[Federal Register Volume 60, Number 214 (Monday, November 6, 1995)]
[Notices]
[Pages 56084-56085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27429]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36442; File No. SR-Phlx-95-32]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 2 to Proposed 
Rule Change Relating to Broker-Dealer Orders on PACE

October 31, 1995.

I. Introduction

    On June 12, 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 proposed rule change to amend Exchange Rule 229 to 
allow non-agency orders on the Philadelphia Stock Exchange Automated 
Communication and Execution (``PACE'') system \3\ under certain 
circumstances. On September 19, 1995, the Exchange submitted to the 
Commission Amendment No. 1 to the proposed rule change.\4\

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ PACE is the Exchange's system for the automatic delivery and 
execution of orders on the Phlx equity floor.
    \4\ 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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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 36263 (Sept. 21, 1995), 60 FR 50226 (Sept. 28, 
1995). No comments were received on the proposal. On October 25, 1995, 
the Exchange submitted to the Commission Amendment No. 2 to the 
proposed rule change.\5\

    \5\ See Letter from Gerald D. O'Connell, First Vice President, 
Phlx, to Jennifer S. Choi, Division of Market Regulation, SEC, dated 
October 25, 1995.
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    This order approves the proposed rule change, including Amendment 
No. 2 on an accelerated basis.

II. Description of Proposal

    Currently, the PACE system only accepts agency orders.\6\ The 
orders accepted under the system may be executed on a fully automated 
or manual basis in accordance with Rule 229.

    \6\ For purposes of the PACE system, an agency order is any 
order entered on behalf of a public customer, and does not include 
any order entered for the account of a broker-dealer, or any account 
in which a broker-dealer or an associated person of a broker-dealer 
has any direct or indirect interest. See Supplementary Material. 02 
to Phlx Rule 229.
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    The Exchange proposes to amend Supplementary Material .02 to Phlx 
Rule 229 to permit specialists to accept non-agency orders through PACE 
under certain circumstances. To do so, Phlx specialists must file with 
the Exchange a Specialist Agreement, which is an Exchange form signed 
by a Phlx equity specialist who has agreed to accept non-agency orders 
through PACE. The Specialist Agreement must identify the member firm 
that is interested in submitting orders through the PACE system and set 
forth the order size parameters applicable to such orders.\7\

    \7\ Pursuant to Amendment No. 2, a specialist may agree to order 
size parameters for non-agency orders that are equal to or smaller 
than the order size parameters provided for agency orders.
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    Under the proposed rule change, the specialist may agree to execute 
non-agency orders accepted under the PACE system on an automatic or 
manual basis. Specialists that choose to execute non-agency orders 
automatically through PACE must provide the same PACE executions to 
non-agency orders as they provide to agency orders.\8\ Specialists that 
choose to execute non-agency orders manually must do so in accordance 
with existing Exchange rules governing orders not on the system.

    \8\ Provided that, in accordance with Amendment No. 2, a 
specialist may agree to order size parameters of non-agency orders 
that are smaller than the order size parameters provided to agency 
orders.
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    Moreover, the proposed rule change provides that any specialist who 
has agreed to facilitate broker-dealer orders on PACE must provide all 
broker-dealers with the opportunity to submit non-agency orders for 
execution through PACE on equal terms. As a result, a specialist may 
not provide a certain order size guarantee to one broker-dealer and 
then refuse to provide an equal size guarantee to another broker-
dealer. Similarly, a specialist may not agree to provide automatic 
execution for one broker-dealer but not for another. Finally, under the 
proposed rule change, the Exchange will utilize the ``P'' order 
designator on the PACE system to indicate when an order is for the 
account of a broker-dealer.
    The Exchange states that the purpose of permitting non-agency 
orders onto PACE is to extend the benefits of PACE to Phlx member firms 
for the 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. Moreover, 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. The Exchange believes that such savings can now be realized for 
proprietary as well as customer orders.

III. Discussion

    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, with the requirements of Section 6(b).\9\ 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 prevent fraudulent and 
manipulative acts, and, in general, to protect investors and the public 
interest.

    \9\ 15 U.S.C. 78f(b).
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    Under new Supplementary Material .02 of Rule 229, non-agency orders 
may be routed through the PACE system for an automatic or manual 
execution. The Commission believes that the proposed rule change will 
be beneficial because it will allow broker-dealers to take advantage of 
the increased speed and reduced costs associated with the use of the 
Phlx's PACE system. Moreover, the Commission believes that the 
Exchange's proposal is consistent with the Act in that it does not 
discriminate between broker-dealers: all broker-dealer orders in a 
particular stock will receive the same treatment once a specialist has 
agreed to accept non-agency orders through PACE.
    The Commission finds good cause for approving Amendment No. 2 to 
the rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof. The Exchange's original 
proposal was published in the Federal Register for the full statutory 
period and no comments were received. In addition to clarifying and 
codifying the execution options of non-agency orders routed through 
PACE as originally proposed, Amendment No. 2 further restricts the 
scope of the proposed rule change by prohibiting specialists from 
providing 

[[Page 56085]]
greater order size guarantees to non-agency orders than to agency 
orders.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2 to the proposed rule change. 
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, D.C. 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 November 27, 1995.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-95-32) is approved.

    \10\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27429 Filed 11-3-95; 8:45 am]
BILLING CODE 8010-01-M