[Federal Register Volume 62, Number 117 (Wednesday, June 18, 1997)]
[Notices]
[Pages 33149-33150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15936]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38738; File No. SR-Phlx-97-20]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval To Proposed Rule Change and Amendment No. 1 Thereto by the 
Philadelphia Stock Exchange, Inc. Relating to Specialist Wheel Rotation 
Frequency

June 11, 1997.
    On April 24, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with 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 Floor Procedure Advice 
(``Advice'') F-24, AUTO-X Contra-Party Participation (the ``Wheel''), 
regarding Wheel rotations to the specialist. On May 9, 1997, the Phlx 
submitted Amendment No. 1 to the proposed rule change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Philip H. Becker, Senior Vice President and 
Chief Regulatory Officer, Phlx, to Michael Walinskas, Senior Special 
Counsel, Division of Market Regulation, SEC, dated May 8, 1997 
(``Amendment No. 1''). In Amendment No. 1, the Phlx designated File 
No. SR-Phlx-97-20 as submitted pursuant to Section 19(b)(2) of the 
Act, rather than pursuant to Section 19(b)(3)(A), as originally 
filed.
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    The proposed rule change was published for comment in the Federal 
Register on May 16, 1997.\4\ No comments were received on the proposal. 
This order grants accelerated approval to the proposal.
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    \4\ See Securities Exchange Act Release No. 38606 (May 9, 1997), 
62 FR 27099 (May 16, 1997).
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II. Description of the Proposal

    The Wheel is an automated mechanism for assigning floor traders 
(i.e., specialists and registered options traders (``ROTs'')), on a 
rotating basis, as contra-side participants to AUTO-X orders. AUTO-X is 
the automatic execution feature of the Exchange's Automated Options 
Market (``AUTOM'') system,\5\ which provides customers with automatic 
executions of eligible equity option and index option orders at 
displayed markets. Currently, the Wheel allocates the first trade of 
every day to the specialist. Thereafter, if four or less ROTs are 
participating on the Wheel, the specialist participates in a normal 
rotation. However, if five or more ROTs have signed-on the Wheel, the 
specialist receives every fifth execution.
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    \5\ AUTOM is an electronic order routing and delivery system for 
options orders.
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    The proposal would reduce the rotation frequency for the specialist 
in larger crowds. Specifically, if there are, on average, five to 15 
Wheel participants (including the specialist), the specialist would 
receive every fifth execution, and if there are, on average, 16 or more 
Wheel participants, the specialist would receive every tenth execution. 
Where the Wheel will be set to ``every tenth execution,'' the 
specialist's rotation frequency will thereafter be automatically 
reduced from every tenth execution to a normal, consecutive rotation, 
when the number of signed-on Wheel participants becomes less than ten.
    The proposal also would enable the Options Committee to establish a 
different rotation increment not to exceed ten contracts. Currently, 
the Wheel rotates in different increments, depending upon the size of 
the AUTO-X guarantee in that issue. For example, where the AUTO-X 
guarantee is for one to ten contracts, the Wheel rotates in two lot 
increments, meaning a ten lot would be divided in two lots to five 
Wheel participants. Where the AUTO-X guarantee is 11 to 25 contracts, 
the Wheel rotates in five lot increments, and where the guarantee 
exceeds 25 contracts, up to the maximum permissible 50 contracts, the 
Wheel rotates in ten lot increments. The proposal would allow the Wheel 
to rotate in an increment larger than permissible under the current 
framework, but no greater than ten contracts. The Options Committee may 
determine to allow a differing rotation, if requested by the specialist 
and Wheel participants, and following adequate notice to the trading 
floor.

III. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, 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. 
Specifically, the Commission believes the proposal is consistent with 
the requirements of Section 6 of the Act \6\ in general, and in 
particular, with Section 6(b)(5).\7\ Section 6(b)(5) provides that the 
rules of the

[[Page 33150]]

Exchange must be designed to promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market and in general, to protect investors and the public 
interest.\8\
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
    \8\Id.
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    The Commission believes that reducing the rotation frequency for 
specialists in larger crowds will promote equitable principles of trade 
by encouraging more ROTs to participate on the Wheel. The anticipation 
of more frequent Wheel executions will likely provide ROTs with an 
incentive to participate on the Wheel, thereby increasing liquidity in 
Phlx equity and index options. The proposal also will eliminate the 
perceived disproportionate allotment to the specialist in larger 
crowds.
    In addition, the Commission notes that reducing the rotation 
frequency for specialists will have no discernible impact on public 
customers as the Exchange represents that neither the price nor the 
time of AUTO-X executions will be affected. Instead, the proposal will 
modify only the identity of the contra-side participant for AUTO-X 
trades. The proposal will, therefore, assure ROTs of more frequent 
execution in larger crowds, without affecting the execution of public 
customer orders.
    The Commission believes that providing the Options committee with 
the authority to establish, at the request of Wheel participants, a 
rotation increment larger than that permissible under the current 
framework, but no greater than ten contracts, will remove impediments 
to a free and open market by providing the Phlx with additional 
flexibility to determine, within established parameters, the 
appropriate rotation procedures for a given option. In certain 
circumstances, the Phlx may determine it is preferable to all Wheel 
participants to receive larger, but less frequent, executions than 
allowable under the existing rules. The Commission believes that the 
proposal's limitation of ten contracts on the Option committee's 
authority to establish rotation increments is appropriate given that 
the original Wheel provisions provided for a rotation increment of ten 
contracts.\9\ The Commission notes that any proposed increase in the 
rotation increment in excess of ten contracts would have to be 
submitted to the Commission for approval pursuant to Rule 19b-4.
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    \9\ See Securities Exchange Act Release No. 35033 (November 30, 
1994), 59 FR 63152 (December 7, 1994) (SR-Phlx-94-32).
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    Finally, the Commission finds good cause for approving the proposed 
rule change and Amendment No. 1 thereto prior to the thirtieth day 
after the date of publication of notice of filing thereof in the 
Federal Register. The proposed rule change, as amended, should add 
additional liquidity to Phlx's equity and index options traded through 
AUTO-X. In addition, the Commission did not receive any comments on 
this proposal, which was noticed for the full 21-day period. As the 
implementation of these proposed changes is expected to assist the 
Exchange in facilitating a fair and orderly market, the Commission 
believes that granting accelerated approval of the proposed rule change 
is appropriate and consistent with Section 6 of the Act.\10\
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    \10\ 15 U.S.C. 78f.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Phlx-97-20), including 
Amendement No. 1, is approved on an accelerated basis.

    \11\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15936 Filed 6-17-97; 8:45 am]
BILLING CODE 8010-01-M