01-2504. Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Granting Accelerated Approval of Proposed Rule Change Relating to the Dissemination of Options Quotations With Size

January 22, 2001.

I. Introduction

On January 8, 2001, the Philadelphia Stock Exchange, Inc. (“Exchange” or “Phlx”) submitted to 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 seeking to amend Exchange Options Floor Procedure Advice (“OFPA”) F-7, Bids and Offers, to state that the size of any bid or offer in a quotation disseminated by the Exchange shall be equal to the AUTO-X guarantee for the quoted option and shall be firm, except that the disseminated size of bids and offers of customer limit orders shall be ten contracts and shall be firm, regardless of the actual size of such orders. Notice of the proposed rule change appeared in the Federal Register on January 18, 2001.^[3] The Commission received no comments on the proposal. This order approves the proposed rule change on an accelerated basis.

II. Description of the Proposal

The Exchange proposes to codify its initial program for the dissemination of options quotations with size. The Exchange anticipates that, on or about January 22, 2001, the Options Price Reporting Authority (“OPRA”) will begin to support the dissemination of options quotations that include the size, or the number of contracts, represented in disseminated bids and offers on the Exchange.

Although, the Phlx anticipates that OPRA will have the necessary systems capacity to accept and disseminate quotations with size by late January 2001, and that one or more options exchanges will be in a position to disseminate actual quotation size at the time, the Phlx will not have completed its application of the systems changes necessary to permit it to disseminate actual quotation size for a number of months.

Therefore, until the Exchange's systems disseminate actual quotation size on a quote-by-quote basis, the Phlx proposes to establish by rule and periodically publish,^[4] on its web site and through regulatory circulars to Exchange members and member organizations, the quotation size for which its members' quotations are firm as required by Rule 11Ac1-1(d)(1)(i) under the Act.^[5]

In addition, the Exchange proposes to voluntarily disseminate to OPRA the applicable automatic execution size guarantee for each quoted option, except that with respect to customer limit orders the Phlx would disseminate a size of 10 contracts, regardless of the actual size of the customer order. In all cases, the Phlx would be firm for its disseminated quotation size (without regard to whether the given order would be eligible for automatic execution via the Exchange's automatic execution feature, AUTO-X).^[6]

Until the Phlx has completed its application of the systems changes necessary to automatically update its quotation size on a continuous basis, the Phlx believes that the instant proposal represents a vast improvement over the current system, by increasing transparency and providing the market place with considerably more information upon which to base order routing decisions.

Finally, the Phlx expects to begin providing quotations with actual size on a floor-wide basis within one year. The Exchange represents that it will undertake to submit a further proposed rule change when the Exchange is able to disseminate actual size associated with its options quotes and customer limit orders.

The Exchange represents that the instant proposed rule change does not affect in any respect the Exchange's obligations concerning non-public customer orders.^[7] Further, the Exchange represents that prior to the April 1, 2001 mandatory compliance date of the amended Quote Rule, the Exchange will establish firm quote requirements with respect to orders received from broker-dealers, as required by the amended Quote Rule.

III. Discussion

For the reasons discussed below, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange. In particular, the Commission believes the proposed rule change is consistent with the requirements of section 6(b)(5) of the Act ^[8] that the rules of an exchange be designed to facilitate transactions in securities, promote just and equitable principals of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest.^[9] The Commission believes that the proposal should help to increase transparency by providing more information to investors in a readily accessible manner. In addition, the proposal should help to increase investor confidence in transactions on the Exchange by providing greater certainty to investors by ensuring that quotes made by market participants are firm for a specified number of contracts for customer orders.

The Commission believes that the Exchange's proposal to establish by rule and periodically publish the size for their best bid and offer in each options series that it listed on the Exchange is consistent with the amendments to the Quote Rule provided that the Exchange establish firm quote requirements for orders received from broker-dealers prior to April 1, 2001. The Commission notes that the Exchange represents that is will periodically publish on its web site and through regulatory circulars to Exchange members and member organizations the size for which its members' quotations must be firm. Further, the Commission notes that the Exchange intends to provide quotations with actual size on a floor-wide basis within one year.

Finally, the Commission, pursuant to section 19(b)(2) of the Act,^[10] finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Commission notes that the Exchange anticipates the OPRA may begin to support the dissemination of quotes with size as soon as January 22, 2001. The Commission believes that granting accelerated approval to this proposal should allow investors to receive more information as soon as that information can be made available through the OPRA system. Accordingly, the Commission finds that there is good cause, consistent with section 19(b)(2) of the Act,^[11] to approve the proposal on an accelerated basis.

IV. Conclusion

It is Therefore Ordered, pursuant to section 19(b)(2) of the Act,^[12] that the proposed rule change (SR-Phlx-01-01) is approved on an accelerated basis.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[13]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 43822 (January 8, 2001), 66 FR 4884.

4.  On November 17, 2000, the Commission amended Rule 11Ac1-1 (“Quote Rule”) under the Act to require options exchanges and options market makers to publish firm quotes. The compliance date for the amended Quote Rule is April 1, 2001. See Securities Exchange Act Release No. 43591 (November 17, 2000), 65 FR 75439 (December 1, 2000).

5.  Rule 11Ac1-1(d)(1)(i) under the Act, 17 CFR 240.11Ac1-1(d)(1)(i). To accommodate the fact that the options markets did not yet disseminate quotes with size, the Commission provided an alternative to the Quote Rule, as applied in the equity markets, which allows options markets to establish by rule and periodically publish the size for which their quotations will be firm.

6.  In the event that certain Phlx specialist firms are able to develop and implement proprietary systems (called “Specialized Quote Feeds” or “SQFs”) that are able to disseminate actual size prior to the Exchange's systems disseminating quotations with actual size on a floor-wide basis, the Phlx would undertake to file a further proposed rule change with the Commission requesting approval to disseminate actual size for those options classes assigned to such specialist firms.

7.  See Phlx Rule 1015(b) and Options Floor Procedure Advice A-11.

8.  15 U.S.C. 78f(b)(5).

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

10.  15 U.S.C. 78s(b)(2).

11.  15 U.S.C. 78s(b)(2).

12.  15 U.S.C. 78s(b)(2).

13.  17 CFR 200.30-(a)(12).