

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8037-8039]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53247; File No. SR-Phlx-2006-01]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change and Amendments No. 1 and 2 Thereto To Amend the Phlx's 
Rules Governing the Hours of Trading in Equity Options and Narrow-Based 
Index Options

February 7, 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 January 4, 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 and 
II below, which Items have been prepared by the Phlx. On January 20, 
2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange filed Amendment No. 2 to the proposed rule 
change on January 31, 2006.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended, from 
interested persons and to approve the amended proposal on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, replacing the original filing in its 
entirety, the Exchange made clarifying changes to the proposed rule 
text and its discussion.
    \4\ In Amendment No. 2, the Exchange requested that the 
implementation date for the new closing time be changed from 
February 1, 2006, as was originally proposed, to February 13, 2006.
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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 Rules 101, 1012, 1047, 1047A and 
1101A and Phlx Floor Procedure Advice (``OFPA'') G-2 to indicate that 
equity options and narrow-based index options may trade until 4 p.m. 
and not 4:02 p.m. (e.s.t.). The Exchange proposes that these changes be 
implemented on February 13, 2006.\5\ The text of the proposed rule 
change, as amended, is available on the Phlx's Web site (http://www.phlx.com
), at the principal office of the Phlx, and at the 

Commission's Public Reference Room.
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    \5\ Id.
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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 Exchange 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, as amended. The text of these statements may be examined at the 
places specified in Item III 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
    According to the Exchange, the purpose of the proposed rule change, 
as amended, is to amend Phlx Rules governing the hours of trading in 
equity options and narrow-based index options. Specifically, the Phlx 
proposes to amend its rules to change the close of normal trading hours 
in equity options and in narrow-based (industry) index options from 
4:02 p.m. to 4 p.m. (e.s.t.). After the change, the time of the close 
of trading in these Phlx options will correspond to the normal time set 
for the close of trading on the primary exchanges listing the stocks 
underlying the Phlx options. The primary exchanges generally close at 4 
p.m. (e.s.t.).
    The Exchange notes that, in 1997, the closing time for equity 
options and narrow-based index options was changed from 4:10 p.m. to 
4:02 p.m. (e.s.t.). The rationale to continue trading options for some 
limited period of time after the close of trading on the primary 
markets for the underlying securities was that the extended period 
allowed options traders to respond to late reports of closing prices 
over the consolidated tape. If the price of a late reported trade on an 
underlying security was substantially different from the previous 
reported price, the extended trading session would give options traders 
the opportunity to bring options quotes in line with the closing price 
of the underlying security.
    However, because of improvements in the processing and reporting of 
transactions, the Phlx believes that there are no longer significant 
delays in the reporting of closing prices, and, therefore, a two minute 
session is no longer needed to trade options after the underlying 
securities close trading. Additionally, the Exchange believes that 
pricing aberrations can occur if an option is traded when the 
underlying stock is no longer trading, since there is a close 
relationship in the price of the underlying stock and the overlying 
option. As a result, the Phlx believes that it is difficult for the 
market to price options accurately when the underlying security is not 
trading.
    At this time, the Exchange is not proposing to change the closing 
time of 4:15 p.m. (e.s.t.) for broad-based (market) index options 
because it does not believe that a significant news announcement by the 
issuer of one component stock of a broad-based index is likely to have 
a significant effect on the price of that broad-based index.\6\ The 
Exchange recognizes, however, that indexes that are narrow-based may be 
subject to the same pricing problems as options on individual stocks 
\7\ and, as noted above, proposes to change the relevant closing time 
to 4:00 p.m. (e.s.t.). Accordingly, the Phlx proposes to amend Phlx 
Rules 101, 1012, 1047, 1047A and 1101A and OFPA G-2 to change the 
references to times from 4:02 p.m. to 4 p.m. (e.s.t.) for equity 
options and certain index based options as described above.\8\
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    \6\ Nor is the Exchange proposing to change the closing time of 
4:15 p.m. (e.s.t.) for Exchange-Traded Fund Share Options. However, 
the Exchange is proposing technical changes in the noted rules to 
clarify that options on Exchange-Traded Fund Shares and broad-based 
index options may trade until 4:15 p.m. (e.s.t.).
    \7\ According to the Exchange, a significant news announcement 
on one component of such an index could have a significant effect on 
the index.
    \8\ In addition, the Exchange notes that the reference to a 4:10 
p.m. closing time in Phlx Rule 101 will similarly be changed to 4:00 
p.m. (e.s.t.).
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    The Exchange notes that, if it or some but not all options 
exchanges were to unilaterally modify its closing time, the existence 
of dissimilar closing times applicable to the different options 
exchanges would likely lead to

[[Page 8038]]

confusion for options investors and broker-dealers. It is the Phlx's 
understanding that all of the options exchanges have determined to 
change their respective rules to revise the closing time in equity 
options and narrow-based index options from 4:02 p.m. to 4 p.m. 
(e.s.t.). The Phlx further understands that the options exchanges 
collectively have determined that they would implement this new closing 
time on February 13, 2006.\9\
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    \9\ See Amendment No. 2, supra note 4.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \10\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \11\ in particular, 
because it is designed to prevent fraudulent and manipulative acts and 
practices, 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.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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, 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

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

III. 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 at (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Phlx-2006-01 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-2006-01. 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 Section. 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-2006-01 and should be submitted on or before March 
8, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\13\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
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.
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    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange believes that the need to 
continue trading options for some period of time after the close of 
trading in the underlying securities markets is no longer necessary 
because improvements in the processing and reporting of transactions 
have obviated the need to respond to late reports of closing prices 
over the consolidated tape in order to bring options quotes in line 
with the closing price of the underlying security. Moreover, the 
Exchange believes that allowing two additional minutes of options 
trading after trading on the underlying primary exchanges has ended may 
actually result in pricing aberrations. Because the two minute delay 
between the close of normal trading in equity options and narrow-based 
index options and the corresponding underlying equity markets is no 
longer necessary, the Commission believes that eliminating the delay is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets. Therefore, the 
Commission finds that it is consistent with the Act for the Exchange to 
amend its rules to change the close of normal trading hours in equity 
and narrow-based index options from 4:02 p.m. (e.s.t.) to 4 p.m. 
(e.s.t.).
    The Commission finds good cause for approving this proposed rule 
change, as amended, before the thirtieth day after publication of 
notice thereof in the Federal Register. The Commission notes that all 
of the options exchanges have filed substantially similar proposals and 
seek to implement these industry-wide changes simultaneously on 
February 13, 2006.\14\ For example, on December 20, 2005, the 
Commission published for comment in the Federal Register a similar 
proposed rule change submitted by the Chicago Board Options Exchange, 
Incorporated (``CBOE'').\15\ The Commission received no comments on the 
CBOE's proposed rule change. The Commission believes that the Phlx's 
proposed rule change, as amended, raises no new issues or novel 
regulatory questions. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\16\ for approving the proposed 
rule change, as amended, prior to the thirtieth day after publication 
in the Federal Register. In

[[Page 8039]]

addition, because the existence of dissimilar closing times among the 
options exchanges could lead to confusion for options investors and 
broker-dealers, the Commission finds good cause to accelerate approval 
of the proposed rule change, as amended, to enable the six options 
exchanges to simultaneously amend their hours of trading on an 
industry-wide basis in a uniform manner.\17\
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    \14\ See note 17, infra.
    \15\ See Securities Exchange Act Release No. 52949 (December 13, 
2005), 70 FR 75513 (December 20, 2005) (SR-CBOE-2005-104). See also 
Securities Exchange Act Release No. 53055 (January 5, 2006), 71 FR 
2279 (January 13, 2006) (SR-ISE-2005-58).
    \16\ 15 U.S.C. 78s(b)(2).
    \17\ The Commission notes that it is simultaneously approving 
similar proposals from the other options exchanges. See Securities 
Exchange Act Release Nos. 53244 (SR-Amex-2006-003); 53245(SR-BSE-
2006-02); 53246 (SR-CBOE-2005-104); 53248 (SR-ISE-2005-58); and 
53249 (SR-PCX-2005-138) (February 7, 2006).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change and Amendments No. 1 and 2 
thereto (SR-Phlx-2006-01) be, and hereby are, approved on an 
accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-2115 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P
