[Federal Register Volume 67, Number 22 (Friday, February 1, 2002)]
[Notices]
[Pages 5027-5029]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-2490]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45343; File No. SR-Phlx-2001-120]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. to
Amend Phlx Rule 237, ``The eVWAP Morning Session''
January 28, 2002.
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 December 26, 2001, 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
Exchange. On January 25, 2002, the Phlx amended the proposal.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See January 24, 2002 letter from Cynthia K. Hoekstra,
Counsel, Phlx, to Joseph P. Morra, Special Counsel, Division of
Market Regulation, Commission (``Amendment No. 1''). In Amendment
No. 1, the Phlx made minor, technical changes to the proposed rule
language.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend Phlx Rule 237, ``The eVWAP Morning
Session,'' to: (1) Allow Exchange-Traded Fund Shares \4\ to be executed
on the eVWAP System (``System'');\5\ (2) codify order increment size
requirements; and (3) make minor technical amendments to Phlx Rule 237.
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\4\ Exchange-Traded Fund Shares include exchange listed
securities representing interests in open-end unit investment trusts
or open-end management investment companies that hold securities
based on an index or a portfolio of securities. See Phlx Rule
1000(b)(42).
\5\ The System was developed by Universal Trading Technologies
Corporation, Inc. (``UTTC''). UTTC is a subsidiary of the Ashton
Technology Group, Inc.
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Background
The System is a daily, pre-opening order matching session for the
execution of large-sized stock orders at the volume weighted average
price (``VWAP''). The matched and executed orders are assigned a VWAP
after the close of regular trading. The System operates as a facility
of the Phlx under Section 3(a)(2) of the Act and is governed by Phlx
Rule 237.\6\
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\6\ See Securities Exchange Act Release No. 41210 (March 24,
1999), 64 FR 15857 (April 1, 1999) (SR-Phlx-96-14).
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Currently, the securities eligible for execution in the System
pursuant to Phlx Rule 237(b) are exchange listed component issues of
the Standard & Poor's 500 index and any exchange listed issue that has
been designated by the compiler of the index for inclusion in such
index and any of 300 New York Stock Exchange (``NYSE'') issues selected
according to a prescribed selection process.\7\
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\7\ The 300 NYSE issues are selected as follows: The top 400
NYSE issues with the highest market capitalization excluding the 100
issues that have the lowest average daily dollar trading volume over
20 days preceding the eligibility determination. Eligibility is
determined at least semi-annually. See Phlx Rule 237(b).
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Pursuant to Phlx Rule 237, access to the System is limited to
``Committers,'' \8\ who enter ``commitments'' and ``Users,''
[[Page 5028]]
who enter ``orders.'' A ``User'' is defined as an Exchange member or
non-member who enters orders through the System. Users may enter three
types of orders: (i) Basic; (ii) cross; and (iii) facilitation. A basic
order is a standard, one-sided order to buy or sell. A basic order may
be restricted, meaning it is executable against non-members only. A
cross order is a two-sided order, with both sides comprised of non-
member interest, with instructions to match the identified buy-side
with the identified sell-side. The two sides making up a cross can be
entered separately, with the contra-side identified.
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\8\ ``Committers'' are Exchange members that are: (i) Phlx Floor
traders (i.e., a Phlx Specialist or Phlx Alternate Specialist in the
eligible stock that is the subject of the Commitment); or (ii) Phlx
Off-Floor Liquidity Providers (members that commit to provide
contra-side liquidity). See Phlx Rule 237(d).
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A facilitation order is a two-sided order, with an identified Phlx
member on the contra-side to act as a facilitator for that order (such
member is known as a ``Guarantor''). The contra-side may be entered
together with, or separate from, the facilitation order. Facilitation
orders can be submitted on behalf of Phlx members or non-members.
Unlike basic orders, facilitation orders may not be restricted. One of
the three types of facilitation orders that are available to Users is
an unconditional facilitation order, which is to be executed against an
identified Guarantor or not at all.\9\ This order is a type of cross
involving a Phlx member Guarantor.
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\9\ The other two types of facilitation orders that are
available to Users are (i) conditional facilitation orders: Execute
against an identified Guarantor after attempting to be executed
against non-members to the extent possible; and (ii) last resort
facilitation: Execute against an identified Guarantor only after
attempting to execute against all other orders and commitments to
the extent possible.
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Proposal
The Exchange proposes to amend Phlx Rule 237 to allow ETFs to be
eligible for eVWAP trading.\10\ In addition, the Exchange proposes to
codify two amendments to Phlx Rule 237 allowing: (1) All basic orders
and commitments to be entered in 100 share increments, with the minimum
order size remaining at 5,000 shares and the minimum commitment size
remaining at 2,500 shares; and (2) cross orders, including
unconditional facilitation orders, to be excepted from the 5,000
minimum order size requirements and to be executed in 100 share
increments, with a minimum order size of 100 shares.\11\
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\10\ The ETF trades executed through eVWAP will be reported
pursuant to the applicable reporting channel, the Consolidated Tape
Association. Initially, the Exchange intends to include one ETF,
which is currently traded on the Exchange's equity floor, to the
System. Other ETFs may be listed pursuant to unlisted trading
privileges (``UTP'') even if not traded on the Phlx equity floor
during regular trading hours.
\11\ These modifications were approved by the Exchange's Floor
Procedure Committee on March 22, 2001 (cross orders) and July 17,
2001 (minimum order and commitment size). These modifications were
based on market and participant need and did not require prior
Commission approval. See Securities Exchange Act Release No. 41210
(March 24, 1999), 64 FR 15857 (April 1, 1999) (SR-Phlx-96-14).
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Also, the Exchange proposes to make minor technical amendments to
change the reference to stock to security in order to accurately
reflect the addition of ETFs and to replace a reference to UTS with
eVWAP.\12\
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\12\ Previously, references to UTS were eliminated and replaced
by eVWAP. However, one reference to UTS was not changed. See
Securities Exchange Act Release Nos. 42702 (April 19, 2000), 65 FR
24528 (April 26, 2000) (SR-Phlx-2000-19) and 44230 (April 19, 2001),
66 FR 21427 (April 30, 2001) (SR-Phlx-2001-10).
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The text of the proposed rule change is below. Additions are in
italics; deletions are in brackets.
Rule 237. The eVWAP Morning Session
(a) No change.
(b) Eligible Securities. The following securities will be eligible
for execution in the System:
(i) Exchange listed component issues of the Standard & Poor's 500
index and any exchange listed issue that has been designated by the
compiler of such index for inclusion in such index.
(ii) Any of 300 New York Stock Exchange (NYSE) issues selected as
follows: the 400 NYSE issues with the highest market capitalization
excluding the 100 issues that have the lowest average daily dollar
trading volume over 20 days preceding the eligibility determination,
with eligibility determined at least semi-annually.
(iii) Any Exchange-Traded Fund/Shares that are eligible for trading
on the Exchange.
(c)-(d) No change.
(e) Order Entry. eVWAP orders will only be accepted during the
eVWAP Order Entry Time Period from 5:00 a.m. to 9:15 a.m. except the
Exchange may establish a different period respecting the eVWAP [UTS]
trading floor terminal. Morning Session orders will only be eligible
for execution on the day the order is placed and only through the eVWAP
System. The minimum order size is 5,000 shares except for unconditional
facilitation and cross orders, for which the minimum order size is 100
shares. The minimum commitment size is 2,500 shares. All orders and
commitments must be in 100 [500] share increments including any ``AON''
or ``MON'' designations, as defined below. The Exchange may determine
whether different sizes should be established.
(e)(i) No change.
(e)(ii)(c) security [stock] symbol;
(f)-(j) No change.
(k) Trading Halts. Nothing in this Rule shall be construed to limit
the ability for the Exchange to otherwise halt or suspend trading in
any security [stock] traded through the eVWAP System.
(l)-(m) 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 IV 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 Phlx proposes to amend Phlx Rule 237 to address needs
identified to the system operator, namely the addition of ETFs and the
codification of certain order increment sizes, in order to attract new
business to eVWAP.
The Exchange proposes to allow ETFs to be traded on the System.
ETFs are becoming an alternative product to trading the actual
securities comprising an index or fund. A number of eVWAP participants
have requested that the Phlx make ETFs eligible for inclusion in the
system pursuant to Phlx Rule 237 issue eligibility procedures. The Phlx
believes that allowing ETFs to be traded through the eVWAP System
should help to meet the demands of these institutional traders and
other market participants that desire volume weighted average price-
based transactions on ETFs. Moreover, the Phlx believes that adding
ETFs to the System should increase eVWAP order flow and provide
additional trading alternatives to market participants.
The Phlx proposes to codify two changes to Phlx Rule 237 regarding
order and commitment size. The Exchange sought to promote additional
trading through the System by allowing: (1) all basic orders and
commitments to be entered in 100 share increments, with the minimum
order size remaining at 5,000 shares and the minimum commitment size
remaining at 2,500 shares; and (2) cross orders, including
unconditional facilitation orders, to be
[[Page 5029]]
excepted from the 5,000 minimum order size requirements and to be
executed in 100 share increments, with a minimum order size of 100
shares. The Phlx believes these changes in order and commitment size
should encourage trading through the System by eliminating previously
imposed order and commitment size restrictions. This aspect of the
proposal is intended to codify expressly into the rule a previously
implemented modification.\13\ The Exchange believes that reflecting the
size into the rule should make it more apparent to potential
participants that smaller sizes are permissible, thereby potentially
attracting new business.
The proposed rule change also makes minor technical amendments to
Phlx Rule 237 to change the reference from stock to security to more
accurately reflect the addition of ETFs and to replace a reference to
UTS with eVWAP.
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\13\ See footnote 10, supra.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6 of the Act \14\ in general, and in particular, with Section
6(b)(5),\15\ in that it is designed to promote just and equitable
principles of trade, and to remove impediments to and perfect the
mechanism of a free and open market and a national market system by
expanding the number of securities eligible for eVWAP trading and to
codify order and commitment size requirements to promote trading
activity.
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\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change would
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. 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 Exchange 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exhange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filings will also be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-2001-120 and
should be submitted by February 22, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-2490 Filed 1-31-02; 8:45 am]
BILLING CODE 8010-01-P