[Federal Register Volume 63, Number 200 (Friday, October 16, 1998)]
[Notices]
[Pages 55670-55671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27825]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40530; File No. SR-PHLX-98-18]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 1 to Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to Auto-X Contra Party Participation (the
Wheel)
October 7, 1998.
I. Introduction
On June 5, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``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 Options Floor Procedure
Advice F-24 (``Advice F-24'') governing AUTO-X Contra Party
Participation (the Wheel). The proposed rule change was published for
comment in the Federal Register on September 3, 1998.\3\ The Commission
received no comments regarding the proposal. On September 15, 1998, the
Phlx filed with the Commission Amendment No. 1 to the proposed rule
change.\4\ This order approves the proposed rule change. In addition,
the Commission is publishing this notice to solicit comments on
Amendment No. 1 to the proposed rule change and is simultaneously
approving Amendment No. 1 on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 40374 (August 27, 1998)
63 FR 47078.
\4\ In Amendment No. 1, the Exchange noted additional language
in Advice F-24 that had become effective pursuant to a separate rule
filing. See Letter from Linda S. Christie, Counsel, Exchange, to
Richard Strasser, Assistant Director, Division of Market Regulation
(``Division''), Commission, dated September 14, 1998 (``Amendment
No. 1'').
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I. Description of the Proposal
AUTO-X is the automatic execution feature of the Exchange's
Automated Options Market (``AUTOM'') system,\5\ which provides
customers with automatic executions of eligible option orders at
displayed markets. The Wheel is an automated mechanism for assigning
floor traders (i.e., specialists and Registered Options Traders
(``ROTs'')), on a rotaing basis, as contra-side participants to AUTO-X
orders.
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\5\ AUTOM is an electronic order routing system for option
orders. See Phlx Rule 1080.
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In 1994, the Commission approved the Exchange's Wheel provisions as
Advice F-24.\6\ The purpose of the Wheel is to increase the efficiency
and liquidity of order execution through AUTO-X by including certain
floor traders in the automated assignment of contra-parties to incoming
AUTO-X orders. Thus, the Wheel is intended to make AUTO-X more
efficient, as contra-side participation is assigned automatically.
Although specialists are required to participate on the Wheel,
currently, ROT participation is voluntary, absent extraordinary
circumstances.
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\6\ Securities Exchange Act Release No. 35033 (November 30,
1994), 59 FR 63152 (December 7, 1994) (order approving Advice F-24).
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In its filing, the Phlx proposes that in extraordinary
circumstances, to promote liquidity, two Floor Officials may require
all ROTs who signed onto the Wheel at any time during the last thirty
business days to participate on the Wheel. This proposed amendment to
section (d) of Advice F-24 removes the broader ability to require all
ROTs to sign on in extraordinary circumstances by limiting the
provision to ROTs who have previously signed on. Thus, ROTs who had not
signed onto the Wheel in the past thirty days would not be subject to
this provision. The purpose of this change is to establish a more
equitable sign-on requirement, affecting only those ROTs who have
previously participated on the Wheel.
The Phlx also proposes to amend section (c)(iii) of Advice F-24 to
require expressly that ROTs sign off the Wheel when leaving the Wheel
assignment area for more than a brief interval.\7\ The Exchange
explains that this change should clarify the obligations of a ROT to
sign off the Wheel by incorporating affirmative language into Advice F-
24(c)(iii). The proposal is designed to ensure that ROTs are aware of
and meet their responsibilities pertaining to the sign-off requirements
for the Wheel. Because section (c)(iii) is subject to a fine schedule,
the Exchange also proposes to amend its minor rule violation
enforcement and reporting plan.\8\ Moreover, Amendment No. 1
incorporated language into Advice F-24 that became effective pursuant
to a rule filing submitted subsequent to the current proposal.\9\
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\7\ The Phlx defines ``brief'' to mean 5 minutes or less, or in
matters of a dispute, the amount of time it takes to call in a Floor
Official and inform him/her of the issue at hand. See Securities
Exchange Act Release No. 38881 (July 28, 1997), 62 FR 41986 (August
4, 1997) (order approving changes to Advice F-24). The Exchange has
clarified that ROTs who signed off to leave the Wheel assignment
area may return and sign back onto the Wheel the same day. Telephone
conversation between Linda S. Christie, Counsel, Phlx, and Lisa
Henderson, Attorney, Division, Commission (July 23, 1998).
\8\ The Phlx's minor rule violation enforcement and reporting
plan (``minor rule plan''), codified in Phlx Rule 970, contains
floor procedure advices with accompanying fine schedules. Rule 19d-
1(c)(2) under the Act authorizes national securities exchanges to
adopt minor rule violation plans for summary discipline and
abbreviated reporting. Rule 19d-1(c)(1) under the Act requires
prompt filing with the Commission of any final disciplinary action.
However, minor rule violations not exceeding $2,500 are deemed not
final, thereby permitting periodic, as opposed to immediate,
reporting.
\9\ See Securities Exchange Act Release No. 40370 (August 27,
1998) 63 FR 47077 (September 3, 1998) (notice of immediate
effectiveness of SR-PHLX-98-34).
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III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the Act. In particular, the Commission
believes the proposal is consistent with Section 6(b)(5) \10\ of the
Act.\11\ Section 6(b)(5) requires, among other things, that the rules
of an exchange be designed to remove impediments to and perfect the
mechanism of a free and open market and a national market system.
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\10\ 15 U.S.C. 78f(b)(5).
\11\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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As the Commission previously has noted, AUTO-X enhances the
Exchange's ability to execute small public customer orders in a timely,
accurate, and efficient manner, and the automation of assignments of
contra-parties for AUTO-X trades should improve order processing and
turnaround time.\12\ The Commission agrees with the Exchange that it
should be more equitable, in extraordinary circumstances when ROTs are
forced onto the Wheel, to limit those ROTs compelled to serve as
contra-parties to those who have taken advantage of Wheel participation
in the past thirty days. Moreover, given the significance of
maintaining orderly Wheel operations, it is sensible to clarify the
affirmative responsibility of Wheel participants to sign-off the wheel
when they leave the Wheel assignment area
[[Page 55671]]
for more than a brief interval and to adjust the Exchange's Minor Rule
Violation Plan accordingly.
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\12\ See Securities Exchange Act Release No. 35033 (November 30,
1994) 59 FR 63152 (December 7, 1994) (order approving SR-PHLX-94-
32).
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Finally, the Commission finds good cause for approving proposed
Amendment No. 1 prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. The
Amendment merely updates the proposed Advice F-24 to reflect changes in
the Advice made pursuant to a separate rule filing.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1, including whether the proposed
Amendment 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. 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 will also be available for inspection and copying at the
principal office of the Phlx. All submissions should refer to File No.
SR-PHLX-98-18 and should be submitted by November 6, 1998.
Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-PHLX-98-18), as amended, is
hereby approved.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)912).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27825 Filed 10-15-98; 8:45 am]
BILLING CODE 8010-01-M