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 February 1, 2000, 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 and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. For the reasons discussed below, the Commission is granting accelerated approval of the proposed rule change.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Phlx proposes new Rule 513, Voluntary Resignation of Options Privileges, which provides that when an option specialist unit voluntarily resigns from trading privileges in an option in the best interest of the Exchange, the option specialist unit which last traded that option will be given preference in any future allocation decision regarding that option, barring any performance or disciplinary issues. The text of the proposed rule is as follows:
Voluntary Resignation of Options Privileges
Rule 513. (a) If an option specialist unit voluntarily resigns from registration in a particular option and the Committee determines such resignation to be in the best interest of the Exchange, and that option is subsequently delisted, barring any specialist performance or disciplinary issues, the option specialist unit which last traded that option will be given preference in any future allocation decision regarding that option.
(b) The preference set forth in Section (a) of this rule shall be in effect for a period of one year from the date of resignation from trading privileges by the specialist unit.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Phlx 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 may be examined at the places specified in Item III 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
Currently, the Exchange and the Options Price Reporting Authority (“OPRA”) have serious concerns regarding mitigation of quote traffic and maximizing computer capacity. To address those concerns, proposed Rule 513 is intended to provide incentive for options specialists to create more computer capacity by resigning from relatively low volume/high quote traffic options. To provide that incentive, proposed Rule 513 states that the specialist unit which last traded that option will be given preference in any future allocation decision regarding that option.
Mitigation of excessive quote traffic and concomitant preservation of computer capacity is currently an industry-wide concern, and the Exchange believes that a preference provision such as the one contemplated in the proposed rule addresses this concern. In this context, the “best interest of the Exchange” is served by specialist units that voluntarily resign from trading privileges in options that trade at a relatively low volume, but which generate a high number of quotes to be disseminated from, and received by, the Exchange.
The rule does not provide an absolute guarantee that the specialist unit that last traded the option will be allocated the option in the event that it is certified and resolicited to the Exchange's options specialist units. All options specialist units will be allowed to apply for trading privileges in relisted options, and all applications will be considered by the Exchange's Allocation, Evaluation and Securities Committee (“Committee”). The proposed rule contemplates that the Committee may review the performance of a specialist unit that applies for an option from which it had previously resigned (“applicant”). In order to qualify for preferential treatment in the allocation of a relisted option, the performance of the applicant must be consistent with the standards set forth in the Exchange's rules. The Committee will also take into account the disciplinary record of the applicant when considering the application, and preferential treatment of the specialist unit applicant will not be given if the applicant demonstrates the inability to adhere to the Exchange's disciplinary rules and those of the Commission.
See Phlx Rule 506. This rule provides that the Committee will solicit applications from all eligible specialist units.
See Phlx Rules 511 and 515.
In approving Rule 513 for filing with the Commission, the Exchange's Board of Governors has determined that specialist units would be more willing to resign from trading privileges in options in order to mitigate quote traffic and to conserve computer capacity on the Exchange, if they are given some form of preference in the event that the options from which they have resigned in the best interest of the Exchange are to be relisted on the Exchange in the future.
Over time, material changes in the composition, personnel, capitalization, and other aspects of specialist units which resign from option trading privileges may occur, which would affect the Committee's decisions regarding future allocations to those specialist units. For this reason, the proposed rule limits the Committee's preference in such future allocations to one year.
2. Statutory Basis
Phlx believes that the proposed rule change is consistent with the provisions of Section 6 of the Act, in general, and Section 6(b)(5) of the Act, in particular, in that it is designed to perfect the mechanisms of a free and open market and a national market system, and to protect investors and the public interest. By giving Exchange option specialists incentive to resign from trading privileges in certain high quote/low volume options, the Exchange will continue to serve the investing public and its markets by mitigating quote traffic and, thus, providing the most current quote and execution information possible.
15 U.S.C. 78f(b)(5).
B. Self-Regulatory Organization's Statement on Burden on Competition
Phlx does not believe that the proposed rule change will result in any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Phlx has neither solicited nor received written comments on 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 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, N.W., Washington, D.C. 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-00-06 and should be submitted by June 5, 2000.
IV. Commission's Findings and Order Granting Accelerated Approval of the Proposed Rule Change
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, with the requirements of Section 6(b). Specifically, the Commission believes the proposal is consistent with the Section 6(b)(5) requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest.
15 U.S.C. 78f(b)(5).
In approving this rule, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
The Commission has previously note that the aggregate message traffic generated by the options exchanges is rapidly approaching the outside limit of OPRA's systems capacity. OPRA's processor has informed the Commission that current plans to enhance OPRA's systems are not expected to be completed before the end of the second quarter of this year, at the earliest. Accordingly, proposals that may mitigate quote traffic and conserve computer capacity, such as proposed Phlx Rule 513, should benefit investors and other participants in the options markets.
See Securities Exchange Act Release No. 42493 (March 3, 2000), 65 FR 12597 (March 9, 2000).
Pursuant to Section 19(b)(2), the Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice of the filing in the Federal Register. The Commission believes that granting accelerated approval of the proposal will allow Phlx to expeditiously implement the incentive program without any unnecessary delay.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-Phlx-00-06) is approved on an accelerated basis.
Id.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-12135 Filed 5-12-00; 8:45 am]
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