Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to By-Law Article 12-11, Use of Facilities

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on June 2, 2003, the Philadelphia Stock Exchange, Inc. (“Phlx” 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 Phlx. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Phlx proposes to amend its By-Laws to limit the liability of The Options Clearing Corporation (“OCC”) to members and member organizations resulting from their use of the Intermarket Options Linkage (“Linkage”).

The text of the proposed rule change is below. Proposed additions are in italics.

Sec. 12-11 Use of Facilities of Exchange

SEC. 12-11. The Exchange shall not be liable for any damages sustained by a member or a member organization growing out of the use or enjoyment by such member or member organization of the facilities afforded by the Exchange to members for the conduct of their business. The Options Clearing Corporation shall not be liable to members and member organizations with respect to the use, non-use or inability to use the Intermarket Options Linkage, including without limitation the content of orders, trades, or other business facilitated through the Intermarket Options Linkage, the truth or accuracy of the content of messages or other information transmitted through the Intermarket Options Linkage, or otherwise.

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 had 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 purpose of the proposed rule change is to limit the liability of OCC to Phlx members and member organizations resulting from their use, non-use or inability to use the Linkage. The Phlx, along with the American Stock Exchange LLC, the Chicago Board Options Exchange, Inc., the International Securities Exchange, Inc., and the Pacific Exchange, Inc. (together with the Phlx, known as the “Exchanges”), entered into an agreement with OCC regarding the construction and on-going maintenance and operation of the Linkage (the “Agreement”). In the Agreement, the Exchanges consented to each file a proposed rule change with the Commission limiting OCC's liability to the respective Exchanges' members. The Phlx believes that the present proposed rule change satisfies its respective obligation.

The Phlx believes that the proposed rule change is a reasonable extension of the existing limitation of liability enjoyed by the Exchange in Phlx By-Law Article XII, Section 12-11 (the “By-Law”) to OCC. Both the OCC and the Exchange are performing functions related to the on-going maintenance and operation of the Linkage, the benefits of which are enjoyed by the Exchange's members. While the Phlx believes that the By-Law would afford the Exchange protection from liability from members' and member organizations' use of Exchange facilities regarding Linkage, the By-Law, in its current form, does not extend similar protection to OCC. The proposed By-Law amendment would extend that protection to OCC, which should prevent OCC from being the target of liability claims made by members and member organizations who may look for satisfaction to an otherwise unprotected OCC. The Phlx believes that this protection should contribute to the efficient operation of the Linkage.

2. Statutory Basis

The Phlx believes that its proposal is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act in particular, in that it is intended to promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in processing information with respect to, and facilitating transactions in securities, and, in general, to protect investors and the public interest by promoting efficient operation of the Linkage by extending liability protection to OCC, which provides functions related to the Linkage's on-going maintenance and operations.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Phlx does not believe that the proposed rule change will impose any inappropriate burden on competition.

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

The Phlx neither solicited nor received written comments concerning 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 Phlx 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 Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. 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-2003-43 and should be submitted by September 9, 2003.