01-2380. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. To Amend Rule 1063(a) and Options Floor Procedure Advices A-10 and C-1, Relating to Trading in Foreign Currency Options

January 19, 2001.

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 January 11, 2001, the Philadelphia Stock Exchange, Inc. (“Phlx”) 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 prepared by the Phlx. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Phlx proposes to amend Phlx Rule 1063(a), Phlx Options Floor Procedure Advice A-10, and Phlx Options Floor Procedure Advice C-1. The proposed amendments would provide an exception, limited only to foreign currency options (“FCOs”), from the requirement that a Registered Options Trader (“ROT”) be present at the trading post in certain circumstances. The proposal would also make certain non-substantive stylistic changes to Floor Procedure Advices A-10 and C-1. The text of the proposed rule change is available at the principal offices of the Phlx and at the Commission.

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 had received on the proposal. 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 Phlx is seeking approval of amendments of Phlx Rule 1063(a) (“Responsibilities of Floor Brokers”), Phlx Options Floor Procedure Advice A-10 (“Specialist Trading With Book”), and Phlx Options Floor Procedure Advice C-1 (“Ascertaining the Presence of ROTs in a Trading Crowd”), as discussed below. Phlx Rule 1063(a) provides that Options Floor Brokers shall ascertain that at least one Registered Options Trading (“ROT”) is present at the trading post before representing an order for execution. Phlx Options Floor Procedure Advice A-10 provides that in any instance where a Specialist wishes to participate as principal in a trade with an order placed on that Specialist's book, the Specialist must ensure that at least one ROT is present in the trading crowd and is aware of the Specialist's intention to trade with the book both at the time of and immediately before the execution. Phlx Options Floor Procedure Advice C-1 provides that a Floor Broker representing an order in options shall, before executing the order, ascertain that at least one ROT is present in the trading crowd at the post where the order is executed.

Each of these rules currently contains a temporary exception that is limited only to FCO transactions. Pursuant to the temporary exception, which expires on March 31, 2001, an FCO Specialist may trade as principal with an order on the book and an FCO Floor Broker may represent an order or execute a trade when no ROT registered in the FCO is present on the Phlx's FCO trading floor.^[3]

The Commission approved the temporary exception on January 3, 2001, on an accelerated basis.^[4] The Phlx requested accelerated approval of the temporary exception after it learned that, as of January 3, 2001, no ROTs would be doing business on a regular basis on the Phlx's FCO floor. The Phlx anticipated that there very likely would be periods of time when FCO Specialists and FCO Floor Brokers would be on the FCO floor with no FCO ROTs present, and that compliance with Phlx Rule 1063(a) and Phlx Options Floor Procedure Advices A-10 and C-1 would not be possible under those circumstances. In the Phlx's view, the amendments were necessary in order to enable the Phlx to continue to provide fair and orderly markets in FCOs in the absence of FCO ROTs on the FCO floor.

The Phlx now proposes a rule change that would permanently exempt FCO Specialists and FCO Floor Brokers from the requirements in Phlx Rule 1063(a) and Phlx Options Floor Procedure Advices A-10 and C-1. Specifically, the Phlx proposes to amend Rule 1063(a) and Phlx Options Floor Procedure Advices A-10 and C-1 by deleting from each rule the words “until March 31, 2001,” thereby making permanent the temporary exceptions that those rules currently provide.^[5] The Phlx represents that, like the temporary rule change, the permanent exception would apply only if no ROT is present on the FCO floor when an FCO Specialist trades as principal with an order on the book, or when an FCO Floor Broker represents an order or executes a trade. The Phlx believes that the proposed rule change would enable it to provide fair and orderly markets in FCOs in the event that FCO ROTs are absent from the FCO floor after the current temporary rule change expires on March 31, 2001.

2. Statutory Basis

The Phlx believes that 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, in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, and processing information with respect to transactions in securities, 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. Moreover, the Phlx believes that the proposed rule change is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In the Phlx's view, the proposed rule change will permit Phlx Specialists to continue to trade as principal with orders on the book, and will allow Phlx Floor Brokers to continue to represent and execute orders in FCOs in the event that no ROTs are present on the FCO floor.

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

The Phlx has neither solicited nor received written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Phlx consents, the Commission will:

A. by order approve such rule change; or

B. institute proceedings to determine whether the proposed rule change should be disapproved.

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. 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-01-06 and should be submitted by February 16, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[6]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  The Phlx's FCO trading floor is located in the same building as its equity options trading floor, but is in a different room.

4.  Securities Exchange Act Release No. 43799 (January 3, 2001), 66 FR 2469 (January 11, 2001) (File No. SR-Phlx-00-111).

5.  The proposed rule change also makes non-substantive changes to Phlx Rule 1063(a) and Phlx Options Floor Procedure Advices A-10 and C-1 by replacing the shorthand term “ROT” with the term “Registered Options Trader.” The temporary rule change incorporated those same changes.

6.  17 CFR 200.30-3(a)(12).