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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to Trading of Options on Exchange Traded Fund Shares

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Start Preamble March 8, 2001.

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 March 5, 2001, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission “SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Phlx. The proposed rule change has been filed by the Phlx as a “non-controversial” rule change under Rule 19b-4(f)(6) [3] under the Act. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Phlx proposes to amend Phlx Rule 1012, Commentary .05 by creating one point strike price intervals for options on Exchange-Traded Fund Shares. In addition, the Phlx proposes to amend Phlx Rule 101 to establish the hours of trading for options on the Nasdaq-100 Index Tracking Stock, a particular class of options on Exchange-Traded Fund Shares,[4] from 9:30 AM to Start Printed Page 153114:15 PM Eastern Standard Time (“EST”), except the last trading day of each calendar month, when trading in options on Nasdaq-100 Index Tracking Stock will end at 4:05 PM EST. Below is the text of the proposed rule change. Proposed new language is italicized; proposed deletions are in brackets.

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Rule 101. Hours of Business

Supplementary Material

.01 Options Trading after 4:02 PM. A trading rotation in any class of option contracts may be effected even though employment of the rotation will result in the transaction on the Exchange after 4:02 P.M. provided such rotation is conducted pursuant to Rule 1047 or Rule 1047A. The hours of trading for Options on Nasdaq-100 Index Tracking Stock shall commence at 9:30 AM and end at 4:15 PM, each business day, except the last trading day of each calendar month, when trading in Options on Nasdaq-100 Index tracking Stock will end at 4:05 PM.

.02-.03 No Change.

Rule 1012. Series of Options Open for Trading

(a)-(d) No Change.

Commentary

.01-.04 No Change.

.05.

(a) The interval of strike prices of series of options on individual stocks [or Exchange-Traded Fund Shares] will be $2.50 or greater where the strike price is $25 or less, $5.00 or greater where the strike price is greater than $25 but less than $200, and $10 or greater where the strike price is $200 or more, except as provided in paragraph (b) below. The interval of strike prices of series of options on Exchange-Traded Fund Shares will be $1 or greater where the strike price is $200 or less.[5]

(b) The Exchange may select up to a specified number of its listed options on individual stocks [or Exchange-Traded Fund Shares] for which the interval of strike prices will be $2.50 where the strike price is greater than $25 but less than $50. In addition to those options selected by the Exchange, the strike price interval may be $2.50 in any multiply-traded option once another exchange trading that option selects such option, as part of this program.

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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. The text of these statements may be examined at the places specified in Item IV 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 provide one point strike price intervals for options on Exchange-Traded Fund Shares and to establish the hours of trading in options on the Nasdaq-100 Index Tracking Stock from 9:30 AM to 4:15 PM EST, except the last trading day of each calendar month, when trading in options on the Nasdaq-100 Index Tracking Stock will end at 4:05 PM EST.

The Phlx received approval by the Commission to trade options on Exchange-Traded Fund Shares on February 2, 2001.[6] The Phlx proposes to amend Rule 1012, Commentary .05 regarding strike price intervals for options on Exchange-Traded Fund Shares to bracket the Fund Shares at one point intervals up to a share price of $200. This proposed amendment is consistent with the strike price interval established for options on Exchange-Traded Fund Shares on the American Stock Exchange LLC (“Amex”).[7]

Additionally, the Phlx proposes to amend its hours of business [8] to trade options on the Nasdaq-100 Index Tracking Stock from 9:30 AM to 4:15 PM EST, except that last trading day of a calendar month, when trading in Options on the Nasdaq-100 Index Tracking Stock will end at 4:05 PM EST. These hours are consistent with the trading of Options on Nasdaq-100 Index Tracking Stock on Amex.

The Phlx believes that these amendments should increase investor protection by allowing Options on Exchange-Traded Fund Shares and, in particular, options on the Nasdaq-100 Index Tracking Stock to trade at the same strike price intervals and trading hours on the Phlx as on other exchanges. Further, the Phlx believes that these amendments do not impose any significant burden on competition because these amendments further enable the Phlx to compete with other exchanges in these products.

2. Statutory Basis

The Phlx believes that the proposed amendments should assist in allowing the Exchange to offer investors another choice of venue to conduct trading in these products. Thus, the Phlx believes that the proposed rule change is consistent with Section 6(b)(5) of the Act [9] 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Phlx believes that the proposed rule change does not 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

The Phlx has neither solicited nor received any written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Because the foregoing proposed rule change: (1) Does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not become operative for 30 days from the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest; provided that the Phlx has given written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing the rule change, or such shorter time as Start Printed Page 15312designated by the Commission, the proposed rule change has become effective pursuant to section 19(b)(3)(A) [10] of the Act and Rule 19b-4(f)(6) [11] thereunder.[12]

A proposed rule change filed under Rule 19b-4(f)(6) may not become operative prior to 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Phlx has requested that the Commission accelerate the operative date to March 8, 2001. The Commission finds that accelerating the operative date of the proposed rule change to enable the Phlx to compete with other exchanges in these products and provide investors with an additional venue to trade these products is consistent with the protection of investors and the public interest, and thus designates March 8, 2001 as the operative date of this filing.[13]

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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 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 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 will also be available for inspection and copying at the principal office of the Phlx.

All submissions should refer to File No. SR-Phlx-01-32 and should be submitted by April 6, 2001.

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

4.  The Nasdaq-100®, Nasdaq-100 Index®, and Nasdaq® are trade or service marks of The Nasdaq Stock Market, Inc. (with its affiliates, the “Corporations”) and are licensed for use by the Exchange. Options on Nasdaq-100 Index Tracking Stock (the “Products”) have not been passed on by the Corporations as to their legality or suitability. The Products are not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the Products. The Corporations do not guarantee the accuracy and/or uninterrupted calculation of the Nasdaq-100 Index® or any data included therein. The Corporations make no warranty, express or implied, as to results to be obtained by Licensee, owners of the Products, or any other person or entity from the use of the Nasdaq-100 Index® or any data included therein. The Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantability or fitness for a particular purpose or use with respect to the Nasdaq-100 Index® or any data included therein. Without limiting any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages.

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5.  As per a telephone conversation between Edith Hallahan, First Vice President, Deputy General Counsel, Phlx, and Heather Traeger and Lisa Jones, Attorneys, Division of Market Regulation, Commission, March 8, 2001, the Commission corrected a typographical error that appeared in the proposed rule language.

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6.  See Securities Exchange Act Release No. 43921 (February 2, 2001), 65 FR 9739 (February 9, 2001) (Order approving SR-Phlx-00-107).

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7.  See Securities Exchange Act Release No. 40157 (July 1, 1998), 63 FR 37426 (July 10, 1998) (Order approving SR-Amex-96-44).

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8.  Phlx Rule 101.

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12.  The Phlx has requested and the Commission has agreed to waive the five day pre-filing notice equipment.

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13.  For the purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rules impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 01-6541 Filed 3-15-01; 8:45 am]

BILLING CODE 8010-01-M