Notices. SECURITIES AND EXCHANGE COMMISSION
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BILLING CODE 6325-38-P SECURITIES AND EXCHANGE COMMISSION [Release No. 50747] Securities Exchange Act of 1934; Order Delaying Pilot Period for Suspension of the Operation of Short Sale Price Provisions November 29, 2004. On July 28, 2004, we issued an order (“Pilot Order”) establishing a one year Pilot (“Pilot”) suspending the provisions of Rule 10a-1(a) under the Securities Exchange Act of 1934 (the “Act”) 1 and any short sale price test of any exchange or national securities association for short sales 2 of certain securities. 3 The Pilot Order provided that the Pilot would commence on January 3, 2005 and terminate on December 31, 2005, and that we may issue further orders affecting the operation of the Pilot Order. 4 In response to information that we have received from market participants, we are issuing this Order (“Second Pilot Order”) to reset the Pilot to commence on May 2, 2005 and end on April 28, 2006.
All other terms of the Pilot Order remain unchanged. We may issue further orders affecting the operation of the Pilot. We find that the delay of the commencement of the Pilot is necessary and appropriate in the public interest and consistent with the protection of investors. 5 1 17 CFR 240.10a-1. 2 “Short sale” is defined in Rule 200 of Regulation SHO, 17 CFR 242.200. 3 Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004). Specifically, the Pilot Order suspended price tests for the following:
(1)Short sales in the securities identified in Appendix A to the Pilot Order;
(2)short sales in the securities included in the Russell 1000 index effected between 4:15 p.m. EST and the open of the effective transaction reporting plan of the Consolidated Tape Association (“consolidated tape”) on the following day; and
(3)short sales in any security not included in paragraphs
(1)and
(2)effected in the period between the close of the consolidated tape and the open of the consolidated tape on the following day. 4 69 FR at 48033. 5 *See* Section 36 of the Act. In addition, pursuant to Section 3(f) of the Act, we considered the impact of these modifications on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). I. New Pilot Period We established the Pilot as part of our review of short sale regulation in conjunction with the adoption of Regulation SHO. 6 The Pilot is designed to assist us in assessing whether changes to short sale regulation are necessary in light of current market practices and the purposes underlying short sale regulation. 7 In order to achieve this goal, it is critical that the data we receive on short sales of Pilot securities during the term of the Pilot is accurate and comprehensive. This is possible only if market participants execute all short sales of Pilot stocks without regard to any short sale price test. 6 69 FR at 48032; Securities Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (August 6, 2004) (the “Adopting Release”). 7 69 FR at 48032. Pursuant to Regulation SHO, brokers and dealers are required to mark short sale orders of Pilot stocks effected during any Pilot period as “short exempt” so that such orders are not subject to price tests. 8 Since the adoption of Regulation SHO and the order establishing the Pilot, our staff has communicated extensively with self-regulatory organizations and brokers and dealers in order to facilitate the implementation of Regulation SHO and the Pilot. During the course of this process, our staff was informed that a large number of brokers and dealers believe it would be inefficient and very costly for them to comply with this marking requirement for Pilot stocks under the time frame established by the Pilot Order. According to these brokers and dealers, they and their customers would need to make significant systems changes to be sure that short sale orders for Pilot stocks are marked properly and that the marking is maintained at each stage of processing the order. They also assert that these systems changes will be more extensive, costly and time-consuming to implement than they had anticipated during the comment period for Regulation SHO. 8 Rule 200(g) of Regulation SHO requires that brokers and dealers mark all sell orders of any equity security as “long,” “short,” or “short exempt.” 17 CFR 242.200(g). The Adopting Release states that short sales of pilot securities effected during any pilot period should be marked “short exempt.” 69 FR at 48012. The order processing systems of brokers and dealers and their customers are predominantly electronic. Currently, many of these systems are not programmed to automatically identify and mark Pilot stocks as “short exempt” or to recognize a “short exempt” marking. A broker-dealer may have many different internal systems that are linked together, and each of its customers may have different systems through which the customer communicates orders to the broker-dealer. According to the market participants, modifying these systems and their interconnections presents significant programming challenges. For example, market participants state that these systems currently are not equipped to change orders marked “short” to “short exempt.” Broker-dealer firms have advised our staff that it will be difficult to implement systems changes under the time frame established by the Pilot Order to identify and change all orders marked short so that all short sales of Pilot stocks are processed as intended by Regulation SHO and the Pilot, *i.e.,* without regard to any short sale price test. Finally, broker-dealer firms have asked us to consider the possibility that the systems changes may be in effect only for the one-year duration of the Pilot. Even if the brokers and dealers and their customers were able to make the necessary systems changes with reasonable expenditure of time and money, at the conclusion of the Pilot, brokers and dealers and their customers may be required to change their systems again, which would result in additional costs. In this context, we have been informed that a number of market centers have offered to assist their broker-dealer members in executing short sales in Pilot stocks in a manner consistent with Regulation SHO. According to these market centers, they would process all short sale orders of Pilot stocks without any short sale price test, regardless of whether the broker-dealers had marked the orders as “short exempt.” The market centers would do this by “masking” short sale instructions on Pilot stocks and executing the short sales as “short exempt.” Therefore, brokers and dealers and their customers would not be required to make extensive, and possibly temporary, systems changes, and short sales of Pilot stocks would be executed appropriately. We have been informed that both the brokers and dealers and the market centers agree that the market centers' proposals to “mask” short sale orders in Pilot stocks for the duration of the Pilot would be more efficient than having the brokers and dealers and their customers make necessary systems changes. Some market centers, however, would be required to make significant changes to their systems, and we understand that some of the market centers would not be able to complete all the necessary systems changes by January 3, 2005. We have been informed that the market centers would be ready to “mask” orders on May 2, 2005. Based on the forgoing, we believe that it is necessary and appropriate in the public interest and consistent with the protection of investors to delay the commencement of the Pilot until May 2, 2005. For the Commission to fully evaluate the effectiveness of short sale price restrictions, the data must be complete and accurate. The delay will provide an opportunity for systems to be modified in a manner that will help achieve the purposes of the Pilot. 9 Accordingly, the Pilot will now commence on May 2, 2005 and will end on April 28, 2006. 9 In addition, resetting the commencement date of the Pilot would allow the market centers to continue implementation of systems to electronically record all short sale orders, including manual orders. The compliance date for all other provisions of Regulation SHO remains January 3, 2005. This Second Pilot Order does not affect the responsibility of brokers and dealers to comply with the requirements of Regulation SHO, including the order marking requirements. 10 By issuing this Second Pilot Order, we are providing an opportunity for firms to work with the market centers to develop cost effective means of executing trades of Pilot stocks. Brokers and dealers, however, retain the responsibility to appropriately mark the orders of Pilot stocks upon commencement of the Pilot on May 2, 2005. 10 We believe that an exemption from the order marking requirements may be necessary and appropriate to allow broker-dealers to avail themselves of the order “masking” process described above for Pilot stocks, if implemented by the market centers. Accordingly, prior to the commencement of the Pilot, we will consider written requests for appropriate relief from the order marking requirements for Pilot stocks. II. Conclusion We find that delaying implementation of the Pilot until May 2, 2005, for the reasons stated above, is necessary and appropriate in the public interest and consistent with the protection of investors. Accordingly, it is hereby ordered that the suspension of the provisions of Rule 10a-1(a) and any short sale price test of any exchange or national securities association shall commence on May 2, 2005 and shall terminate on April 28, 2006. The Commission from time to time may issue further orders affecting the operation of the Second Pilot Order. All other provisions of the Pilot Order shall remain in effect. By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-3469 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50755; File No. SR-CBOE-2004-77] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Chicago Board Options Exchange, Inc. Relating to the Systematizing of Orders in Connection With the Requirement To Design and Implement a Consolidated Options Audit Trail System (“COATS”) November 30, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on November 24, 2004, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the CBOE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to amend its rules relating to the systematizing of orders in connection with the requirement to design and implement a consolidated options audit trail system (“COATS”). The text of the proposed rule change is provided below. Proposed additions are in italics and proposed deletions are in brackets. CHAPTER VI Section B: Member Activities on the Floor [Orders Required to Be in Written Form] *Required Order Information* Rule 6.24
(a)[Transmitted to the Floor. Each order transmitted to the floor must be recorded legibly in a written form that has been approved by the Exchange, and the member receiving such order must record the time of its receipt on the floor. Each such order must be in legible written form when taken to the post for attempted execution.] *Orders Must Be Systematized. The Exchange has undertaken with the other options exchanges to develop a Consolidated Options Audit Trail System (“COATS”), which when fully developed and implemented, will provide an accurate, time-sequenced record of electronic and other orders, quotations, and transactions in certain option classes listed on the Exchange. Unless otherwise provided, the requirements of this Rule shall commence on January 10, 2005. In connection with the implementation of COATS:* *(1) Except as provided in paragraphs (a)(2) through (a)(4), and (b), of this Rule, each order, cancellation of, or change to an order transmitted to the Exchange must be “systematized”, in a format approved by the Exchange, either before it is sent to the Exchange or upon receipt on the floor of the Exchange. An order is systematized if:
(i)the order is sent electronically to the Exchange; or
(ii)the order that is sent to the Exchange non-electronically* ( *e.g.* , *telephone orders) is input electronically into the Exchange's systems contemporaneously upon receipt on the Exchange, and prior to representation of the order.* *(2) Market and Marketable Orders. With respect to non-electronic, market and marketable orders sent to the Exchange, the member responsible for systematizing the order shall input into the Exchange's systems at least the following specific information with respect to the order prior to the representation of the order:
(i)The option symbol;
(ii)the expiration month;
(iii)the expiration year;
(iv)the strike price;
(v)buy or sell;
(vi)call or put;
(vii)the number of contracts; and
(viii)the Clearing Member. Any additional information with respect to the order shall be input into the Exchange's systems contemporaneously upon receipt, which may occur after the representation and execution of the order.* *(3) Orders in Certain Index Option Classes. The requirement to systematize orders as set forth in this Rule shall commence on March 28, 2005, in the following option classes: the S&P 500 index option class (SPX), the S&P 100 index option class (OEX), and the European-style S&P 100 index option class (XEO).* *(4) In the event of a malfunction or disruption of the Exchange's systems such that a member is unable to systematize an order, the member or member organization shall follow the procedures as described in paragraph
(b)of this Rule during the time period that the malfunction or disruption occurs. Upon the cessation of the malfunction or disruption, the member shall immediately resume systematizing orders. In addition, the member shall exert best efforts to input electronically into the Exchange's systems all relevant order information received during the time period when there was a malfunction or disruption of the Exchange's systems as soon as possible, and in any event shall input such data electronically into the Exchange's systems not later than the close of business on the day that the malfunction or disruption ceases. If, following a malfunction or disruption, the Exchange's systems were to become available for the systemization of orders after the close of business, the member would be expected to input electronically into the Exchange's systems all relevant order information received during the malfunction or disruption on the next business day.* *(b) With respect to orders received during a malfunction or disruption of the Exchange's systems under paragraph (a)(4) above:* *(1) Transmitted to the Floor. Each order transmitted to the Exchange must be recorded legibly in a written form that has been approved by the Exchange, and the member receiving such order must record the time of its receipt on the floor and legibly record the terms of the order, in written form.* *
(2)Cancellations and Changes. Each cancellation of, or change to, an order that has been transmitted to the floor must be recorded legibly in a written form that has been approved by the Exchange, and the member receiving such cancellation or change must record the time of its receipt on the floor. *
(c)Executions. A member transmitting from the floor a report of the execution of an order must record the time at which a report of such execution is received by such member. [(d) On-floor Market-Maker Orders. Each order transmitted by a Market-Maker while on the floor, including any cancellation of or change to such order, must be recorded legibly in a written form that has been approved by the Exchange, and must be time stamped immediately prior to its transmission.] * * * Interpretations and Policies: .01 Any member desiring to use an order form other than those provided by the Exchange must submit such form to the appropriate Floor Procedure Committee and obtain its approval prior to using such form on the Floor. *When approving an order form other than those provided by the Exchange, the appropriate Floor Procedure Committee shall ensure that the form complies with COATS.* .02 [(a) Without limiting the applicability of the foregoing, the] *The* use of hand signal communications on the floor of the Exchange may be used to initiate an order, to increase or decrease the size of an order, to change an order's limit, to cancel an order, or to activate a market order. [Unless an options class is exempted by the Exchange, any] *Any* initiation, cancellation, or change of an order relayed to a floor broker through the use of hand signals also must be *systematized in accordance with paragraph
(a)of this Rule* [relayed to the floor broker in written form, time-stamped, immediately thereafter]. All other rules applicable to order preparation and retention, and reporting duties are applicable to orders [in exempted option classes] *under this Interpretation* , except that the record-keeping obligation lies with the member signaling the order where a hand signal is used. All cancellations and changes of orders held by the [Board Broker or] Order Book Official must be provided in written form *or electronically, and also must be systematized in accordance with paragraph
(a)of this Rule* . [(b) Until further notice the following are exempt options classes under this Interpretation: OEX, SPX, NSX, and DJX.] .03 The appropriate Floor Procedure Committee will from time to time prescribe the form of Telephone and Terminal Order Formats in a Manual and the contents of this Manual are hereby incorporated in these Rules and will have full force and effect as if fully set forth herein. *The Telephone and Terminal Order Formats in the Manual shall comply with the requirements of COATS.* *.04 Accommodation liquidations as described in Rule 6.54 are exempt from the requirements of this Rule. However, the Exchange maintains quotation, order and transaction information for accommodation liquidations in the same format as the COATS data is maintained, and will make such information available to the SEC upon request.* *.05 FLEX options, as described in Chapter 24A of the Exchange's rules, are exempt from the requirements of this Rule. However, the Exchange will maintain as part of its audit trail quotation, order and transaction information for FLEX options in a form and manner that is substantially similar to the form and manner as the COATS data is maintained, and will make such information available to the SEC upon request.* *.06 Any proprietary system approved by the Exchange on the Exchange's trading floor which receives orders will be considered an Exchange system for purposes of paragraph (a)(1) of this Rule. Any proprietary system approved by the Exchange shall have the functionality to comply with the requirements of COATS.* *.07 On-floor Market-Maker Orders. Each order transmitted by a Market-Maker while on the floor, including any cancellation of or change to such order, must be systematized in accordance with the procedures described in Paragraph
(a)and
(b)of this Rule, as applicable.* *Rule 6.73 Responsibilities of Floor Brokers* (a)-(d) No change. * * * Interpretations and Policies: .01—.03 No change. .04 Pursuant to Rule 6.73(a), *and subject to the requirement to systematize orders prior to representation pursuant to Rule 6.24,* a Floor Broker's use of due diligence in handling an order shall include the immediate and continuous representation at the trading station where the option class represented by the order is traded, any of the following types of orders:
(1)market orders,
(2)limit orders to sell where the specified price is at or below the current offer or,
(3)limit orders to buy where the specified price is at or above the current bid. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with 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 parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose CBOE proposes this rule change to comply with the requirement to implement COATS. In connection with the filing of this proposed rule change, CBOE is withdrawing SR-CBOE-2003-18, and Amendment Nos. 1 and 2 thereto, which CBOE previously filed to comply with the requirement to implement COATS. 3 3 Amendment No. 1 to SR-CBOE-2003-18 superceded the original filing in its entirety, and was published for comment by the SEC on July 31, 2003. *See* Securities Exchange Act Release No. 48267 (August 1, 2003), 68 FR 47116 (August 8, 2003). Specifically, CBOE is submitting the proposed change to Rule 6.24 in connection with subparagraph IV.B.e(v) of the Commission's September 11, 2000 Order (“Order”), 4 which requires the options exchanges to design and implement COATS to “incorporate into the audit trail all non-electronic orders such that the audit trail provides an accurate, time-sequenced record of electronic and other orders, quotations and transactions on such respondent exchange, beginning with the receipt of an order by such respondent exchange and further documenting the life of the order through the process of execution, partial execution, or cancellation of that order * * *” (“Phase V”). 4 Order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions. *See* Securities Exchange Act Release No. 43268 (September 11, 2000). In order to assure that all non-electronic orders are incorporated into COATS for Phase V, the proposed rule change proposes to amend CBOE Rule 6.24, which currently requires orders to be in written form. The proposed rule change generally requires that each order, change to an order, or cancellation of an order transmitted to the Exchange must be “systematized,” in a format approved by the Exchange, either before it is sent to the Exchange or contemporaneously upon receipt on the floor of the Exchange, and prior to representation of the order. 5 Each order, change to an order, or cancellation of an order may be systematized in one of two ways. If an order, change to an order, or cancellation of an order is sent electronically to the Exchange, it is systematized. Alternatively, if an order, change to an order, or cancellation of an order that is sent to the Exchange non-electronically is input electronically into the Exchange's systems contemporaneously upon receipt on the Exchange, it is systematized. 6 The proposed rule states that this requirement will commence on January 10, 2005. 5 CBOE notes that the execution or partial execution of an order has been incorporated into COATS in Phase II, and as described in Paragraph II of the formal COATS Plan that the options exchanges previously have provided to the SEC. 6 The Exchange recognizes the need for effective and proactive surveillance for activities such as trading ahead and front-running. It currently conducts surveillance for such activities and will incorporate a review of order systemization as part of such surveillance. The Exchange also intends to implement supplementary surveillance and examination programs related to the systemization of orders requirement promptly after this requirement is instituted, and which will support, among other things, trading ahead and front-running surveillances. Although the proposed rule change generally requires that each order be systematized prior to representation, the Exchange believes that it is appropriate and necessary to treat market and marketable orders differently than other orders so that marketable orders may be represented immediately in the marketplace as customers expect and as members representing those orders are obligated to do. 7 Accordingly, with respect to non-electronic market and marketable orders sent to the Exchange, the proposed rule change provides that the member responsible for systematizing the order shall input into the Exchange's systems a number of order terms that are sufficient to distinguish one order from another order that a member may receive at or about the same time to ensure an accurate audit trail. Accordingly, the proposed rule change requires that a member input into the Exchange's systems the following specific information with respect to a market or marketable order prior to the representation of the order:
(i)The option symbol;
(ii)the expiration month;
(iii)the expiration year;
(iv)the strike price;
(v)buy or sell;
(vi)call or put;
(vii)the number of contracts; and
(viii)the Clearing Member. 8 Any additional information with respect to the order shall be input into the Exchange's systems contemporaneously thereafter, which may occur after the representation and execution of the order. 7 CBOE Rule 6.73(a) requires that “[a] floor broker handling an order is to use due diligence to execute the order at the best price or prices available to him.” Interpretation .04 to Rule 6.73 further clarifies a broker's obligation to exercise due diligence, stating “Pursuant to Rule 6.73(a), a Floor Broker's use of due diligence in handling an order shall include the immediate and continuous representation, at the trading station where the option class represented by the order is traded, any of the following types of orders:
(1)Market orders,
(2)limit orders to sell where the specified price is at or below the current offer or,
(3)limit orders to buy where the specified price is at or above the current bid.” 8 The “Clearing Member” means the CBOE clearing member firm that is required to be identified for each transaction on the Exchange pursuant to Rule 6.51(d). *See* Rule 1.1(f) defining “Clearing Member”. This requirement for market and marketable orders necessarily requires the member receiving the market or marketable order to balance the requirement to immediately systematize non-electronic orders for audit trail purposes with the member's obligation under CBOE rules, 9 the federal securities laws, and common law agency principles to immediately and continuously represent market and marketable customer orders. 10 Because the requirement to systematize market and marketable orders will affect a member's ability to immediately represent market and marketable customer orders, the Exchange is also proposing to amend Interpretation .04 to CBOE Rule 6.73— *Responsibilities of Floor Brokers* , to make explicit that a broker's responsibility to immediately and continuously represent market and marketable orders is subject to the requirement set forth in this rule change, namely, that each order must be systematized prior to representation. 9 *See* CBOE Rule 6.73. 10 Following implementation of this rule change on would be sufficient to distinguish one order from another January 10, 2005, the Exchange intends to analyze whether some number of orders terms less than the eight identified above that a member may receive at or about the same time. If the Exchange's analysis supports eliminating the necessity to input some of these order terms prior to representation, the Exchange may propose to amend this requirement, which would be subject to Commission review and approval. With respect to non-electronic orders received in the S&P 100 index option class (OEX), the S&P 500 index option class (SPX), and the European-style S&P 100 index option class (XEO), the proposed rule change states that the requirement to systematize orders prior to representation shall commence on March 28, 2005. The Exchange believes that the exception for these option classes is reasonable and appropriate because the manner in which these option classes trade is significantly different than equity option classes and because of the trading environment that exists in these option classes. 11 11 As CBOE has advised the SEC staff, CBOE initially developed its floor broker workstation (“FBW”) to assist its members in complying with their obligations to systematize orders for COATS. However, the FBW was designed specifically for COATS compliance in equity option classes, and not for use in index option classes. Upon being advised in late December 2003 that the requirement to systematize orders also applied to non-equity option classes, the Exchange actively pursued developing an alternative technology to utilize in index option classes. Additionally, in proposed new subparagraph (a)(4) of CBOE Rule 6.24, the Exchange proposes that in the event of a malfunction or disruption of the Exchange's systems such that a member is unable to systematize an order, the member or member organization shall follow the procedures as described in paragraph
(b)of CBOE Rule 6.24 during the time period that the malfunction or disruption occurs. Upon the cessation of the malfunction or disruption, the member shall immediately resume systematizing orders. In addition, the member shall exert best efforts to input electronically into the Exchange's systems all relevant order information received during the time period when there was a malfunction or disruption of the Exchange's systems as soon as possible, and in any event shall input such data electronically into the Exchange's systems not later than the close of business on the day that the malfunction or disruption ceases. 12 12 If, following a malfunction or disruption, the Exchange's systems were to become available for the systemization of orders after the close of business, the member would be expected to input electronically into the Exchange's systems all relevant order information received during the malfunction or disruption on the next business day. The proposed rule change also keeps the current Interpretation and Policy .02(a) of CBOE Rule 6.24, which permits the use of hand signal communications on the floor to, among other things, initiate an order, cancel an order or change material terms of an order. However, any initiation, cancellation, or change of an order relayed to a floor broker through the use of hand signals also must be systematized upon receipt in accordance with paragraph
(a)of CBOE Rule 6.24. The proposed rule change also deletes paragraph
(b)of Interpretation .02, as paragraph
(a)of that interpretation is being amended to delete the reference to exempt classes. The Exchange has added a new Interpretation and Policy .04 to CBOE Rule 6.24, which states that accommodation liquidations as defined in Rule 6.54 are exempted from the systematization requirement. However, the Exchange maintains quotation, order and transaction information for accommodation liquidations in the same format as the COATS data is maintained, and will make such information available to the SEC upon request. The Exchange also has added a new Interpretation and Policy .05 to CBOE Rule 6.24, which states that FLEX options, as described in Chapter 24A of the Exchange's rules, are exempt from the requirements of this Rule. However, the Exchange will maintain as part of its audit trail quotation, order and transaction information for FLEX options in a form and manner that is substantially similar to the form and manner as the COATS data is maintained, and will make such information available to the SEC upon request. The proposed rule change also includes a new Interpretation .06 which provides that any proprietary system approved by the Exchange on the Exchange's trading floor that receives orders will be considered an Exchange system for purposes of paragraph (a)(1) of this Rule. Any proprietary system approved by the Exchange shall comply with the requirements of COATS. Finally, the proposed rule change includes a new Interpretation .07 which provides that each order transmitted by a Market-Maker while on the floor, including any cancellation of or change to such order, must be systematized in accordance with the procedures described in Paragraph
(a)and
(b)of this Rule, as applicable. Currently paragraph
(d)of CBOE Rule 6.24 requires that each order transmitted by a Market-Maker while on the floor, including any cancellation of or change to such order, must be recorded legibly in a written form that has been approved by the Exchange, and must be time stamped immediately prior to its transmission. This new interpretation thus requires that each order transmitted by a Market-Maker while on the floor, including any cancellation of or change to such order, is systematized in accordance with CBOE Rule 6.24. 2. Statutory Basis CBOE believes the proposed rule change is consistent with Section 6(b) of the Act 13 in general and furthers the objectives of Section 6(b)(5) 14 in particular in that it should promote just and equitable principles of trade, and protect investors and the public interest. CBOE believes that the proposed rule change will promote just and equitable principles of trade and protect investors and the public interest by electronically enhancing the audit trail for orders by incorporating non-electronic orders into COATS. This enhanced audit trail will permit CBOE to conduct surveillance of the activity on the Exchange and reconstruct markets in a more efficient and effective manner. 13 15 U.S.C. 78f(b). 14 15 U.S.C. 78(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither received nor solicited written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve such proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-CBOE-2004-77 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-CBOE-2004-77. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2004-77 and should be submitted on or before December 27, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 15 15 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E4-3472 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50748; File No. SR-NASD-2004-153] Self-Regulatory Organizations; Order Approving Proposed Rule Change by the National Association of Securities Dealers, Inc. To Provide a Delta Hedge Exemption From Stock Option Position Limits for OTC Derivatives Dealers Affiliated With NASD Member Firms When Certain Conditions Are Satisfied November 29, 2004. On October 12, 2004, the National Association of Securities Dealers, Inc. (“NASD”) 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 to amend its Rule 2860(b) to provide a delta hedging exemption from stock option position limits for OTC Derivatives Dealers affiliated with NASD member firms when certain conditions are satisfied. 3 The Commission published the proposed rule change for comment in the **Federal Register** on October 21, 2004. 4 The Commission received no comments on the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 The proposal relates to options positions of an “OTC Derivatives Dealer” as that term is defined in Rule 3b-12 under the Act. *See* 17 CFR 240.3b-12. 4 Securities Exchange Act Release No. 50539 (October 14, 2004), 69 FR 61884 (October 21, 2004). Under the proposal, a stock option position of an OTC Derivatives Dealer that is delta neutral 5 would be exempt from position limits, provided that, among other things, the NASD member with which the OTC Derivatives Dealer is affiliated has received a written representation from the OTC Derivatives Dealer stating that it is hedging its stock options positions in accordance with its internal risk management control and pricing models approved by the Commission. Any stock options position of an OTC Derivatives Dealer that is not delta neutral would remain subject to position limits. 6 5 The term “delta neutral” as defined in the proposed rule change describes a stock options position that has been hedged, in accordance with a Commission-approved pricing model, with a portfolio of instruments relating to the same underlying stock to offset the risk that the value of the options position will change with changes in the price of the stock underlying the options position. 6 *See* proposed NASD Rule 2860(b)(3)(A)(vii)(b)(3). The Commission notes that NASD Rule 2860(b)(3)(A)(vii) provides for multiple, independent hedge exemptions. Of course, to the extent that a position is used to hedge for the purpose of one exemption from position limit requirements, such as the delta hedge exemption, such position cannot be used to take advantage of another exemption from position limit requirements. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities association. 7 In particular, the Commission believes that the proposed rule change is consistent with Section 15A(b)(6) of the Act, 8 which requires, among other things, that NASD rules be designed to prevent fraudulent and manipulative acts and practices, 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 has previously stated its support for recognizing options positions hedged on a delta neutral basis as properly exempted from position limits. 9 7 In approving this rule, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 8 15 U.S.C. 78 *o* -3(b)(6). 9 Securities Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362, 59380 (November 3, 1998) (adopting rules relating to OTC Derivatives Dealers). *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 10 that the proposed rule change (SR-NASD-2004-153) be, and it hereby is, approved. 10 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-3467 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50753; File No. SR-NASD-2004-147] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 To Modify the Bid Price Compliance Periods on the Nasdaq National Market and SmallCap Market and To Require Non-Canadian Foreign Issuers To Satisfy the Bid Price and Market Value of Publicly Held Shares Requirements Applicable to Domestic Issuers for Continued Listing on the SmallCap Market November 29, 2004. I. Introduction On October 1, 2004, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), 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 modify the bid price compliance periods on the Nasdaq National Market and the Nasdaq SmallCap Market and to require non-Canadian foreign issuers to satisfy the minimum bid price and market value of publicly held shares requirements applicable to domestic issuers for continued listing on the Nasdaq SmallCap Market. The proposed rule change was published for notice and comment in the **Federal Register** on October 21, 2004. 3 The Commission received no comments on the proposal. On November 24, 2004, Nasdaq filed Amendment No. 1. 4 This order approves the proposed rule change. Simultaneously, the Commission provides notice of filing of Amendment No. 1 and grants accelerated approval of Amendment No. 1. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 50541 (October 14, 2004), 69 FR 61888. 4 In Amendment No. 1, Nasdaq made a technical correction to the text of NASD Rule 4450(i)(1). II. Description of the Proposal A. Modification of the Bid Price Compliance Periods Nasdaq rules relating to the minimum bid price requirement were approved on a pilot basis by the Commission in February 2002 5 and modified in March 2003 6 and December 2003. 7 The pilot, which expires on December 31, 2004, provides 180 calendar days for a National Market issuer trading below $1.00 to regain compliance. Upon the expiration of the first 180 calendar days, an issuer able to satisfy all initial listing criteria is eligible for an additional grace period of another 180 calendar days. Thereafter, a National Market issuer may phase down to the SmallCap Market to take advantage of an additional grace period if it meets all SmallCap initial listing criteria except for bid price. 8 If a National Market issuer is not in compliance 45 days before the expiration of its second grace period, Nasdaq would send a warning letter to the issuer and the issuer could request a hearing at that time, if one were desired. 5 *See* Securities Exchange Act Release No. 45387 (February 4, 2002), 67 FR 6306 (February 11, 2002) (SR-NASD-2002-13). 6 *See* Securities Exchange Act Release No. 47482 (March 11, 2003), 68 FR 12729 (March 17, 2003) (SR-NASD-2003-34). 7 *See* Securities Exchange Act Release No. 48991 (December 23, 2003), 68 FR 75677 (December 31, 2003) (SR-NASD-2003-44), amended by Securities Exchange Act Release No. 48991A (February 5, 2004), 69 FR 6707 (February 11, 2004). 8 *See infra* Section III. The current pilot also provides 180 calendar days for a SmallCap Market issuer to regain compliance. Upon the expiration of the first 180-day grace period, an issuer satisfying all initial listing criteria for the SmallCap Market is eligible for an additional grace period of 180 days. Thereafter, an issuer can receive a third grace period, up to the time of its next shareholders meeting (but not more than two years from the original notice of deficiency), if the issuer seeks shareholder approval for a reverse stock split at that meeting and implements the reverse stock split promptly afterward. Having reviewed its experience with the pilot program, Nasdaq proposes to modify the bid price rules and seeks permanent Commission approval of the revised rules. Under the proposal, a National Market issuer would now have 180 days to regain compliance on the National Market, after which it could transfer to the SmallCap Market if it complied with all SmallCap initial inclusion requirements except for bid price. 9 The new rules would provide a SmallCap issuer with an initial 180-calendar-day period to regain compliance. Thereafter, the issuer could receive a second 180-day grace period if it complied with all initial SmallCap inclusion requirements except for bid price. The third grace period under the pilot rules, which allows a SmallCap issuer to remain listed while it seeks shareholder approval of a reverse stock split, would be eliminated. An issuer in a compliance period under the pilot rules at the time the new rules become effective would be able to finish that period, but thereafter could only use grace periods afforded by the new rules. 9 *See* NASD Rule 4450(i). *See also infra* Section III. B. Nasdaq SmallCap Market Continued Listing Requirements for non-Canadian Foreign Issuers Nasdaq proposes to amend NASD Rule 4320 to require non-Canadian foreign issuers to satisfy the minimum bid price and market value of publicly held shares requirements applicable to domestic issuers for continued listing on the SmallCap Market. Currently no such continued listing requirements apply to SmallCap non-Canadian foreign issuers. 10 To allow these issuers sufficient time to take any necessary action to achieve compliance, Nasdaq proposes that this requirement be effective 18 months after approval by the Commission. 10 A rule change to impose such requirements for initial listing by non-Canadian foreign issuers was approved in September 2004. Under this change, all non-Canadian foreign issuers are required to meet the same initial inclusion bid price and market value of publicly held shares requirements as domestic and Canadian issuers. *See* Securities Exchange Act Release No. 50458 (September 28, 2004), 69 FR 59286 (October 4, 2004). III. Amendment No. 1 In Amendment No. 1 Nasdaq modified the text of NASD Rule 4450(i)(1) to provide that a National Market issuer deemed not in compliance prior to the expiration of the compliance period for bid price may transfer to SmallCap Market if it meets all applicable requirements for initial inclusion on the SmallCap Market. The prior text of the rule referred to requirements for “continued” rather than “initial” inclusion. According to Nasdaq, Amendment No. 1 corrects an inconsistency in both the existing and proposed rule concerning the appropriate standard pursuant to which an issuer may transfer between the Nasdaq National Market and the SmallCap Market. This inconsistency first arose following the approval of SR-NASD-2003-44. 11 In SR-NASD-2003-44, Nasdaq proposed that a SmallCap issuer must meet all initial inclusion requirements for the SmallCap Market to be eligible for an additional compliance period. 12 As such, an issuer that transferred from the National Market would not be eligible for an additional compliance period on the SmallCap Market unless it met all SmallCap initial inclusion standards. 11 Securities Exchange Act Release No. 48991 (December 23, 2003), 68 FR 75677 (December 31, 2003). 12 Prior to approval of this rule change, issuers listed on the SmallCap Market (including those that transfer from the Nasdaq National Market) were eligible for an additional compliance period based on meeting only the core initial inclusion requirements contained in NASD Rule 4310(c)(2)(A) and the remaining continued inclusion requirements for the SmallCap Market. In addition, NASD Rules 4310(c)(8)(D) and 4320(e)(2)(E)(ii) would permit an issuer to qualify for a second 180-day compliance period on the SmallCap Market only if that issuer met all criteria for initial inclusion (except for the bid price requirement) on the SmallCap Market. Thus, even if an issuer were permitted to transfer to the SmallCap Market based on the continued inclusion criteria at the end of its compliance period on the National Market, the issuer would be subject to immediate delisting because it would be ineligible for any additional compliance periods with respect to its bid price deficiency. The text of NASD Rule 4450(i)(1) as Nasdaq is proposing to amend it is below. New text is in italics and deletions are in brackets. If a National Market issuer has not been deemed in compliance prior to the expiration of [a] *the* compliance period for bid price *provided in Rule 4450(e)(2),* it may transfer to The Nasdaq SmallCap Market, provided that it meets all applicable requirements for [continued] *initial* inclusion on the SmallCap Market set forth in Rule 4310(c) [(other than the minimum bid price requirement of Rule 4310(c)(4))] or Rule 4320(e), as applicable *, other than the minimum bid price requirement.* A Nasdaq National Market issuer transferring to The Nasdaq SmallCap Market must pay the entry fee set forth in Rule 4520(a). The issuer may also request a hearing to remain on The Nasdaq National Market pursuant to the Rule 4800 Series. IV. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change, as amended, and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association. 13 In particular, the Commission believes that the proposal is consistent with Section 15A(b)(6) of the Act, 14 which requires that an association's rules be designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and, in general, protect investors and the public interest. 13 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 14 15 U.S.C. 78o-3(b)(6). The Commission believes that a 180-day grace period for bid price compliance on the Nasdaq National Market and a 360-day grace compliance period on the SmallCap Market will allow a reasonable period for issuers to regain compliance with the bid price rules before being subject to delisting. These time frames are generally consistent with bid price compliance periods available on other markets that have been approved by the Commission. 15 The Commission also believes that requiring non-Canadian foreign issuers to satisfy the same continued listing standards for minimum bid price and market value of publicly held shares applicable to domestic issuers is reasonable and will establish consistent standards applicable to all SmallCap issuers. 15 *See, e.g.* , NYSE Listed Company Manual, Rule 802.01C (Price Criteria for Capital or Common Stock); Securities Exchange Act Release No. 42194 (December 1, 1999), 64 FR 69311 (December 10, 1999) (SR-NYSE-99-29); Securities Exchange Act Release No. 44481 (June 27, 2001), 66 FR 35303 (July 3, 2001) (SR-NYSE-2001-02). The Commission finds good cause for approving proposed Amendment No. 1 before the 30th day after the date of publication of notice of filing thereof in the **Federal Register** . NASD Rule 4450(i)(1) currently states that a National Market issuer deemed not in compliance prior to the expiration of the compliance period may transfer to the SmallCap Market if it meets all applicable requirements for continued inclusion on the SmallCap Market. Nasdaq contends that use of the word “continued” in Rule 4450(i)(1) is inadvertent and has provided evidence that the rule language instead should have used the word “initial” from its inception. The Commission agrees and finds good cause for accelerating approval of Amendment No. 1, thereby allowing the text of NASD Rule 4450(i)(1) to mirror the original intent of the rule without delay. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NASD-2004-147 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NASD-2004-147. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). 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 Amendment No. 1 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2004-147 and should be submitted on or before December 27, 2004. VI. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 16 that the proposed rule change (File No. SR-NASD-2004-147) be, and it hereby is, approved, and that Amendment No. 1 to the proposed rule change be, and hereby is, approved on an accelerated basis. 16 15 U.S.C. 78s(b)(2). 17 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 Jill M. Peterson, Assistant Secretary. [FR Doc. E4-3473 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50742; File No. SR-PCX-2004-101] Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto To Add a $500 Application Fee for Waivers of Exchange Examination Requirements Pursuant to PCX Rule 2.5(c)(4) November 29, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on October 18, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. On November 23, 2004, PCX amended the proposed rule change. 3 The PCX has designated this proposal as one changing a fee imposed by the PCX under Section 19(b)(3)(A)(ii) of the Act 4 and Rule 19b-4(f)(2) thereunder, 5 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Amendment No. 1 replaced and superseded the original filing in its entirety. 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The PCX proposes to amend its Schedule of Fees and Charges For Exchange Services to add a $500 application fee for waivers of Exchange examination requirements pursuant to PCX Rule 2.5(c)(4). The text of the proposed rule change is available at the PCX and at the Commission. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the PCX included statements concerning the purpose of and basis for its proposal and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The PCX 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 PCX is proposing to implement a non-refundable application fee of $500 when a request to waive an Exchange examination requirement is submitted pursuant to PCX Rule 2.5(c)(4). Since the Commission approved PCX Rule 2.5(c)(4), 6 the Exchange has received a number of requests for waivers of its examination requirements. 6 *See* Securities Exchange Act Release No. 49922 (June 28, 2004), 69 FR 40701 (July 6, 2004)(SR-PCX-2004-51). When a request is submitted to the Exchange, the Exchange's Shareholder and Registration Services Department (“SRS”) evaluates each application. SRS must independently verify each statement made in the application to ensure that waivers are only granted to those who are properly qualified. Applicants requesting waivers have based their requests on numerous factors including employment history, education, professional licenses held, examinations passed, etc. Depending on the type of justification given and how recently such justification occurred, the amount of time needed to independently verify each individual justification varies from minutes to hours. Collectively verifying all justifications provided requires SRS to devote significant resources to review and process each application. As such, SRS has been devoting significant resources to these applications and the $500 fee is needed to allow the Exchange to recover costs associated with the processing of these applications. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 7 in general, and furthers the objectives of Section 6(b)(4) of the Act 8 in particular, because it provides for the equitable allocation of dues, fees, and other charges among its OTP Holders and other persons using its facilities for the purpose of trading option contracts. 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 9 and Rule 19b-4(f)(2) 10 thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such 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. 9 15 U.S.C. 78s(b)(3)(A)(ii). 10 17 CFR 240.19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-PCX-2004-101 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-PCX-2004-101. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/ rules/sro.shtml* ). 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. Copies of such filing also will be available for inspection and copying at the principal office of the PCX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-PCX-2004-101 and should be submitted on or before December 27, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-3468 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50756; File No. SR-PCX-2004-83] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, by the Pacific Exchange, Inc., Relating to Changing the Opening Time and the Commencement of the Opening Auction November 30, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on October 22, 2004, the Pacific Exchange, Inc., (“PCX” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the PCX. On November 22, 2004, the PCX submitted Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced and superceded the original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The PCX, through its wholly owned subsidiary PCX Equities, Inc. (“PCXE”), is proposing to change the opening time and the commencement of the Opening Auction from 5 a.m. (Pacific time) to 1 a.m. (Pacific time) and modify PCXE Rules 7.34 and 7.35, respectively. The text of the proposed rule change, as amended, is below. Proposed additions are in *italics* . Proposed deletions are in [brackets]. Rule 7—Equities Trading; Trading Sessions Rule 7.34(a) Sessions. The Archipelago Exchange shall have three trading sessions each day the Corporation is open for business *unless otherwise determined by the Corporation* :
(1)Opening Session. The Opening Session shall begin at *1:00:00* [5:00:00] a.m. (Pacific time) and conclude at the commencement of the Core Trading Session. The Opening Auction and the Market Order Auction shall occur during the Opening Session.
(2)Core Trading Session. The Core Trading Session shall begin for each security at 6:30:00 a.m. (Pacific time) or at the conclusion of the Market Order Auction, whichever comes later, and conclude at 1:00:00 p.m. (Pacific time).
(3)Late Trading Session. The Late Trading Session shall begin following the conclusion of the Core Trading Session and conclude at 5:00:00 p.m. (Pacific time). Rule 7.34(b)-(c)—No change.
(d)Orders Permitted in Each Session.
(1)During the Opening Session:
(A)Orders eligible for the Display Order Process and for the Working Order Process that have been designated as available for the Opening Session are eligible for entry into and execution on the Archipelago Exchange.
(B)Stop Orders are not eligible for execution during the Opening Session.
(C)Users may enter market and Auction-Only Limit Orders for inclusion in the Market Order Auction. Market orders and Auction-Only Limit Orders are not eligible for execution during the Opening Session, except during the Market Order Auction.
(D)Neither the Directed Order Process nor the Tracking Order Process is available during the Opening Session. For the purposes of the Opening Session, market Directed Orders are included in the Market Order Auction.
(E)NOW Orders are eligible for execution during the Opening Session, provided, however, NOW Orders are not eligible for the Opening Auction or the Market Order Auction.
(F)PNP Orders are eligible for execution during the Opening Session.
(G)Limited Price Orders are eligible for execution during the Opening Session; provided, however, a Timed Order designated for the Opening Session and designated as good from *1:00* [5:00] a.m. (Pacific time) is not eligible for execution during the Opening Auction. Similarly, a Timed Order designated for the Opening Session and designated as good from 6:30 a.m. (Pacific time) is not eligible for execution during the Market Order Auction.
(H)Notwithstanding that the Market Order Auction occurs during the Opening Session, as set forth in Rule 7.34(a)(1), the following orders not designated for the Opening Session shall participate in the Market Order Auction:
(i)Market orders designated for the Core Trading Session and entered prior to the conclusion of the Market Order Auction; and
(ii)Limited Price Orders designated for the Core Trading Session and entered prior to 6:28 a.m. (Pacific time). (2)-(3)—No change. Rule 7.34(e)-(f)—No change. Rule 7.35(a) Order Entry and Cancellation Before Opening Auction
(1)Users may submit any orders to the Archipelago Exchange beginning [at 4:30 a.m. (Pacific time)] *30 minutes prior to the Opening Session* . Any such Limited Price Orders designated for the Opening Session will be queued until *1:00* [5:00] a.m. (Pacific time) at which time they will be eligible to be executed pursuant to paragraph
(b)of this Rule. Any such market orders will be queued until the Market Order Auction at which time they will be executed pursuant to paragraph
(c)of this Rule.
(2)Only Limited Priced Orders designated for the Opening Session will be eligible for the Opening Auction. However, a Limited Price Order designated for the Opening Session and entered as a Timed Order good from *1:00* [5:00] a.m. (Pacific time), is not eligible for execution during the Opening Auction. Market orders entered before the Opening Auction or during the Opening Session will participate in the Market Order Auction. However, a Limited Price Order designated for the Opening Session and entered as a Timed Order good from 6:30 a.m. (Pacific time), is not eligible for execution during the Market Order Auction. Limited Price Orders, including Timed Orders, designated for the Core Trading Session and not designated for the Opening Session will become eligible for execution at the commencement of the Market Order Auction pursuant to Rule 7.35(c).
(3)Beginning *30 minutes prior to the Opening Session* [at 4:30 a.m. (Pacific time)], and various times thereafter as determined from time to time by the Corporation, the Indicative Match Price of the Opening Auction, and any Imbalance associated therewith, shall be published via electronic means as determined from time to time by the Corporation.
(4)Orders that are eligible for the Opening Auction may not be cancelled *2 minutes prior to the Opening Session* [between 4:58 a.m. (Pacific time) and] *until* the conclusion of the Opening Auction.
(b)Opening Auction.
(1)At *1:00* [5:00] a.m. (Pacific time), Limited Price Orders designated for the Opening Session are matched and executed in the Opening Auction; provided, however, a Limited Price Order designated for the Opening Session and entered as a Timed Order good from *1:00* [5:00] a.m. (Pacific time), is not eligible for execution during the Opening Auction. (2)-(4)—No change. Rule 7.35(c)-(f)—No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the PCX included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it had received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The PCX 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 As part of its continuing efforts to enhance participation on the Archipelago Exchange (“ArcaEx”) facility, the PCX is proposing to change the opening time from 5 a.m. Pacific time to 1 a.m. Pacific time. This proposal applies to both exchange-listed and over-the-counter (“OTC”) securities. In addition, the Exchange is seeking to change the commencement of the Opening Auction 4 from 5 a.m. Pacific time to 1 a.m. Pacific time. The Exchange believes that opening earlier will increase opportunities for attracting liquidity on the system. Specifically, Users 5 of ArcaEx trading in American Depositary Receipts (“ADRs”) and other foreign issues have expressed interest in using the ArcaEx system at times coinciding with the hours of overseas trading markets. 6 4 *See* PCXE Rule 7.35(b). 5 *See* PCXE Rule 1.1 (yy). 6 For example the Deutsche Borse opens at 9 a.m. Central European time. ArcaEx has proposed opening at 1 a.m. Pacific time which is the equivalent to 10 a.m. Central European time. ArcaEx is unable to open consistent with the Deutsche Borse opening time due to limitations on when the OTC SIP is available for quote and trade dissemination. Currently, PCXE Rule 7.34 states that the Opening Session begins at 5:00:00 a.m. (Pacific time). The Exchange proposes to modify this to 1 a.m. (Pacific time). Furthermore, pursuant to PCXE Rule 7.35, the Opening Auction commences at 5 a.m. (Pacific time). The Exchange also proposes to modify the commencement of the Opening Auction 7 to be consistent with the Opening Session commencement at 1 a.m. (Pacific time). Furthermore, times associated with disseminating the Opening Auction Imbalance and order cancellation requirements are kept consistent with the existing timeframes relative to the opening time and adjusted in accordance with the proposed 1 a.m. (Pacific time) opening time. 7 The Commission staff made a technical correction to Amendment No. 1 of the filing to signify that the Exchange intended to refer to the “Opening Auction.” Telephone conversation between Mai Shiver, Director, Regulatory Policy, PCX and Tim Fox, Attorney, Division of Market Regulation, Commission, on November 26, 2004. ArcaEx will submit all quotes and trades that are generated in the early session beginning at 1 a.m. (Pacific time) to the consolidated quote and trade system for public dissemination. 8 Accordingly, quotes and trades will be made available to the investing public consistent with the availability of quotes and trades during regular trading hours. In addition, the Exchange will work with foreign markets ( *i.e.* those that are trading subject securities during the early time period) to coordinate trading halts. Such coordination will occur in a manner similar to that of trading halts during regular trading hours with domestic markets. Specifically, the Exchange represents that PCX Market Management staff will be on-site starting at 1 a.m. (Pacific time) to monitor trading in ArcaEx to maintain a fair and orderly market and make any necessary rulings. For example, during early trading when unusual quoting activity is noted in the security underlying an ADR, PCX Market Management will contact the foreign market where the underlying is listed to obtain additional information as needed. When a halt has been declared on the primary market due to material news, PCX will also halt trading in the subject security on ArcaEx. If a halt has been declared for another non-regulatory reason ( *e.g.* system malfunction or unusual price movement), PCX will use its discretion to determine whether trading should be halted in the subject security on ArcaEx. 9 8 The Securities Information Processor in exchange-listed securities that is responsible for consolidation and dissemination of all exchange-listed quotes and trades is the Securities Industry Automation Corporation (“SIAC”) and for dissemination of Nasdaq-listed quotes and trades is Nasdaq. ArcaEx has agreed with SIAC and Nasdaq that each of the respective Securities Information Processors will open the tape at 1 a.m. (Pacific time). In addition, ArcaEx has notified the Operating Committee of the Consolidated Tape Association (“CTA”) and Consolidated Quote (“CQ”) Plans and the OTC/UTP Committee of its agreement with the Processors to open the tapes early. ArcaEx will not begin trading at 1 a.m. (Pacific time) until the Securities Information Processors are ready to accommodate quoting and trading at that time and have provided ArcaEx with notification that they are prepared to disseminate quotes and trades at that time. 9 *See* PCXE Rule 7.13 regarding PCX's authority to declare a trading halt. PCX is establishing contacts with foreign markets trading during the early time period. Several markets have offered to include PCX representatives on distribution lists in order to proactively contact PCX during instances of trading halts. Also, to the extent another domestic market commences trading during early hours, PCX will coordinate halts with these markets as well. Further, PCX has developed appropriate surveillance for the early session. PCX Market Management staff will be available real-time to monitor quote and trade activity and to make rulings where appropriate. Specifically, PCX Market Management will rely on communications with primary markets and third-party data vendor systems to review and monitor news, quoting activity, and stock trading patterns. To the extent unusual trading activity occurs during the early session prior to the arrival of PCX Regulatory Trading Officials (“RTOs”), PCX Market Management staff will refer such activity to the RTOs for follow-up upon their arrival. PCX Market Management and RTO procedures manuals will be updated to reflect the early open procedures, including PCX Market Management transition of issues to RTOs. The Exchange believes opening earlier, consistent with trading hours in the overseas markets, will enhance transparency in these securities. Moreover, by providing overseas investors with the ability to trade in a U.S. based market, the proposal will provide additional trading opportunities for foreign investors interested in participating in U.S. markets during overseas business hours. Such opportunities should enable enhanced order interaction, foster price competition, promote a more efficient and effective market operation, and enhance the investment choices available to investors. In Amendment No. 1, the Exchange represented that PCX Market Management staff will be on-site starting at 1 a.m. (Pacific time) to monitor trading in ArcaEx to maintain a fair and orderly market and make any necessary rulings. To the extent unusual trading activity occurs during the early session prior to the arrival of PCX RTOs, PCX Market Management staff will refer such activity to the RTOs for follow-up upon their arrival. PCX Market Management and RTO procedures manuals will be updated to reflect the Early Open procedures, including PCX Market Management transition of issues to RTOs. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 10 in general, and furthers the objectives of Section 6(b)(5), 11 in particular, because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments and perfect the mechanisms of a free and open market and to protect investors and the public interest. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The PCX does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or
(ii)as to which the PCX consents, the Commission will:
(A)By order approve such proposed rule change, as amended; or
(B)Institute proceedings to determine whether the proposed rule change, as amended, should be disapproved. 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. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form *http://www.sec.gov/rules/sro.shtml* ; or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-PCX-2004-83 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-PCX-2004-83. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site *http://www.sec.gov/rules/sro.shtml* . 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the PCX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-PCX-2004-83 and should be submitted on or before December 27, 2004. 12 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 Jill M. Peterson, Assistant Secretary. [FR Doc. E4-3471 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50751; File No. SR-Phlx-2004-59] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 by the Philadelphia Stock Exchange, Inc. Relating to Minor Adjustments in the Calculation of the Nasdaq Composite Index® November 29, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on October 8, 2004, the Philadelphia Stock Exchange (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On November 16, 2004, the Phlx filed Amendment No. 1 to the proposed rule change. 3 On November 16, 2004, the Phlx filed Amendment No. 2 to the proposed rule change. 4 The Phlx filed the proposal under Section 19(b)(3)(A) of the Act, 5 and Rule 19b-4(f)(6) thereunder, 6 which renders the proposal effective upon filing. 7 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 changed language in the Purpose section of the proposal to more accurately reflect the changes Nasdaq is making with respect to calculating the settlement values of the component securities of the Index, which the Phlx is proposing to copy. Amendment No. 1 also included an Exhibit that set forth the comments the Phlx received regarding this proposal. Amendment No. 1 replaced the original filing in its entirety. 4 Amendment No. 2 made a technical correction to the proposed rule change. Amendment No. 2 replaced the proposed rule change, including Amendment No. 1, in its entirety. 5 15 U.S.C. 78s(b)(3)(A). 6 19 CFR 240.19b-4. 7 The Commission considers the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act to have commenced on November 16, 2004, the date the Phlx filed Amendment No. 2 to the proposal. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to make minor adjustments to the manner by which the Nasdaq Composite Index® (“Index”) is calculated. 8 The Exchange currently lists and trades full-sized option contracts on the Index (“QCX”) and mini-sized option contracts on the Index (“QXE”), which are one-tenth the size of QCX contracts. 9 The Index is a cash-settled, capitalization-weighted, broad-based, A.M.-settled index composed of approximately 3,400 stocks listed and traded on The Nasdaq Stock Market, Inc. (“Nasdaq”). 8 Nasdaq®, Nasdaq Composite® and Nasdaq Composite Index® are registered trademarks of The Nasdaq Stock Market, Inc. (which with its affiliates are the “Corporations”) and are licensed for use by the Phlx. The product(s) described herein have not been passed on by the Corporations as to their legality or suitability. The product(s) are not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the product(s). The Corporations do not guarantee the accuracy and/or uninterrupted calculation of the Nasdaq Composite Index® or any data included therein. The Corporations make no warranty, express or implied, as to results to be obtained by the exchange, owners of the product(s), or any other person or entity from the use of the Nasdaq Composite Index® or any data included therein. The Corporations make no express or implied warranties, and expressly disclaim all warranties of merchantiability or fitness for a particular purpose or use with respect to the Nasdaq Composite Index or any data included therein. Without limiting any of the foregoing, in no event shall the Corporations have any liability for any lost profits or special, incidental, punitive, indirect, or consequential damages, even if notified of the possibility of such damages. 9 *See* Securities Exchange Act Release No. 48884 (December 5, 2003), 68 FR 69753 (December 15, 2003) (SR-Phlx-2003-66). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx 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 make minor adjustments to the manner by which the Index is calculated because Nasdaq has made certain minor adjustments to the manner of calculating the settlement values of the component securities of the Index. Nasdaq maintains, compiles, and calculates the Index. The Exchange, for its part, provides and maintains the market for QCX and QCE Index options. The QCX and QCE options on the Index expire on the Saturday following the third Friday of the expiration month. Trading in the expiring contract month will normally cease at 4:15 p.m. (eastern time) on the Thursday immediately prior to expiration. Previously, the exercise settlement value of the Index at option expiration was calculated by Nasdaq based on the volume-weighted opening price (“Nasdaq VWOP”) of the component securities in the first four minutes of trading on the business day prior to expiration, which would normally be a Friday (“A.M. Settlement”). 10 10 Telephone conversation between Mark Salvacion, Director and Counsel, Phlx, and Angela Muehr, Attorney, Division of Market Regulation (“Division”), Commission, on November 24, 2004 (clarifying the calculation of the exercise settlement value). Under the new calculation, the exercise settlement value of the Index at option expiration will be calculated by Nasdaq based on the Nasdaq VWOP of the component securities in the first five minutes of trading (or period of time that Nasdaq determines) 11 on the business day prior to expiration. Under the new calculation, Nasdaq will independently maintain the trade history of each index component beginning with the receipt of the day's first eligible trade in that issue and continuing for five minutes. 12 11 If Nasdaq determines to change the period of time for calculating the VWOP from the first five minutes of trading to another period of time, the Exchange will announce the effective date of any future change by way of an Exchange memorandum to the membership within a reasonable time prior to the implementation of such change, but in no event sooner than five business days prior to its implementation. Telephone conversation between Mark Salvacion, Director and Counsel, Phlx, and Terri Evans, Special Counsel, Division, Commission, and Angela Muehr, Attorney, Division, Commission on November 18, 2004. 12 Previously, the time period was four minutes. Trade adjustments will be recorded and reflected for each component, under the new calculation, until the five-minute window for the last component stock closes, or 4 p.m. (previously 10:30 a.m.), whichever is sooner. For individual securities, the VWOP value is calculated based on the first five minutes of trading in the Nasdaq market. For Nasdaq indices, such as the Index, the VWOP value is determined by the VWOP and weighting information for each of the component securities. The VWOP messages will be disseminated as the values are calculated between 9:45 a.m. and 4 p.m. (eastern time). 13 13 There are certain instances in which the VWOP value will be calculated at a time later than the first five minutes of trading in the Nasdaq market. *See http://www.nasdaqtrader.com/trader/mds/nasdaqfeeds/nidsspec.pdf.* Telephone conversation between Mark Salvacion, Director and Counsel, Phlx, and Terri Evans, Special Counsel, Division, Commission, and Angela Muehr, Attorney, Division, Commission, on November 18, 2004. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 14 in general, and furthers the objectives of Section 6(b)(5) of the Act, 15 in particular, in that it is designed to promote just and equitable principles of trade, as well as to protect investors and the public interest, by establishing a more accurate calculation of the Index. The Exchange believes that adjusting the calculation of the Index should not raise manipulation concerns and should not cause adverse market impact, because the Exchange will continue to employ its current surveillance procedures. 14 15 U.S.C. 78f(b). 15 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange received several comments in the form of electronic mail from Nasdaq on the proposed rule change. Nasdaq's comments were limited to, on the one hand, specific line edits on Section 3.a of the proposed rule change, and, on the other hand, comments with respect to the timing of the implementation of the adjustment to the VWOP calculation and the filing of the proposed rule change by the Exchange. These comments are available at the Phlx and at the Commission. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as a “non-controversial” rule change pursuant to Section 19(b)(3)(A) of the Act 16 and subparagraph (f)(6) of Rule 19b-4 thereunder. 17 Consequently, because the foregoing rule change:
(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, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 18 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b-4(f)(6). 18 Rule 19b-4(f)(6) under the Act also requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Phlx complied with this requirement. The Exchange has requested that the Commission waive the 30-day operative delay specified in Rule 19b-4(f)(6). The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. 19 The Exchange will be able, without delay, to conform the manner in which the Index is calculated to the adjustments made by Nasdaq for calculating the settlement values of the component securities of the Index. For these reasons, the Commission designates the proposal operative immediately. 19 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further 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. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov. Please include File Number SR-Phlx-2004-59 on the subject line.* Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR- *Phlx-2004-59.* This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of this filing also will be available for inspection and copying at the principal office of the Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2004-59 and should be submitted on or before December 27, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 20 20 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-3466 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50752; File No. SR-Phlx-2004-71] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to the Extension Through April 30, 2005, of a Pilot Program To Disengage the Automatic Execution Feature (AUTO-X) of the Exchange's Automated Options Market (AUTOM) November 29, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 2 thereunder, notice is hereby given that on November 3, 2004, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Phlx. On November 24, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons, and granting accelerated approval to the proposal to extend the pilot period through April 30, 2005. 1 5 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange proposes to modify the proposed rule change to correct a typographical error in the proposed rule text. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to extend, through April 30, 2005, its pilot program concerning AUTO-X, whereby AUTO-X is disengaged for a period of 30 seconds after the number of contracts automatically executed in a given class of non-Streaming Quote Options, 4 meets the specified disengagement size for the option (the “pilot”). The pilot expires November 30, 2004. 4 In a telephone conversation between Richard Rudolph, Director and Counsel, Phlx, and Kim Allen, Attorney, Division of Market Regulation (“Division”), Commission, on November 23, 2004, the Exchange clarified that the pilot applies only to option classes known as non-Streaming Quote Options, defined in Phlx Rule 1014, Commentary .05 as those classes not eligible to be traded by Streaming Quote Traders pursuant to Phlx Rule 1014(b)(ii)(A). The text of amended Exchange Rule 1080 is set forth below. Brackets indicate deletions; italics indicate additions. Philadelphia Stock Exchange Automated Options Market (AUTOM) and Automatic Execution System (AUTO-X) Rule 1080. (a)-(b) No change. (c)(i)-(iii) No change.
(iv)(A)-(H) No change.
(I)respecting non-Streaming Quote Options, when the number of contracts automatically executed within a 15 second period in an option (subject to a Pilot program [until November 30, 2004] *through April 30, 2005* ) exceeds the specified disengagement size, a 30 second period ensues during which subsequent orders are handled manually. If the Exchange's disseminated size exceeds the specified disengagement size and an eligible order is delivered for a number of contracts that is greater than the specified disengagement size, such an order will be automatically executed up to the disseminated size, followed by an AUTO-X disengagement period of 30 seconds. If the specialist revises the quotation in such an option prior to the expiration of such 30-second period, eligible orders in such an option shall again be executed automatically. The Exchange's systems are designed and programmed to identify the conditions that cause inbound orders to be ineligible for automatic execution. Once it is established that inbound orders are ineligible for automatic execution, Exchange staff has the ability to determine which of the above conditions occurred. (d)-(k) No change. Commentary: No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx 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 III below. The Phlx 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 extend the pilot through April 30, 2005, which is the date that the Exchange plans to have rolled out all options in the Exchange's electronic options trading platform, Phlx XL. 5 When that roll out is complete there will no longer be any need to continue this pilot program because pursuant to Phlx Rule 1082, with respect to Streaming Quote Options (“SQO”), if the Exchange's disseminated size in a particular series in a SQO is exhausted, the Exchange shall disseminate the next best available quotation. 6 If no specialist or “Streaming Quote Trader” has revised their quotation immediately following the exhaustion of the Exchange's disseminated size, the Exchange shall automatically disseminate the specialist's most recent disseminated price prior to the time of such exhaustion with a size of one contract. 7 5 *See* Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59). 6 Pursuant to a telephone conversation between Richard Rudolph, Director and Counsel, Phlx, and Kim Allen, Attorney, Division, Commission, on November 23, 2004, the Exchange clarified that there will be no non-Streaming Quote Options when the roll out for options in Phlx XL is completed. 7 *See* Phlx Rule 1082(a)(ii)(C)(2). The pilot was originally approved on a six-month basis for a limited number of eligible options 8 and extended for an additional six-month period. 9 Subsequently, the number of options eligible for the pilot was expanded to include all Phlx-traded options. 10 In December 2001, the pilot was extended again for an additional six-month period; 11 and was extended again in May 2002, 12 November 2002, 13 May 2003, 14 and November 2003 (for a one-year period). 15 The instant proposed rule change would extend the pilot through April 30, 2005. 8 *See* Securities Exchange Act Release No. 43652 (December 1, 2000), 65 FR 77059 (December 8, 2000) (SR-Phlx-00-96). 9 *See* Securities Exchange Act Release No. 44362 (May 29, 2001), 66 FR 30037 (June 4, 2001) (SR-Phlx-2001-56). 10 *See* Securities Exchange Act Release No. 44760 (August 31, 2001), 66 FR 47253 (September 11, 2001) (SR-Phlx-2001-79). 11 *See* Securities Exchange Act Release No. 45090 (November 21, 2001), 66 FR 59834 (November 30, 2001) (SR-Phlx-2001-100). 12 *See* Securities Exchange Act Release No. 45862 (May 1, 2002), 67 FR 30990 (May 8, 2002) (SR-Phlx-2002-22). 13 *See* Securities Exchange Act Release No. 46840 (November 15, 2002), 67 FR 70473 (November 22, 2002) (SR-Phlx-2002-59). 14 *See* Securities Exchange Act Release No. 47955 (May 30, 2003), 68 FR 34458 (June 9, 2003) (SR-Phlx-2003-29). 15 *See* Securities Exchange Act Release No. 48851 (November 26, 2003), 68 FR 68442 (December 8, 2003) (SR-Phlx-2003-77). The pilot currently includes the following features: • Once an automatic execution occurs via AUTO-X in an option, the system begins a “counting” program, which counts the number of contracts executed automatically for that option up to a certain size, 16 which such size causes AUTO-X to become disengaged for that option. 16 Exchange Rule 1080(c)(iv)(I) provides that, when the number of contracts automatically executed within a 15-second period in an option exceeds the “specified disengagement size,” a 30-second period ensues during which subsequent orders are handled manually. The specified disengagement size is determined by the specialist and subject to the approval of the Exchange's Options Committee. The specified disengagement size for each option is listed on the Exchange's Web site. • When the number of contracts executed automatically for that option exhausts the specified disengagement size for the specific option within a 15-second time frame, the system ceases to automatically execute for that option, and drops all AUTO-X eligible orders in that option for manual handling by the specialist for a period of 30 seconds to enable the specialist to refresh quotes in that option. • Upon the expiration of 30 seconds, automatic executions resume, the “counting” program is set to zero, and it begins counting the number of contracts executed automatically within a 15 second time frame again, up to the specified disengagement size. Again, when the number of contracts automatically executed exhausts the specified disengagement size within a 15-second time frame, the system drops all subsequent AUTO-X eligible orders for manual handling by the specialist for a period of 30 seconds. The system then continues to reset the “counting” program and drop to manual, etc. If the disseminated size exceeds the specified disengagement size, and an eligible order is delivered for a number of contracts that is greater than the specified disengagement size, the order will be automatically executed up to the disseminated size, followed by an AUTO-X disengagement period of 30 seconds. If the specialist revises the quote in such an option prior to the expiration of the 30-second period, AUTO-X will be automatically re-engaged. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 17 in general, and furthers the objectives of Section 6(b)(5) of the Act 18 in particular, in that it is designed to perfect the mechanisms of a free and open market and a national market system, protect investors and the public interest and promote just and equitable principles of trade by providing automatic executions for eligible orders up to the Exchange's disseminated size, while continuing to enable Exchange specialists to maintain fair and orderly markets during periods of peak market activity. 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Phlx-2004-71 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-Phlx-2004-71. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of the filing also will be available for inspection and copying at the principal office of the Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2004-71 and should be submitted on or before December 27, 2004. IV. Commission's Findings and Order Granting Accelerated Approval of 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. 19 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, which requires that the rules of an exchange be designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national securities system, and to protect investors and the public interest. 20 19 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 20 15 U.S.C. 78f(b)(5). The Commission believes that the extension of the pilot should assist specialists in maintaining fair and orderly markets during periods of peak market activity. The Commission believes that an extension of the pilot program through April 30, 2005 should allow the Exchange to continue its efforts to deploy its fully automated Phlx XL system. Moreover, according to the Phlx, no complaints from customers, floor traders, or member firms have been received during the entire period of the pilot program. 21 21 Telephone conversation between Richard Rudolph, Director and Counsel, Phlx, and Kim Allen, Attorney, Division, Commission, on November 23, 2004. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 22 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 believes that granting accelerated approval to extend the pilot program through April 30, 2005 raises no new issues of regulatory concern and should allow Phlx to continue, without interruption, the existing operation of its AUTO-X system. 22 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 23 that the proposed rule change (SR-Phlx-2004-71) is hereby approved on an accelerated basis, as a pilot, scheduled to expire on April 30, 2005. 23 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 24 24 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-3470 Filed 12-3-04; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Declaration of Disaster #3635] State of Florida; Amendment #4 In accordance with a notice received from the Department of Homeland Security—Federal Emergency Management Agency—effective November 17, 2004, the above numbered declaration is hereby amended to establish the incident period for this disaster as beginning September 24, 2004, and continuing through November 17, 2004. All other information remains the same, *i.e.* , the deadline for filing applications for physical damage is January 3, 2005 and for economic injury the deadline is June 27, 2005. (Catalog of Federal Domestic Assistance Program Nos. 59002 and 59008) Dated: November 29, 2004. Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. 04-26757 Filed 12-3-04; 8:45 am]
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CFR
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- 17 CFR 240.10
- 17 CFR 240.19
- 15 USC 78(b)(5)
- 17 CFR 240.3
- 15 USC 78
- 19 CFR 240.19
- 5 USC 78s(b)(1)
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SECURITIES AND EXCHANGE COMMISSION
Cite17 CFR 240.10
Cite17 CFR 240.19
Cite15 USC 78(b)(5)
Cite17 CFR 240.3
Cite15 USC 78
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