[Federal Register: September 19, 2006 (Volume 71, Number 181)]
[Notices]
[Page 54864-54865]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19se06-75]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54429; File No. SR-Phlx-2006-52]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto,
Relating to Quoting Obligations
September 12, 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 August 15, 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 prepared by the Phlx. On
September 8, 2006, the Exchange filed Amendment No. 1 to the proposed
rule change.\3\ 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.
\3\ Amendment No. 1 made a clarifying change to the proposed
rule text, as well as two minor technical changes to the purpose
section.
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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 1014, ``Obligations and
Restrictions Applicable to Specialists and Registered Options
Traders,'' by adopting Phlx Rule 1014(b)(ii)(D)(4), which would state
that Streaming Quote Traders (``SQTs''),\4\ Remote Streaming Quote
Traders (``RSQTs''),\5\ and SQTs and RSQTs that receive Directed Orders
\6\ (``DSQTs'' and ``DRSQTs,'' respectively) would be deemed not to be
assigned in any option series until the time to expiration for such
series is less than nine months. Therefore, according to the Exchange,
the market making obligations described in Phlx Rule 1014(b)(ii)(D)
would not apply to SQTs, RSQTs, DSQTs and DRSQTs respecting series with
an expiration of nine months or greater. The Exchange proposes to adopt
the rule on a six-month pilot basis, beginning on the date of approval
of the proposed rule change. The text of the proposed rule change, as
amended, is available on the Phlx's Web site at http://www.phlx.com,
the Phlx's Office of the Secretary, and at the Commission's Public
Reference Room.
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\4\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
option 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 an 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).
\6\ The term ``Directed Order'' means any customer order (other
than a stop or stop-limit order as defined in Phlx Rule 1066) to buy
or sell which has been directed to a particular specialist, RSQT, or
SQT by an Order Flow Provider. See Phlx Rule 1080(l)(i)(A).
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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, as
amended, 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, as amended, is to mitigate
the Exchange's quote traffic and capacity by relaxing the quoting
obligations applicable to SQTs, RSQTs, DSQTs, and DRSQTs, thereby
reducing the number of quotations required to be submitted on the
Exchange.
Current Quoting Obligations. Currently, SQTs and RSQTs that do not
receive Directed Orders in a Streaming Quote Option \7\ are responsible
to quote
[[Page 54865]]
continuous, two-sided markets in not less than 60% of the series in
each Streaming Quote Option in which such SQT or RSQT is assigned.\8\
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\7\ A Streaming Quote Option is an option in which SQTs may
generate and submit option quotations if such SQT is physically
present on the Exchange floor, and RSQTs may generate and submit
option quotations from off the floor of the Exchange,
electronically. See Phlx Rule 1080(k). Currently, all options
trading on the Exchange are Streaming Quote options.
\8\ See Phlx Rule 1014(b)(ii)(D)(1).
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A DSQT or DRSQT is responsible to quote continuous, two-sided
markets in not less than 99% of the series listed on the Exchange in at
least 60% of the options in which such DSQT or DRSQT is assigned.\9\
Whenever a DSQT or DRSQT enters a quotation in an option in which such
DSQT or DRSQT is assigned, such DSQT or DRSQT must maintain continuous
quotations for not less than 99% of the series of the option listed on
the Exchange until the close of that trading day.\10\
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\9\ See Phlx Rule 1014(b)(ii)(D)(1).
\10\ See Phlx Rule 1014(b)(ii)(D)(1).
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The Proposal. One way to reduce the number of quotations submitted
by SQTs, RSQTs, DSQTs and DRSQTs is to relax the quoting obligations
that require quotes to be generated. Specifically, the Exchange
proposes, on a six-month pilot basis, to permit SQTs, RSQTs, DSQTs and
DRSQTs not to submit streaming quotations in options with a series of
more than nine months until expiration, which are known as LEAPS (Long-
term Equity Anticipation Securities), by deeming them not to be
assigned in any option series until the time to expiration for such
series is less than nine months. The effect of this is to relax their
quoting obligations, and ultimately the number of quotes they are
required to submit, because the quoting obligations in Phlx Rule
1014(b)(ii)(D)(1) apply only to those options in which they are
assigned.
Specialists, currently responsible to quote continuous, two-sided
markets in not less than 99% of the series in each Streaming Quote
Option in which such specialist is assigned,\11\ would still be
required to quote LEAPS, so the Exchange would continue to disseminate
a two-sided market in LEAPS. The Exchange believes that this should
facilitate order routing decisions for order flow providers in
determining to send order flow to the Exchange generally in all options
series. Many order flow providers, from a technology standpoint, find
it burdensome to determine to which market they route orders in a
particular option based on whether that market trades LEAPS or not; it
is simply easier to route to the market that does.
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\11\ See Phlx Rule 1014(b)(ii)(D)(2).
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The Exchange proposes to effect the proposed rule change on a six-
month pilot basis, beginning on the date the Commission approves this
proposed rule filing.
2. Statutory Basis
The Exchange believes that its proposal, as amended, is consistent
with Section 6(b) of the Act,\12\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\13\ 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 relaxing the quoting requirements
in LEAPS, thereby reducing the number of options quotations required to
be submitted, which should enable the Exchange to mitigate quote
traffic and use of capacity.
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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 Exchange does not believe that the proposed rule change, as
amended, 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, as amended, 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 Phlx consents, the Commission will:
(A) by order approve such proposed rule change, as amended, or
(B) institute proceedings to determine whether the proposed rule
change, as amended, 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, as amended, 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-2006-52 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-2006-52. 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 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-2006-52 and should be submitted on or before
October 10, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-15498 Filed 9-18-06; 8:45 am]
BILLING CODE 8010-01-P