
[Federal Register: May 29, 2008 (Volume 73, Number 104)]
[Notices]               
[Page 30988-30990]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29my08-133]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57844; File No. SR-Phlx-2008-39]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Relating to Permanent Approval of the Exchange's Directed 
Order Program

May 21, 2008.
    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 20, 2008, 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 and 
II, below, which Items have been substantially prepared by the Phlx. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to adopt, on a permanent basis, a pilot program 
concerning Exchange Rule 1080, Philadelphia Stock Exchange Automated 
Options Market (AUTOM) \3\ and Automatic Execution System (AUTO-X), and 
Exchange Rule 1014, Obligations And Restrictions Applicable To 
Specialists And Registered Options Traders. Specifically, the current 
pilot program covers: (1) Exchange Rule 1080(l), Directed Orders, under 
which Exchange specialists, Streaming Quote Traders (``SQTs''),\4\ and 
Remote Streaming Quote Traders (``RSQTs'') \5\ trading on the 
Exchange's electronic options trading platform, Phlx XL,\6\ receive 
Directed Orders (as defined below); and (2) Exchange Rule 
1014(g)(viii), which sets forth the trade allocation algorithm for 
electronically executed and allocated trades involving Directed Orders. 
This proposal is in connection with a pilot program that is currently 
scheduled to expire on May 27, 2008.\7\ The text of the proposed rule 
change is available at the Phlx, the Commission's Public Reference 
Room, and http://www.phlx.com/exchange/phlx_rule_fil.html.
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    \3\ AUTOM is the Exchange's electronic order delivery, routing, 
execution, and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. Orders delivered through AUTOM may be 
executed manually, or certain orders are eligible for AUTOM's 
automatic execution features. Equity option and index option 
specialists are required by the Exchange to participate in AUTOM and 
its features and enhancements. Option orders entered by Exchange 
members into AUTOM are routed to the appropriate specialist unit on 
the Exchange trading floor. AUTOM is today more commonly referred to 
as Phlx XL. See Exchange Rule 1080.
    \4\ An SQT is an Exchange Registered Options Trader who has 
received permission from the Exchange to generate and submit option 
quotations electronically through an electronic interface with AUTOM 
via an Exchange approved proprietary electronic quoting device in 
eligible options to which such SQT is assigned. See Exchange Rule 
1014(b)(ii)(A).
    \5\ An RSQT is a participant in the Exchange's electronic 
trading system, Phlx XL, who has received permission from the 
Exchange to trade in options for his own account and to generate and 
submit option quotations electronically from off the floor of the 
Exchange through AUTOM in eligible options to which such RSQT has 
been assigned. See Exchange Rule 1014(b)(ii)(B).
    \6\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
    \7\ See Securities Exchange Act Release No. 55803 (May 23, 
2007), 72 FR 30413 (May 31, 2007) (SR-Phlx-2007-37).
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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 III 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 adopt, on a permanent 
basis, a pilot that: (i) permits specialists, SQTs, and RSQTs assigned 
in options that trade on Phlx XL to receive directed orders (``Directed 
Orders'') \8\ from a member or member organization (``Order Flow 
Provider'' or ``OFP'') \9\ that submits, as agent, a customer order to 
the Exchange electronically, and (ii) establishes a trade allocation 
algorithm for Directed Orders that are electronically executed and 
allocated to reward such Directed Specialists, SQTs,

[[Page 30989]]

and RSQTs \10\ with a participation guarantee for attracting such order 
flow to the Exchange. The proposed rule is subject to a pilot program 
scheduled to expire on May 27, 2008.\11\
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    \8\ See Exchange Rule 1080(l)(i)(A).
    \9\ See Exchange Rule 1080(l)(i)(B).
    \10\ The term ``Directed Specialist, RSQT, or SQT'' means a 
specialist, RSQT, or SQT that receives a Directed Order. See 
Exchange Rule 1080(l)(i)(C). The word ``Directed'' modifies all 
three; that is, it is referring to a Directed Specialist, Directed 
SQT, and Directed RSQT.
    \11\ See note 7 supra.
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    Pursuant to Exchange Rule 1080(l), OFPs must transmit Directed 
Orders to a particular specialist, SQT, or RSQT through AUTOM. If the 
Exchange's disseminated best bid or offer is at the National Best Bid 
or Offer (``NBBO'') when the Directed Order is received, the Directed 
Order is automatically executed on Phlx XL and allocated to the orders 
and quotes represented in the Exchange's quotation. A Directed 
Specialist, SQT, or RSQT will receive a participation allocation 
pursuant to Exchange Rule 1014(g)(viii) if the Directed Specialist, 
SQT, or RSQT was quoting at the NBBO at the time that the Directed 
Order was received.\12\ Otherwise, the automatic execution will be 
allocated to those quotations and orders at the NBBO pursuant to 
Exchange Rule 1014(g)(vii).\13\ The specialist will manually execute 
Directed Orders that are received when the Exchange is not quoting at 
the NBBO.\14\
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    \12\ See Exchange Rule 1080(l)(ii).
    \13\ See Exchange Rule 1080(l)(iii).
    \14\ See Exchange Rule 1080(l)(iv).
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    The Exchange believes that the current pilot program rewards 
specialists, SQTs, and RSQTs for actively engaging in marketing 
activities and establishing relationships with OFPs that generate 
Directed Orders sent to the Exchange by such OFPs. The Exchange 
believes that the permanent adoption of this rule will continue to 
result in additional order flow to the Exchange, thus adding depth and 
liquidity to the Exchange's markets, and enabling the Exchange to 
continue to compete effectively with other options exchanges for order 
flow.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \15\ in general and furthers the objectives of Section 
6(b)(5) of the Act \16\ 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 continuing to permit specialists, SQTs, and RSQTs trading options on 
Phlx XL to receive Directed Orders and by encouraging the capture of 
order flow on the Exchange by rewarding Directed Order recipients with 
a participation guarantee in trades involving Directed Orders.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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. 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-2008-39 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-2008-39. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
am and 3 pm. Copies of such 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-2008-39 and should be 
submitted on or before June 19, 2008.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\17\ and the rules and regulations thereunder applicable to a national 
securities exchange, and, in particular, the requirements of Section 
6(b)(5) of the Act.\18\ Section 6(b)(5) requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, 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. The 
Commission notes that the Exchange's Directed Order program was 
approved on a pilot basis.\19\ The Exchange has asked the Commission to 
approve the Exchange's program on a permanent basis. For the reasons 
noted by the Commission when it initially approved the Exchange's 
Directed Order program on a pilot basis, the Commission continues to 
believe that the program does not jeopardize market integrity or the 
incentive for market participants to post competitive quotes. 
Accordingly,

[[Page 30990]]

the Commission finds that the proposal is consistent with the Act.\20\
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    \17\ 15 U.S.C. 78f.
    \18\ 15.U.S.C. 78f(b)(5).
    \19\ The Commission initially approved the Exchange's Directed 
Order program on a one-year pilot basis to expire on May 27, 2006. 
See Securities Exchange Act Release No. 51759 (May 27, 2005), 70 FR 
32860 (June 6, 2005) (SR-Phlx-2004-91). The Commission subsequently 
extended to the pilot period for an additional one-year period to 
expire on May 27, 2007. See Securities Exchange Act Release No. 
53870 (May 25, 2006), 71 FR 31251 (June 1, 2006) (SR-Phlx-2006-27). 
The Commission again extended the pilot for another one-year period 
to expire on May 27, 2008. See note 7 supra.
    \20\ 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).
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    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposed rule change 
would allow the Exchange's Directed Order program to continue without 
disruption. Accordingly, the Commission finds good cause, consistent 
with Section 19(b)(2) of the Act,\21\ for approving the proposed rule 
change prior to the thirtieth day after publication of notice thereof 
in the Federal Register.
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    \21\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Phlx-2008-39) is hereby approved on 
an accelerated basis.
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    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Nancy M. Morris,
Secretary.
[FR Doc. E8-11932 Filed 5-28-08; 8:45 am]

BILLING CODE 8010-01-P
