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Notice

Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. Relating to the Reporting of Options Transactions

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Start Preamble September 1, 2000.

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 June 5, 2000, the Philadelphia Stock Exchange (“Phlx” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change relating to the reporting of options transactions. The Phlx filed Amendment No. 1 to this proposal on August 31, 2000. [3] The proposed rule change, as amended, is described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and to grant accelerated approval to the proposed rule change, as amended.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to amend Exchange Rule 1051, “Reporting, General Comparison and Clearance Rule,” and Options Floor Procedure Advice (“OFPA”) F-2, “Allocation, Time Stamping, Matching and Access to Matched Trades,” to require the reporting of options transactions within 90 seconds after execution. The text of the proposed rule change, as amended, is set forth below. Additions are in italics.

F-2 Allocation, Time Stamping, Matching and Access to Matched Trades

(a) In order to facilitate timely tape reporting of executed trades, it is the duty of the largest participant in a trade to allocate, match and time stamp manually executed trades as well as to submit the matched trade to the appropriate person at the respective Specialist post immediately upon execution. A member or member organization initiating an options transaction, whether acting as principal or agent, must report or ensure that the transaction is reported within 90 seconds after execution to the tape. Transactions not reported within 90 seconds after execution shall be designated as late. A pattern or Start Printed Page 55070practice of late reporting without exceptional circumstances may be considered conduct inconsistent with just and equitable principles of trade. If there is only one seller and one buyer, the seller is responsible. Execution times must be recorded on the reverse side of one or more of the tickets to a matched trade.

(b) Once a trade has been matched and submitted for reporting at the post, the respective Specialist Unit must preserve the matched tickets for a period of not less than three years.

(c) Member access to tickets comprising a matched trade is available to any participant of that trade, as well as the respective Specialist and any Floor Official acting in his capacity as a Floor Official. Requests to review trade matches must be made with the Specialist Unit.

Fine Schedule (Implemented on a three year running calendar basis)

F-2

1st Occurrence—$100.00

2nd Occurrence—$250.00

3rd Occurrence—$500.00

4th and Thereafter—Sanction is discretionary with Business Conduct Committee

Rule 1051. Reporting, General Comparison And Clearance Rule

(a) A member or member organization initiating an options transaction, whether acting as principal or agent, must report or ensure that the transaction is reported within 90 seconds after execution to the tape. Transactions not reported within 90 seconds after execution shall be designated as late. A pattern or practice of late reporting without exceptional circumstances may be considered conduct inconsistent with just and equitable principles of trade.

(b) All Exchange options transactions shall be reported at the time of execution to the Exchange for comparison of trade information at the specialist's post and all compared transactions shall be cleared through the Options Clearing Corporation and shall be subject to the rules of the Options Clearing Corporation.

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 Phlx is proposing to amend Phlx Rule 1051 and OFPA F-2 to require timely tape reporting of executed trades on the Options Floor. Under the proposal, as amended, the largest participant in a trade would be required to allocate, match, and time stamp manually executed trades, as well as to submit the matched trade to the appropriate person at the respective specialist post immediately upon execution and no later than 90 seconds following execution of the trade. Additionally, the proposal would require exchange options transactions to be reported to the tape immediately upon execution and no later than 90 seconds after execution of the trade. Under the proposed rule, transactions not reported within 90 seconds after execution would be designated as late. Patterns or practices of late reporting without exceptional circumstances may be considered conduct inconsistent with just and equitable principles of trade.[4]

Currently, Exchange Rule 1051 requires executed trades to be reported at the time of execution. The Exchange's proposal would require immediate trade reporting no later than 90 seconds following execution. The Phlx believes that setting a specific time limit for trade participants to report transactions should enable the Exchange's Market Surveillance Department and Enforcement Department to evaluate and determine accurately any violation of the rule.

The Phlx believes that the proposed rule change will facilitate transparency and help to present a more accurate picture of market activity. Additionally, the Phlx believes that the proposal will help to protect investors and the public interest by requiring the prompt reporting of executed trades to the tape that, in turn, will enable the Exchange to better monitor compliance with order handling and transparency rules, including limit order protection, priority, and best execution.

2. Statutory Purpose

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,[5] in general, and furthers the objectives of Section 6(b)(5) [6] in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of change, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system.

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

The Exchange neither solicited nor received written comments on the proposed rule change.

III. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549-0609. 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 persons, 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Phlx. All submissions should refer to the File No. SR-Phlx-00-49 and should be submitted by October 3, 2000.

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

The Commission finds that the proposal is consistent with the requirements of the Act.[7] In particular, Start Printed Page 55071the Commission finds that the proposed rule change furthers the objectives of Section 6(b)(5),[8] in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and national market system.

Specifically, the Commission believes that the proposal, as amended, which requires the reporting of all options transactions with 90 seconds of execution, should help to prevent fraudulent and manipulative acts and practices, as well as to promote just and equitable principles of trade. The Commission believes that the proposed rule change, as amended, should enable the Exchange to provide accurate trade information to investors more efficiently. The enhanced transparency associated with timely trade reporting should facilitate price discovery for investors and assist the Phlx's surveillance of its members' trading in listed options.

The Phlx has requested that the Commission find good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice in the Federal Register. The Commission believes the proposal is substantially similar to the Amex proposal to amend Amex rules to require the reporting of options transactions within 90 seconds of execution that was recently reviewed and approved by the Commission.[9] The Amex proposal was noticed for the full 21 day comment period and no comments were received. Accordingly, the Commission finds good cause pursuant to Section 19(b)(2) of the Act [10] to accelerate approval of the proposed rule change, as amended.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[11] that the proposed rule change (SR-Phlx-00-49), as amended, is approved on an accelerated basis.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See letter from Richard S. Rudolph, Counsel, Phlx to Deborah Flynn, Senior Special Counsel, Division of Market Regulation (“Division”), Commission, dated August 31, 2000 (“Amendment No. 1”). Amendment No. 1 requests the Commission to approve the proposed rule change on an accelerated basis and clarifies that if a member fails to report an options transaction within 90 seconds, the report would be considered “late.” Additionally, Amendment No. 1 revises the proposed rule language to clarify that a pattern or practice of late reporting, without exceptional circumstances, would be considered conduct inconsistent with just and equitable principles of trade. Amendment No. 1 also clarifies that the three-year running calendar basis for the imposition of the fine schedule in OFPA F-2 begins to run on the date of the first infraction. Amendment No. 1 supersedes a previous amendment filed with the Commission on August 23, 2000. See letter from Richard S. Rudolph, Counsel, Phlx to Nancy Sanow, Assistant Director, Divsion, Commission, dated August 22, 2000.

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4.  In Amendment No. 1, the Phlx incorporated this language into Phlx Rule 1051 and OFPA F-2. The Exchange also clarified that a failure to report a single options transaction within 90 seconds would be considered a violation of the proposed options rule. See Amendment No. 1, supra note 3.

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7.  In approving this rule, 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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9.  See Securities Exchange Act Release No. 43233 (Aug. 30, 2000) (approving SR-Amex-00-03).

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[FR Doc. 00-23284 Filed 9-11-00; 8:45 am]

BILLING CODE 8010-01-M