Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Numbers 1 and 3 Thereto by the Philadelphia Stock Exchange, Inc. Relating to the Exchange's Allocation, Evaluation and Securities Committee Provisions

[Federal Register Volume 64, Number 199 (Friday, October 15, 1999)]
[Notices]
[Pages 56012-56014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26895]



SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41991; File No. SR-Phlx-99-27]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Numbers 1 and 3 
Thereto by the Philadelphia Stock Exchange, Inc. Relating to the 
Exchange's Allocation, Evaluation and Securities Committee Provisions

October 7, 1999.
    Pursuant to Section 19(b)(1) of Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 1, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change.\3\ On October 1, 1999, the 
Exchange submitted Amendment No. 1 to the proposed rule change \4\ and 
on October 5, 1999, the Exchange submitted Amendment No. 2.\5\ The 
proposed rule change, as amended, is described in Items I, II, and III 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange submitted its proposal on September 9, 1999. 
However, because of the substantive nature of Amendment No. 1, the 
Commission deems the proposal effective on October 1, 1999, the date 
of filing of Amendment No. 1.
    \4\ In Amendment No. 1, the Exchange amended its proposed rule 
language to clarify that only voluntary delisting of options books 
done in the best interest of the Exchange will not be viewed 
negatively by the Committee. See Letter from Richard S. Rudolph, 
Counsel, Phlx, to Terry Evans, Attorney, Division of Market 
Regulation (``Division''), Commission, dated September 30, 1999 
(``Amendment No. 1'').
    \5\ In Amendment No. 2, the Exchange made a minor technical 
change to its proposed rule language to conform such language to the 
rule as currently drafted. See Letter from Richard S. Rudolph, 
Counsel, Phlx, to Terry Evans, Attorney, Division, Commission, dated 
October 4, 1999 (``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 511(b), Specialist 
Performance Evaluation, to reflect the view of the Allocation, 
Evaluation and Securities Committee (``Committee'') that voluntary 
delisting of options book by option specialists, done in the best 
interest of the Exchange and to encourage a better use of Exchange and

[[Page 56013]]

specialist resources, will not be considered negatively in the 
Committee's decision making process.
    Specifically, the proposed amended rule will include a clause 
reflecting that, solely with respect to options books allocations or 
reallocations, past or contemplated voluntary delisting of options 
books by options specialists, done in the best interest of the 
Exchange, will not be viewed negatively by the Committee in making 
allocation and reallocation decisions. The text of the proposed rule 
change follows. New text is italicized.
Specialist Performance Evaluation
    Rule 511. (a) No change.
    (b) Allocations. The Committee shall allocate new equity books and 
options classes, approved transfers or reallocate existing equity books 
and options classes to applicants based on the results of the 
evaluations conducted pursuant to Rule 515 and such other factors as 
the Committee deems appropriate. Among the factors that the Committee 
may consider in making such decisions are: the number and type of 
securities in which applicants are currently registered; the personnel, 
capital and other resources of the applicant; recent allocation 
decisions within the past eighteen months; the desirability of 
encouraging the entry of new specialists into the Exchange's market; 
order flow commitments; any prior transfers of specialist privileges by 
the applicant and the reasons therefore and such policies as the Board 
instructs the Committee to follow in allocating or reallocating 
securities. Solely with respect to options book allocations or 
reallocations, past or contemplated voluntary delisting of options 
books by options specialists, done in the best interest of the 
Exchange, will not be viewed negatively by the Committee in making 
allocation and reallocation decisions. Solvely with respect to equity 
book allocations or reallocations, the Committee may consider the 
number of primary issues in which the applicant is currently 
registered; the number of securities the applicant currently has 
registered on PACE and the level of commitments he has made; and 
securities the applicant recently has applied to remove from PACE or in 
which the applicant has resigned as specialist. Recognition is given 
that evaluation results may not be available for new specialist units 
or recently reorganized Registrants. The Committee may establish 
separate or additional criteria for evaluating new or recently 
reorganized Registrants, particularly where evaluation results are 
unavailable or are only available for a limited period of time. All 
allocations shall initially be made on a temporary basis for a period 
of up to 90 days within which time the Committee may commence a special 
review pursuant to Rule 515(b). The Committee is empowered to grant 
equity books or option classes for a limited period of time or subject 
to such other terms and conditions as it deems appropriate.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 purpose of the proposed rule change is to allow options 
specialists to voluntarily delist certain inactive options books in the 
best interest of the Exchange, due to recent concerns raised regarding 
computer capacity and physical space on the Exchange's Options Trading 
Floor, without being penalized by the Committee in its consideration of 
future applications for options specialist privileges.
    To maximize trading floor space and computer capacity, it may 
become important for options specialist units to relinquish less active 
options books. However, there may be a perception among options 
specialists that delisting options books might be viewed in a negative 
light by the Committee in making future allocation and reallocation 
decisions.\6\ Consistent with Rule 511(b), the Phlx Board of Governors 
has instructed the Committee not to view voluntary delisting of options 
books by options specialist units in a negative light.
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    \6\ Currently, Exchange Rule 511(b) enumerates specific factors 
the Committee may consider in making option allocation, transfer and 
reallocation decisions, including the number and type of securities 
in which applicants are currently registered; the personnel, capital 
and other resources of the applicant; recent allocation decisions 
within the past eighteen months; the desirability of encouraging the 
entry of new specialists into the Exchange's market; order flow 
commitments; any prior transfers of specialist privileges by the 
applicant and the reasons therefor and such policies as the Board 
instructs the Committee to follow in allocating and reallocating 
securities.
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    In response, the Phlx is proposing to codify the Board's and the 
Committee's view that such voluntary delisting, done in the best 
interest of the Exchange and to encourage a better use of Exchange and 
specialist resources, will not be considered negatively in the 
Committee's decision making process.
    Furthermore, the Committee has determined that, in the best 
interest of the Exchange, options books that are voluntarily delisted 
by options specialist units will not be automatically resolicited for 
assignment to other options specialists on the Exchange Options 
Floor.\7\ However, options specialists wishing to be assigned as the 
specialist in an options book that has been voluntarily delisted by 
another options specialist unit will not be precluded from submitting 
an Application for Approval as an Options Specialist Unit in such an 
options book to the Committee. Upon receipt of such an application, the 
Committee will consider, and vote upon, the application in accordance 
with the applicable Exchange rules.\8\
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    \7\ The Exchange believes that under Article X, Section 10-7, 
the Committee has the authority to determine that options books that 
are voluntarily delisted by options specialist units will not be 
automatically resolicited for assignment to other options 
specialist. Telephone conversation between Richard S. Rudolph, 
Counsel, Phlx, and Terry Evans, Attorney, Division, Commission, on 
October 7, 1999.
    \8\ See Exchange Rules 500-599.
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2. Statutory Basis
    For these reasons, the proposed rule change is consistent with 
Section 6 of the Act \9\ in general, and in particular, with Section 
6(b)(5),\10\ in that it is designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, as well as to protect investors and the public interest, by 
allowing Exchange options specialist to voluntarily delist options 
books to ensure that adequate computer capacity and physical floor 
space exist on the Exchange Options Floor to serve the marketplace.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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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.

[[Page 56014]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received written comments.

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

    The foregoing proposed rule change, as amended: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date on which it 
was filed. In addition, the Exchange provided the Commission with 
written notice of its intent to file the proposed rule change at least 
five business days prior to the filing date. Therefore, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 in Washington, DC. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Exchange. All submissions should refer 
to File No. SR-Phlx-99-27 and should be submitted by November 5, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-26895 Filed 10-14-99; 8:45 am]
BILLING CODE 8010-01-M