Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on September 8, 2000, 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 prepared by the Phlx. The text of the proposal is available for inspection and copying at the places specified in Item III below. On September 14, 2001, Phlx filed Amendment No. 1 to the proposal. On October 5, 2001, Phlx filed Amendment No. 2 to the proposal. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and to approve the proposal, as amended, on an accelerated basis.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes that the approval of the listing and trading of options on the Index be continued upon the removal of a limitation that absent Commission approval, the Index be comprised of no less than 16 component securities and no more than 24 component securities. Under the proposal, the Exchange would instead apply the terms of Phlx Rule 1009A(c)(2) to the Index which specifies that the total number of component securities in an index may not increase or decrease by more than 331/3% from the number of component securities in the index at the time of its initial listing.
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 the 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
On November 17, 1998, the Commission issued a Notice of Filing and Immediate Effectiveness for a Phlx proposed rule change relating to listing and trading options on the Index. Options on the Index were developed pursuant to Phlx Rule 1009A(b) in accordance with the Generic Index Approval Order for the listing and trading of narrow-based index options. The Notice specified that absent Commission approval, the Exchange would not change the number of components to more than 24 or fewer than 16. The Index initially consisted of 20 component securities. The index is currently composed of 23 component securities.
The Exchange proposes to remove the limitation on the number of the Index's component securities found in the Notice. Instead, the Phlx proposes that the number of the Index's component securities be governed by Phlx Rule 1009A(c)(2) which provides in relevant part that, for options listed on indices pursuant to Phlx Rule 1009A(b), the total number of component securities in the index may not increase or decrease by more than 331/3% from the number of component securities in the index at the time of its initial listing. Thus, Start Printed Page 52824under the proposal, in accordance with Phlx Rule 1009A(c)(2), the Exchange would not open any additional series for trading if the number of the Index's component securities is less than 14 or greater than 26.
Given the recent growth in the Internet industry and the proliferation of qualified potential Index constituents, the Exchange believes that the increased flexibility in assigning component stock to the Index as permitted by Phlx Rule 1009A(c)(2), as opposed to the limitation found in the Notice, is appropriate to ensure that Index maintains its intended market character. The Exchange believes that the proposal could enhance the Index and facilitate the development and implementation of new products based upon the Index. Except for the change described herein (and in a separate proposed rule change relating to the name and stock selection methodology of the Index and the determination of share amounts which is proposed to be implemented simultaneously with this proposed rule change), the attributes of the Index and the options on the Index will remain as described in the Exchange's original proposed rule change to list options on the Index.
In eliminating the restriction that the Index shall have no fewer than 16 and no more than 24 securities without securing Commission approval, the Exchange believes that the Index and the options on the Index will continue to comply with the maintenance criteria set forth in Rule 1009A(c). Specifically, the Index will remain A.M. settled, the components of the Index will be reported securities in accordance with Rule 11Aa3-1 under the Act, and the current underlying Index value will be reported at least once every fifteen seconds during the time the Index options are traded on the Exchange. In addition, 90% of the weight of the Index and 80% of the total number of components in the Index will satisfy the requirements of Phlx Rule 1009A(c) regarding options eligibility. The five highest weighted components will not in aggregate account for more than 50% of the weight of the Index pursuant to Phlx Rule 1009A(c)(1) and no single security will account for more than 25% of the weight of the Index. Pursuant to Phlx Rule 1009A(c)(2), the Exchange will not open any additional series for trading if the number of components is decreased to below 14 or increased to greater than 26. The Exchange will continue to rebalance the Index once every calendar quarter.
The Exchange plans to increase the number of components securities in the Index as permitted by this proposed rule change during the quarterly rebalancing, which takes place following October expiration on October 19, 2001. On October 12, 2001, the Exchange will post to members an information circular on its website starting that the Exchange will be increasing the number of stocks in the Index to 25 effective Monday morning, October 22, 2001. The information circular, among other things, will identify the two new components securities.
2. Statutory Basis
Phlx believes the proposed rule change is consistent with Section 6(b) of the Act, in general, and furthers the objectives of Section 6(b)(5), in particular, because it is designed to promote just and equitable principles of trade, as well as to protect investors and the public interest, by permitting the Exchange to continue listing and trading options on the Index after making enhancements to the Index which should providing investors with an improved means of hedging exposure to market risks associated with the securities issued by companies in the Internet industry.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx 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 solicited or received with respect to 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 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 Phlx. All submissions should refer to File No. SR-Phlx-00-70 and should be submitted by November 7, 2001.
IV. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change
After careful review, 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, and in particular, the requirements of section 6(b)(5) of the Act. Specifically, the Commission finds that the Phlx's proposal will prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, and remove impediments to and perfect the mechanism of a free and open market, and, in general, protect investors and the public interest consistent with section 6(b)(5) of the Act. Phlx Rule 1009A(c)(2) is consistent with the objectives of the Generic Index Approval Order, which sets forth generic listing standards for options on narrow-based indexes, including the requirement that the number of component stocks may not increase or decrease by a number exceeding 331/3 percent of the number of stocks comprising the index at the time of its initial listing. In approving the Generic Index Approval Order, the Commission found that the generic listing standards for narrow-based index options strike a reasonable balance between the Commission's mandates under section 6(b)(5) of the Act  to remove impediments to and perfect the mechanism of a free and open market and a national market system, while protecting investors and the public interest. Thus, as no new regulatory issues are raised by this proposal, the Commission believes it is appropriate to remove the component number limitations found in the Notice, and permit the Exchange to manage the Start Printed Page 52825Index with greater flexibility under Phlx Rule 1009A(c)(2).
Accordingly, the commission finds good cause, consistent with section 6(b)(5) of the Act, to approve the proposed rule change, and Amendment Nos. 1 and 2, on an accelerated basis prior to the thirtieth day after the date of publication of notice in the Federal Register, pursuant to section 19(b)(2) of the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-Phlx-00-70), as amended, is hereby approved on an accelerated basis.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. See letter from Carla Behnfeldt, Director, Legal Department New Product Development Group, Phlx, to Marc McKayle, Special Counsel, Division of Market Regulation, Commission, dated September 12, 2001 (“Amendment No. 1”). In Amendment No. 1, the Phlx described component additions and subtractions to TheStreet.com Internet Index (“Index”), and listed the Index's 23 components and share weightings as of September 11, 2001. The Exchange also indicated that it intended to increase the number of Index components to 25 at the quarterly rebalancing, to become effective on October 22, 2001 (“Effective Date”). The Exchange will post an information circular on the Exchange website, at least ten days prior to the Effective Date, to notify its members of the two new component securities.Back to Citation
4. This 19b-4 filing represents Amendment No. 2, which replaces the proposal as originally filed, but incorporates Amendment No. 1 to the filing.Back to Citation
5. See Securities Exchange Act Release No. 40685 (November 17, 1998), 63 FR 65630 (November 27, 1998) (“Notice”).Back to Citation
6. See Securities Exchange Act Release No. 34157 (June 3, 1994), 59 FR 30062 (June 9, 1994) (order approving File Nos.SR-Amex-92-35; SR-CBOE-93-59; SR-NYSE-94-17; SR-PSE-94-07; and SR-Phlx-94-10) (“Generic Index Approval Order”).Back to Citation
7. See Amendment No. 1, supra note 3.Back to Citation
8. See Securities Exchange Act Release No. 44920 (October 11, 2001) (Approval order for File No. SR-Phlx-00-75, which, among other things, renames the Index “TheStreet.com Internet Sector Index”).Back to Citation
10. See Securities Exchange Act Release No. 44920, supra note 8.Back to Citation
14. Id. In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).Back to Citation
18. Id.Back to Citation
[FR Doc. 01-26085 Filed 10-16-01; 8:45 am]
BILLING CODE 8010-01-M