[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