

[Federal Register: October 30, 2006 (Volume 71, Number 209)]
[Notices]               
[Page 63375-63376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc06-142]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54648; File No. SR-Phlx-2006-52]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change, and Amendment No. 1 
Thereto, Relating to Quoting Obligations

 October 24, 2006.

I. Introduction

    On August 15, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') 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\ a 
proposed rule change 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''),\3\ Remote Streaming Quote 
Traders (``RSQTs''),\4\ and SQTs and RSQTs that receive Directed Orders 
\5\ (``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. Accordingly, 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. On September 8, 2006, the Exchange filed 
Amendment No. 1 to the proposed rule change.\6\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on September 19, 2006.\7\ The Commission received no comments regarding 
the proposal, as amended. This order approves the proposed rule change, 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Phlx Rule 1014(b)(ii)(A).
    \4\ See Phlx Rule 1014(b)(ii)(B).
    \5\ See Phlx Rule 1080(l)(i)(A).
    \6\ Amendment No. 1 made a clarifying change to the proposed 
rule text, as well as two minor technical changes to the purpose 
section.
    \7\ See Securities Exchange Act Release No. 54429 (September 12, 
2006), 71 FR 54864.
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II. Description of the Proposal

    Currently, SQTs and RSQTs that do not receive Directed Orders in a 
Streaming Quote Option \8\ are responsible to quote 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.\9\
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    \8\ 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.
    \9\ 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.\10\ 
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.\11\
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    \10\ See Phlx Rule 1014(b)(ii)(D)(1).
    \11\ See Phlx Rule 1014(b)(ii)(D)(1).
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    To reduce the number of quotations submitted by SQTs, RSQTs, DSQTs 
and DRSQTs, the Phlx proposes 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,\12\ would still be 
required to quote LEAPS, so the Exchange would continue to disseminate 
a two-sided market in LEAPS.
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    \12\ See Phlx Rule 1014(b)(ii)(D)(2).
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    The Exchange proposes to effect the proposed rule change, as 
amended, on a six-month pilot basis, beginning on the date the 
Commission approves this proposed rule filing.

III. Discussion

    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

[[Page 63376]]

securities exchange.\13\ In particular, the Commission believes that 
the proposal, as amended, is consistent with Section 6(b)(5) of the 
Act,\14\ which requires that the rules of an exchange be 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.
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    \13\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal to relax the quoting 
requirements applicable to SQTs, RSQTs, DSQTs, and DRSQTs in LEAPS 
should reduce the number of options quotations required to be submitted 
on the Exchange and, therefore, should help to mitigate the Exchange's 
quote message traffic and capacity. In addition, the Commission notes 
that this proposal is consistent with the approach in current Phlx Rule 
1012, Commentary .03, which states that strike price interval, bid/ask 
differential and continuity rules will not apply to such long term 
option series until the time to expiration is less than nine 
months.\15\
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    \15\ See Securities Exchange Act Release No. 29103 (April 18, 
1991), 56 FR 19132 (April 25, 1991) (order approving SR-Phlx-91-18).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Phlx-2006-52), as amended, 
is hereby approved on a six month pilot basis beginning on the date of 
this approval order.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18142 Filed 10-27-06; 8:45 am]

BILLING CODE 8011-01-P
