[Federal Register Volume 60, Number 21 (Wednesday, February 1, 1995)]
[Notices]
[Page 6333]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2426]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35283; File No. SR-Phlx-94-58]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Rule 229 
Governing Execution of PACE Orders

January 26, 1995.
    On December 1, 1994, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to provide Phlx specialists with 
the opportunity to effect price improvement for market orders in 
securities sent through the Philadelphia Stock Exchange Automated 
Communication and Execution System (``PACE''). On December 12, 1994, 
the Exchange filed with the Commission Amendment No. 1 to the proposed 
rule change.\3\

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
    \3\See letter from William W. Uchimoto, Vice President and 
General Counsel, Phlx, to Glen Barrentine, Senior Counsel, SEC, 
dated December 12, 1994. Amendment No. 1 made certain clarifying 
changes to the proposed rule change.
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    The proposed rule change, together with Amendment No. 1, was 
published for comment in Securities Exchange Act Release No. 35089 
(December 12, 1994), 59 FR 65423 (December 19, 1994). No comments were 
received on the proposal. This order approves the proposed rule change.
    The Phlx proposes to amend the Supplementary Material section to 
its Rule 229 to provide Phlx specialists the opportunity to effect 
price improvement for market orders in securities sent through PACE 
when the spread between the PACE Quote, which reflects the consolidated 
national best bid and offer, exceeds \1/8\ point in any PACE eligible 
security.\4\ The proposed rule change provides for an automatic stop of 
such orders and a 15 second execution delay, allowing a Phlx specialist 
to manually provide for price improvement during the 15 second 
delay.\5\ Specifically, the proposal provides that all round-lot market 
orders of up to 500 shares and all combined round-lot and odd-lot 
market orders of up to 599 shares will be stopped at the PACE Quote at 
the time of entry into PACE (stopped at the best bid for sell orders; 
at the best ask for buy orders) and will be subject to a delay of up to 
15 seconds before being executed in order to provide an opportunity for 
price improvement.\6\ If a particular market order is not executed 
within 15 seconds, the order will be automatically executed at the stop 
price. PACE market orders will receive automatic and immediate 
execution when the PACE Quote at the time of order entry reflects a 
spread between the best bid and offer of \1/8\ point.

    \4\Only agency orders may be executed through PACE. 
Supplementary Material .02 to Phlx Rule 229.
    \5\According to the Phlx, the proposed rule change does not 
apply to limit orders, including marketable limit orders, because 
such orders are executed manually and, therefore, already have an 
opportunity for price improvement. Telephone conversation between 
William W. Uchimoto, Vice President and General Counsel, Phlx, and 
Glen Barrentine, Senior Counsel, SEC, on December 9, 1994.
    \6\PACE does not require automatic execution of round-lot market 
orders greater than 500 shares or combined round-lot and odd-lot 
market orders greater than 599 shares. Supplementary Material .05 
and .06 to Phlx Rule 229. To the extent a specialist agrees to 
automatic execution of larger market orders, such orders would also 
be subject to a delay of up to 15 seconds before being executed in 
order to provide an opportunity for price improvement. Telephone 
conversation between William W. Uchimoto, Vice President and General 
Counsel, Phlx, and Glen Barrentine, Senior Counsel, SEC, on January 
26, 1995.
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    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, including the 
requirements of Section 6(b) of the Act.\7\ In particular, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public.

    \7\15 U.S.C. 78f(b) (1988).
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    The Commission believes that this rule will protect investors and 
the public interest by providing small orders routed through PACE with 
the possibility for price improvement through order exposure without 
imposing a significant burden on the economically efficient execution 
of these transactions. As a result, adoption of this proposal should 
benefit investors while also helping the Phlx to retain equity order 
flow and thereby remain competitive with the other regional exchanges, 
each of which has previously adopted order exposure features into its 
small order routing and execution systems. Prior to this rule change, 
the Phlx was the only securities exchange whose small order execution 
system for equities did not offer an opportunity for price improvement. 
In its Market 2000 report, the SEC's Division of Market Regulations 
recommended that the Phlx include such a feature in its small order 
execution system.\8\ The Phlx's proposed rule change is responsive to 
that recommendation.

    \8\Division of Market Regulation, Securities and Exchange 
Commission, Market 2000: An Examination of Current Equity Market 
Developments (Jan. 1994), Study V at 4 n. 19.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Phlx-94-58) be, and hereby is 
approved.

    \9\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2426 Filed 1-31-95; 8:45 am]
BILLING CODE 8010-01-M