[Federal Register: January 24, 2007 (Volume 72, Number 15)]
[Notices]
[Page 3186-3188]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ja07-96]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55121; File No. SR-Phlx-2006-31]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2
Thereto, Relating to Limit Orders Submitted by Streaming Quote Traders
January 18, 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 May 5, 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, II,
and III below, which Items have been substantially prepared by the
Phlx. On December 8, 2006, the Exchange filed Amendment No. 1 to the
proposed rule change. On January 11, 2007, the Exchange filed Amendment
No. 2 to the proposed rule change. 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.
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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 1080(b)(i)(B) and Commentary
.04 thereto to permit Streaming Quote Traders (``SQTs'') \3\ and Remote
Streaming Quote Traders (``RSQTs'') \4\ to enter Immediate or Cancel
(``IOC'') \5\ orders for their own account(s) through an electronic
interface with AUTOM; \6\ to permit non-SQT ROTs \7\ and specialists to
place proprietary limit orders with a size of 10 contracts or greater
onto the limit order book; to expand the type of order that non-SQT
ROTs and specialists may enter to include IOC; and to permit non-SQT
ROTs and specialists to submit proprietary limit orders with a size of
less than 10 contracts as IOC only. The Exchange further proposes to
amend Commentary .02 and .03 of Phlx Rule 1082 to reduce the one-second
``counting period'' to \1/4\ of one second during which SQTs, RSQTs
and/or specialists may eliminate the locked or crossed markets caused
by their electronic quotations.\8\ 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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\3\ An SQT is a Registered Options Trader (``ROT'') who has
received permission from the Exchange to generate and submit option
quotations electronically through AUTOM in eligible options in which
such SQT is assigned. An SQT may only submit such quotations while
such SQT is physically present on the floor of the Exchange. See
Phlx Rule 1014(b)(ii)(A).
\4\ An RSQT is a ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically through AUTOM in eligible options to which such RSQT
has been assigned. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. See Phlx Rule
1014(b)(ii)(B).
\5\ An immediate-or-cancel order is an order that is to be
executed in whole or in part as soon as such order is submitted. Any
portion not so executed is to be treated as cancelled.
\6\ 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 features, AUTO-X, Book Sweep and Book Match.
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. AUTOM
is now commonly referred to as Phlx XL. See Phlx Rule 1080.
\7\ A ROT is an on-floor options participant of the Exchange who
has received permission from the Exchange to trade in options for
his own account in eligible options in which such ROT is assigned.
See Phlx Rule 1014(b)(i).
\8\ Any unresolved locked or crossed markets remaining after the
counting period are automatically executed.
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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.
[[Page 3187]]
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 offer an additional
mechanism for participants on the Exchange's electronic trading
platform for options, Phlx XL,\9\ to trade against orders and
electronic quotations. Currently, only non-SQT ROTs and specialists may
enter limit orders, and such limit orders may only be submitted with a
minimum size of 10 contracts as Good-Till-Cancelled, day limit and
simple cancel orders. Under the proposal, the Exchange would expand
limit order entry to SQTs and RSQTs, who would be permitted to enter
IOC orders with no size limitation.
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\9\ See Securities Exchange Act Release No. 50100 (July 27,
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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The proposal would include limitations on the eligible order type
and permissible order size, depending on the status of the participant
submitting the order. Specifically, non-SQT ROTs and specialists would
be permitted to submit limit orders with a size of 10 contracts or
greater as Good-Till-Cancelled, day limit, IOC or simple cancel order
types. Orders for less than 10 contracts submitted by non-SQT ROTs and
specialists would be required to be submitted as IOC only.\10\
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\10\ Currently, the IOC order type is not eligible for
submission by non-SQT ROTs and specialists, and all orders must be
for a minimum size of 10 contracts. The proposal would permit orders
with a size of less than 10 contracts, provided that such orders
must be submitted as IOC only. Orders submitted by non-SQT ROTs and
specialists with a size of 10 contracts or greater would be eligible
to be placed on the limit order book.
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SQTs and RSQTs would be permitted to submit limit orders of any
size,\11\ provided that all limit orders submitted must be IOC. Thus,
limit orders submitted by SQTs and RSQTs would not be eligible to rest
on the limit order book, and would be cancelled if not executed
immediately. If only a part of such an order is executed immediately,
the remaining unexecuted contracts in such an order would be cancelled.
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\11\ Currently, the Exchange permits SQTs to submit electronic
quotations only. The proposal would permit SQTs to submit IOC limit
orders in addition to electronic quotations. The quoting obligations
applicable to SQTs contained in Exchange Rule 1014(b)(ii)(D) would
be unchanged.
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Under the proposal, specialists and non-SQT ROTs that submit limit
orders with a size of less than 10 contracts must submit such orders as
IOC only. According to the Exchange, this is to ensure that limit
orders with a size of less than 10 contracts are not placed on the
limit order book. The Exchange believes that this provision should
encourage liquidity on the Exchange and limit orders on the limit order
book that represent the Exchange's best bid or offer and would thus
result in a disseminated size of at least 10 contracts on the Exchange.
The purpose of the proposed change to Commentary .02 and .03 of
Phlx Rule 1082 is to improve the speed by which the Exchange's systems
can automatically execute locked or crossed quotations against one
another and eliminate the locked or crossed market situation,\12\ which
should, in turn, facilitate compliance with firm quote obligations.\13\
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\12\ Any unresolved locked or crossed markets remaining after
the counting period are automatically executed.
\13\ See Phlx Rule 1082.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ in particular, in that the proposal 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 increasing the efficiency of options trading on the
Exchange by allowing on-floor participants to electronically enter an
additional type of order, which should increase the number of automatic
executions. The Exchange believes that this new functionality should
increase order interaction between market participants on the Exchange
and the electronic limit order book. The Exchange also believes that
reducing the counting period during which market participants may
resolve locked and crossed markets should improve market efficiency by
eliminating locked and crossed markets in a more timely fashion.
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\14\ 15 U.S.C. 78f(b).
\15\ 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 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 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. 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-2006-31 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-2006-31. 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
[[Page 3188]]
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-2006-31 and should be submitted on or before February 14, 2007.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-977 Filed 1-23-07; 8:45 am]
BILLING CODE 8011-01-P