[Federal Register: March 26, 2003 (Volume 68, Number 58)]
[Notices]
[Page 14737-14739]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr03-179]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47543; File No. SR-Phlx-2003-11]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to the Delivery of Immediate or Cancel Orders
Via AUTOM and an Increase in the AUTOM Order Delivery Size for Off-
Floor Broker-Dealer Orders
March 20, 2003.
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 March 10, 2003, 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 prepared by the Phlx. The Exchange
filed the proposed rule change 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
Phlx proposes to amend Exchange Rule 1080, Philadelphia Stock
Exchange Automated Options Market (AUTOM) and Automatic Execution
System (AUTO-X),\5\ to add a new eligible order type, Immediate or
Cancel (``IOC''), for delivery by both customers and broker-dealers.
The Exchange also proposes to amend Exchange Rule 1080(b)(i)(C) to
reflect that the Options Committee has determined to increase the
eligible AUTOM order delivery size for off-floor broker dealer orders
from 200 contracts to 1,000 contracts for all options.\6\
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\5\ 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 feature, AUTO-X. 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. See Exchange Rule 1080.
\6\ The Exchange represents that this proposal will have no
impact on AUTO-X. Telephone call among Rick Rudolph, Director and
Counsel, CBOE; Terri Evans, Assistant Director, Division of Market
Regulation (``Division''), Commission; and Jennifer Lewis, Attorney,
Division, Commission, on March 20, 2003.
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The text of the proposed rule change is set forth below. Proposed
new language is underlined; proposed deletions are in brackets.
* * * * *
Philadelphia Stock Exchange Automated Options Market (AUTOM) and
Automatic Execution System (AUTO-X)
Rule 1080. (a) No change.
(b) Eligible Orders
(i) The following types of orders are eligible for entry into
AUTOM:
(A) Agency orders up to the maximum number of contracts permitted
by the Exchange may be entered. Agency orders up to 1000 contracts,
depending on the option, are eligible for AUTOM order delivery, subject
to the approval of the Options Committee. The following types of agency
orders are eligible for AUTOM; day, GTC, Immediate or Cancel (``IOC''),
market, limit, stop, stop limit, all or none, or better, simple cancel,
simple cancel to reduce size (cancel leaves), cancel to change price,
cancel with replacement order, market close, market on opening, limit
on opening, limit close, and possible duplicate orders.
(B) No change.
(C) Off-floor broker-dealer limit orders, up to the minimum number
of contracts permitted by the Exchange, subject to the restrictions on
order entry set forth in Commentary .05 of this Rule. Generally, orders
up to [200] 1,000 contracts, depending on the option, are eligible for
AUTOM order delivery on an issue-by-issue basis, subject to the
approval of the Options Committee. The Options Committee may determine
to increase the eligible order delivery size to an amount greater than
[200] 1,000 contracts, on an issue-by-issue basis. The following types
of broker-dealer limit orders are eligible for AUTOM: day, GTC, IOC,
simple cancel, simple cancel to reduce size (cancel leaves), cancel to
change price, cancel with replacement order.
(ii)-(iii) No change.
(c)-(j) No change.
Commentary: 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 Exchange 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
Phlx represents that the purpose of the proposed rule change is to
increase the automated handling of options orders, and attract
additional order flow, by allowing customers and broker-dealers to
deliver Immediate or Cancel (``IOC'') \7\ orders via AUTOM, amending
the rule to reflect that the Exchange's Options Committee \8\ has
determined to increase the eligible AUTOM delivery size of off-floor
broker-dealer orders \9\ from 200 contracts to 1,000 contracts for all
issues.
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\7\ An ``IOC'' order means a limit order that is to be executed
in whole or in part as soon as such order is received, and the
portion not executed, if any, is immediately canceled.
\8\ The Exchange's Options Committee has general supervision of
the dealings of members on the equity and index options trading
floor, and shall make or recommend such rules as it may deem
necessary for the convenient and orderly transaction of business
upon the equity and index options trading floor. See Exchange By-Law
Article X, Section 10-19.
\9\ In April, 2002, the Commission approved a proposed rule
change to allow the delivery of orders for the account(s) of off-
floor broker-dealers via AUTOM on a six-month pilot basis (the
``pilot''). See Securities Exchange Act Release No. 45758 (April 15,
2002), 67 FR 19610 (April 22, 2002) (SR-Phlx-2001-40). The pilot was
approved on a permanent basis in October, 2002. See Securities
Exchange Act Release No. 46660 (October 15, 2002), 67 FR 64951
(October 22, 2002) (SR-Phlx-2002-50).
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IOC Orders. Exchange Rule 1080(b)(i)(A) lists the various types of
agency orders \10\ that are eligible for
[[Page 14738]]
AUTOM, and Exchange Rule 1080(b)(i)(C) currently lists the various
types of off-floor broker-dealers that may be delivered via AUTOM.
Currently, neither of these rules allows the delivery of IOC orders via
AUTOM. The instant proposal would provide that both agency and off-
floor broker dealer IOC orders may be delivered via AUTOM.
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\10\ The Exchange has defined an agency order as any order
entered on behalf of a public customer, and does not include any
order entered for the account of a broker-dealer, or any account in
which a broker-dealer or an associated person of a broker-dealer has
any direct or indirect interest. See, e.g., Exchange Rule 229.02.
See also, Securities Exchange Act Releases Nos. 46763 (November 1,
2002), 67 FR 68898 (November 13, 2002) (SR-Phlx-2002-04); and 40970
(January 25, 1999), 64 FR 4922 (February 1, 1999) (SR-Phlx-98-44).
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The Exchange believes that the addition of this new AUTOM eligible
order type should enable the Exchange to better compete for customer
and broker-dealer order flow by attracting orders which, if not
immediately executed, would be cancelled. Investors would have full,
immediate information as to the status of such orders, and would be
able to respond immediately to reports (either executions or
cancellations) stemming from the delivery of such orders. Particularly
in times of high market volatility, such information can be critical to
customers and broker-dealers who need to make decisions swiftly in
response to such reports. The Exchange believes that this new AUTOM
eligible order type should facilitate customers and broker-dealers in
making such decisions.
The Exchange expects to deploy the systems necessary for the
acceptance of IOC orders via AUTOM by April 25, 2003.
Increase in Off-Floor Broker-Dealer Order Delivery Size. As stated
above, the Exchange's Options Committee has determined to increase the
eligible AUTOM delivery size of off-floor broker-dealer orders from 200
contracts to 1,000 contracts for all issues.\11\ The proposed rule
change would amend Rule 1080(b)(i)(C) to reflect this determination,
and would provide that the Options Committee may determine, on an
issue-by-issue basis, to increase the eligible order delivery size to
an amount greater than 1,000 contracts. The purpose of this provision
is to make the Exchange's rules consistent with current practices.
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\11\ Currently, Exchange Rule 1080(b)(i)(C) provides that
generally, orders up to 200 contracts, depending on the option, are
eligible for AUTOM order delivery on an issue-by-issue basis,
subject to the approval of the Options Committee, and that the
Options Committee may determine to increase the eligible order
delivery size to an amount greater than 200 contracts, on an issue-
by-issue basis.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act,\12\ in general, and section 6(b)(5),\13\ in
particular, in that it is designed to promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and protect investors and the public interest
by: (1) Allowing customers and broker-dealers to deliver IOC orders via
AUTOM, which should enable the Exchange to better compete for customer
and broker-dealer order flow and enable investors to have immediate
information as to the status of IOC orders delivered via AUTOM; and (2)
making the Exchange's rules regarding the AUTOM order delivery size for
off-floor broker-dealer orders consistent with current practices.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx 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 foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days from the date of filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, and the Exchange
has provided the Commission with written notice of its intent to file
the proposed rule change at least five business days prior to the
filing date, the proposed rule change has become effective pursuant to
section 19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6)\15\
thereunder.
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6)\16\ does not
become operative prior to 30 days after the date of filing or such
shorter time as the Commission may designated if such action is
consistent with the protection of investors and the public interest.
The Phlx has requested, so that the Exchange may remain competitive
with other exchanges that have similar rules in effect, that the
Commission accelerate the implementation of the proposed rule change so
that it may take effect prior to the 30 days specified in Rule 19b-
4(f)(6)(iii).\17\ The Commission believes waiving the 30-day operative
delay is consistent with the protection of investors and the public
interest. Acceleration of the operative date will permit the Exchange
to immediately begin accepting Immediate or Cancel orders from
customers and broker-dealers through AUTOM, and, with respect to the
increase in the eligible AUTOM order delivery size for off-floor
broker-dealer orders, will provide better notice to the public of the
Exchange's practices. For these reasons, the Commission designates the
proposal to be effective and operative upon filing with the
Commission.\18\
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\16\ Id.
\17\ 17 CFR 240.19b-4(f)(6)(iii).
\18\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact 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 such 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 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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
Phlx. All submissions should refer to File No. SR-Phlx-2003-11 and
should be submitted by April 16, 2003.
[[Page 14739]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7226 Filed 3-25-03; 8:45 am]
BILLING CODE 8010-01-P