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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. To Extend a PACE Order Execution and Price Protection Pilot Program

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Start Preamble September 19, 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 August 29 2001, 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, II, and III below, which Items have been prepared by the Exchange. The Exchange filed this proposal under Section 19(b)(3)(A) of the Act,[3] and Rule 19b-4(f)(6) [4] thereunder, which renders the proposal effective upon filing with the Commission. 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 Exchange proposes to extend through November 5, 2001 its Philadelphia Stock Exchange Automated Communication and Execution System(“PACE”) [5] price improvement pilot program (“pilot program”). The pilot program, which is found in Supplementary Material .05 and .07(c)(ii) to Phlx Rule 229, incorporates decimal pricing into two PACE provisions—immediate execution of certain market orders through the Public Order Exposure System (“POES”) and mandatory double-up/double-down price protection for equities quoting in decimals. The pilot Start Printed Page 49241program has been in effect since August 25, 2000.[6]

The only substantive change the Phlx proposes at this time is to extend the pilot program through November 5, 2001.[7] The text of the proposed rule change is available at the Phlx and at the Commission.

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 Exchange 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 maybe examined at the places specified in Item IV below. The Exchange 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 proposes to extend, through November 5, 2001, the Phlx's pilot program that incorporates immediate execution of certain orders and mandatory double-up/double-down price protection for equities quoting in decimals over PACE.

The order execution portion of the pilot program is found in Supplementary Material .05 to Phlx Rule 229, which establishes that market orders up to a specified number of shares will be “stopped” at the PACE quote at time of entry into the system and delayed up to 30 seconds to allow for price improvement. However, if the PACE quote at time of order entry reflects a point spread (the difference between the best bid and offer) of $.05 or less, that order will be executed immediately.

The double-up/double-down price protection portion of the pilot program is found in Supplementary Material .07(c)(ii) to Phlx Rule 229, which establishes that if a specialist chooses not to provide automatic price improvement to all customers and all eligible market orders in an equity quoting in decimals, the specialist must provide manual double-up/double-down price protection in any instance where the bid/ask of the PACE quote is $.05 or greater. Double-up/double-down is defined in Supplementary Material .07(c)(ii) as a trade that would be at least $.10 (up or down) from the last regular way sale on the primary market, or, $.10 from the regular way sale that was the previous intra-day change on the primary market.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6 of the Act [8] in general, and in particular, with Section 6(b)(5),[9] in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and protect investors and the public interest by providing for automatic execution of certain market orders and mandatory double-up/double-down price protection for equities quoted in decimals.

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

The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition.

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

Because the foregoing proposed rule change does not:

(i) significantly affect the protection of investors or the public interest;

(ii) impose any significant burden on competition; and

(iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act [10] and Rule 19b-4(f)(6) thereunder.[11] At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

The Exchange has requested that the Commission waive the 5-day pre-filing notice requirement, and accelerate the operative date. The Commission finds good cause to waive the pre-filing notice requirement, and to designate the proposal to be both effective and operative upon filing because such designation is consistent with the protection of investors and the public interest. Waiver of these requirements will allow the pilot program to continue uninterrupted through November 5, 2001. For these reasons, the Commission finds good cause to designate that the proposal is both effective and operative upon filing with the Commission.[12]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal 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 Exchange. All submissions should refer to file number SR-Phlx-2001-81, and should be submitted by October 17, 2001.

Start Signature
Start Printed Page 49242

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[13]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

4.  17 CFR 240.19b-4(f)(6). The Phlx requested that the Commission waive the 5-day prefiling notice requirement, and the 30-day operative delay.

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5.  PACE is the Exchange's automated order delivery, routing, execution and reporting system for equities.

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6.  The pilot program was established in SR-Phlx-00-08. See Securities Exchange Act Release No. 43206 (August 25, 2000), 65 FR 35250 (September 1, 2000). The pilot program was extended through August 31, 2001 in SR-Phlx-2001-20). See Securities Exchange Act Release No. 41185 (April 16, 2001), 66 FR 20511 (April 23, 2001). The price improvement portion of the pilot program (Supplementary Material .07(c)(i) to Phlx Rule 229) has been replaced by a price improvement pilot program with an automatic price improvement feature based on percentage of the spread between the bid and the offer. See Securities Exchange Act Release Nos. 43901 (January 30, 2001), 66 FR 8988 (February 5, 2001) (SR-Phlx-2001-12) and 44672 (August 9 2001), 66 FR 43285 (August 17, 2001) (SR-Phlx-2001-12) and 44672 (August 9, 2001), 66 FR 43285 (August 17, 2001) (SR-Phlx-2001-67). The Phlx is not seeking to extend the pilot program as to Supplementary Material .07(c)(i) to Phlx Rule 229 at this time.

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7.  The Phlx recognizes that all equities currently quote in decimals. The Phlx will file a proposed rule change in the future to remove references to fractional pricing from this and other Phlx rules.

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12.  For purposes only of accelerating the operative date of 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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[FR Doc. 01-24002 Filed 9-25-01; 8:45 am]

BILLING CODE 8010-01-M