[Federal Register Volume 59, Number 5 (Friday, January 7, 1994)]
[Notices]
[Pages 1045-1047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-398]


[[Page Unknown]]

[Federal Register: January 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33408; File No. SR-PHLX-93-63]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Relating to an Extension of the 
Effectiveness of Its Pilot Program and Accompanying Rules Regarding the 
Trading of Nasdaq/National Market System Securities Through December 
31, 1994

December 30, 1993.
    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 December 27, 1993, 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 and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons and to 
grant accelerated approval of the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PHLX proposes to extend the effectiveness of the pilot program 
and its accompanying rules regarding the trading of Nasdaq/National 
Market System (``NMS'') securities on the Exchange for the one-year 
period ending December 31, 1994.\3\
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    \3\The Commission initially approved this pilot program and the 
accompanying rules for a temporary period ending on December 31, 
1993. Securities Exchange Act Release No. 31672 (December 30, 1992), 
58 FR 3054 (order temporarily approving File No. SR-PHLX-92-04) 
(``1992 PHLX Pilot Order'').
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    The Exchange requests the Commission to find good cause, pursuant 
to section 19(b)(2) of the Act, for approving the proposed rule change 
prior to the thirtieth day after publication in the Federal Register. 
The PHLX states that it respectfully is requesting accelerated approval 
of this filing due to the noncontroversial nature of the pilot program 
coupled with the impending lapse of the PHLX's OTC/UTP privileges on 
December 31, 1993.

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 self-regulatory organization 
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 self-regulatory 
organization 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
    On June 26, 1993, the Commission approved a transaction reporting 
plan (``Plan'') submitted by the National Association of Securities 
Dealers, Inc. (``NASD''), the American Stock Exchange (``Amex''), the 
Boston Stock Exchange (``BSE''), the Midwest Stock Exchange (currently 
the Chicago Stock Exchange, or ``CHX''), and the PHLX (cumulatively, 
``Participants'').\4\ The Plan governs the collection, consolidation, 
and dissemination of quotation and transaction information for Nasdaq/
NMS securities traded on exchanges and by NASD market makers.\5\
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    \4\Securities Exchange Act Release No. 28146 (June 26, 1990), 55 
FR 27917. The Commission notes that certain enhancements to 
electronic linkages were required before trading pursuant to the 
Plan could begin. These enhancements were completed and trading 
pursuant to the Plan commenced in June 1993 on a one-year pilot 
basis.
    \5\See Securities Exchange Act Release No. 30984 (July 31, 
1992), 57 FR 36114 (notice of filing of proposed rule change, File 
No. SR-PHLX-92-04). The Plan also superseded an interim transaction 
reporting plan filed by the NASD and the CHX and approved by the 
Commission on April 29, 1987. See Securities Exchange Act Release 
No. 24407 (April 29, 1987), 52 FR 17349.
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    Although the CHX has been trading Nasdaq/NMS securities since 1987, 
the PHLX obtained temporary approval of its rules to facilitate trading 
Nasdaq/NMS securities in late 1992,\6\ and the PHLX began trading those 
securities pursuant to unlisted trading privileges (``UTP'') and the 
pilot program in February, 1993. Since that time, the PHLX has been 
operating the program without any adverse consequences or developments 
which negatively impact upon the program and, therefore, seeks an 
extension of the pilot program to develop the UTP program further.\7\
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    \6\1992 PHLX Pilot Order, supra note 3.
    \7\The Exchange attached Exhibit B to the proposal which 
provides an accounting of the number of shares and number of trades 
executed on the PHLX pursuant to the pilot program since its 
inception in February, 1993. Exhibit B states a total PHLX pilot 
program volume through November 19, 1993 of 457,790 shares.
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    The PHLX will continue to submit OTC/UTP applications to the 
Commission for specific securities for approval pursuant to section 
12(f) of the Act.\8\ Further, the PHLX understands that in considering 
an application for the extension of UTP to an OTC security pursuant to 
section 12(f)(2), the Commission considers, inter alia, the public 
trading activity in the security, the character of that trading, the 
impact of an extension of UTP on the existing markets for the security, 
and the desirability of removing impediments to and the progress that 
has been made toward the development of a national market system.
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    \8\Commission approval of the Plan limits the PHLX authority to 
submit OTC/UTP applications for trading in up to a maximum of 100 
Nasdaq/NMS securities. The PHLX must submit OTC/UTP applications to 
the Commission for specific securities for approval pursuant to 
section 12(f) of the Act.
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2. Statutory Basis
    This proposal is consistent with the requirements of the Act and 
the rules and regulations promulgated thereunder. Specifically, the 
proposal complies with section 6(b)(5) of the Act insofar as it is 
calculated to promote just and equitable principles of trade and to 
protect investors and the public interest.

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

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

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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. 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 at the 
Commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC 20549. 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-93-63 and should be 
submitted by January 28, 1994.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission believes that the PHLX's proposal to extend the 
effectiveness of its pilot program and accompanying rules with respect 
to UTP in OTC securities is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\9\ Specifically, the Commission believes that the 
proposed rule change is consistent with sections 6(b)(5), 11A and 12(f) 
of the Act.\10\
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    \9\For a more detailed discussion of the Commission's findings 
with respect to the pilot program and its consistency with the Act, 
see 1992 PHLX Pilot Order, supra note 3.
    \10\15 U.S.C. 78f(b)(5), 78k-1, 78l(f) (1988). 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, and, in general, 
to protect investors and the public interest. Section 11A provides, 
among other things, that it is in the public interest and 
appropriate for the protection of investors to assure fair 
competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets. 
Section 12(f) provides the terms and conditions regarding exchange 
applications for unlisted trading privileges and Commission approval 
of those applications.
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    In 1985, the Commission published its policy to extend UTP to 
national securities exchanges in certain OTC securities provided 
certain terms and conditions are satisfied.\11\ The Commission's policy 
stated that UTP approval would be conditioned, in part, on the approval 
of a plan to consolidate and disseminate exchange and OTC quotation 
data and transaction data upon which UTP is granted. As noted above, in 
1990, the Commission approved the Plan which provides for the 
collection, consolidation, and dissemination of quotation and 
transaction information for Nasdaq/NMS securities listed on an exchange 
or traded on an exchange pursuant to a grant of UTP.\12\ Trading 
subject to Plan requirements in securities approved for UTP on the PHLX 
pursuant to section 12(f)(2) are and will continue to be reported in 
the consolidated transaction reporting system established under the 
Plan.
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    \11\Securities Exchange Act Release No. 22412 (September 16, 
1985), 50 FR 38640.
    \12\See note 4, supra.
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    In our 1992 PHLX Pilot Order, the Commission emphasized that PHLX 
specialists trading Nasdaq/NMS securities pursuant to the grant of UTP 
are subject to Plan requirements as well as the PHLX By-Laws and Rules. 
Moreover, the Commission stated its intent to monitor any potential 
abuse of the informational advantage that options traders could acquire 
from the PHLX equity floor with respect to securities traded under the 
PHLX pilot program. In extending the PHLX pilot for an additional year, 
the Commission again emphasizes that PHLX specialists trading Nasdaq/
NMS securities pursuant to the grant of UTP continue to be subject to 
Plan requirements as well as the PHLX By-Laws and Rules. The Commission 
also will continue to monitor side-by-side trading concerns during this 
extension of the pilot procedures.
    In approving the Plan, the Commission noted that the Plan should 
enhance market efficiency and fair competition, avoid investor 
confusion, and facilitate regulatory surveillance of concurrent 
exchange and OTC trading. The Commission continues to believe that the 
proposed rule change will further promote these goals and the 
development of a national market system. However, in approving the Plan 
and in our 1992 PHLX Pilot Order, the Commission requested that the 
Participants evaluate the effect of OTC/UTP trading on the OTC market. 
The Commission also requested that the UTP Participants evaluate the 
quality of executions of customer orders and whether the Plan 
facilitates the goals of a national market system. To date, the 
Commission has not received the Participants' evaluations regarding 
these concerns.
    While the PHLX has provided the Commission with useful information 
concerning trading volume in the relevant securities,\13\ and the PHLX 
states in this filing that it has suffered no adverse consequences 
under the pilot, the PHLX should evaluate the effect of OTC/UTP trading 
on the OTC market, the quality of execution on customer orders, and 
whether the Plan facilitates the goals of a national market system.\14\ 
The Commission requests that the PHLX submit to the Commission a 
written evaluation of these issues, along with a statement addressing 
the Commission's side-by-side trading concerns discussed above, on or 
before November 1, 1994, along with either a request for permanent 
approval or an additional extension of this PHLX pilot program and the 
accompanying rules.
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    \13\See discussion of Exhibit B, note 7, supra.
    \14\The Commission also stated in our 1992 PHLX Pilot Order that 
the Participants should develop an intermarket trading linkage and 
an accompanying trade-through rule. The Commission believes that the 
Participants should continue working toward these goals.
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    The Commission believes that it is appropriate to extend the PHLX 
pilot program of OTC/UTP trading for an additional year while the 
Commission awaits the Participants' evaluations of their trading 
experience pursuant to the Plan. Moreover, the Commission believes that 
PHLX OTC/UTP trading, as limited by the Plan and this pilot program, 
generally furthers the objectives of a national market system and is 
consistent with the maintenance of fair and orderly markets and the 
protection of investors as required by sections 6(b)(5), 11A and 12(f) 
of the Act.

V. Conclusion

    For the reasons stated above, the Commission believes that it is 
appropriate to extend the PHLX pilot program for OTC/UTP trading for an 
additional year.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the proposal is appropriate in 
order to allow the PHLX to continue trading pursuant to the pilot 
program on an uninterrupted basis. Further, the pilot program and the 
accompanying rules have been noticed previously in the Federal Register 
for the full statutory period, and the Commission received no comments 
on the proposal.\15\
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    \15\See supra note 4.
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    It is therefore ordered, pursuant to section 19(b)(2)\16\ that the 
proposed rule change is hereby approved on a pilot basis through 
December 31, 1994.

    \16\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-398 Filed 1-6-94; 8:45 am]
BILLING CODE 8010-01-M