[Federal Register Volume 59, Number 214 (Monday, November 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27487]


[[Page Unknown]]

[Federal Register: November 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34920; File No. SR-Phlx-94-40]

 

Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Automatic Execution of Index Option 
Orders

October 31, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 3, 1994, 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, II, and III 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.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to codify the eligibility of index options for 
its Automated Options Market (``AUTOM'') System and its automatic 
execution feature (``Auto-X'').

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 IV 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

    Autom is the Exchange's electronic order routing, delivery, 
execution, and reporting system for options. Orders are routed from 
member firms directly to the appropriate specialist post on the 
Exchange's trading floor. Certain market and marketable limit orders 
are eligible for AUTOM's automatic execution feature, AUTO-X. These 
AUTO-X designated orders are automatically executed at the disseminated 
quotation price on the Exchange and reported to the originating firm. 
Those orders not eligible for AUTO-X are manually handled by the 
specialist.
    The AUTOM system has operated on a pilot basis since 1988, when it 
first was approved by the Commission for market orders of up to five 
contracts for twelve Phlx near-month equity options.\2\ AUTOM has been 
extended and amended several times since.\3\ Most recently, the pilot 
program was approved to operate until December 31, 1994.\4\ In 1991, 
the Commission approved the use of AUTO-X as part of the AUTOM pilot 
program.\5\ Orders for up to 100 contracts are eligible for AUTOM and 
orders for up to 25 contracts are eligible for AUTOM-X.\6\
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    \2\See Securities Exchange Act Release No. 25540 (March 31, 
1988), 53 FR 11390.
    \3\See Securities Exchange Act Release Nos. 25868 (June 30, 
1988), 53 FR 25563; 26354 (December 13, 1988), 53 FR 51185; 26522 
(February 3, 1989), 54 FR 6465; 27599 (January 9, 1990), 55 FR 1751; 
28265 (July 26, 1990), 55 FR 31274; 28978 (March 15, 1991), 56 FR 
12050; 29662 (September 9, 1991), 56 FR 46816 (permitting AUTO-X 
orders up to 20 contracts in Duracell options only); 29782 (October 
3, 1991), 56 FR 51247 (permitting AUTO-X for all strike prices and 
expiration months); 29837 (October 18, 1991), 56 FR 55146 
(permitting AUTO-X orders up to 20 contracts in all options); 32559 
(June 30, 1993), 58 FR 36496; 32906 (September 15, 1993), 58 FR 
15168 (permitting AUTO-X orders up to 25 contracts in all options); 
and 33405 (December 30, 1993), 59 FR 790.
    \4\See Securities Exchange Act Release No. 33405, supra note 3.
    \5\See Securities Exchange Act Release No. 28978, supra note 3.
    \6\See Securities Exchange Act Release No. 32000 (March 15, 
1993), 58 FR 15168.
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    At this time, the Phlx proposes to codify its existing practice of 
accepting index option orders for execution through AUTOM and AUTO-X. 
Currently, AUTOM and AUTO-X are available for all Phlx options, 
including both equity options and index options. Although the term 
``index options'' was not specifically employed by the Phlx throughout 
the AUTOM pilot program, Exchange research indicates that index options 
became AUTOM-eligible in June 1990, and AUTO-X-eligible in March 1991. 
Since then, the Exchange has included index options trading when it 
reports volume information and makes capacity representations to the 
Commission as part of the AUTOM pilot. Accordingly, codifying index 
options into the AUTOM pilot does not raise new systems capacity 
concerns, as AUTOM has operated without problems since index options 
have been included in AUTOM; specifically, the Exchange has not 
experienced systems problems or received formal customer complaints 
related to index options trading on AUTOM.
    Moreover, the Exchange frequently uses the term ``options'' to 
include both equity and index options. For example, the ``Options 
Committee'' governs both equity options and index options trading, and 
``options trading volume'' includes index options as well. In addition, 
the use of the phrase ``equity options'' to include index options is 
not limited to AUTOM. For instance, ``equity options floor''\7\ and 
``equity options examination''\8\ are common terms. Furthermore, the 
date when AUTO-X was extended to index options corresponds to 
Commission approval of the use of AUTO-X for ``all Phlx equity 
options.''\9\ Accordingly, it appears that index options were added to 
AUTOM as part of the extension of both AUTOM and AUTO-X to ``all Phlx 
equity options.''
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    \7\There is no separate ``index options floor.''
    \8\This floor member qualification examination tests trading 
rules applicable to index options as well.
    \9\See Securities Exchange Act Release No. 28978, supra note 3.
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    Although Commission orders approving various amendments to and 
extensions of the AUTOM pilot refer to ``equity options,'' the proposed 
rule changes filed by the Exchange generally describe AUTOM as an order 
routing and delivery system for ``options.'' In addition, the Phlx has 
issued memoranda to the trading floor regarding the use of AUTOM/AUTO-X 
for index options on many occasions, including periodic lists of the 
maximum size eligibility for AUTO-X. The Phlx also notes that other 
exchanges permit the use of automatic order delivery and executions 
systems for index options.\10\
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    \10\See e.g., CBOE Rule 24.17.
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    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general, and Section 6(b)(5) in 
particular, in that it is designed to promote just and equitable 
principles of trade and protect investors and the public interest by 
codifying index options into the AUTOM pilot program. The Exchange 
believes that index option orders benefit from the advantages of AUTOM, 
including efficient and prompt order delivery and execution.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx believes that the proposed rule change will impose no 
burden on competition.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the proposed rule change constitutes a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the Exchange, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act and 
subparagraph (e) of Rule 19b-4 thereunder. Specifically, the Exchange 
is proposing to codify the eligibility of index options, an existing 
Exchange practice, for an existing Commission-approved system. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.

IV. 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 in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC. 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 File No. 
SR-Phlx-94-40 and should be submitted by November 28, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\17 CFR 200.30-3(a)(12) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27487 Filed 11-4-94; 8:45 am]
BILLING CODE 8010-01-M