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Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc.; Relating to ROT Vocalization Requirements for Options Quotations

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Information about this document as published in the Federal Register.

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Start Preamble July 12, 2001.

I. Introduction

On March 5, 2001, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) submitted to 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 add an express vocalization requirement for Phlx Registered Options Traders (“ROTs”) whose quotation for a particular option series is different from the disseminated quote. The Federal Register published the proposed rule change for comment on June 6, 2001.[3] The Commission received no comments on the proposed rule change. This order approves the proposal.

II. Description of Proposal

The Phlx proposes to amend Commentary .01 to Phlx Rule 1080 to clarify that the quote disseminated by the Exchange's Auto-Quote system [4] or by a specialist's proprietary system that interfaces with the Exchange's Automated Options Market, which electronically prices options, is deemed to be the quote of all ROTs [5] in the crowd unless the ROT has vocalized a different quote in a clear and audible manner with sufficient time for the specialist to take action to update the quote, if necessary.[6]

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On September 11, 2000, the Commission issued an order [7] that requires four of the five options exchanges, including the Phlx to adopt new, or amend existing, rules to include any practice or procedure, not currently authorized by rule, whereby market makers determine by agreement the spreads or option prices at which they will trade any option, or the allocation of orders in that option.[8] The Exchange believes that the proposed rule change is responsive to, and compliant with, the Order.

III. Discussion

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.[9] Specifically, the Commission believes that the proposed rule change is consistent with the Section 6(b)(5) [10] requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest.

The Commission believes that the proposed rule change will remove impediments to and perfect the mechanisms of a free and open market by clarifying that quotes on the Exchange are deemed to be the quotes for all ROTs in the crowd unless the ROT vocalizes a different quote.[11] Further, the Commission believes that this requirement is consistent with the Quote Rule [12] that is now applicable to the options exchanges, including the Phlx.[13] Under the proposed rule change, ROTs would be required to execute orders at the disseminated price, unless the ROT to vocalized a different quote in a clear and audible manner with sufficient time for the specialist to update the quote, if necessary. The Commission notes that an ROT that believes that he or she has been unfairly allocated a portion of an order may challenge the allocation pursuant to Phlx Rule 124. The Commission believes that these procedures are reasonable and should permit the Exchange to function smoothly.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[14] that the proposed rule change (SR-Phlx-2001-26) is approved.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[15]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  Securities Exchange Act Release No. 44369 (May 30, 2001), 66 FR 30496.

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4.  Auto-Quote is the Exchange's electronic options pricing system, which enables specialists to automatically monitor and instantly update quotations.

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5.  A ROT is a regular member or a foreign currency options participant of the Exchange located on the trading floor who has received permission from the Exchange to trade options for his own account. See Phlx Rule 1014(b).

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6.  The ROT must vocalize a different quote before an order enters the system. If an ROT believes that he or she has been unfairly allocated a portion of the order, he or she can challenge the allocation pursuant to Phlx Rule 124. Telephone call between Rick Rudolph, Counsel, Phlx, Terri Evans, Special Counsel, Division of Market Regulation (“Division”), Commission, and Sonia Patton, Staff Attorney, Division, Commission (May 24, 2001).

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7.  See Order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions. Securities Exchange Act Release No. 43268 (September 11, 2000)(“Order”).

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8.  See Section IV.B.j. of the Order.

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9.  In approving the proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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11.  In approving this proposal, the Commission is not making any finding regarding the method by which quotes on the Exchange are derived in the first place.

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13.  See Securities Exchange Act Release No. 44383 (June 1, 2001), 66 FR 30959 (June 8, 2001).

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[FR Doc. 01-17930 Filed 7-17-01; 8:45 am]

BILLING CODE 8010-01-M