[Federal Register Volume 60, Number 188 (Thursday, September 28, 1995)]
[Notices]
[Pages 50226-50228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24030]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36263; File No. SR-Phlx-95-32]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Broker-
Dealer Orders on PACE

September 21, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
June 12, 1995, 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. On September 19, 1995, the Exchange submitted to the 
Commission Amendment No. 1 to the proposed rule change, which is also 
described below.\1\ The Commission is 

[[Page 50227]]
publishing this notice to solicit comments on the proposed rule change 
from interested persons.

    \1\ See letter from Gerald D. O'Connell, First Vice President, 
Phlx, to Glen Barrentine, Team Leader, Division of Market 
Regulation, SEC, dated September 7, 1995.
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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 amend Rule 
229, Philadelphia Stock Exchange Automated Communication and Execution 
System (``PACE''), to permit non-agency orders under certain 
circumstances. Specifically, Supplementary Material .02 is proposed to 
be amended to permit non-agency orders in situations where a Specialist 
Agreement is in effect. The Specialist Agreement is an Exchange form 
signed by a Phlx equity specialist who has agreed to accept non-agency 
orders through PACE. The Agreement shall identify the member firms 
responsible for the orders and shall set forth the execution parameters 
applicable to the orders. The text of the proposed rule change is 
available at the Exchange and at the Commission.

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

1. Purpose
    The purpose of the proposed rule change is to amend Rule 229 to 
permit non-agency orders on the PACE System. PACE is the Exchange's 
system for the automatic delivery and execution of orders on the Phlx 
equity floor. Currently, Supplementary Material .02 to Rule 229 states 
that only agency orders are eligible under PACE. Further, agency orders 
are defined as orders entered on behalf of public customers, which are 
not for the account of a broker-dealer or any account in which a 
broker-dealer or an associate person of a broker-dealer has any direct 
or indirect interest.
    At this time, it is proposed that under certain circumstances non-
agency orders be permitted over PACE. Phlx specialists may file a 
Specialist Agreement with the Exchange to allow the receipt and 
execution of such orders.\2\ A Specialist Agreement is an Exchange form 
signed by a Phlx equity specialist who has agreed to accept non-agency 
orders through PACE. The Agreement shall identify the member firms 
responsible for the orders and shall set forth the execution parameters 
applicable to the orders (i.e., order size guarantees).\3\ The 
execution parameters need not include volume guarantees in excess of 
firm quote obligations to buy on the displayed bid or sell on the 
displayed offer for the displayed size in accordance with existing 
rules for orders not currently on PACE.

    \2\ According to the Exchange, Phlx equity specialists who agree 
to accept non-agency orders through PACE would have the option of 
agreeing to execute non-agency orders on either a manual or 
automatic basis. Specifically, specialists who agree to accept such 
orders for manual execution would be using the PACE system as an 
order routing system and would be required to execute such orders 
manually in accordance with existing Phlx rules. Where the 
specialist agrees to provide for the automatic execution of non-
agency orders, such orders would be executed automatically pursuant 
to the PACE execution parameters for public customer orders under 
Phlx Rule 229. Telephone conversation between Jerry O'Connell, Phlx, 
and Glen Barrentine and Jennifer Choi, SEC, on September 12, 1995.
    \3\ According to the Exchange, specialists who agree to accept 
non-agency orders through PACE would have the option of setting 
different size guarantees for agency and non-agency orders. For 
example, a specialist could agree to provide automatic execution of 
all agency orders up to 2,000 shares while limiting the size 
guarantee for non-agency orders to 1,000 shares. Conversely, a 
specialist could agree to provide a larger size guarantee to non-
agency orders than to agency orders. Telephone conversation between 
Jerry O'Connell, Phlx, and Glen Barrentine and Jennifer Choi, SEC, 
on September 12, 1995. Except for such different size guarantees, a 
specialist who agrees to provide for the automatic execution of non-
agency orders through PACE would not be allowed to vary any other 
PACE execution parameters. Accordingly, such specialist would be 
required to execute such orders through PACE in all other respects 
in the same manner as public agency orders are currently executed 
through PACE. Telephone conversation between Jerry O'Connell and 
Edith Hallahan, Phlx, and Glen Barrentine and Jennifer Choi, SEC, on 
September 20, 1995.
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    Moreover, the Exchange would require that any specialist who has 
entered into a Specialist Agreement to facilitate broker-dealer orders 
on PACE, pursuant to the proposed provision, must also provide the same 
execution parameters to any other member broker-dealer that desires the 
same parameters (i.e., same order size guarantees) with that 
specialist.\4\ This requirement is to ensure that all broker-dealers 
are afforded the opportunity to receive the same treatment by a 
specialist which that specialist has bestowed on any other individual 
broker-dealer. Lastly, the Exchange notes that the order designator 
``P'' will be utilized by the PACE system to indicate when an order is 
for the account of a broker-dealer.

    \4\ As a result, a specialist who agrees to provide automatic 
execution for one member's non-agency orders, must be willing to 
provide automatic execution for such orders of any other member who 
requests it. Telephone conversation between Jerry O'Connell, Phlx, 
and Glen Barrentine and Jennifer Choi, SEC, on September 12, 1995.
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    The purpose of permitting non-agency orders onto PACE is to extend 
the benefits of PACE to Phlx member firms for their proprietary as well 
as customer orders. The Exchange believes that allowing such orders 
onto PACE should serve the important function of adding liquidity and 
trading opportunities to the Phlx marketplace. In addition, the 
Exchange believes that PACE provides efficiencies to the Exchange's 
marketplace, which reduces costs incurred through the handling of 
orders on a more manual basis. This proposal contemplates that such 
savings can now be realized for proprietary as well as customer orders.
2. Statutory Basis
    The proposed rule change is consistent with Section 6 of the Act in 
general, and in particular, with Section 6(b)(5), in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, as well as to protect investors and the 
public interest, by reducing the costs and increasing the efficiencies 
of handling proprietary orders.

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

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes 

[[Page 50228]]
its reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 at the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-Phlx-95-32 and should be 
submitted by October 19, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-24030 Filed 9-27-95; 8:45 am]
BILLING CODE 8010-01-M