03-17925. Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc. to Amend the Exchange's Rule 229 to Provide for the Automatic Execution of Odd-lot Market and Marketable Limit Orders Received ...

July 9, 2003.

On April 23, 2002, 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”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change to amend Phlx Rule 229, Supplementary Material .08, to modify the Philadelphia Stock Exchange Automated Communication and Execution (“PACE”) System to provide for the automated execution of odd-lot market and marketable limit orders received over the PACE System during locked and crossed markets. When the PACE Quote ^[3] is locked, odd-lot market and marketable limit orders entered after the opening will be executed at the locked price. If the PACE Quote is crossed, odd-lot orders will be executed automatically at the mean of the crossed bid and offer if the bid is higher than the offer by $.05 or less, or manually at the price of the next unlocked and uncrossed PACE Quote if the bid is higher than the offer by more than $.05.

The proposed rule change was published for comment in the Federal Register on June 4, 2003.^[4] The Commission received no comments on the proposal.

After careful review, 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.^[5] Specifically, the Commission finds that the proposed rule change promotes the objectives of section 6(b)(5) of the Act,^[6] which requires, among other things, that the rules of the Exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and national market system, and, in general, to protect investors and the public interest.

The Commission believes that the proposed rule change is consistent with the Act because the Exchange's proposed process for handling odd-lot market and marketable limit orders after the opening should increase the efficiency of order handling by relieving the burden of specialists of dealing with manual orders of less than a round lot during periods of locked and crossed markets. Additionally, the Commission notes that the Exchange represents that the proposed rule change will improve and enhance order execution quality by reducing order execution time while simultaneously ensuring that orders receive the best bid or offer. Finally, the Commission notes that the proposed rule change is similar to that of the American Stock Exchange LLC ^[7] and therefore raises no novel regulatory issues.

It Is therefore ordered, Pursuant to section 19(b)(2) of the Act,^[8] that the proposed rule change (SR-Phlx-2003-31) be, and hereby is, approved.

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.  The PACE Quote is the best bid/ask quote among the American Stock Exchange, Boston Stock Exchange, Cincinnati Stock Exchange, Chicago Stock Exchange, New York Stock Exchange, Pacific Exchange or Philadelphia Stock Exchange, or the Intermarket Trading System/Computer Assisted Execution System (“ITS/CAES”) quote, as appropriate. The Phlx has represented that the proposal, including the PACE quote, would not include Nasdaq securities. Telephone conversation between Murray L. Ross, Vice President and Secretary, Phlx, and Cyndi Rodriguez, Special Counsel, Division of Market Regulation, Commission, on July 1, 2003.

4.  See Securities Exchange Act Release No. 47942 (May 29, 2003), 68 FR 33557 (June 4, 2003).

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

6.  15 U.S.C. 78f(b)(5).

7.  See Securities Exchange Act Release No. 46304 (August 2, 2002), 67 FR 51903 (August 9, 2002).

8.  15 U.S.C. 78s(b)(2).

9.  17 CFR 200.30-3(a)(12).