[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