[Federal Register: April 5, 2007 (Volume 72, Number 65)]
[Notices]
[Page 16846-16848]
[DOCID:fr05ap07-143]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55558; File No. SR-Phlx-2007-25]

Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Exchange's Automated Opening System

March 29, 2007.
    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 March 20, 2007, 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 substantially prepared by the
Phlx. The Phlx has filed the proposed rule change as one effecting a
change in an existing order-entry or trading system of a self-
regulatory organization pursuant to Section 19(b)(3)(A)(ii) of the Act
\3\ and Rule 19b-4(f)(5) thereunder,\4\ 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(5).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 1017, Openings in

Options, to provide for a delay in the automated opening of an option
series for up to five seconds when the conditions for opening the
option series have been satisfied, and following: (1) Respecting equity
options, the dissemination of an opening quote or trade in the primary
market for the underlying security; or (2) respecting index options,
following the dissemination of a quote or trade by the primary markets
for underlying securities constituting 100% of the index value. The
text of the proposed rule change is available at Phlx, the Commission's
Public Reference Room, and http://www.Phlx.com/exchange/phlx-rule-fil.html.

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 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 IV 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

1. Purpose
    The purpose of the proposed rule change is to help Exchange
specialists, Streaming Quote Traders (``SQTs''),\5\ and Remote
Streaming Quote Traders (``RSQTs'') \6\ to better manage their market
risk by delaying the opening of an option series for a brief interval
following the dissemination of an opening trade or quote in the
underlying security. Thus, specialist, SQTs and RSQTs would be able to
price options series accurately on the opening.
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    \5\ An SQT is an Exchange Registered Options Trader (``ROT'')
who has received permission from the Exchange to generate and submit
option quotations electronically through AUTOM in eligible options
to which such SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on the floor of the
Exchange. See Exchange Rule 1014(b)(ii)(A).
    \6\ An RSQT is an ROT that is a member or member organization
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically through AUTOM in eligible options to which such RSQT
has been assigned. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. See Exchange Rule
1014(b)(ii)(B).
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    Currently, the Exchange's systems immediately open a series when
the following conditions are satisfied:
    (i) The Exchange has received market orders, or the book is crossed
(highest bid is higher than the lowest offer) or locked (highest bid
equals the lowest offer); and either:
    (ii)(A) The specialist's quote has been submitted;
    (B) The quotes of at least two Phlx XL participants \7\ have been
submitted within two minutes of the opening trade or quote on the
primary market for the underlying security; or
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    \7\ Phlx XL participants include specialist, SQT, RSQT, and non-
SQT ROTs who are required to submit continuous two-sided electronic
quotations pursuant to Exchange Rule 1014(b)(ii)(E). See Exchange
Rule 1017(a).
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    (C) If neither the specialist's quote nor the quotes of two Phlx XL
participants have been submitted within two minutes of the opening
trade or quote on the primary market for the underlying security, one
Phlx XL participant has submitted their quote.
    Once these conditions are satisfied, the system will automatically
open the series immediately upon the dissemination of an opening trade
or quote in the primary market for the underlying. The proposed rule
change would delay the opening of an option series for up to five
seconds from the dissemination of an opening quote or trade in the
primary market for the underlying security or, respecting index
options, following the dissemination of a quote or trade by the primary
markets for underlying securities constituting 100% of the index value.
The time period would apply uniformly to all options traded on the
Exchange.
    Experience with the automated opening system has shown that
specialists, SQTs, and RSQTs frequently do not have an adequate
opportunity to adjust their pre-opening quotes to accurately reflect
the price of the underlying security when the underlying trade or quote
is disseminated. As a result, the option series may be priced
incorrectly at the opening, which places Exchange specialists, SQTs and
RSQTs at market risk on the opening.
    The delay (which time period would be determined by the Exchange
and disseminated to membership via an Exchange circular) should enable
Exchange specialists, SQTs and RSQTs to better manage this market risk
and to maintain fair and orderly markets by pricing options series
accurately on the opening.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \8\ in general, and furthers the objectives of Section
6(b)(5) of the Act \9\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest,
by enabling Exchange specialists, SQTs and RSQTs to better manage their
risk, thus providing fair and orderly markets and correct options
pricing on the opening of a series, all to the benefit of customers and
the marketplace as a whole.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.

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

    The foregoing proposed rule change effects a change in an existing
order-entry or trading system of a self-regulatory organization that:
(1) Does not significantly affect the protection of investors or the
public interest; (2) does not impose any significant burden on
competition; and (3) does not have the effect of limiting the access to
or availability of the system. Therefore, it has become effective
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(5)
\11\ thereunder. At any time within 60 days of the filing of the
proposed rule change the Commission may summarily abrogate such
proposed 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(5).
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IV. 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. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File No. SR-Phlx-2007-25 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2007-25. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 the filing
also will be available for inspection and copying at the principal
office of the Phlx. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-Phlx-2007-25 and should be submitted on or before April 26, 2007.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-6378 Filed 4-4-07; 8:45 am]

BILLING CODE 8010-01-P