[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Notices]
[Pages 3017-3019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-715]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35191; File No. SR-PHLX-94-70]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc., Proposing To Extend its OTC/UTP 
Pilot Program

January 3, 1995.
    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, 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 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.

    \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, pursuant to Rule 19b-4 of the Act, proposes to extend the 
effectiveness of the pilot program and its accompanying rules regarding 
the trading of Nasdaq/National Market (``Nasdaq/NMS'') securities on 
the Exchange pursuant to unlisted trading privileges (``Phlx OTC/UTP 
Pilot Program'') for a six-month period ending June 30, 1995.
    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. 
Due to the non-controversial nature of the Phlx OTC/UTP Pilot Program, 
coupled with its previously scheduled expiration date of December 31, 
1994, the Phlx respectfully requests accelerated approval of this 
filing.

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
    In 1985, the Commission published its policy to allow the extension 
of unlisted trading privileges (``UTP'') by national securities 
exchanges in certain over-the-counter (``OTC'') securities, provided 
that certain terms and conditions are satisfied. On June 26, 1990, the 
Commission approved a joint transaction reporting plan (``Joint OTC/UTP 
Plan'' or ``Plan'') submitted by the National Association of Securities 
Dealers, Inc. (``NASD''), the American Stock Exchange, the Boston Stock 
Exchange, the Midwest Stock Exchange (``MSE,'' currently operating as 
the Chicago Stock Exchange, or ``Chx''), and the Phlx.\3\ The Joint 
OTC/UTP Plan governs the collection, consolidation, and dissemination 
of quotation and transaction information for Nasdaq/NMS securities 
traded on exchanges and by NASD market makers.

    \3\See Securities Exchange Act Release No. 28146 (June 26, 
1990), 55 FR 27917 (``Joint OTC/UTP Plan Order''). The Commission 
has approved an extension of the effectiveness of the Joint OTC/UTP 
Plan through January 12, 1995. See Securities Exchange Act Release 
No. 34371 (July 13, 1994), 59 FR 37103 (order approving Amendment 
No. 1 to File No. S7-24-89) (``Joint OTC/UTP Plan Extension 
Order'').
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    The current proposed rule change will continue the Phlx OTC/UTP 
Pilot Program that provides for trading of Nasdaq/NMS securities on the 
Exchange pursuant to UTP. 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,\4\ and 
began trading the securities in February 1993. Since that time, the 
Phlx has been operating the program without any adverse consequences or 
developments which negatively effect the program. Therefore, the 
Exchange seeks an extension of the Phlx OTC/UTP Pilot Program to 
further develop the overall OTC/UTP program.

    \4\See Securities Exchange Act Release No. 31672 (December 30, 
1992), 58 FR 3054 (order approving File No. SR-PHLX-92-04) (``1992 
Phlx Pilot Order''). See also Securities Exchange Act Release No. 
33408 (December 30, 1994), 59 FR 1045 (``1993 Phlx Pilot Extension 
Order'').
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    Since April 1994, the Phlx has temporarily suspended making markets 
in OTC/UTP securities. However, the Phlx desires to keep the program in 
place for future use once certain elements of the Joint OTC/UTP Plan 
are worked out between the NASD and the other participants in the Plan.
2. Statutory Basis
    This proposal is consistent with the Section 6(b)(5) of the Act and 
the rules and regulations promulgated thereunder. Specifically, the 
proposal is calculated to promote just and equitable principles of 
trade and to protect investors and the public interest. Due to the non-
controversial nature of the Phlx OTC/UTP Pilot Program, coupled with 
the previously scheduled expiration of the Phlx's OTC/UTP privileges, 
the Phlx requests accelerated approval of this filing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change will be a 
burden on competition.

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

    No written comments were either solicited or received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
[[Page 3018]] arguments concerning the foregoing. Persons making 
written submissions 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. Sec. 552, will be available for inspection and 
copying at the Commission's Public Reference Room. 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-94-70 and should be submitted by February 2, 1995.

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 the Phlx OTC/UTP 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.\5\ Specifically, the 
Commission believes that the proposed rule change is consistent with 
Sections 6(b)(5), 11A and 12(f) of the Act.\6\

    \5\For a more detailed discussion of the Commission's findings 
with respect to the Phlx OTC/UTP Pilot Program and its consistency 
with the Act, see 1992 Phlx Pilot Order and 1993 Phlx Pilot 
Extension Order, supra note 4.
    \6\15 U.S.C. 78f(b)(5), 78k-1 (1988), and 78l(f) (1988) (as 
amended October 22, 1994). 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), as amended, provides, 
among other things, that exchanges may extend UTP to securities that 
are registered, but not listed on any exchange, provided that 
certain conditions are met.
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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.\7\ 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.\8\ Transactions in 
securities pursuant to the Plan are and will continue to be reported in 
the consolidated transaction reporting system established under the 
Plan.

    \7\See Securities Exchange Act Release No. 22412 (September 16, 
1985), 50 FR 38640.
    \8\See note 4, supra.
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    In the 1993 Phlx Pilot Order and the 1993 Phlx Pilot Extension 
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 OTC/
UTP Pilot Program.
    In extending the Phlx OTC/UTP Pilot Program for an additional six 
months, the Commission again emphasizes that, if the Exchange removes 
its temporary suspension of OTC/UTP on its trading floor, Phlx 
specialists trading Nasdaq/NMS securities pursuant to UTP will 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 has requested that the 
participants to the Plan submit evaluations to the Commission 
concerning the operation and status of OTC/UTP as it relates to these 
and other national market system objectives.\9\

    \9\See 1992 Phlx Pilot Order and 1993 Phlx Pilot Extension 
Order, supra note 4. See also Joint OTC/UTP Plan Order and Joint 
OTC/UTP Plan Extension Order, supra note 3.
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    In the present filing, the Phlx states that it has been operating 
its pilot program with no adverse consequences or developments that 
have a negative impact on the program. The Phlx also has attached a 
letter to the present filing which provides a detailed discussion of 
the status and operation of OTC/UTP under both the Phlx OTC/UTP Pilot 
Program and the Joint OTC/UTP Plan.\10\ The evaluation does not report 
any negative impact to the securities markets caused by OTC/UTP, but 
does make certain recommendations concerning the overall status of, and 
issues raised by the Joint OTC/UTP Plan. The Commission will address 
those recommendations in the Commission's evaluation of the continued 
effectiveness of the Joint OTC/UTP Plan, which currently is scheduled 
to expire on January 12, 1995.

    \10\See letter from William W. Uchimoto, First Vice President 
and General Counsel, Phlx, to Elizabeth Prout, Esq., Commission, 
dated December 21, 1994.
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    The Commission believes that it is appropriate to extend the Phlx 
OTC/UTP Pilot Program for an additional six months while the Commission 
evaluates the overall program for OTC/UTP and any enhancements or 
changes to the program that may be necessary to further the purposes of 
the Act. In the interim, however, the Commission continues to believe 
that the Phlx OTC/UTP Pilot Program, as limited by the Joint OTC/UTP 
Plan, 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 OTC/UTP Pilot Program for an additional 
six months.
    The Commission finds good cause for approving the proposed rule 
change prior 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 to have rules in place for OTC/UTP trading. 
Further, the Phlx OTC/UTP 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.\11\

    \11\See supra note 4.
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    It is therefore ordered, pursuant to Section 19(b)(2)\12\ that the 
proposed rule change is hereby approved on a pilot basis through June 
30, 1995.

    \12\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.\13\

    \13\17 CFR 200.30-3(a)(12) (1991). [[Page 3019]] 
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc 95-715 Filed 1-11-95; 8:45 am]
BILLING CODE 8010-01-M