[Federal Register: March 29, 2004 (Volume 69, Number 60)]
[Notices]
[Page 16333-16335]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr04-101]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49457; File No. SR-Phlx-2004-20]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the
Philadelphia Stock Exchange, Inc. Relating to an Extension of
Interpretation of PACE Guarantees in Securities Subject to ITS Plan
Exemption
March 23, 2004.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on March 15, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II, below, which Items have been prepared by the Phlx. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposal is intended to coincide with the Commission's
extension of a de minimis exemption from the trade-through provisions
of the Intermarket Trading System (``ITS'') Plan with respect to
certain transactions in the Nasdaq-100 Index (``QQQs''), the Dow Jones
Industrial Average (``DIAMONDs''), and the Standard & Poor's 500 Index
(``SPDRs'').\3\ The Commission's original exemption expired on June 4,
2003.\4\ On May 30, 2003, the Commission issued an order extending the
ITS Exemption from June 4, 2003 through March 4, 2004.\5\ On March 3,
2004, the Commission issued another order extending the ITS Exemption
for an additional nine
[[Page 16334]]
months through December 4, 2004.\6\ In order to avoid a lapse in the
effectiveness of the corresponding Exchange Rule, this order is
approving the Exchange's proposal to extend the rule from March 4, 2004
until December 4, 2004.
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\3\ See Securities Exchange Act Release No. 46428 (August 28,
2002), 67 FR 56607 (September 4, 2002) at 56607 (``ITS Exemption
Order'').
\4\ The Exchange Rule that mirrors the Commission's exemption
similarly expired on June 4, 2003.
\5\ See Securities Exchange Act Release No. 47950 (May 30,
2003), 68 FR 33748 (June 5, 2003)(order extending ITS Exemption
Order).
\6\ See Securities Exchange Act Release No. 49356 (March 3,
2004), 69 FR 11057 (March 9, 2004) (Order Pursuant to Section 11A of
the Securities Exchange Act of 1934 and Rule 11Aa3-2(f) Thereunder
Extending a De Minimis Exemption for Transactions in Certain
Exchange Traded Funds from the Trade-Through Provisions of the
Intermarket Trading System).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to extend a limited exemption in transactions in
certain exchange-traded fund (``ETFs'') shares from Supplementary
Material Section .10(a)(iii) of Exchange Rule 229, Philadelphia Stock
Exchange Automated Communication and Execution System (PACE'') \7\
beyond March 4, 2004 until December 4, 2004. The text of the proposed
rule change is available at the Office of the Secretary, Phlx and at
the Commission.
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\7\ PACE is the Exchange's Automated Communication and Execution
System. PACE provides a system for the automatic execution of orders
on the Exchange equity floor under predetermined conditions.
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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 III 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 extend the time
period of a current limited exemption from Phlx Rule 229.10(a)(iii).
The exemption applies to the ETFs tracking the QQQs, DIAMONDs and
SPDRs,\8\ and correlates with an exemption from the ITS Plan issued by
the Commission (the ``ITS Exemption'').\9\ The Commission's ITS
Exemption exempted any transactions in the three ETFs that are effected
at prices at or within three cents away from the best bid and offer
quoted in the Consolidated Quote System from the trade-through
provisions of the ITS Plan through June 4, 2003. On May 30, 2003, the
Commission issued an order extending the ITS Exemption from June 4,
2003 through March 4, 2004.\10\ On March 3, 2004, the Commission issued
another order extending the ITS Exemption for an additional nine months
through December 4, 2004.\11\
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\8\ The Exchange does not currently trade DIAMONDs or SPDRs but
may determine to do so in the future. The Exchange does trade QQQs.
The Nasdaq-100[reg], Nasdaq-100 Index[reg], Nasdaq[reg], The Nasdaq
Stock Market[reg], Nasdaq-100 SharesSM, Nasdaq-100
TrustSM, Nasdaq-100 Index Tracking StockSM,
and QQQSM are trademarks or service marks of The Nasdaq
Stock Market, Inc. (``Nasdaq'') and have been licensed for use for
certain purposes by the Phlx pursuant to a License Agreement with
Nasdaq. The Nasdaq-100 Index[reg] (the ``Index'') is determined,
composed, and calculated by Nasdaq without regard to the Licensee,
the Nasdaq-100 TrustSM, or the beneficial owners of
Nasdaq-100 SharesSM. Nasdaq has complete control and sole
discretion in determining, comprising, or calculating the Index or
in modifying in any way its method for determining, comprising, or
calculating the Index in the future.
\9\ See note 3, supra.
\10\ See note 5, supra.
\11\ See note 6, supra.
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Phlx Rule 229.10(a)(iii) requires a Phlx specialist to execute
certain orders that are traded-through by another market center. It
provides generally that if 100 or more shares print through the limit
price on any exchange(s) eligible to compose the PACE Quote \12\ after
the time of entry of any such order into PACE, the specialist shall
execute all such orders at the limit price without waiting for an
accumulation of 1000 shares to print at the limit price on the New York
market.\13\
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\12\ PACE Quote is defined in Phlx Rule 229 as the best bid/ask
quote among the American Stock Exchange LLC, Boston Stock Exchange,
Inc., Cincinnati Stock Exchange, Inc., Chicago Stock Exchange, Inc.,
New York Stock Exchange, Inc., Pacific Exchange, Inc. and the Phlx,
or the Intermarket Trading System/Computer Assisted Execution System
(``ITS/CAES'') quote, as appropriate.
\13\ To be understood, Section .10(a)(iii) must be read in
conjunction with the preceding section of the PACE Rule.
Supplementary Material Section .10(a)(ii) provides as follows:
Non-Marketable Limit Orders--Unless the member organization
entering orders otherwise elects, round-lot limit orders up to 500
shares and the round-lot portion of PRL limit orders up to 599
shares which are entered at a price different than the PACE Quote
will be executed in sequence at the limit price when an accumulative
volume of 1000 shares of the security named in the order prints at
the limit price or better on the New York market after the time of
entry of any such order into PACE. For each accumulation of 1000
shares which have been executed at the limit price on the New York
market, the specialist shall execute a single limit order of a
participant up to a maximum of 500 shares for each round-lot limit
order up to 500 shares or the round-lot portion of a PRL limit order
up to 599 shares.
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Prior to the Commission's issuance of the ITS Exemption, although
the specialist had this obligation the specialist was, in turn,
entitled to ``satisfaction'' of those orders pursuant to Section 8(d)
of the ITS Plan. Now, where trading through is no longer prohibited by
the ITS Plan, as enumerated in the ITS Exemption, the specialist does
not have recourse to seek ``satisfaction'' for these orders and is
responsible for those executions. Moreover, the Exchange believes that
the provision now unduly burdens the specialist by requiring the
specialist to execute orders in situations where the specialist does
not have access to trading at that price. Thus, the Phlx believes that
its provision guaranteeing an execution no longer makes sense.
The corresponding limited exemption contained in the last sentence
of Exchange Rule 229.10(a)(iii) was initially put in effect on a pilot
basis for the period September 4, 2002 to October 4, 2002.\14\ The
pilot was subsequently extended to November 3, 2002,\15\ and was
extended again to March 4, 2004.\16\ The Exchange is now proposing to
extend the limited exemption of Phlx Rule 229, Supplementary Material
.10(a)(iii) through December 4, 2004, to coincide with the most recent
extension of the ITS Exemption. In order to avoid a lapse in the
effectiveness of the corresponding Exchange Rule, this order is
approving the Exchange's proposal to extend the rule from March 4, 2004
through December 4, 2004.
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\14\ See Securities Exchange Act Release No. 46481 (September
10, 2002), 67 FR 58669 (September 17, 2002) (notice of immediate
effectiveness of pilot for the period September 4, 2002 to October
4, 2002).
\15\ See Securities Exchange Act Release No. 46615 (October 8,
2002), 67 FR 63723 (October 15, 2002) (notice of immediate
effectiveness of extension of pilot to November 3, 2002).
\16\ See Securities Exchange Act Release No. 48163 (July 10,
2003), 68 FR 42450 (July 17, 2003) (Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the
Philadelphia Stock Exchange, Inc. Relating to an Extension of
Interpretation of PACE Guarantees in Securities Subject to ITS Plan
Exemption).
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of Section
6(b)(5) of the Act \18\ in particular, in that it is designed 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
[[Page 16335]]
and a national market system; and, in general, to protect investors and
the public interest; and is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers. By
adopting the extension of the current exemption, the Exchange avoids
burdening specialists with the obligation to fill an order in
circumstances where an external event triggered the execution
obligation and the specialist could not access trading at that price.
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\17\ 15 U.S.C. 78f(b).
\18\ 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. 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.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-Phlx-2004-20. 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, comments should be sent in
hardcopy or by e-mail but not by both methods. 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 will also be available for
inspection and copying at the principal office of the Exchange. All
submissions should be submitted by April 19, 2004.
IV. Discussion
After careful review, 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.\19\ In particular, the Commission finds that the proposed
rule is consistent with the requirements of Section 6(b)(5) of the Act
\20\ because it is designed to facilitate transactions in securities;
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; and is not designed to permit unfair
discrimination between customers, issuers, brokers or dealers.
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\19\ In approving this rule proposal, the Commission notes that
it has also considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5).
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The Commission believes that by extending the Exchange's proposed
exemption for its members, the Exchange would remove the specialist's
obligation to provide trade-through protection in situations where it
will not be permitted to seek satisfaction through ITS from the primary
market. This obligation was one the Phlx assumed voluntarily in order
to make its market more attractive to sources of order flow, not an
obligation the Act imposes on a market. The Commission believes that
the business decision to potentially forego order flow by no longer
providing print protection is a judgment the Act allows the Phlx to
make.\21\
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\21\ The Commission notes that the Phlx's proposed rule change
will remain in effect only until the expiration of the extension of
Commission's ITS Exemption Order on December 4, 2004.
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of the publication of
notice thereof in the Federal Register. The Commission is granting
accelerated approval in order to prevent a lapse in the effectiveness
of the Exchange's rules regarding a Phlx specialist's obligation to
provide trade-through protection in certain securities.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-Phlx-2004-20) is approved on
an accelerated basis and is effective retroactively to March 4, 2004.
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\22\ 15 U.S.C. 78f(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-6920 Filed 3-26-04; 8:45 am]
BILLING CODE 8010-01-P