[Federal Register: November 28, 2003 (Volume 68, Number 229)]
[Notices]
[Page 66912-66913]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no03-131]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48816; File No. SR-Phlx-2003-10]
Self-Regulatory Organizations; Order Granting Approval to
Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating
to Remote Primary Specialists
November 20, 2003.
On February 26, 2003, the Philadelphia Stock Exchange, Inc.
(``Phlx'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to permit ``primary specialists'' to trade away
from the Phlx floor in limited circumstances. The proposed rule change
was published for comment in the Federal Register on September 29,
2003.\3\ The Commission received no comments on the proposal. This
order approves the Phlx's proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 48515 (September 22,
2003), 68 FR 56031 (September 29, 2003).
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Under Phlx Rule 460, multiple specialists, one of which is
identified as the ``primary specialist,'' \4\ currently may trade a
particular security on the equity trading floor of the Phlx.\5\ Prior
to the adoption of Phlx Rules 460 and 229A, each equity security traded
on the floor of the Phlx was allocated to only one specialist unit.
Phlx Rule 460 allows approved specialist units to trade one or more
securities as ``competing specialists.'' \6\ There must be a primary
specialist in a particular security in order for there to be competing
specialists in that security.\7\ Competing specialists have the same
affirmative and negative obligations under Phlx Rule 203 as primary
specialists.
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\4\ Phlx Rule 229A(b)(5) defines ``primary specialist'' as
follows:
`Primary Specialist' shall mean the primary specialist
identified as such by the Equity Allocation, Evaluation, and
Securities Committee. The Primary Specialist may be either the
Directed Specialist or the Non-Directed Specialist in the case of
any particular Directed Order. The Primary Specialist shall be
deemed to be the Directed Specialist with respect to any Non-
Directed Order.
\5\ See Securities Exchange Act Release No. 45183 (December 21,
2001), 67 FR 118 (January 2, 2002) (order approving establishment of
a competing specialist program at the Phlx) (SR-Phlx-2001-97).
\6\ Phlx Rule 229A(b)(6) defines ``competing specialist'' as
follows:
`Competing Specialist' shall mean any competing specialist
identified as such by the Equity Allocation, Evaluation, and
Securities Committee pursuant to [Phlx] Rule 460. A Competing
Specialist may be either the Directed Specialist or the Non-Directed
Specialist in the case of any particular Directed Order.
\7\ A Phlx specialist may trade some securities on a primary
basis and other securities on a competing basis, or made trade all
its securities on either a primary or a competing basis.
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Pursuant to Phlx Rule 461, the Phlx also operates a program whereby
competing Phlx specialist units conduct specialist trading activities
off the Phlx trading floor using PACE \8\ terminals and related
equipment. The Commission granted approval of the Phlx's remote
competing specialist program subject to the condition that the Phlx
``have in place specific information barrier policies and surveillance
policies that are consistent with the Exchange's existing rules and
that are acceptable be the Commission's Office of Compliance
Inspections and Examinations (``OCIE'').'' \9\
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\8\ PACE is the electronic order routing, delivery execution,
and reporting system used to access the Phlx Equity Floor. See Phlx
Rules 229 and 229A.
\9\ Securities Exchange Act Release No. 45184 (December 21,
2001), 67 FR 622 (January 4, 2002) (order approving the
establishment of the Phlx's remote specialist program) (SR-Phlx-
2001-98).
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The Phlx now proposes to establish a similar program whereby
primary specialists would be permitted to conduct specialist trading
activities off the Phlx trading floor.\10\ The Phlx has represented
that its current rules, policies, and practices with respect to
information barriers and surveillance are adequate to support remote
trading by primary specialists at the Phlx.\11\ Moreover, the Phlx has
represented that it will examine remote primary specialist locations to
ensure adequate compliance with Phlx rules.\12\ Thus, the Commission
believes that Phlx has addressed confidentiality issues associated with
allowing remote primary specialists to trade from remote locations in
proximity to a diversified broker-dealer's other off-floor operations.
Member firms' traders should not get a market advantage because of
their physical proximity to a specialist trading unit, and vice versa.
Based, in part, on the Phlx's representation that it has in place
adequate information barrier policies and surveillance procedures, the
Commission is approving the Phlx's remote primary specialist proposal.
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\10\ The Commission reiterates that while the remote specialist
program, which now includes primary specialists, may have the effect
of attracting additional order flow to the Phlx, this must occur
consistent with best execution principles. Accordingly, the broker-
dealer must rigorously and regularly examine the executions likely
to be obtained for customer orders in the different markets trading
the security, in addition to any other relevant considerations in
routing customer orders.
\11\ Telephone conversation between Carla Behnfeldt, Director,
Legal Department New Product Development Group, Phlx, and Patrick M.
Joyce, Special Counsel, Division of Market Regulation, Commission,
on November 19, 2003.
\12\ Telephone conversation between Edith Hallahan, Deputy
General Counsel, Phlx, and Florence Harmon, Senior Special Counsel,
Division of Market Regulation, Commission, on November 20, 2003.
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The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\13\
Specifically, the Commission finds that the proposal is consistent with
Section 6(b)(5) of the Act,\14\ which requires, among other things,
that the Phlx's rules be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in,
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market
[[Page 66913]]
system, and, in general, to protect investors and the public interest.
The Commission believes that the Phlx's proposal to permit primary
specialists to trade on a remote basis in limited circumstances may
reduce costs, add liquidity, and promote competition, and lead to a
greater number of securities trading on PACE, thereby benefiting
investors.
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\13\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f(b)(5).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\15\, that the proposed rule change (SR-Phlx-2003-10) be, and it hereby
is, approved.
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\15\ 15 U.S.C. 78s(b)(2).
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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29662 Filed 11-26-03; 8:45 am]
BILLING CODE 8010-01-P