[Federal Register Volume 61, Number 18 (Friday, January 26, 1996)]
[Notices]
[Pages 2557-2559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1361]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36752; File No. SR-Phlx-95-77]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to the Rules 
of the Allocation, Evaluation and Securities Committee.

January 22, 1996.
    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 
December 22, 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. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to update its rules relating to the 
Allocation, Evaluation and Securities Committee (``Committee''). 
Specifically, Rules 500, 501, 505, 506, 508 and 511 are being amended 
as well as By-Law Article X, Section 10-7. 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 update the Exchange's 
500 Series of rules, which govern the allocation of specialist 
privileges. The rules that are currently in place have not been 
significantly amended since they were adopted in 1987 as a pilot 
program.\1\ as described below, almost all of the rules are being 
revised in order to address issues that have come up over the past 
eight years. All of the proposed changes are described below.

    \1\ The rules initially were approved by the Commission as an 
eight month pilot program on May 21, 1987. See Securities Exchange 
act Release No. 24496 (May 21, 1987), 52 FR 20183 (May 29, 1987). On 
February 23, 1988, the pilot program was extended indefinitely until 
further action was taken by the Commission. See Securities Exchange 
Act Release No. 25388 (Feb. 23, 1988), 53 FR 6725 (Mar. 2, 1988). 
The rules were permanently approved on June 26, 1991. See Securities 
Exchange Act Release No. 29369 (June 26, 1991), 56 FR 30604 (July 3, 
1991).
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Composition of Allocation, Evaluation and Securities Committee

    Currently, the Committee has a minimum nine member requirement but 
has no maximum requirement. For competitive reasons, the Committee is 
often called upon to meet on short notice and meets more frequently 
than other committees that may only hold monthly meeting. Having a 
large committee makes it difficult to obtain a quorum, and thus, 
conduct business.
    Accordingly, By-Law Article X, Section 10-7 and Rule 500 are being 
amended to revise the Committee size and structure. The By-Law section 
will still require a minimum of nine members on the Committee but would 
add that a quorum will always be five members. The Committee would also 
be structured differently. Pursuant to proposed new subsection (b) to 
Rule 500, for each meeting, the Committee will be composed of five core 
committee members and four members of a 20 member allocation panel. The 
core committee, whose members would serve for three year terms (no more 
than two consecutive terms), would be created to assure some continuity 
of membership on the Committee. The allocation panel would also be 
created, whose members would serve for one-year terms, to allow for new 
persons with fresh perspectives.
    Rule 500 would be amended to provide who may serve on the core 
committee and allocation panel and how many members of each must attend 
meetings in order for a quorum to be reached. Specifically, the core 
committee would have five members: three who conduct a public 
securities business, one from the equity floor, and one from the 
options floor. The allocation panel would have twenty members: six who 
conduct a public securities business, five from the equity floor, five 
from the options floor, and four from the foreign currency options 
(``FCO'') floor.
    For each meeting, the Committee will be composed of the five core 
committee members and four members of the 20 member panel chosen on a 
rotating alphabetical basis. The Chairman will, however, have the 
discretion to also specifically invite any other members of the panel 
who he believes would have particular knowledge or expertise respecting 
the subject matter of the meeting. For example, if a FCQ is being 
allocated and the four alphabetically chosen panel members for the 
meeting happen to all be from the equity and equity options floors, the 
Chairman could also invite any or all of the four FCO panel members to 
the meeting. Additionally, all other members of the panel will always 
be notified of meetings and may attend and vote if they so chose even 
if they are not at the top of the rotation list. Finally, at least two 
of the core committee members must be part of the quorum at every 
meeting in order to assure that there are some experienced committee 
members in attendance.\2\

    \2\ At least one of the core committee members in attendance 
must conduct a public securities business.
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Transfers of Specialist Privileges

    Currently, a specialist does not have to seek Committee approval 
when it proposes to transfer all of its specialist privileges, but it 
must do so in order to transfer less than all of its privileges. The 
Exchange has determined to amend Rule 508 to now require that all 
proposed transfers of specialist privileges be subject to prior 
Committee approval so that the Committee has the ability to consider 
the qualifications of all proposed transferees. The criteria provided 
in Rule 511 that is currently used for making allocation and 
reallocation decisions would now also 

[[Page 2558]]
be applicable to transfer approval decisions.
    Often, when option specialist privileges are transferred, the 
physical trading location on the floor is also moved. In the past, the 
Exchange has often been requested to effect a move of screens and 
equipment overnight. Not only is this difficult for the staff to 
accomplish but it could also cause problems for the market makers in 
the trading crowd who may have part of their assigned classes of 
options moved.\3\ Thus, new Commentary .01 would also be added to Rule 
508 in order to impose a 45 day moratorium on trading floor location 
moves in order to give the staff and the traders in the crowd time to 
prepare for the move.

    \3\ Registered Options Traders (``ROTs'') are assigned one or 
more classes of options by the Exchange and have affirmative 
obligations to make markets in such options pursuant to Exchange 
Rule 1014. ROTs, thus, usually request assignments in options 
classes that are physically traded in the same general area of the 
floor.
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Specialist Unit Performance Reviews

    Currently, the Committee conducts two kinds of reviews of 
specialist units pursuant to Exchange Rule 511. First, the Committee 
performs routine quarterly reviews of any specialist unit. Second, 
special reviews are conducted within 60 days after a transfer has been 
effected or a material change in a specialist unit has occurred. The 
Committee will still conduct the routine reviews, except that now the 
Quality of Markets Subcommittee will perform the initial stage of the 
review.\4\

    \4\ The Exchange is concurrently filing SR-PHLX 95-91, which 
proposes to revise the options specialist evaluation form and review 
procedure. The proposed amendments to Rule 511(c) herein are the 
same as those proposed in that filing and are explained in more 
detail.
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    In the cases of transfers of specialist privileges and material 
changes to the units, the Exchange proposes to commence the reviews 
after 90 days rather than 60 days because the Exchange has found that 
60 days is not enough time in which to determine the adequacy of 
performance. The second proposed change to these types of reviews is 
that in the case of transfer reviews, if the new unit's performance is 
below minimum standards, the unit will be given 30 days in which to 
improve prior to beginning reallocation proceedings. This review 
provision will be renumbered as new subsection (d)(2) to Rule 511.
    Finally, a new type of review will be instituted regarding new 
allocations of specialist privileges in new proposed subsection (d)(1) 
to Rule 511. When a specialist unit applies for a new equity book or 
options class, it is required to fill out an application and sometimes 
to have a representative appear before the Committee. The Committee 
makes allocation decisions, in part, based on representations made by 
the applicant either orally or in writing. For instance, an options 
specialist might commit to being 100 up on all displayed markets or an 
equity specialist might commit to a volume guarantee on PACE 
significantly larger than the minimum. In order to help ensure that the 
Committee is making allocations based on realistic expectations of 
performance, the Exchange proposes to now commence reviews of 
specialist units that are awarded books within 90 days thereafter to 
specifically consider whether the unit has attempted to comply with the 
information that it gave to the Committee when applying. If the 
Committee finds that the unit is not in compliance, they will be given 
30 days in which to comply prior to instituting reallocation 
proceedings.

Registration of Specialist Privileges

    Presently, equity books and options classes may be registered in 
the name of either the specialist unit, the individual specialist or 
both. There is no requirement, however, in the rules that the 
registrant be an Exchange member or approved specialist. The Exchange 
proposes to add this language into Rule 505. Also, where a specialist 
unit has leased its specialist privileges to another unit, the Exchange 
will now require that both the lessor and the lessee be noted on the 
Registration form.

Specialist Applications

    Exchange Rule 501 only presently addresses the contents of 
applications to become specialist units. The Committee's practice has 
been, however, to require both specialist units and individual 
specialists to apply in writing to the Committee for approval. 
Therefore, Rule 501 is being amended to specify that both specialists 
and specialist units must apply in writing to the Committee and to note 
what information must be in the applications.
    Exchange Rule 506 will also be amended to require that when five or 
more specialist units apply for a particular equity book or options 
class, personal appearances before the Committee will be required. 
Currently, appearances are discretionary with the Committee. Finally, 
various amendments have been made to the rules to include references to 
the Foreign Currency Options Committee where appropriate.
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, prevent 
fraudulent and manipulative acts and practices, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities 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.

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 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 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, N.W., Washington, D.C. 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. Sec. 552, will be 

[[Page 2559]]
available for inspection and copying at the Commission's Public 
Reference Section, 450 Fifth Street, N.W., 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-95-77 and should be submitted by February 16, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1361 Filed 1-25-96; 8:45 am]
BILLING CODE 8010-01-M