

[Federal Register: June 22, 2007 (Volume 72, Number 120)]
[Notices]               
[Page 34500-34501]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jn07-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55910; File No. SR-Phlx-2007-26]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to a Proposed Rule Change, as Modified by 
Amendment No. 1, Relating to Price-Improved Linkage P/A Orders

June 15, 2007
    On March 21, 2007, 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 permit Exchange specialists to execute Linkage 
Principal Acting as Agent (``P/A'') Orders \3\ that are sent to, and 
price-improved on, another exchange, and subsequently presented for 
execution on the Phlx against customer limit orders on the limit order 
book that give rise to the initial P/A Order, at a price other than the 
minimum trading increment applicable to the particular series traded. 
On May 2, 2007, the Exchange filed Amendment No. 1 to the proposed rule 
change. The proposed rule change was published for comment in the 
Federal Register on May 15, 2007.\4\ The Commission received no comment 
letters on the proposal. This order approves the proposed rule change 
as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A P/A Order is an order under the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Linkage 
Plan''), 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 Phlx Rule 1083(k)(i).
    \4\ See Securities Exchange Act Release No. 55729 (May 9, 2007), 
72 FR 27347.
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    After careful review of the proposal, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\5\ In 
particular, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\6\ which requires, among other things, that 
the rules of an exchange be designed to prevent fraudulent and 
manipulative acts, 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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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    In support of this proposal, the Exchange has represented that 
recently some P/A Orders have been executed on other exchanges at 
improved prices in penny increments after participating in a price-
improvement auction process on the other exchange, resulting in the 
executed P/A Order being delivered back to the Exchange at a price that 
is expressed in other than the Exchange's minimum trading increment.
    Phlx Rule 1034, Minimum Increments, currently provides that options 
quoting at $3.00 or higher have

[[Page 34501]]

a minimum increment of $.10, and options quoting under $3.00 have a 
minimum increment of $.05.\7\ Currently, when a price-improved P/A 
Order is returned at a price other than the appropriate minimum trading 
increment, the Phlx specialist executes the customer order on the book 
at the price most favorable to the customer at the allowable minimum 
increment.
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    \7\ Options subject to the current ``penny pilot'' may be quoted 
and traded in increments as low as $.01. See Securities Exchange Act 
Release No. 55153 (January 23, 2007), 72 FR 4553 (January 31, 2007) 
(SR-Phlx-2006-74).
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    Phlx has proposed to eliminate this anomaly by providing that a P/A 
Order that has been sent from the Exchange to, and price-improved on, 
another exchange at a price expressed in other than the appropriate 
minimum trading increment, and then submitted to the Exchange for 
execution against the original customer limit order that gave rise to 
the P/A Order, may be traded on the Exchange at such price. Such orders 
would be ineligible for automatic execution and would instead be 
handled manually by the specialist.
    The Commission believes that the proposed rule change is consistent 
with the Act and would provide a mechanism for the accurate execution 
of customer limit orders at improved prices.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-Phlx-2007-26), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-12093 Filed 6-21-07; 8:45 am]

BILLING CODE 8010-01-P
