

[Federal Register: April 5, 2007 (Volume 72, Number 65)]
[Notices]               
[Page 16846-16848]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap07-143]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55558; File No. SR-Phlx-2007-25]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Exchange's Automated Opening System

March 29, 2007.
    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 March 20, 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 Phlx has filed the proposed rule change as one effecting a 
change in an existing order-entry or trading system of a self-
regulatory organization pursuant to Section 19(b)(3)(A)(ii) of the Act 
\3\ and Rule 19b-4(f)(5) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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)(ii).
    \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 1017, Openings in

[[Page 16847]]

Options, to provide for a delay in the automated opening of an option 
series for up to five seconds when the conditions for opening the 
option series have been satisfied, and following: (1) Respecting equity 
options, the dissemination of an opening quote or trade in the primary 
market for the underlying security; or (2) respecting index options, 
following the dissemination of a quote or trade by the primary markets 
for underlying securities constituting 100% of the index value. The 
text of the proposed rule change is available at Phlx, the Commission's 
Public Reference Room, and http://www.Phlx.com/exchange/phlx-rule-fil.html.


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 help Exchange 
specialists, Streaming Quote Traders (``SQTs''),\5\ and Remote 
Streaming Quote Traders (``RSQTs'') \6\ to better manage their market 
risk by delaying the opening of an option series for a brief interval 
following the dissemination of an opening trade or quote in the 
underlying security. Thus, specialist, SQTs and RSQTs would be able to 
price options series accurately on the opening.
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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 
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 Exchange Rule 1014(b)(ii)(A).
    \6\ 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 Exchange Rule 
1014(b)(ii)(B).
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    Currently, the Exchange's systems immediately open a series when 
the following conditions are satisfied:
    (i) The Exchange has received market orders, or the book is crossed 
(highest bid is higher than the lowest offer) or locked (highest bid 
equals the lowest offer); and either:
    (ii)(A) The specialist's quote has been submitted;
    (B) The quotes of at least two Phlx XL participants \7\ have been 
submitted within two minutes of the opening trade or quote on the 
primary market for the underlying security; or
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    \7\ Phlx XL participants include specialist, SQT, RSQT, and non-
SQT ROTs who are required to submit continuous two-sided electronic 
quotations pursuant to Exchange Rule 1014(b)(ii)(E). See Exchange 
Rule 1017(a).
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    (C) If neither the specialist's quote nor the quotes of two Phlx XL 
participants have been submitted within two minutes of the opening 
trade or quote on the primary market for the underlying security, one 
Phlx XL participant has submitted their quote.
    Once these conditions are satisfied, the system will automatically 
open the series immediately upon the dissemination of an opening trade 
or quote in the primary market for the underlying. The proposed rule 
change would delay the opening of an option series for up to five 
seconds from the dissemination of an opening quote or trade in the 
primary market for the underlying security or, respecting index 
options, following the dissemination of a quote or trade by the primary 
markets for underlying securities constituting 100% of the index value. 
The time period would apply uniformly to all options traded on the 
Exchange.
    Experience with the automated opening system has shown that 
specialists, SQTs, and RSQTs frequently do not have an adequate 
opportunity to adjust their pre-opening quotes to accurately reflect 
the price of the underlying security when the underlying trade or quote 
is disseminated. As a result, the option series may be priced 
incorrectly at the opening, which places Exchange specialists, SQTs and 
RSQTs at market risk on the opening.
    The delay (which time period would be determined by the Exchange 
and disseminated to membership via an Exchange circular) should enable 
Exchange specialists, SQTs and RSQTs to better manage this market risk 
and to maintain fair and orderly markets by pricing options series 
accurately on the opening.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ 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 Exchange specialists, SQTs and RSQTs to better manage their 
risk, thus providing fair and orderly markets and correct options 
pricing on the opening of a series, all to the benefit of customers and 
the marketplace as a whole.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 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) of the Act \10\ and Rule 19b-4(f)(5) 
\11\ thereunder. At any time within 60 days of the filing of the 
proposed rule change the Commission may summarily abrogate such 
proposed 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(5).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 16848]]

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 No. SR-Phlx-2007-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2007-25. 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-2007-25 and should be submitted on or before April 26, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6378 Filed 4-4-07; 8:45 am]

BILLING CODE 8010-01-P
