for deletion in the computer system.
([iii]v) If an ROT who is signed-on the Wheel is away from the
Wheel [a]Assignment [a]Area for more than a brief interval, a Floor
Official shall:
(A) Remove the ROT from [any]all Wheel participation for the
remainder of the trading day; and
(B) issue a fine pursuant to the fine schedule below.
If [such] an ROT is assigned a Wheel trade while away from the
Wheel [a]Assignment [a]Area for more than a brief interval, that ROT is
responsible for all [trades]contracts assigned to his/her ROT account
until the sign-off is processed.
Fine Schedule (Implemented on a two-year running calendar basis)
F-24 (c) ([iii]v):
1st Occurrence.......................... $250.00
2nd Occurrence.......................... $500.00
3rd Occurrence.......................... $1,000.00
4th Occurrence and thereafter........... Sanction is discretionary
with Business Conduct
Committee
(d)-(f) No change.
Fine Schedule
F-24 Fine not applicable, except paragraph (c)([iii]v). Matters subject
to review by the Business Conduct Committee.
* * * * *
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 Exchange 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 update the definition
of a ``Wheel Assignment Area'' to be consistent with the current
physical configuration of the Options Floor. Due to changes in the
physical layout of the Options Floor (as explained below), not only is
the ``two contiguous quarter turret'' standard no longer useful, but
the variations in layout and post location on the Options Floor are
such that the Exchange believes a standard based on the activities of
Registered Options Traders (``ROTs''), rather than a physical
description of a ``Wheel Assignment Area,'' is now more appropriate.
Currently, OFPA F-24 provides that ROTs may elect to participate on
the Wheel \4\ for any or all issues in which they maintain an ROT
assignment, as long as those listed options are located within two
contiguous ``quarter turrets'' of each other and the ROT is actively
making markets in the specific issues.
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\4\ The ``Wheel'' is a feature of AUTOM that provides an
automated mechanism for assigning specialists and ROTs signed on the
Wheel for a given listed option, on a rotating basis, as contra-side
participants to trades executed via AUTO-X. See Exchange Rule
1080(g). 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 feature, AUTO-X. 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.
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The Exchange's Options Floor has undergone many physical changes
since the adoption of the current definition of ``Wheel assignment
area.''\5\ Specifically, the Options Floor no longer has any ``quarter
turrets.'' The Options Floor trading posts are now linear, and in some
instances extend continuously over the entire length of a given
specialist post, encompassing a relatively large number of options in a
relatively large physical area.
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\5\ The Exchange previously defined a ``Wheel assignment area''
as two contiguous quarter turrets. See Securities Exchange Act
Release No. 35033 (November 30, 1994), 59 FR 63152 (December 7,
1994) (SR-Phlx-94-32). A quarter turret was one section of a four-
sided, diamond-shaped trading post, which no longer exists on the
Exchange's Options Floor.
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In order to conform the Exchange's rules with the current physical
configuration of the Options Floor, the proposed rule change amends the
text of OFPA F-24 to include references to the proposed defined term
``Wheel Assignment Area'' throughout. The proposal defines a ``Wheel
Assignment Area'' as a location on the trading floor where an ROT: (1)
Is actively making markets by quoting continuous, 2-sided markets in
compliance with Advice B-1 and Rule 1014; (2) can hear and ascertain
the markets that are being made by the specialist and crowd; (3) is
deemed to be quoting the disseminated markets being made by the
specialist in accordance with Rule 1080.01(c); and (4) can be heard by
the specialist and crowd.\6\
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\6\ See Amendment No. 1, supra n. 3.
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As stated above, the proposed definition of ``Wheel Assignment
Area'' is focused on the activities of individual ROTs, and not on the
actual physical area in which ROTs are present. The requirements to
actively make markets (making continuous two-sided markets in all
issues assigned to such ROT), to hear and be heard, and to be deemed by
the Exchange to be quoting the disseminated markets being made by the
specialist in accordance with Rule 1080.01(c) \7\ are central to an
ROT's participation in a particular crowd.
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\7\ Phlx Rule 1080.01(c) provides, in relevant part: ``[t]he
disseminated market * * * is deemed to represent the quotations of
all ROTs in that option unless an ROT has expressly indicated
otherwise in a clear and audible manner. * * * ''
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The proposal contemplates that issues may be raised on the Options
Floor as to whether a particular ROT is eligible to participate in a
Wheel Assignment Area based on the above four criteria. In order to
account for this, and to address possible disputes, the proposal would
continue to provide that the Options Committee \8\ may extend the
number of options to be included in a Wheel Assignment Area on a case-
by-case basis. Under the proposal, the Options Committee could now take
into account the activity and trading crowd size in the Wheel
Assignment Area(s) to be extended. In such a situation, the Options
Committee would have the authority to determine if the Wheel Assignment
Area should be extended to
[[Page 48980]]
include such an ROT. Because the Exchange believes it would be
cumbersome and impractical for the Options Committee to meet and vote
to approve the extension of a Wheel Assignment Area each time the issue
arises on the Options Floor, the Options Committee has delegated its
authority to approve such changes to two Exchange Floor Officials, who
would indicate their approval by signing the appropriate form and
submitting the form to Market Surveillance.\9\
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\8\ The Options Committee has general supervision of the
dealings of members on the options floor. See Exchange By-Law
Article X, Section 10-19.
\9\ Exchange By-Law Article X, Section 10-3(a) provides that
each Standing Committee of the Exchange (the Options Committee is a
Standing Committee) shall make such regulations for its government
as it shall deem proper. By-Law Article X, Section 10-3(b) provides
that each Standing Committee may appoint subcommittees as it may
deem necessary for the efficient discharge of its duties. Each
Options Committee member is a Floor Official, as is each member of
the Options Subcommittee on Rules and Rulings. For purposes of
efficiency, the Options Committee has delegated authority to these
Floor Officials to discharge its on-floor duties of general
supervision of the dealings of members on the options floor.
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The proposal also includes a provision that would enable a Floor
Official to remove an ROT from all Wheel participation for the
remainder of the trading day, and issue a fine pursuant to the fine
schedule in OFPA F-24, if an ROT who is signed-on the Wheel is away
from the Wheel Assignment Area for more than a brief interval. The
Exchange believes that this provision substantially reduces the
likelihood that an ROT would sign onto the Wheel and then leave the
crowd, or even the trading floor, thereby receiving the benefit of
participating as contra-side to automatically executed trades, and
receiving favorable on-floor margin treatment despite the fact that
such an ROT may not even be present in the crowd or on the floor.
Other technical amendments, included to make the OFPA consistent
throughout, are also proposed.
2. Statutory Basis
For these reasons, the Exchange believes that the proposed rule
change is consistent with Section 6(b) of the Act \10\ in general, and
furthers the objectives of Section 6(b)(5) \11\ in particular, in that
it is designed to promote just and equitable principles of trade,
remove impediments to and perfect the mechanism of a free and open
market and protect investors and the public interest by defining
``Wheel Assignment Area'' to be consistent with the current physical
configuration of the Exchange's Options Floor.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 self-regulatory organization consents, the Commission will:
A. By order approve the 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 at the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-Phlx-2002-85 and
should be submitted by September 5, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20819 Filed 8-14-03; 8:45 am]
BILLING CODE 8010-01-P