Skip to Content

Notice

Self-Regulatory Organizations; Order Approving a Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to Automatic Price Improvement for Buy Orders in Securities Exempt for the Short Sale Rule

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble June 4, 2003.

I. Introduction

On April 3, 2003, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with 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 amend Supplementary Material .07 to Phlx Rule 229 to modify the Exchange's Automatic Price Improvement (“API”) program to allow specialists to choose to improve buy orders in securities that are exempted from or otherwise not subject to the “tick” requirements of Rule 10a-1 under the Act [3] (the “Short Sale Rule”). The proposed rule change was published for comment in the Federal Register on April 28, 2003.[4] The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change.

II. Description of the Proposal

The Exchange's API program allows specialists to provide automatic price improvement to automatically executable market and marketable limit orders in New York Stock Exchange, Inc. and American Stock Exchange LLC (“Amex”) listed securities received through Phlx's Automated Communication and Execution System (“PACE”) [5] for 599 shares or less of Start Printed Page 34693either $.01 or a percentage of the PACE Quote when the order is received.[6] Specialists may choose to offer API in each individual specialty security. If a specialist offers API in an individual security, then the specialist must offer it to all customers and all eligible market orders in that security. Participation in the API program and PACE is voluntary.

Currently, API is not available to certain buy orders if the execution price of those buy orders would be on a minus or zero-minus tick.[7] The Exchange has proposed to amend Supplementary Material .07 to Phlx Rule 229 to modify the Exchange's API program to allow specialists to choose to improve buy orders in securities that are exempted from or otherwise not subject to the “tick” requirements of the Short Sale Rule.[8]

III. Discussion

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.[9] In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act,[10] which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest. The Commission believes that expanding the types of securities that may receive API to include those securities that are not subject to the “tick” requirements of the Short Sale Rule should allow customers to receive more opportunities for price improvement.

The Exchange has stated that it will issue a regulatory circular informing its members which securities are currently exempt from the “tick” requirements of the Short Sale Rule and thus available for API under the rule change. At this time, securities that trade on the Exchange that the Commission has exempted from the “tick” requirements of the Short Sale Rule include Exchange-Traded Funds (“ETFs”)[11] and certain Trust Issued Receipts (“TIRs”).[12]

IV. Conclusion

For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[13] that the proposed rule change (SR-Phlx-2003-25) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[14]

Jill M. Peterson,

Assistant Secretary.

End Signature End Preamble

Footnotes

3.  17 CFR 240.10a-1. Paragraph (a) of Rule 10a-1 covers transactions in any security registered on a national securities exchange, if trades in such security are reported pursuant to an “effective transaction reporting plan” (“Reported Securities”). A short sale of a Reported Security listed on a national securities exchange may not be effected at a price either: (1) below the last reported price of a transaction reported in the consolidated transaction reporting system (“minus tick”); or (2) at the last reported price if that price is lower than the last reported different price (“zero-minus tick”).”

Back to Citation

4.  See Securities Exchange Act Release No. 47714 (April 22, 2003), 68 FR 22447.

Back to Citation

5.  PACE is the Exchange's automated order routing, delivery, execution and reporting system for listed securities. See Phlx Rule 229.

Back to Citation

6.  See Supplementary Material .07 to Phlx Rule 229.

Back to Citation

7.  See Supplementary Material .07(c)(i)(A) to Phlx Rule 229.

Back to Citation

9.  In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Back to Citation

11.  See, e.g., letter from James A. Brigagliano, Assistant Director, Division of Market Regulation (“Division”), Commission, to Claire P. McGrath, Vice President, Amex, dated August 17, 2001(“Amex Letter”); letter from Nancy J. Sanow, Assistant Director, Division, Commission, to James F. Duffy, General Counsel, Amex, dated January 22, 1993 (regarding SPDRs listed on the Amex); letter from James A. Brigagliano, Assistant Director, Division, Commission, to James F. Duffy, General Counsel, Amex, dated March 3, 1999 (regarding QQQs listed on the Amex).

Back to Citation

12.  See letter from James A. Brigagliano, Assistant Director, Division, Commission, to Janet L. Fisher, Cleary, Gottlieb, Steen & Hamilton, dated March 19, 2002 (regarding the Biotech Basket Opportunity Exchangeable Securities series (“BOXES”) traded on the Amex and Phlx). In order to be exempt from the Short Sale Rule, a TIR must meet certain size, concentration, and ADTV criteria.

Back to Citation

[FR Doc. 03-14566 Filed 6-9-03; 8:45 am]

BILLING CODE 8010-01-P