[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