I. Introduction
On March 8, 2001, 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”), and Rule 19b-4 thereunder, a proposed rule change to adopt Phlx Rule 1033(a)(ii) and Options Floor Procedure Advice (“OFPA”) F-32 pertaining to the solicitation of quotations. On May 11, 2001, the Exchange filed Amendment No. 1 to the proposed rule change with the Commission. On November 21, 2001, the Exchange filed Amendment No. 2 to the proposed rule change with the Commission. The proposed rule change and Amendment Nos. 1 and 2 were published in the Federal Register on February 12, 2002. No comments were received regarding the proposal. This order approves the proposed rule change, as amended.
17 CFR 240.19b-4
The Exchange filed this proposed rule change pursuant to the provisions of Section IV.B.j. of the Commission's September 11, 2000 Order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Act, which required the Exchange, among other things, to adopt new, or amend existing, rules to include any practice or procedure whereby market makers trading any particular option class determine by agreement the spreads or option prices at which they will trade any option class.
See Letter from Richard S. Rudolph, Counsel, Phlx, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated May 10, 2001 (“Amendment No. 1”).
See Letter from Richard S. Rudolph, Counsel, Phlx, to Nancy J. Sanow, Assistant Director, Division, Commission, dated November 21, 2001 (“Amendment No. 2”).
See Securities Exhange Act Release No. 45391 (February 4, 2002), 67 FR 6570.
II. Description of the Proposal
The Exchange proposes to adopt Phlx Rule 1033(a)(ii) and OFPA F-32, which would permit the members of a trading crowd (including the specialist and Registered Options Traders (“ROTs”)) to discuss, negotiate, and agree upon the price or prices at which an order of a size greater than the AUTO-X guarantee can be executed at that time, or the number of contracts that can be executed at a given price or prices in response to a floor broker's request for a single bid or offer. The proposal would expressly permit a collective response from trading crowd members. However, members would not be required to participate in a collective response and may voice a bid or offer independently from, and differently from, the trading crowd members. In fact, an individual ROT with the necessary liquidity, willing to execute a trade at a price better than the prevailing market, could bid against the crowd and take the entire trade, or part of the trade, pursuant to the Phlx allocation rules.
See Phlx Rule 1014. See also File No. SR-Phlx-2001-39 (proposing to amend Phlx Rule 1014).
III. Discussion
After careful consideration the Commission has determined to approve the proposed rule change. For the reasons discussed below, 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 section 6(b)(8) of the Act, which requires that the rules of an exchange do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
In approving this proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78f(b)(8).
This proposed rule change will clearly establish in the Phlx's rules the parameters under which Phlx specialists and ROTs may coordinate to respond efficiently to the needs of investors, while fulfilling their duty to make fair and orderly markets. In particular, the proposed rule change will allow the trading crowd, in response to a floor broker's request for a single bid or offer for a large size order, to collectively discuss, negotiate and agree upon the price or prices at which an order of a size greater than the AUTO-X guarantee can be executed at that time, or the number of contracts that can be executed at a given price or prices.
The Commission believes that this proposed rule change recognizes the desire of the marketplace to provide a single price to a request to fill a large order that a single member might not be able to fill. The Commission believes that any anticompetitive effect of this proposal is limited by requiring that there be a request for a single price and that the order be sufficiently large. In addition, the Commission notes that under the proposed rule change, a single crowd participant may voice a bid or offer independently from, and differently from, the specialist and other members of a trading crowd in order to execute the entire order or part of the order.
The Commission expects the Exchange to monitor the collective actions that are undertaken pursuant to the rule change approved herein for any undesirable or inappropriate anticompetitive effects. The Commission's examination staff will monitor the Exchange's efforts in this regard.
See supra note 7. See also Phlx Rules 1015(a) and 1082(e).
Finally, the Commission finds that the proposed rule change is designed to effectively limit the circumstances in which collective action is permissible.
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-Phlx-2001-33) is approved, as amended.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Scretary.
[FR Doc. 02-7041 Filed 3-22-02; 8:45 am]
BILLING CODE 8010-01-U