[Federal Register Volume 59, Number 192 (Wednesday, October 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24614]


[[Page Unknown]]

[Federal Register: October 5, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34742; File No. SR-Phlx-91-46

 

Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Approving and Notice of Filing and Order Granting Accelerated 
Approved to Amendment No. 1 to a Proposed Rule Change Relating to Firm 
Quote Responsibilities for Customer and Broker-Dealer Orders

September 28, 1994.
    On December 9, 1991, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``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 the Phlx's Options Floor 
Procedure Advice (``OFPA'') F-7 relating to firm quotes for customer 
and broker-dealer orders. On September 27, 1994, the Phlx filed 
Amendment No. 1 (``Amendment No. 1'') to the proposal to eliminate a 
reference to public customers in OFPA F-7 and to replace a reference to 
its Ten-up rule (``ten-up'' rule) with the actual Options Floor 
Procedure Advice section (``OFPA A-11'') governing minimum volume 
guarantees.\3\
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    \1\15 U.S.C. 78s(b)(1) (1982).
    \2\17 CFR 240.19b-4 (1991).
    \3\See Letter from Gerald D. O'Connell, First Vice President, 
Phlx, to Michael Walinskas, Derivative Products Regulation, SEC, 
dated September 27, 1994.
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    Notice of the proposed rule change was published for comment in 
Securities Exchange Act Release No. 30134 (Dec. 31, 1991), 57 FR 730 
(Jan. 8, 1992). No comments were received on the proposal. This order 
approves the proposal, as amended.

I. Description of the Proposal

    OFPA F-7 currently states that bid and offer prices shall be 
general ones and shall not be specified for acceptance by particular 
members. The proposed amendment modifies OFPA F-7 to reflect the 
development of different execution guarantees depending on the status 
of the order to be executed. Under Phlx Rule 1033(a), the current 
``ten-up'' rule, public customer orders are afforded a ten-up guarantee 
on the Exchange, receiving an execution of up to ten contracts at the 
best market price regardless of whether size was quoted. Broker-dealer 
orders do not qualify for the ten-up guarantee. Accordingly, the stated 
purpose of the proposed rule change is to permit floor traders to 
provide greater bid and/or offer sizes (i.e., more than 10 contract 
guarantee) to facilitate customer orders while not being under such 
obligation with respect to broker-dealer orders, unless specified. 
However, the proposed amendment to OFPA F-7 requires that quote sizes 
be maintained equally for all orders of the same account type. 
Therefore, if a specialist elects to give a size of twenty-up to one-
broker-dealer, he must honor the size of twenty-up for all broker-
dealer orders.

II. Discussion

    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\ In particular, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirement that the rules of an exchange be designed to promote just 
and equitable principles of trade and not to permit unfair 
discrimination between customers, issuers, brokers, and dealers.
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    \4\15 U.S.C. 78f(b)(5) (1982)
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    In approving the Phlx's ``ten-up'' in rule in June 1987,\5\ the 
Commission found that it was designed to benefit public customers by 
increasing the size of orders for which they can be assured executions 
to a minimum depth of ten contracts at the best bid or offer as quoted 
by a specialist or Registered Options Trader (``ROT''). Although the 
Commission carefully scrutinizes discriminatory order execution 
practices, limiting the ``ten-up'' rule for public customers furthers 
the purposes of the Act. The intent of the ``ten-up'' rule is to 
encourage options specialists and ROTs to become more competitive in 
making markets, thereby contributing to a more free and open market. 
Because the ``ten-up'' rule was designed by the options exchanges for 
the benefit of public customers, however, the incentive for market 
makers and ROTs to benefit public customers through the ``ten-up'' rule 
is contingent on the assurance that these market makers volume 
guarantees will not be exhausted by competitors to the detriment of 
public customers.
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    \5\See Securities Exchange Act Release No. 24580 (June 11, 
1987), 52 FR 23120.
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    The Commission believes that allowing floor traders to provide 
customers with quote sizes greater than the minimum ``ten-up'' 
guarantee, while not being obligated with respect to broker-dealer 
orders, is consistent with the Act in that it will facilitate customer 
orders. The Commission also believes the rule change will encourage 
market participants to make larger markets, resulting in tighter 
spreads, which, in turn, should contribute to more liquid options 
markets. Furthermore, allowing floor traders to increase the quote 
sizes available to customer orders furthers the underlying purposes of 
the ``ten-up'' rule. The proposal also requires that order sizes be 
maintained equally for all orders of the same account type, as defined 
by OFPA B-6. Accordingly, if a specialist elects to give a size of 
twenty-up to one broker-dealer, he must honor the size of twenty-up for 
all broker-dealer orders. In the absence of a stated size to any bid or 
offer, the size shall be deemed to be for one contract only, subject to 
the minimum volume guarantees for public customers orders, as 
established in Rule 1033(a). The Commission believes this requirement 
will help to ensure the integrity and fairness of the Phlx's markets in 
that it will help prevent order discrimination within account types.
    The Commission finds good cause for approving Amendment No. 1 to 
the Exchange's proposal prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. 
Amendment No. 1 eliminates the term ``public customers'' from OFPA B-7, 
which was proposed in the original filing. Because existing Phlx OFPA 
B-6 already distinguishes between account types, of which ``public 
customers'' is one type, the Commission does not believe the proposal's 
elimination of the term raises any new or substantive issues. Moreover, 
the minimum volume guarantees afforded by Rule 1033(a) are only 
available to public customer orders and the elimination of the term 
from OFPA B-7 does not affect the ten-up guarantee. Amendment No. 1 
also replaces a reference to the Phlx ``ten-up'' rule with a citation 
to OFPA A-11, which is the floor advice currently governing minimum 
volume guarantees. The Commission believes this change is non-
substantive and does not affect the operation or implementation of 
either Rule 1033(a), OFPA A-11, or the filing.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by October 26, 
1994.
    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-Phlx-91-46) is approved, as 
amended.

    \6\15 U.S.C. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\

    \2\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24614 Filed 10-4-94; 8:45 am]
BILLING CODE 8010-01-M