04-4510. Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change To Reduce Strike Prices for Index Options

February 24, 2004.

On December 4, 2003, 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 1101A (“Terms of Option Contracts”) to provide that strike price intervals for index options ^[3] shall be $2.50 for the three consecutive near-term months, $5 for the fourth month, and $10 for the fifth month. The proposed rule change was published for comment in the Federal Register on January 21, 2004.^[4] The Commission received no comments on the proposal. This order approves the proposed rule change.

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] In particular, the Commission believes the proposal is consistent with Section 6(b)(5) of the Act ^[6] which requires, among other things, that the Exchange's rules be 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.

The Commission believes that by reducing strike price intervals to $2.50 strikes for three consecutive near-term months, $5 for the fourth month, and $10 for the fifth month, the proposed rule change should increase the ability to trade an options series that is likely to expire in-the-money. In addition, the Commission notes that the Exchange has represented that there is sufficient Options Price Reporting Authority (“OPRA”) system capacity to accommodate the reduced strike price intervals.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[7] that the proposed rule change (SR-Phlx-2003-72) is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[8]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  Index options traded on the Exchange are also known as sector index options.

4.  See Securities Exchange Act Release No. 49074 (January 14, 2004), 69 FR 2959.

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.  15 U.S.C. 78s(b)(2).

8.  17 CFR 200.30-3(a)(12).