

[Federal Register: November 1, 2005 (Volume 70, Number 210)]
[Notices]               
[Page 65941-65942]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no05-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52657; SR-Amex-2005-047; SR-BSE-2005-39; SR-CBOE-2005-
68; SR-ISE-2005-42; SR-PCX-2005-104; SR-Phlx-2005-27]

 
Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 by the American Stock Exchange LLC; a 
Proposed Rule Change by the Boston Stock Exchange, Inc.; a Proposed 
Rule Change by the Chicago Board Options Exchange, Incorporated; a 
Proposed Rule Change and Amendment No. 1 by the International 
Securities Exchange, Inc.; a Proposed Rule Change by the Pacific 
Exchange, Inc.; and a Proposed Rule Change and Amendment No. 1 by the 
Philadelphia Stock Exchange, Inc. Relating to the Definition of Firm 
Customer Quote Size and Limitations on Sending Secondary P/A Orders

October 24, 2005.

I. Introduction

    On April 26, 2005, April 28, 2005, August 29, 2005, August 31, 
2005, September 7, 2005, and September 13, 2005, the Philadelphia Stock 
Exchange, Inc. (``Phlx''), the American Stock Exchange LLC (``Amex''), 
the Chicago Board Options Exchange, Incorporated (``CBOE''), the 
International Securities Exchange, Inc. (``ISE''), the Pacific 
Exchange, Inc. (``PCX''), and the Boston Stock Exchange, Inc. (``BSE'') 
(collectively, the ``Options Exchanges''), respectively, filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ proposed rule changes to amend each of 
their respective rules governing the operation of the intermarket 
option linkage (``Linkage'') to conform with a proposed amendment \3\ 
to the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'').\4\ Each of the Exchanges is

[[Page 65942]]

proposing: (i) To amend the definition of ``Firm Customer Quote Size'' 
(``FCQS'') \5\ to provide automatic executions for Principal Acting as 
Agent Orders (``P/A Orders'') \6\ sent via Linkage up to the full size 
of an Options Exchange's disseminated quotation; and (ii) to eliminate 
a 15-second waiting period between the sending of P/A Orders.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 52401 (September 9, 
2005), 70 FR 54781 (September 16, 2005) (File No. 4-429) 
(``Amendment No. 16'').
    \4\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
option market linkage proposed by the Amex, CBOE, and ISE. See 
Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, upon separate requests by the 
Phlx, PCX, and BSE, the Commission issued orders to permit these 
exchanges to participate in the Linkage Plan. See Securities 
Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70850 
(November 28, 2000), 43574 (November 16, 2000), 65 FR 70851 
(November 28, 2000) and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \5\ See Section 2(11) of the Linkage Plan; Amex Rule 940(b)(7); 
Chapter XII; Section 1(g) of BOX's Rules; CBOE Rule 6.80(9); ISE 
Rule 1900(7); PCX Rule 6.92(a)(10); and Phlx Rule 1083(g).
    \6\ See Section 2(16)(a) of the Linkage Plan; Amex Rule 
940(b)(10)(i); Chapter XII; Section 1(j)(i) of BOX's Rules; CBOE 
Rule 6.80(12)(i); ISE Rule 1900(10)(i); PCX Rule 6.92(a)(12)(i); and 
Phlx Rule 1083(k)(i).
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    Phlx submitted Amendment No. 1 to its proposed rule change on 
September 2, 2005.\7\ ISE submitted Amendment No. 1 to its proposed 
rule change on September 7, 2005.\8\ Amex submitted Amendment No. 1 to 
its proposed rule change on September 12, 2005.\9\
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    \7\ In its Amendment No. 1, the Phlx made clarifying changes to 
the proposed rule text relating to the availability of Options 
Exchanges' automatic execution systems.
    \8\ In its Amendment No. 1, the ISE made technical corrections 
to the proposed rule change.
    \9\ In its Amendment No. 1, the Amex made clarifying changes to 
the proposed rule text relating to the availability of Options 
Exchanges' automatic execution systems.
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    Notice of: (i) Amex's proposed rule change, as amended; (ii) BSE's 
proposed rule change; (iii) CBOE's proposed rule change; (iv) ISE's 
proposed rule change, as amended; and (v) PCX's proposed rule change 
were published in the Federal Register on September 20, 2005.\10\ 
Notice of Phlx's proposed rule change, as amended, was published in the 
Federal Register on September 21, 2005.\11\ No comments were received 
on the proposed rule changes. This order approves the proposed rule 
changes, as amended.
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    \10\ Securities Exchange Act Release Nos. 52428 (September 14, 
2005), 70 FR 55186 (September 20, 2005) (SR-Amex-2005-047); 52429 
(September 14, 2005), 70 FR 55191 (September 20, 2005) (SR-BSE-2005-
39); 52424 (September 14, 2005), 70 FR 55193 (September 20, 2005) 
(SR-CBOE-2005-68); 52410 (September 14, 2005), 70 FR 55198 
(September 20, 2005) (SR-ISE-2005-42); and 52427 (September 14, 
2005), 70 FR 55201 (September 20, 2005) (SR-PCX-2005-104).
    \11\ Securities Exchange Act Release No. 52425 (September 14, 
2005), 70 FR 55443 (September 21, 2005) (SR-Phlx-2005-27).
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II. Description of the Proposals

    The purpose of the proposed rule changes is to amend each of the 
Options Exchanges' rules governing the operation of the Linkage to 
conform with Amendment No. 16 to the Linkage Plan.\12\ In general, the 
proposed rule changes will modify the rules of each of the Options 
Exchanges in two respects. First, the definition of FCQS will be 
amended to reflect that all Options Exchanges disseminate dynamic 
option quotes with size. Specifically, each of the Option Exchanges 
proposes to amend its rules so that the FCQS is calculated based on the 
size of the disseminated quotation of the Options Exchange receiving 
the P/A Order. Secondly, the proposed rule changes will eliminate a 15-
second waiting period for sending a subsequent P/A Order currently 
provided for in each of the Option Exchange's rules. Finally, the 
proposed rule changes will clarify the conditions under which automatic 
execution is required in response to P/A Orders.
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    \12\ Amendment No. 16 to the Linkage Plan is approved separately 
today by the Commission. See Securities Exchange Act Release No. 
52656 (October 24, 2005).
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
changes, as amended, are consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to national 
securities exchanges.\13\ In particular, the Commission finds that the 
proposed rule changes, as amended, are consistent with the provisions 
of section 6(b)(5) of the Act,\14\ which requires, among other things, 
that national securities exchanges' rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and to perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest.
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    \13\ In approving these proposals, the Commission has considered 
the proposed rules' impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule changes should 
facilitate the conformity of the Options Exchanges' rules to Amendment 
No. 16 to the Linkage Plan. Further, the Commission believes that the 
Options Exchanges' proposal to calculate FCQS on the basis of the size 
of the disseminated quotation of the Options Exchange receiving the P/A 
Order is appropriate and should facilitate the use of the Linkage for 
the Options Exchanges. This change proposed by the Options Exchanges, 
coupled with the proposed elimination of the 15-second waiting period 
for sending a subsequent P/A Order, should facilitate investors' 
intermarket access to superior prices disseminated by Options Exchanges 
other than the one to which the order was initially sent.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule changes (SR-Amex-2005-047; SR-BSE-2005-
39; SR-CBOE-2005-68; SR-ISE-2005-42; SR-PCX-2005-104; SR-Phlx-2005-27), 
as amended, are approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    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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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6028 Filed 10-31-05; 8:45 am]

BILLING CODE 8010-01-P
