[Federal Register: August 9, 2005 (Volume 70, Number 152)]
[Notices]
[Page 46255-46257]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au05-125]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52187; File No. SR-Phlx-2005-32]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Participation Guarantees for Floor Brokers Representing
Crossing and Facilitation Orders
August 1, 2005.
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 July 22, 2005, 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 and
II below, which Items have been prepared by the Phlx. The Exchange
filed the proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective
upon filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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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 Exchange Rule 1064 concerning the
guaranteed participation to which a Floor Broker is entitled with
respect to equity options when seeking to execute crossing and
facilitation transactions. Under the current rule, after requesting a
market from the trading crowd, a Floor Broker seeking to cross an order
for equity options that he or she is holding with another order, or, in
the case of a public customer order, with a facilitation order from the
firm from which the public customer order originated, is entitled to a
guaranteed participation of 20% when the order trades at a price that
matches the price given by the trading crowd in response to the initial
request for a market, and 40% when the order trades at a price that
improves upon that price. The proposed rule change would entitle the
Floor Broker to a 40% guarantee in both cases. The proposed rule change
would also clarify that the corresponding guaranteed participation to
which a specialist is entitled would continue to be a percentage that,
combined with the percentage that the Floor Broker crossed, is no more
than 40% of the original order. The text of amended Exchange Rule 1064
is set forth below. Brackets indicate deletions; italics indicate new
text.
Crossing, Facilitation and Solicited Orders
Rule 1064. (a)-(d) No change.
Commentary:
.01 No change.
.02 Firm Participation Guarantees.
(i)-(ii) No change.
(iii) The percentage of the order which a Floor Broker is entitled
to cross, after all public customer orders that were (1) on the limit
order book and then (2) represented in the trading crowd at the time
the market was established have been satisfied, is determined as
follows:
(A) With respect to orders for equity options, [: (i) 2] 40% of the
remaining contracts in the order if the order is traded at or between
the best bid or offer given by the crowd in response to the Floor
Broker's initial request for a market [; or (ii) 40% of the remaining
contracts in the order if the order is traded between the best bid or
offer given by the crowd in response to the Floor Broker's initial
request for a market].
(B) With respect to orders for index options, 20% of the remaining
contracts in the order. (iv)-(v) No change.
(vi) If a trade pursuant to this Commentary occurs when the
specialist is on parity with one or more controlled accounts, then the
Enhanced Specialist Participation which is established pursuant to
Exchange Rule 1014(g)(ii)-(iv) shall apply only to the number of
contracts remaining after the following orders have been satisfied:
Those public customer orders which trade ahead of the cross
transaction, and any portion of an order being crossed against the
original order being represented by the Floor Broker.
(A) Respecting orders for index options, [T] the Enhanced
Specialist Participation may only be 20% of the original order after
customer orders have been executed for orders crossed pursuant to this
paragraph (vi) unless
[[Page 46256]]
the Floor Broker has chosen to cross less than its 20% entitlement, in
which case the Enhanced Specialist Participation will be a percentage
that combined with the percentage the firm crossed is no more than 40%
of the original order.
(B) Respecting orders for equity options, the specialist shall not
be entitled to receive the Enhanced Specialist Participation after
customer orders have been executed for orders crossed pursuant to this
paragraph (vi) unless the Floor Broker has chosen to cross less than
its 40% entitlement, in which case the Enhanced Specialist
Participation will be a percentage that combined with the percentage
the firm crossed is no more than 40% of the original order.
If the trade occurs at a price other than the specialist's
disseminated bid or offer, the specialist is entitled to no guaranteed
participation.
(vii)-(x) No change.
.03 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 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.
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 remain competitive with other exchanges by revising the current
participation guarantee applicable to Exchange Floor Brokers that
engage in crossing and facilitation transactions in equity options
traded on the Exchange. Currently, Exchange Rule 1064, Commentary
.02(iii) provides that, respecting orders for equity options, a Floor
Broker is entitled to a participation guarantee of 20% of the remaining
contracts (after all public customer orders that were on the limit
order book and represented in the trading crowd at the time the market
was established have been satisfied) if the order is traded at the best
bid or offer (``BBO'') given by the crowd in response to the Floor
Broker's initial request for a market, or 40% of the remaining
contracts if the order is traded between the best bid or offer given by
the crowd in response to the Floor Broker's initial request for a
market.
The proposal would provide that, respecting orders for equity
options, the Floor Broker is entitled to cross, after all public
customer orders that were on the limit order book and represented in
the trading crowd at the time the market was established have been
satisfied, 40% of the remaining contracts in the order if the order is
traded at or between the best bid or offer given by the crowd in
response to the Floor Broker's initial request for a market.
Current Commentary .02(vi) to Rule 1064 entitles the specialist to
an Enhanced Specialist Participation \5\ with respect to orders for
equity options of 20% of the original order size when the Floor Broker
crosses 20% of the order at the trading crowd's price. If the Floor
Broker improves upon the crowd's price and takes its 40% entitlement,
the specialist is not entitled to an Enhanced Specialist Participation.
The proposed amendments to Commentary .02(vi) to the rule would clarify
that the specialist also may not be entitled to an Enhanced Specialist
Participation if the Floor Broker crosses the order at the trading
crowd's price, and that, respecting orders for both index and equity
options, the Enhanced Specialist Participation when combined with the
amount of the order the Floor Broker crosses may not exceed 40%.
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\5\ Exchange Rules 1014(g)(ii)-(iv) establish the Enhanced
Specialist Participation.
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Respecting index options, the Enhanced Specialist Participation
would remain unchanged. The specialist would, in most instances, be
entitled to receive an Enhanced Specialist Participation of 20%,\6\
because the Floor Broker may only cross 20% of the order regardless of
the price.\7\ Respecting equity options, the effect of the proposed
rule change would be that specialists are generally not entitled to the
Enhanced Specialist Participation (because the Floor Broker typically
would take its 40% guaranteed amount) unless the Floor Broker crosses
less than 40% of the order. The proposed rule text would clearly
indicate this limitation.
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\6\ See current Exchange Rule 1064, Commentary .02(vi) and
proposed Exchange Rule 1064, Commentary .02(vi)(A).
\7\ See Exchange Rule 1064, Commentary .02(iii)(B).
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The Exchange believes that the proposed rule change will enable the
Exchange to compete for order flow in crossing and facilitation orders
with other options exchanges that currently have similar rules in
place.\8\
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\8\ See Chicago Board Options Exchange, Incorporated Rule
6.74(d), American Stock Exchange LLC Rule 950(d), Commentary .02,
and Pacific Exchange, Inc. Rule 6.47(b).
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2. Statutory Basis
The Exchange believes that its proposal 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 it 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 providing Floor Brokers and Exchange crowd participants
with rules setting forth guidelines regarding the percentage of
crossing and facilitation orders in equity and index options to which
Floor Brokers are entitled.
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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 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
Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days after the date of filing or such shorter time as the Commission
may designate, it has become effective pursuant to Section 19(b)(3)(A)
of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\13\
However, Rule 19b-4(f)(6)(iii)\14\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. The
[[Page 46257]]
Exchange provided the Commission with written notice of its intent to
file this proposed rule change at least five business days prior to the
date of filing the proposed rule change. In addition, the Exchange has
requested that the Commission waive the 30-day pre-operative delay. The
Commission believes that waiving the 30-day pre-operative delay is
consistent with the protection of investors and the public interest
because it would allow the Exchange to remain competitive with other
exchanges that currently have similar rules in effect. For the reasons
stated above, the Commission designates the proposal to become
operative immediately.\15\
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\13\ 17 CFR 240.19b-4(f)(6)(iii).
\14\ Id.
\15\ For purposes only of waiving the pre-operative delay for
this proposal, the Commission has considered the impact of the
proposed rule on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in the furtherance of the purposes of the Act.
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-2005-32 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-Phlx-2005-32. 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 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 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-2005-32 and should be submitted on or before August
30, 2005.
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4272 Filed 8-8-05; 8:45 am]
BILLING CODE 8010-01-P