[Federal Register Volume 62, Number 76 (Monday, April 21, 1997)]
[Notices]
[Pages 19383-19385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38507; File No. SR-PHLX-97-13]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Amend the Exchange's 
Rule Concerning the Pre-Opening Application of the Intermarket Trading 
System

April 14, 1997.
    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 March 
19, 1997, 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.\1\
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    \1\ The Commission notes that the other ITS Participants (the 
American Stock Exchange, Boston Stock Exchange, Chicago Board 
Options Exchange, Chicago Stock Exchange, Cincinnati Stock Exchange, 
National Association of Securities Dealers, New York Stock Exchange, 
Pacific Stock Exchange) have filed essentially the same proposals to 
amend each of their rules concerning the Pre-Opening Application. 
See Securities Exchange Act Release Nos. 38285 (February 13, 1997), 
62 FR 8065 (February 21, 1997) and 38393 (March 12, 1997), 62 FR 
13201 (March 19, 1997).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PHLX proposes to amend Phlx Rule 2001, Intermarket Trading 
System (``ITS''), to enhance the operation of the Pre-Opening 
Application by effectively including circuit breakers as a trading halt 
situation that will trigger the Pre-Opening Application. The proposed 
rule change will also reorganize and update Rule 2001 to make it 
conform more closely to the Pre-Opening Application rules of other 
exchanges and to the model Pre-Opening Application Rule attached as 
Exhibit A to the ITS Plan.\2\
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    \2\ The Commission notes that PHLX's Rule 2001 is incomplete in 
that it does not contain all the sections of the Pre-Opening 
Application that the other exchange's Pre-Opening Application rules 
and the ITS Plan model Pre-Opening Application rule possess. The 
PHLX must file to amend Rule 2001 in order to further conform Rule 
2001 to the Pre-Opening Application rules of other exchanges and to 
the ITS Plan model Pre-Opening Application rules to the extent that 
Rule 2001 does not contain relevant sections.
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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 PHLX 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 PHLX 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 enhance the operation 
of the Pre-Opening Application under PHLX's Rule 2001. Rule 2001 
contains basic definitions pertaining to ITS, prescribes the types of 
transactions that may be effected through ITS and the pricing of 
commitments to trade, and specifies the procedures pertaining to the 
operation of the Pre-Opening Application, whereby an Exchange 
specialist who wishes to open a market in an ITS stock may obtain any 
pre-opening interest in that stock by other market-makers registered in 
that stock in other Participant markets.
    PHLX's current Pre-Opening Application prescribes that if an 
Exchange specialist anticipates that the opening transaction on the 
Exchange will be at a price that represents a change from the 
security's previous days' consolidated closing price of more than the 
``applicable price change,'' the Exchange specialist shall notify other 
Participant markets by sending a pre-opening notification through the 
ITS. The ``applicable price changes'' in current Rule 2001 are:
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    \3\ If the previous day's closing price of an eligible listed 
security exceeded $100 and the security does not underlie an 
individual stock option contract listed and currently trading on an 
exchange, the ``applicable price change'' is one point.
    \4\ Network A is comprised of New York Stock Exchange (``NYSE'') 
securities; Network B is comprised of securities admitted on the 
American Stock Exchange, the Boston Stock Exchange, the Chicago 
Board Options Exchange, the Chicago Stock Exchange, the Cincinnati 
Stock Exchange, the Pacific Exchange, the Philadelphia Stock 
Exchange, or any other exchange, but not also admitted to dealings 
on the NYSE.

------------------------------------------------------------------------
                                           Applicable price change (more
      Consolidated closing price \3\                   than)            
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Network A \4\:                                                          
  Under $15..............................  \1/8\ point.                 
  $15 or over............................  \1/4\ point.                 
Network B:                                                              
  Under $5 or over.......................  \1/8\ point.                 
                                           \1/4\ point.                 
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Thereafter, the Exchange specialist shall not open the market in the 
security until not less than three minutes after the transmission of 
the pre-opening notification. Once an Exchange specialist has issued a 
pre-opening notification, other Participant markets may transmit ``pre-
opening responses'' to the Exchange specialist through the ITS that 
contain ``obligations to trade.''

[[Page 19384]]

The Exchange specialist is then obligated to combine these obligations 
with orders it already holds in the security, and, on the basis of this 
aggregated information, decide upon the opening transaction in the 
security.
    PHLX's current Rule 2001(c)(ii) states that the Pre-Opening 
Application also applies whenever the specialist wishes to resume 
trading on the Exchange in any Eligible Listed security following the 
initiation of a ``Regulatory Halt'' by any Participant that is an 
exchange if both trading has been halted in all exchange markets and, 
when the relevant security is also eligible for trading through the 
interface between the ITS and the NASD's Computer Assisted Execution 
System (``CAES''), the NASD has suspended quotations in the relevant 
security. Pursuant to current Rule 2001(c)(ii), the Pre-Opening 
Application does not apply when trading on the Exchange is resumed 
following the initiation of a Regulatory Halt if either (1) trading has 
not been halted in all exchange markets or, when the relevant security 
is also eligible for trading through the interface between the ITS and 
CAES, the NASD has not suspended quotations in the affected security or 
(2) following any other type of halt in trading on the Exchange for any 
reason. When the Pre-Opening Application applies under Rule 
2001(c)(ii), the Exchange specialist must send a pre-opening 
notification through ITS.
    The purpose of the proposal is to amend PHLX's Rule 2001 to provide 
that the Pre-Opening Application would be triggered whenever any 
``indication of interest'' (i.e., an anticipated opening price range) 
is sent to the Consolidated Tape System prior to the opening or 
reopening of trading in the relevant security. Under the proposed 
change, the Pre-Opening Application would be triggered when indications 
of interest are disseminated in situations other than those defined in 
Rule 2001(c)(ii), ``Applicability Following Regulatory Halts,'' 
including the resumption of trading following the activation of market-
wide circuit breakers.
    In particular, the proposal would amend Rule 2001(b)(7) to provide 
that the Pre-Opening Application applies (i) ``whenever a market maker 
in any Participant market, in arranging an opening transaction in that 
market in a System security, anticipates that the opening transaction 
will be at a price that represents a change from the security's 
`previous day's closing price' at more than the `applicable price 
range' '' and (ii) ``whenever an `indication of interest' (an 
anticipated opening price range) is sent to the CTA Plan Processor as 
required or permitted by the CTA Plan or a Participant market's 
rules.''\5\ The proposed rule change also deletes current Rule 
2001(c)(x), ``Tape Indications,'' replaces it with the exact language 
of the ITS Plan model Pre-Opening Application rule pertaining to tape 
indications, and renumbers the section as Rule 2001(c)(i)(B). The 
proposed rule change would replace all references to ``Trading Halt'' 
with ``halt or suspension in trading'' and delete Rule 2001(c)(ii), 
``Applicability Following Regulatory Halts,'' because it would be 
inconsistent with the new language ``halt or suspension in trading.'' 
As a result, one standard procedure would then govern all trading halt 
situations and would include suspensions of trading pursuant to circuit 
breaker halts.\6\
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    \5\ The Commission notes that this language is essentially the 
same as that in other exchange's Pre-Opening Application rules and 
the model Pre-Opening Application rule contained in the ITS Plan.
    \6\ The Exchange notes that this amendment to Rule 2001 is being 
made in conjunction with comparable amendments to the ITS Plan, as 
well as the rules of the other ITS Participant exchanges, which 
originate from recent changes to exchange circuit breaker 
provisions. See SR-BSE-96-11 and Securities Exchange Act Release 
Nos. 37459 (July 19, 1996) 61 FR 39172 (July 26, 1996) (one-half 
hour and one hour halts) and 38221 (January 31, 1997) 62 FR 5871 
(February 7, 1997) (350 and 550 point thresholds).
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    As part of addressing the halt language described above, the 
Exchange had identified certain other necessary corrections, 
clarifications and updates to rule 2001. As a result, the proposed rule 
change amends Rule 2001(a), which contains the core definitions 
applicable to ITS, by adding the previously omitted definitions of 
Network A and Network B eligible securities and renumbering the 
remaining definitions. This addition is consistent with the comparable 
rules of other exchanges.\7\ The Exchange also proposes to reorganize 
certain provisions of Rule 2001 to improve its clarity. The proposed 
rule change reorganizes Rule 2001(c) into sub-paragraphs (i) 
Notifications and (ii) Pre-Opening Responses. The proposed rule change 
further divides proposed Rule 2001(c)(i) into (A) Applicable Price 
Change sand (B) Tape Indications. The proposed rule change then further 
subdivides Rule 2001(c)(i)(A) into (1) Initial Notification, (2) Form 
of Notification, and (3) Subsequent Notification. The proposed rule 
change also amends proposed Rule 2001(c)(i)(A)(1) to state that the 
applicable price changes for Network B securities would be \1/8\ point 
for consolidated closing prices under $5 and \1/4\ point for 
consolidated closing prices of $5 or over. Finally, the proposed rule 
change adds ``Network A'' to the footnote under proposed Rule 
2001(c)(i)(A)(1) to state that ``[i]f the previous day's consolidated 
closing price of a Network A Eligible Listed security exceeded $100 and 
the security does not underlie an individual stock option contract 
listed and currently trading on a national securities exchange, the 
`applicable price change' is one point.''
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    \7\ See e.g., Amex Rule 232(a) (v) and (vi).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \8\ in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest, 
by treating all halts similarly for purposes of ITS. The proposed rule 
change is also consistent with Section 11A(a)(1)(D) \9\ of the Act 
which states that the linking of all markets for qualified securities 
through communications and data processing facilities will foster 
efficiency, enhance competition, increase the information available to 
brokers, dealers, and investors, facilitate the offsetting of 
investors' orders, and contribute to the best execution of such orders.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k-1(a)(1)(D).
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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 for 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 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

[[Page 19385]]

    (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 Room. 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-97-13 and 
should be submitted by May 12, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-10224 Filed 4-18-97; 8:45 am]
BILLING CODE 8010-01-M