[Federal Register Volume 59, Number 146 (Monday, August 1, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-18580] [[Page Unknown]] [Federal Register: August 1, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Releases No. 34-34434; File No. SR-PHLX-94-30] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Approving Proposed Rule Change, Relating to Quotation Guarantees, Including a Requirement That Specialists and Registered Options Traders (``ROT's'') Fill Incoming Orders or Update Existing Markets July 22, 1944. On June 1, 1994, the Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') submitted to the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b) of the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend PHLX rules to expressly require its specialists and registered options traders (``ROT's'') in a trading crowd to respond to non-public orders represented in the trading crowd at the currently disseminated bid or offer, either by satisfying the order or by updating the existing market in the subject series. --------------------------------------------------------------------------- \1\15 U.S.C. 78s(b)(1) (1988). \2\17 CFR 240.19b-4 (1993). --------------------------------------------------------------------------- The proposed rule change was published for comment in Securities Exchange Act Release No. 34158 (June 3, 1994), 59 FR 30074 (June 10, 1994). No comments were received on the proposed rule change. The proposal amends PHLX Rule 1015 to require PHLX specialists and ROT's to either execute an order at the quote they are currently disseminating or to update their quotes (by either raising their bids or lowering their offers) to reflect that the previously disseminated quote is no longer available.\3\ The amendment also includes language prohibiting the trading crowd from immediately redisplaying the previously disseminated market quote, unless warranted by a change in market conditions. --------------------------------------------------------------------------- \3\The Commission understands this provision to allow an exchange, upon receipt of a market or marketable limit order, to execute less than the total number of contracts contained in the order, but the exchange then becomes obligated to update its quotation if it is not willing to transact with any more of the order at the same price. For example, if as a result of displaying a more competitive offer, an exchange is sent an order to buy 50 contracts that was originally received by another exchange, it may buy fewer than 50 contracts at its quoted price, but must then revise the quotation to reflect that its price is no longer available. --------------------------------------------------------------------------- The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, the requirements of Section 6(b)(5).\4\ Specifically, the Commission finds that requiring PHLX specialists and ROT's to execute orders or update their markets facilitates transactions in securities, protects investors and the public interest, and promotes fair competition among options markets by reducing the likelihood that an outdated quote from one options market will hinder the execution of an order on another options market by making such execution appear to be at an inferior price (i.e., a ``trade-through''). --------------------------------------------------------------------------- \4\15 U.S.C. 78f(b)(5) (1988). --------------------------------------------------------------------------- Currently, in light of the expansion in the multiple trading of options, the options exchanges have either implemented or are working to implement systems upgrades which will prevent orders that are identified as potential ``trade-throughs'' from being automatically executed and will re-route these orders to the appropriate market maker or specialist at each exchange for non-automated execution. Further, to attract order flow, many market makers and specialists from the different options exchanges have represented to their customers that they will execute the orders they receive at the best price available at any of the five options exchanges. The current proposal, therefore, will, consistent with Section 6(b)(5) of the Act, facilitate options transactions by encouraging the PHLX trading crowd to keep their markets up-to-date. This, in turn, should reduce the likelihood that outdated quotes will cause orders on other exchanges, that could be automatically executed, to be re-routed for non-automated handling. It also should reduce the likelihood that outdated quotes will cause orders executed on other exchanges at current market prices to appear to be executed at inferior prices. The Commission further notes that, concurrently with approval of this proposal, it has approved similar proposals by the American Stock Exchange (``AMEX''), Chicago Board Options Exchange (``CBOE''), New York Stock Exchange (``NYSE'') and the Pacific Stock Exchange (``PSE'').\5\ --------------------------------------------------------------------------- \5\See Securities Exchange Act Release No. 34431, 34432, 34433, and 34435, (July 22, 1994), respectively. --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\6\ that the proposed rule change (SR-PHLX-94-30) is approved. \6\15 U.S.C. 78s(b)(2) (1988). --------------------------------------------------------------------------- For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\7\ --------------------------------------------------------------------------- \7\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-18580 Filed 7-29-94; 8:45 am] BILLING CODE 8010-01-M