[Federal Register: December 18, 2006 (Volume 71, Number 242)]
[Notices]
[Page 75798-75800]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de06-69]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-54914; File No. SR-Phlx-2006-81]
Self-Regulatory Organizations; Philadelphia Stock Exchange Inc.;
Notice of Filing of Proposed Rule Change Relating to the Establishment
of a Maximum Number of Quoting Participants Permitted in a Particular
Option on the Exchange
December 11, 2006.
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 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. 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 Phlx proposes to amend Phlx Rule 507,\3\ which governs the
assignment of options to Streaming Quote Traders (``SQTs'') \4\ and
Remote Streaming Quote Traders (''RSQTs''),\5\ by adding commentary to
the rule establishing a maximum number of quoting participants that may
be assigned to a particular equity option at any one time.
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\3\ Phlx Rule 507 sets forth the process by which the Committee
assigns or reassigns options to eligible Streaming Quote Traders and
Remote Streaming Quote Traders. See Phlx Rule 507.
\4\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
options quotations electronically through AUTOM in eligible options
to 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).
\5\ 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).
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The text of the proposed rule change is available on the Phlx's Web
site at http://www.phlx.com, at the Phlx's Office of the Secretary, and
at the Commission's Public Reference Room.
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 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 enable the Exchange
to manage its quotation traffic and bandwidth capacity by limiting the
number of streaming quote market participants that may be assigned to a
particular option at a given point in time. The proposed amendments to
Phlx Rule 507 would establish: (i) A maximum number of quoters
(``MNQ'')
[[Page 75799]]
in equity options based on each option's monthly trading volume; (ii) a
process for recalculating the MNQ based upon changes in an option's
monthly trading volume; (iii) an increase to the MNQ due to exceptional
circumstances; (iv) the process by which the Exchange will notify
market participants of changes to the MNQ; and (v) additional criteria
relating to the process by which the Exchange will assign SQT and/or
RSQT applicants in options in the event that there are more applicants
for assignment in a particular option than there are positions.
The Exchange proposes to limit the number of participants that may
be assigned to a particular equity option at any one time based upon
each option's monthly national volume. Proposed Commentary .02 to Phlx
Rule 507 sets forth tiered MNQ levels providing for 20 participants for
the top 5% most actively traded options; 15 participants for next 10%
most actively traded options, and 10 market participants for all other
options. The ranking is based upon the preceding month's national
volumes.
The MNQ would be recalculated within the first five days of each
month based on the previous month's trading volume (``new MNQ'').
Proposed Commentary .03 to Phlx Rule 507 provides the process by which
the Exchange will administer a decrease in the previous month's MNQ.
The Exchange will immediately implement the new MNQ if the number of
assigned participants in the option on the last day of the month equals
or is less than the new MNQ. Under circumstances in which the number of
assigned participants is greater than the new MNQ, the option will have
an ``increased'' MNQ equal to the number of assigned participants
quoting electronically in that option on the last day of the month. The
``increased'' MNQ will automatically decrease if an assigned
participant changes or ceases the assignment in the option. The
``increased'' MNQ will continue to decrease until the number of
assigned participants equals the new MNQ, at which point the number of
assigned participants in the option may not exceed the new MNQ.
The Exchange will be able to increase the MNQ in exceptional
circumstances. The Exchange's Options Allocation, Evaluation and
Securities Committee (``OAESC'') \6\ may increase the MNQ when the
circumstances warrant. Proposed Commentary .04 to Phlx Rule 507
describes the events that may be considered ``exceptional'' including
substantial trading volume (whether actual or expected), a major news
event or corporate event. The Exchange may reduce the MNQ following the
cessation of the exceptional circumstances, but the Exchange must
follow the same procedures for decreases to the MNQ outlined above.
When relying on this provision, the Exchange would submit a rule filing
to the Commission pursuant to Section 19(b)(3)(A) of the Act.\7\
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\6\ See Phlx By-Law Article X, Section 10-7. The OAESC has
jurisdiction over, among other things: The appointment of
specialists on the options and foreign currency options trading
floors; allocation, retention and transfer of privileges to deal in
options on the trading floors; and administration of the 500 series
of Phlx rules.
\7\ 15 U.S.C. 78s(b)(3)(A).
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The Exchange will inform market participants of changes to the MNQ
via Exchange circular. The Exchange may increase the MNQ levels
(meaning the 20, 15, and 10 number established in Commentary .02(a)-
(c)) by submitting to the Commission a rule filing pursuant to Section
19(b)(3)(A) of the Act.\8\ The Exchange may also decrease the MNQ
levels upon Commission approval of a rule filing submitted pursuant to
19(b)(2) of the Act.
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\8\ 15 U.S.C. 78s(b)(3)(A).
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The Exchange is also proposing to amend Phlx Rule 507 by adding
additional criteria for the OAESC to consider when determining whether
to assign an option to a member in the situation where there are more
applicants for assignment in a particular option than there are
positions available.
In this situation, proposed paragraph (b)(iii) of Phlx Rule 507
would require the OAESC to consider: (i) The financial and technical
resources available to the applicant; (ii) the applicant's experience
and expertise in market making or options trading; and (iii) the
applicant's prior performance as a specialist, SQT or RSQT, based on
evaluations conducted pursuant to Phlx Rule 510, which includes
quantified measures of performance.
The purpose of this provision is to enable the OAESC to use these
criteria to select the most qualified applicant in the event that there
are more applicants for assignment in a particular option than there
are positions available. The Exchange believes that the consideration
of financial and technical capacity, as well as prior performance, will
assist the OAESC in determining the most beneficial assignment of
options for the Exchange and the public.
Finally, the Exchange represents that members that are assigned in
a particular option as of the date of Commission approval of this
proposed rule change will be guaranteed a position as a quoting
participant in the particular option.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\9\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\10\ in particular, in that
the proposed rule change 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 the
Exchange to manage resources by fairly allocating limited bandwidth
capacity.
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\9\ 15 U.S.C. 78f(b).
\10\ 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
Written comments on the proposed rule change were neither solicited
nor 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 Exchange 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:
[[Page 75800]]
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 No. SR-Phlx-2006-81 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 No. SR-Phlx-2006-81. 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 at 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
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 also will be available for inspection and copying at the
principal office of the Exchange. 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 No. SR-Phlx-2006-81 and should be submitted on or before January
8, 2007.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-21449 Filed 12-15-06; 8:45 am]
BILLING CODE 8011-01-P