

[Federal Register: June 4, 2007 (Volume 72, Number 106)]
[Notices]               
[Page 30890-30891]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04jn07-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55825; File No. SR-Phlx-2007-38]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Automated Sending of Linkage Principal Acting as Agent 
Orders

 May 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 May 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 
Exchange. The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A)(iii) \3\ of the Act 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)(iii).
    \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 Exchange proposes to amend its rules to reflect a system change 
that is intended to specify when orders that are not executed 
automatically on the Exchange would be routed through the Intermarket 
Option Linkage (``Linkage'').\5\ Specifically, the Exchange proposes to 
amend Exchange Rule 1080(c)(vi)(A)(1) to reduce the exposure period for 
marketable customer limit orders on the Exchange's limit order book 
that are eventually sent automatically to away markets a Linkage 
Principal Acting as Agent (``P/A'') Orders \6\ when the Exchange's 
disseminated market is not the National Best Bid or Offer (``NBBO''). 
The exposure period would be reduced from the current three seconds to 
one second.
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    \5\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by the American Stock 
Exchange LLC, the Chicago Board Options Exchange, Incorporated, and 
the International Securities Exchange, LLC. See Securities Exchange 
Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). 
Subsequently, Phlx, the Pacific Exchange, Inc. (n/k/a NYSE Arca, 
Inc.), and the Boston Stock Exchange, Inc. joined the Linkage Plan. 
See Securities Exchange Act Release Nos. 43573 (November 16, 2000), 
65 FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 
70850 (November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).
    \6\ A ``P/A Order'' is an order for the principal account of a 
specialist (or equivalent entity on another Participant Exchange 
that is authorized to represent Public Customer orders), reflecting 
the terms of a related unexecuted Public Customer order for which 
the specialist is acting as agent. See Exchange Rule 1083(k)(i).
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    The text of the proposed rule change is available on the Phlx's Web 
site at http://www.phlx.com, at the Exchange's principal office, 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 Exchange 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 substantially 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 modernize the 
Exchange's system to account for technological advances that have been 
made in the Exchange's systems and in the industry since the original 
adoption of the rule,\7\ and to provide more efficient executions for 
customers with marketable limit orders on the Exchange's limit order 
book.
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    \7\ See Securities Exchange Act Release No. 51544 (April 14, 
2005), 70 FR 20613 (April 20, 2005) (SR-Phlx-2005-03).
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    Currently, under Exchange Rule 1080(c)(vi)(A)(1), when the 
Exchange's disseminated price on the opposite side of the market is not 
the NBBO, marketable public customer limit orders are exposed to the 
trading crowd and to participants in Phlx XL \8\ for a period of three 
seconds following receipt. At the end of this three-second exposure 
period, if the Exchange's disseminated price on the opposite side of 
the market is still not the NBBO, any unexecuted

[[Page 30891]]

contract remaining in such an order is automatically sent as a P/A 
Order through the Linkage to an exchange disseminating a price on the 
opposite side of the market that is the NBBO.
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    \8\ Phlx XL is the Exchange's fully electronic trading platform 
for options. See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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    If, at the end of the three-second exposure period, the Exchange's 
disseminated price on the opposite side of the market is the NBBO, any 
unexecuted contracts remaining in the marketable public customer limit 
order are automatically executed on the Exchange up to the Exchange's 
disseminated size. Any remaining contracts are then sent as P/A 
Order(s) to the exchange(s) displaying the NBBO. If the marketable 
public customer limit order is canceled during the three-second period, 
no P/A Order is sent and the marketable public customer limit order 
would not be executed.
    The proposed system change would simply reduce the exposure period 
from three seconds to one second. The Exchange believes that the 
proposal to reduce the exposure period for marketable customer limit 
orders on the limit order book should provide more efficient and 
immediate executions. In addition, the Exchange believes that a one-
second order exposure feature for inbound limit orders when the 
Exchange's disseminated price on the opposite side of the market is not 
the NBBO, together with the automatic execution of unexecuted contracts 
up to the Exchange's disseminated size when the Exchange's disseminated 
price becomes the NBBO and the automatic routing through Linkage of 
unexecuted contracts when the Exchange's disseminated prices is not the 
NBBO, will provide an effective means for avoiding trade-throughs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ 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 providing more efficient 
executions for customers with marketable limit orders on the Exchange's 
limit order book.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 would 
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

    Because the proposed rule change effects a change in an existing 
order-entry or trading system that: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not have 
the effect of limiting the access to or availability of the system, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and subparagraph (f)(5) of Rule 19b-4 
thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 the 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-2007-38 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-2007-38. 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 such 
filing also will be available for inspection and copying at the 
principal office of 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-2007-38 and should be submitted on or before June 25, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10664 Filed 6-1-07; 8:45 am]

BILLING CODE 8010-01-P
