[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48200-48202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23349]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37643; File No. SR-Phlx-96-23]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to Options
Specialist Evaluations
September 5, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on July 1,
1996, 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, pursuant to Rule 19b-4 of the Act,\1\ proposes to
update its Options Specialist Evaluation program by adopting a new
questionnaire and revising Exchange Rules 509, 511 and 515 regarding
the evaluation procedure.
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\1\ 17 CFR 240.19b-4.
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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.
[[Page 48201]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On December 21, 1995, the Exchange submitted a proposed rule change
to the Commission requesting approval for a new options specialist
evaluation questionnaire and review procedure.\2\ The proposed rule
change was withdrawn on March 29, 1996 after Commission staff had
requested that the Exchange reconsider its proposed evaluation review
procedures.\3\ Pursuant to the present filing, the Exchange is
resubmitting the same new evaluation questionnaire and is proposing
revised procedures for the review process.
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\2\ This proposal was noticed for comment in Securities Exchange
Act Release No. 36776 (January 26, 1996), 61 FR 3748 (February 1,
1996) (File No. SR-Phlx-95-91).
\3\ See Letter from Michele R. Weisbaum, Associate General
Counsel, Phlx, to Michael Walinskas, SEC, dated March 29, 1996
(withdrawing File No. SR-Phlx-95-91).
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Since at least 1978, the Exchange has been evaluating its options
specialists based on the same questionnaire in use today. This
quarterly survey is a subjective series of questions answered by floor
brokers that have traded with the particular specialists over the last
quarter. One of the purposes of this filing is to propose a new updated
survey which requests information that the Exchange believes is more
relevant to a specialist's performance in this day and age. The results
of these evaluations are used by the Allocation, Evaluation and
Securities Committee (``Committee'') when making allocation and
reallocation decisions regarding option specialist privileges.
The new survey has 15 all-new questions and will be answered by
floor brokers who, Exchange records show, have traded at least a
minimum number of times in the specialist's issues over the subject
quarter.\4\ Only specialist units (not individual specialists) would
now be graded as allocations are made to units, not individual
specialists; however, separate evaluations will be conducted for each
quarter or half turret post at which a unit has a specialist operation.
Thus, a large specialist unit which is spread out over the floor may
receive two or three separate evaluation scores so that the Committee
can focus on exactly where a problem may be occurring. The same
questionnaire will be used for equity option specialists, index option
specialists \5\ and foreign currency option specialists. The survey
would only be answered every six months instead of every three months,
which is the current procedure.
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\4\ The number of trades is variable but will be predetermined
by the Committee.
\5\ Currently, all of the specialist units that have been
allocated index options are also equity option specialists; however,
if a unit only traded index options, the survey would be equally
applicable.
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Each question must be answered by giving the unit a score of 1
through 9 (very poor to excellent). Any question that is answered with
a score of 4 or less must be accompanied by a written explanation.
Floor brokers who submit negative comments about a particular
specialist unit will be invited to speak directly with a representative
of the specialist unit in order to try to resolve any problems that may
exist and Exchange staff may attend such a meeting. Floor brokers who
do not complete and return the surveys still will be subject to fines
pursuant to Options Floor Procedure Advice C-8.
The questions asked will cover a wide range of specialist
responsibilities such as the degree of liquidity provided, the
tightness of quotes, timeliness of quote updates, ability to fill small
lot orders, timeliness of reports, ability to conduct opening
rotations, maintenance of crowd control, and clerical staffing.
The second purpose of this filing is to revise the process by which
the Committee uses the questionnaires to evaluate the specialists'
performance. Currently, there is a very complicated review system in
place that the Exchange has determined needs to be simplified in order
to be effective. The evaluations are now scored on a scale of 1 through
10, and any unit with an overall score below 5 on the questionnaire in
one quarter, a score of below 5 for three or more questions in one
quarter, or a score below 5 on the same question for three consecutive
quarters is deemed to have performed below minimum standards and is
subject to review by the Committee.
Under the proposed new language in Supplementary Material .02 to
Rule 515, the Committee \6\ would review the survey as well as
regulatory history, written complaints, timeliness of openings, trading
data, and any other relevant information in order to determine if
minimum performance standards as to, among other things, quality of
markets, observance of ethical standards, and administrative
responsibilities have been met. If a specialist unit is ranked by score
in the bottom 10% of all units as a result of a semi-annual review, it
will be presumed to have failed to meet the minimum performance
standards.\7\ The Committee may also make such a presumption if the
information on the survey or the other information review by the
Committee supports such a finding.
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\6\ The Committee may conduct such reviews or it may delegate
that responsibility to the Quality of Markets Subcommittee. Exchange
Rule 509 is being amended to note this function as a specific
responsibility of this subcommittee.
\7\ Under the current procedure, a specialist unit that receives
an average score under 5.00 in any one quarter would be deemed to
have performed below minimum standards.
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If the Committee makes such a presumption of failure to meet
minimum performance standards, it may elect to hold an informal meeting
with the specialist unit or it may elect to hold a formal hearing in
accordance with Rule 511(e). The Committee may only impose sanctions
such as removal of specialist privileges in one or more options classes
or a prohibition from new allocations as the result of a formal
hearing. Rules 511(c) and 515 will be amended to reflect these changes.
The hearing procedures set forth in Rule 511(e) will not change and
decisions will still be subject to appeal to the Board of Governors as
provided for under By-Law Article XI, Section 11-1.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
\8\ 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.
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\8\ 15 U.S.C. 78f(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx 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
[[Page 48202]]
within such longer 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. 552, will be 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-96-23 and should be
submitted by October 3, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23349 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M