[Federal Register Volume 60, Number 213 (Friday, November 3, 1995)]
[Notices]
[Pages 55874-55875]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27277]



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SECURITIES AND EXCHANGE COMMISSION
[ Release No. 34-36429; File No. SR-PHLX-95-35]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to the 
Routing and Delivery of Broker-Dealer Orders in USTOP 100 Index Options 
Through the Automated Options Market System

October 27, 1995.
    On May 22, 1995, 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 proposal to amend its rules to allow the orders of 
PHLX member and non-member broker-dealers in USTOP 100 Index (``TPX'') 
options to be routed and delivered through the Exchange's Automated 
Options Market (``AUTOM'') system and executed manually. The broker-
dealer TPX option orders will not be eligible for AUTO-X, the automatic 
execution feature of AUTOM.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    Notice of the proposal appeared in the Federal Register on July 11, 
1995.\3\ No comments were received on the proposed rule change.\4\

    \3\See Securities Exchange Act Release No. 35925 (June 30, 
1995), 60 FR 35771.
    \4\On September 26, 1995, the PHLX represented that the 
Exchange's AUTOM system has sufficient capacity to accommodate the 
additional message traffic that will result from routing broker-
dealer TPX orders through AUTOM. See Letter from William H. Morgan, 
Vice President, Trading Systems, PHLX, to Michael Walinskas, Office 
of Market Supervision, Commission, dated September 26, 1995 
(``September 26 Letter'').
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    Currently, only public customer orders for up to 500 options 
contracts are eligible for AUTOM\5\ and public customer orders for up 
to 25 contracts, in general, are eligible for AUTO-X,\6\ the automatic 
execution feature of AUTOM.\7\ AUTOM, which has operated on a pilot 
basis since 1988 and was most recently extended through December 31, 
1995,\8\ is an on-line system that allows electronic Delivery of 
options orders from member firms directly to the appropriate specialist 
on the Exchange's trading floor. AUTO-X orders are executed 
automatically at the disseminated quotation price on the Exchange and 
reported to the originating firm. Orders that are not eligible for 
AUTO-X are handled manually by the specialist.

    \5\See Securities Exchange Act Release No. 35782 (May 30, 1995), 
60 FR 30136 (File No. SR-PHLX-95-30).
    \6\Recently, the Commission approved a proposal increasing the 
maximum number of public customer orders in USTOP 100 Index options 
that are eligible for AUTO-X from 25 to 50 contracts. See Securities 
Exchange Act Release No. 35781 (May 30, 1995) (order approving File 
No. SR-PHLX-95-29).
    \7\The Commission has approved a PHLX proposal to codify the use 
of AUTOM and AUTO-X for index options. See Securities Exchange Act 
Release No. 34920 (October 31, 1994), 59 FR 5510 (November 7, 1994) 
(order approving File No. SR-PHLX-94-40). In addition, the 
Commission has approved a PHLX proposal to codify the Exchange's 
practice of accepting certain orders for AUTOM and AUTO-X. See 
Securities Exchange Act Release No. 35601 (April 13, 1995), 60 FR 
19616 (April 19, 1995) (order approving File No. SR-PHLX-95-18).
    See Securities Exchange Act Release No. 35183 (December 30, 
1994), 60 FR 2420 (January 9, 1995) (order approving File No. SR-
PHLX-94-41). See also Securities Exchange Act Release Nos. 25540 
(March 31, 1988), 53 FR 11390 (order approving AUTOM on a pilot 
basis); 25868 (June 30, 1988), 53 FR 25563 (order approving File No. 
SR-PHLX-88-22, extending pilot through December 31, 1988); 26354 
(December 13, 1988), 53 FR 51185 (order approving File No. SR-PHLX-
88-33, extending pilot program through June 30, 1989); 26522 
(February 3, 1989), 54 FR 6465 (order approving File No. SR-PHLX-89-
1, extending pilot through December 31, 1989); 27599 (January 9, 
1990), 55 FR 1751 (order approving File No. SR-PHLX-89-03, extending 
pilot through June 30, 1990); 28625 (July 26, 1990), 55 FR 31274 
(order approving File No. SR-PHLX-90-16, extending pilot through 
December 31, 1990); 28978 (March 15, 1991), 56 FR 12050 (order 
approving File No. SR-PHLX-90-34), extending pilot through December 
31, 1991); 29662 (September 9, 1991), 56 FR 46816 (order approving 
File No. SR-PHLX-91-31, permitting AUTO-X orders up to 20 contracts 
in Duracell options only); 29782 (October 3, 1991), 56 FR 55146 
(order approving File No. SR-PHLX-91-33, permitting AUTO-X for all 
strike prices and expiration months); 29837 (October 18, 1991), 56 
FR 36496 (order approving File No. SR-PHLX-90-03, extending pilot 
through December 31, 1993); 32906 (September 15, 1993), 58 FR 15168 
(order approving File No. SR-PHLX-92-38, permitting AUTO-X orders up 
to 25 contracts in all options); and 33405 (December 30, 1993), 59 
FR 790 (order approving File No. SR-PHLX-93-57, extending pilot 
through December 31, 1994).
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    The purpose of the proposal is to permit TPX orders for the 
accounts of broker-dealers to be delivered through AUTOM. Although 
broker-dealer TPX option orders will be delivered through AUTOM, they 
will not be eligible for AUTO-X.
    The PHLX believes that extending AUTOM to broker-dealer TPX option 
orders will allow additional orders to benefit from AUTOM's prompt and 
efficient electronic order delivery and reporting. This, in turn, 
should add liquidity to the PHLX's marketplace for TPX options buy 
encouraging broker-dealer orders who seek such automated order routing 
treatment. As noted above, AUTO-X will not be available for broker-
dealer TPX Orders; all such broker-dealer TPX orders will be handled 
manually by the specialist.
    The PHLX believes that the proposal is consistent with Section 6(b) 
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 
and to protect investors and the public interest.
    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, and, in 
particular, the requirements of Sections 6 and 11A.\9\ Specifically, 
the Commission believes that allowing broker-dealers to use AUTOM for 
TPX options orders will facilitate the efficient handling and reporting 
of broker-dealer orders in TPX options, thereby improving TPX order 
processing and turnaround time. In addition, by providing increased 
order routing efficiencies for broker-dealer TPX orders, the proposal 
may help to attract broker-dealer TPX orders, and thus help to improve 
the depth and liquidity of the market for TPX options.

    \9\15 U.S.C. 78f and 78k-1 (1988).
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    Under the proposal, broker-dealer TPX orders will not be eligible 
for AUTO-X; thus, only public customer orders will continue to receive 
the benefits of AUTO-X, including immediate executions at the displayed 
market quote and nearly instantaneous confirmations. The Commission 
notes that limiting AUTO-X to public customer orders is consistent with 
the Exchange's current practice.
    In addition, based upon representations by the PHLX, the Commission 
believes that the AUTOM system has sufficient capacity to handle 
broker-dealer TPX orders and, therefore, that the proposal will not 
expose the PHLX's options markets to the risk of failure or operational 
break-down.\10\

    \10\See September 26 Letter, supra note 4.

[[Page 55875]]

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    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,.\11\ that the proposed rule change (SR-PHLX-95-35) is approved.

    \11\15 U.S.C. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27277 Filed 11-2-95; 8:45 am]
BILLING CODE 8010-01-M