

[Federal Register: March 27, 2007 (Volume 72, Number 58)]
[Notices]               
[Page 14318-14319]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27mr07-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55498; File No. SR-Phlx-2007-15]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Delete the Exchange's Auto-Quote Options Pricing Functionality

March 20, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 22, 2007, 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 substantially 
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)(5) 
thereunder,\4\ which renders the proposal immediately effective upon 
filing. 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)(5).
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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 Exchange Rule 1080, Commentary .01, to 
delete references to ``Auto-Quote.'' The text of the proposed rule 
change is available on the Exchange's Web site at http://www.Phlx.com, 

at the Phlx's Office of the Secretary, and at the Commission's Public 
Reference Room.

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 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 is to eliminate the 
outmoded and little-used options pricing functionality of the 
Exchange's Automated Quotation System (``Auto-Quote''), which should 
reduce updating and modification costs which could ultimately be passed 
on to customers, as described more fully below. Auto-Quote is the 
Exchange's electronic options pricing system, which enables 
specialists, Streaming Quote Traders (``SQTs'') \5\ and Remote 
Streaming Quote Traders (``RSQTs''),\6\ to automatically monitor and 
instantly update and submit electronic quotations for equity option and 
index option contracts.\7\
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    \5\ An SQT is an Exchange Registered Options Trader (``ROT'') 
who has received permission from the Exchange to generate and submit 
options 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 Exchange Rule 1014(b)(ii)(A).
    \6\ An RSQT is a 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 Exchange Rule 
1014(b)(ii)(B).
    \7\ See Exchange Rule 1080, Commentary .01(a).
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    Currently, the wide majority of traders on the Exchange use their 
own proprietary options pricing systems, and access the Exchange's 
electronic options trading system, Phlx XL, through a specialized 
connection, by-passing Auto-Quote. This specialized connection is known 
as a specialized quote feed (``SQF'').\8\ SQF users who do not use 
Auto-Quote submit proprietary electronic option quotations via SQF. SQF 
users submit electronic option quotations through their own pricing 
models or through quotation vendors.
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    \8\ See Exchange Rule 1080, Commentary .01(b).
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    In July, 2004, the Exchange implemented its fully electronic 
trading system for options, Phlx XL.\9\ At that time, vendor options 
pricing systems used by Exchange members often were not technologically 
capable of providing full options pricing services to Exchange members. 
Consequently, many members used Auto-Quote instead of vendor option 
pricing systems. Since that time, vendor options pricing systems have 
been upgraded to address shortcomings that existed previously. As a 
result, very few options traders still use Auto-Quote on the Exchange. 
Such options traders have received written notification by way of 
Exchange circular of the Exchange's intention to eliminate the Auto-
Quote options pricing functionality from its options trading systems 
and will make necessary arrangements with the appropriate vendors to 
price options and to access the Exchange's trading systems via SQF.
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    \9\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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    Recent changes in options trading such as quoting and trading of 
options in pennies, increased quote traffic, and the automation of 
processing complex orders, to name a few, would mandate continual 
upgrades to the technological requirements to maintain Auto-Quote as a 
component of the Exchange's options trading systems. The Exchange's

[[Page 14319]]

Financial Automation Department \10\ describes Auto-Quote as an older 
system that would require a large investment to update it to match 
existing industry and vendor functionality. The Exchange believes that 
such a large investment could result in increased fees that might 
eventually be passed on to customers, which is one result that the 
Exchange seeks to avoid by eliminating the Auto-Quote options pricing 
functionality from its options trading systems.
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    \10\ The Exchange's Financial Automation Department is 
responsible for the design, development, implementation, testing and 
maintenance of the Exchange's automated trading systems, 
surveillance systems, and back office systems, and for monitoring 
the quality of performance and operational readiness of such 
systems, in addition to user training and validation of user 
technology as it pertains to such users' interface with the 
Exchange's systems.
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    Therefore, because of the limited use of the Auto-Quote options 
pricing functionality on the Exchange, together with the 
disproportionate expense the Exchange would incur to continually 
upgrade Auto-Quote to meet industry needs, the Exchange proposes to 
eliminate the Auto-Quote options pricing functionality from its options 
trading systems, and to delete all references to Auto-Quote from its 
rules. The Exchange's systems will no longer incorporate the Auto-Quote 
options pricing functionality beginning March 19, 2007.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \12\ 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 enabling the Exchange to limit expenses relating to the 
under-used and antiquated Auto-Quote options pricing functionality.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change effects a change in an existing 
order-entry or trading system of a self-regulatory organization that: 
(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 have the effect of limiting the access to 
or availability of the system. Therefore, it has become effective 
pursuant to Section 19(b)(3)(A) \13\ of the Act and Rule 19b-4(f)(5) 
\14\ thereunder.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of the 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. 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-2007-15 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-2007-15. 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-2007-15 and should be submitted on or before April 17, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5548 Filed 3-26-07; 8:45 am]

BILLING CODE 8010-01-P
