01-6803. Self-Regulatory Organizations; Order Approving a 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

March 13, 2001.

I. Introduction

On January 11, 2001, pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] the Philadelphia Stock Exchange, Inc. (“Phlx”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change to provide an exception, limited only to foreign currency options (“FOCs”), from the requirement that a Registered Options Trader (“ROT”) be present at the trading post in certain circumstances. The proposed rule change was published for comment and appeared in the Federal Register on January 26, 2001.^[3] The Commission received no comments on the proposal. This order approves the Phlx's proposed rule change.

II. Description of the Proposal

The Phlx is seeking approval of amendments to 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”). Phlx Rule 1063(a) provides that Options Floor Brokers shall ascertain that at least one 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.^[4] The proposed rule change 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 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.

III. Discussion

The Commission approved the temporary exception on January 3, 2001, on an accelerated basis.^[6] 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 represented 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 Commission's view, the exception was 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.

Like the temporary rule change, the proposed 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 Commission believes that 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. In view of the foregoing, the Commission finds that the Phlx's proposal is designed to promote just and equitable principles of trade, to facilitate transactions in securities, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest, consistent with section 6(b)(5) of the Act.^[7]

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-Phlx-01-06) is approved.^[8]

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C.78s(b)(1).

2.  17 CFR 240.19b-4

3.  Securities Exchange Act Release No. 43864 (January 19, 2001), 66 FR 7947 (January 26, 2001) (SR-Phlx-01-06).

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

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

7.  15 U.S.C. 78f(b)(5).

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

9.  17 CFR 200.30-3(a)(12).