
[Federal Register: May 1, 2008 (Volume 73, Number 85)]
[Notices]               
[Page 24100-24101]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01my08-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57712; File No. SR-Phlx-2007-69]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2 Thereto, Relating to Obvious Errors

April 24, 2008.

I. Introduction

    On September 4, 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 amend Phlx Rule 1092, the 
Exchange's obvious error rule (``Obvious Error Rule''). On February 29, 
2008, the Exchange filed Amendment No. 1 to the proposed rule change. 
On March 11, 2008, the Exchange filed Amendment No. 2 to the proposal. 
The proposed rule change, as modified, was published for comment in the 
Federal Register on March 18, 2008.\3\ The Commission received no 
comment letters on the proposal, as modified. This order approves the 
proposed rule change, as modified by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 57482 (March 12, 2008), 
73 FR 14544.
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    The Exchange proposes to amend Rule 1092 to: (i) Change the 
definition of Theoretical Price to mean either the last National Best 
Bid price, with respect to an erroneous sell transaction or the last 
National Best Offer price, with respect to an erroneous buy 
transaction, just prior to the trade; (ii) allow an Options Exchange 
Official \4\ to establish the Theoretical Price when there are no 
quotes for comparison purposes, or when the National Best Bid/Offer 
(``NBBO'') for the affected series, just prior to the erroneous 
transaction, was at least two times the permitted bid/ask differential 
permitted under Exchange Rule 1014(c)(1)(A)(i)(a); (iii) establish the 
Theoretical Price for transactions occurring as part of the Exchange's 
automated opening system as the first quote after the transaction(s) in 
question that does not reflect the erroneous transaction(s); (iv) 
determine the average quote width for the underlying security by adding 
the quote widths of sample quotations at regular 15-second intervals 
during the two minutes preceding and following an erroneous 
transaction; (v) delete the provision pertaining to trades that are 
automatically executed when the specialist or Registered Options Trader 
(``ROT'') sells $.10 or more below parity; (vi) permit nullification of 
transactions that occur during trading halts in the affected option on 
the Exchange or in the underlying security in specified situations; and 
(vii) increase the time period, which varies depending on the status of 
the party, within which a party who believes it participated in an 
erroneous transaction must notify the Exchange's Market Surveillance 
Department, and allow a longer notification time period for certain 
erroneous transactions involving a non-broker-dealer customer that 
occur as part of the Phlx's automated opening process.
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    \4\ See Phlx Rule 1(pp).
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \5\ and, in 
particular, the requirements of Section 6(b) of the Act \6\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\7\ in 
that the proposal is designed to promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, protect 
investors and the public interest.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission considers that, in most circumstances, trades that 
are executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In the Commission's view, the determination of whether an 
``obvious error'' has occurred should be based on specific and 
objective criteria and subject to specific and objective procedures.
    The Commission believes that the proposed revisions to the 
definition of Theoretical Price provide clear and objective standards 
for determining when an obvious price error exists. The Commission also 
believes that the proposed revisions to the time periods

[[Page 24101]]

for requesting review of a transaction, including for certain erroneous 
transactions involving a non-broker-dealer customer that occur during 
the Exchange's automated opening process, as well as the proposal to 
sample quotations at 15-second intervals to determine the average quote 
width of the underlying security, represent reasonable modifications to 
the Obvious Error Rule. Furthermore, the Commission believes that 
eliminating the provision pertaining to trades that are automatically 
executed when the specialist or ROT sells $.10 or more below parity and 
permitting the nullification of transactions that occur during trading 
halts in the affected option on the Exchange or in the underlying 
security in specified situations are clear and objective. Therefore, 
the Commission believes that the proposed changes to the Obvious Error 
Rule are appropriate.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-Phlx-2007-69), as modified by 
Amendment Nos. 1 and 2, is hereby approved.
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    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
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. E8-9539 Filed 4-30-08; 8:45 am]

BILLING CODE 8010-01-P
