[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