[Federal Register Volume 62, Number 130 (Tuesday, July 8, 1997)]
[Notices]
[Pages 36602-36605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17667]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38792; File No. SR-Phlx-97-24]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval to Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 1 Thereto by the 
Philadelphia Stock Exchange, Inc. To Adopt an AUTOM Rule and To Request 
Permanent Approval for the AUTOM Pilot Program

June 30, 1997.

I. Introduction

    On May 2, 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 adopt rule 1080, Philadelphia 
Stock Exchange Automated Options Market (``AUTOM'') and Automatic 
Execution System (``AUTO-X''), codifying and amending the policies and 
procedures concerning AUTOM and to obtain permanent approval for the 
AUTOM pilot program. On June 30, 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 June 27, 1997 
(``Amendment No. 1''). In Amendment No. 1, the Phlx amended the 
proposal by: (1) Clarifying the Exchange's current policy with 
respect to the eligibility of options for AUTO-X; (2) deleting the 
sentence defining ``agency order''; (3) deleting the reference to 
``user or account type'' with respect to the Options Committees 
authority to restrict the use of AUTO-X; (4) deleting references to 
``exemptions'' with respect to disengaging AUTO-X; and (5) 
clarifying several aspects of the proposal.
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    The proposed rule change was published for comment in the Federal 
Register on June 3, 1997.\4\ No comments were received on the proposal. 
This order grants accelerated approval to the proposal, as amended.
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    \4\ See Securities Exchange Act Release No. 38683 (May 27, 
1997), 62 FR 30366 (June 3, 1997) (``Release No. 38683'').
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II. Description of the Proposal

    AUTOM is the Exchange's electronic order delivery and reporting 
system, that provides for the automatic entry and routing of Exchange-
listed equity options and index options orders to the Exchange trading 
floor. AUTOM has operated on a pilot basis since 1988.\5\ Since that 
time, AUTOM has been extended several times, generally in one-year 
increments.\6\ AUTOM also has been amended several times during the 
operation of the pilot.\7\
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    \5\ See Securities Exchange Act Release No. 25540 (March 31, 
1988), 53 FR 11390 (April 6, 1988) (SR-Phlx-88-10).
    \6\ See Securities Exchange Act Release Nos. 25868 (June 30, 
1988), 53 FR 25563 (SR-Phlx-88-22 extended through December 31, 
1988); 26354 (December 13, 1988), 53 FR 51185 (SR-Phlx-88-33 
extended through June 30, 1989); 26522 (February 3, 1989), 54 FR 
6465 (SR-Phlx-89-01 extended through December 31, 1989); 27599 
(January 9, 1990), 55 FR 1751 (SR-Phlx-89-03 extended through June 
30, 1990); 28265 (July 26, 1990), 55 FR 31274 (SR-Phlx-90-16 
extended through December 31, 1990); 28978 (March 15, 1991), 56 FR 
12050 (SR-Phlx-90-34 extended through December 31, 1991); 32559 
(June 30, 1993), 58 FR 36496 (SR-Phlx-93-03 extended through 
December 31, 1993); 33405 (December 30, 1993), 59 FR 790 (SR-Phlx-
93-57 extended through December 31, 1994); 35183 (December 30, 
1994), 60 FR 2420 (SR-Phlx-94-41 extended through December 31, 
1995); 36582 (December 13, 1995), 60 FR 65364 (SR-Phlx-95-78 
extended through December 31, 1996); and 38104 (December 31, 1996), 
62 FR 1017 (SR-Phlx-96-51 extended through June 30, 1997).
    \7\ See Securities Exchange Act Release Nos. 25868 (June 30, 
1988), 53 FR 25563 (SR-Phlx-88-22 AUTOM extended to 37 options); 
26354 (December 13, 1988), 53 FR 51185 (SR-Phlx-88-33 expanded from 
5 to 10 contracts in all strikes and months); 26522 (February 3, 
1989), 54 FR 6465 (SR-Phlx-89-01 adding 25 additional equity options 
totaling 62); 27599 (January 9, 1990), 55 FR 1751 (SR-Phlx-89-03 
approving AUTO-X for market and marketable limit orders in three 
strikes and all months up to ten contracts in 12 equity options and 
day limit orders deliverable through AUTOM); 28516 (October 3, 
1990), 55 FR 41408 (SR-Phlx-90-18 expanding from 10 to 100 
contracts); 28978 (March 15, 1991), 56 FR 12050 (SR-Phlx-90-34 
extending AUTO-X to all equity options and AUTOM to accept GTC and 
cabinet orders); 29782 (October 3, 1991), 56 FR 55146 (SR-Phlx-91-19 
extending AUTO-X to all strike prices and expiration months); 29662 
(September 9, 1991), 56 FR 46816 (SR-Phlx-91-31 extending AUTO-X to 
20 contracts for Duracell options to match CBOE/Amex/NYSE); 29837 
(October 18, 1991), 56 FR 36496 (SR-Phlx-91-33 expanding AUTO-X from 
ten to 20 contracts); 32906 (September 15, 1993), 58 FR 15168 (SR-
Phlx-92-38 expanding AUTO-X from 20 to 25 contracts); 34920 (October 
31, 1994), 59 FR 55510 (SR-Phlx-94-40 codifying AUTOM for index 
options); 35033 (November 30, 1994), 59 FR 63152 (SR-Phlx-94-32 
adopting the Wheel); 35601 (April 13, 1995), 60 FR 19616 (SR-Phlx-
95-18 codifying order types); 35781 (May 30, 1995), 60 FR 30131 (SR-
Phlx-95-29 expanding AUTO-X to 50 contracts for TPX only); 35782 
(May 30, 1995), 60 FR 30136 (SR-Phlx-95-30 extending AUTOM from 100 
to 500 contracts); 36429 (October 27, 1995), 60 FR 55874 (SR-Phlx-
95-35 permitting broker-dealer orders in AUTOM for TPX only); 36467 
(November 8, 1995), 60 FR 57615 (SR-Phlx-95-33 limiting AUTO-X in 
XOC); 36601 (December 18, 1995), 60 FR 66817 (SR-Phlx-95-39 
expanding AUTO-X from 25 to 50 contracts); and 37977 (November 25, 
1996) 61 FR 63889 (SR-Phlx-96-49 amending Wheel provisions).
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    Currently, the Exchange has no rule governing the use of its AUTOM 
system. Option orders entered by Exchange member organizations into 
AUTOM are routed to the appropriate specialist unit on the Exchange 
trading floor. Orders delivered through AUTOM may be executed manually 
or automatically; however, only certain orders are eligible for AUTOM's 
automatic execution feature, AUTO-X, as provided in the proposed rule. 
Equity option and index option specialists are required by the Exchange 
to participate in AUTOM and its features and enhancements.
    The proposal delineates the types of orders eligible for AUTOM. 
Generally, only agency orders may be entered.\8\ However, broker-dealer 
orders for U.S. Top 100 Index (``TPX'') options may be entered into 
AUTOM, but are not eligible for AUTO-X. In addition, with respect to 
order size, orders up to the maximum number of contracts permitted by 
the Exchange may be entered. Currently, orders up to 100 contracts are 
eligible for AUTOM,\9\ except the maximum order size for TPX options is 
500 contracts.\10\ Separate maximum order sizes apply to AUTO-X, as 
discussed below. Moreover, the Exchange's Options Committee may 
determine to accept additional types of orders for entry into AUTOM as 
well as to discontinue accepting certain types of orders.\11\
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    \8\ See Amendment No. 1, supra note 3.
    \9\ See Securities Exchange Act Release No. 28516 (October 3, 
1990), 55 FR 41408 (October 11, 1990) (SR-Phlx-90-18).
    \10\ See Securities Exchange Act Release No. 35782 (May 30, 
1995), 60 FR 30136 (June 7, 1995) (SR-Phlx-95-30). Although the 
Exchange received approval to expand the maximum AUTOM order size to 
500 contracts, the Exchange's Board of Governors has limited 
implementation to TPX only.
    \11\ The Commission notes that if the Exchange desires to amend 
the types of orders eligible for AUTOM, it should contact the 
Division of Market Regulation to determine if a filing with the 
Commission pursuant to Section 19(b) of the Act is necessary.
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    AUTO-X is a feature of AUTOM that automatically executes public 
customer market and marketable limit orders up to the number of 
contracts permitted by the Exchange for certain strike prices and 
expiration months in equity options

[[Page 36603]]

and index options, unless the Options Committee determines otherwise. 
AUTO-X automatically executes eligible orders using the Exchange 
disseminated quotation and then automatically routes execution reports 
to the originating member organization. AUTOM orders not eligible for 
AUTO-X are executed manually in accordance with Exchange rules. Manual 
execution of AUTO-X eligible orders will also occur when AUTO-X is not 
engaged.
    In 1995, the Exchange received Commission approval to limit the 
availability of AUTO-X for certain, high-priced series of National 
Over-the-Counter Index options (``XOC'').\12\ The proposal restores 
these XOC series to AUTO-X eligibility. The proposal also provides that 
the Options Committee may, for any period, restrict the use of AUTO-X 
\13\ on the Exchange in any option or series.\14\ Currently, orders up 
to 50 contracts, subject to the approval of the Options Committee, are 
eligible for AUTO-X.\15\ In addition, the Options Committee may, in its 
discretion, increase the size of orders in one or more classes of 
multiply-traded equity options eligible for AUTO-X to the extent 
necessary to match the size of orders in the same options eligible for 
entry into the automated execution system of any other options 
exchange, provided that the effectiveness of any such increase shall be 
conditioned upon the Exchange filing with the Commission a proposed 
rule change pursuant to Section 19(b)(3)(A) of the Act.\16\
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    \12\ See Securities Exchange Act Release No. 36467 (November 8, 
1995), 60 FR 57615 (November 16, 1995) (SR-Phlx-95-33 limiting AUTO-
X eligibility to XOC series where the bid is $10 or less) (``Release 
No. 36467'').
    \13\ In Amendment No. 1, the Phlx identified the Exchange's 
current policy with respect to the use of AUTO-X. Specifically, the 
Exchange's current policy provides that all series and all option 
are eligible for AUTO-X. In addition, the Exchange recognizes that 
substantial changes to this policy would require a filing with the 
Commission pursuant to Rule 19b-4. See Amendment No. 1, supra note 
3.
    \14\ In Amendment No. 1, the Exchange deleted the reference to 
``user or account type'' contained in Release No. 38683. See 
Amendment No. 1, supra note 3. The Commission notes that the 
Exchange should review its Floor Procedure Advices to ensure that 
provisions regarding AUTO-X participation and restrictions are 
consistent with the corresponding provisions in the Exchange's 
rules, as proposed herein.
    \15\ See Securities Exchange Act Release No. 36601 (December 18, 
1995), 60 FR 66817 (December 26, 1995) (SR-Phlx-95-39).
    \16\ 15 U.S.C. 78s(b)(3)(A). The Commission expects the Phlx, in 
such filings with the Commission, to demonstrate that the Exchange's 
systems capacity is sufficient and that the specialist and 
Registered Options Traders (``ROTs''), respectively, have the 
capital necessary to handle the proposed increase in order size.
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    In the event extraordinary circumstances \17\ exist in connection 
with a particular class of options, two Floor Officials \18\ may 
determine to disengage AUTO-X with respect to that option, in 
accordance with Exchange procedures. To ensure proper notification to 
AUTOM users, a specialist must promptly notify the Surveillance Post of 
any AUTOM-related approval by two Floor Officials to disengage AUTO-X 
with respect to that option.\19\ In the event extraordinary conditions 
exist floor-wide, two Exchange Floor Officials, the Chairperson of the 
Options Committee or his designee \20\ may unanimously determine to 
disengage the AUTO-X feature floor-wide. In the event that AUTO-X is 
disengaged, AUTO-X eligible orders will be executed manually pursuant 
to general AUTOM provisions. The Exchange's Emergency Committee, 
pursuant to Rule 98, may take other action respecting AUTOM in 
extraordinary circumstances.
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    \17\ The Phlx defines extraordinary circumstances to include 
fast market conditions, systems malfunctions and other circumstances 
that limit the Exchange's ability to disseminate or update market 
quotations in a timely and accurate manner. The Phlx intends to 
incorporate this definition into the AUTOM Rule at a later date. See 
Amendment No. 1, supra note 3.
    \18\ The Phlx has a written policy, contained in its manual for 
new Floor Officials, to prevent Floor Officials from approving a 
specialist's request to disengage AUTO-X with respect to a 
particular option where another Floor Official previously has denied 
the request. Telephone conversation between Edith Hallahan, Director 
and Special Counsel, Regulatory Services, Phlx, and Deborah Flynn, 
Attorney, Division of Market Regulation, SEC (June 19, 1997).
    \19\ In Amendment No. 1, the Phlx deleted all references to 
``exemptions'' to clarify that it is the specialist's responsibility 
to notify the Exchange of Floor Official approval and relocated this 
provision to the section of the rule entitled ``Specialist 
Obligations.'' See Amendment No. 1, supra note 3.
    \20\ Amendment No. 1 clarifies that three individuals are needed 
to disengage AUTO-X floor-wide: two Floor Officials and the 
Chairperson of the Options Committee (or his designee). See 
Amendment No. 1, supra note 3.
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    The proposal requires a specialist to accept eligible orders 
delivered through AUTOM. A specialist must comply with the obligations 
of Rule 1014, as well as other Exchange rules, in the handling of AUTOM 
orders. A specialist is responsible for engaging AUTO-X with respect to 
an assigned option within three minutes after completing an opening or 
reopening rotation of that option. A specialist must respond to all 
messages communicated through AUTOM, including order entry, execution 
and cancellation and replacement of orders as well as administrative 
messages. A specialist is responsible for the remainder of an AUTOM 
order where a partial execution occurred.\21\ Lastly, a specialist is 
responsible for ensuring the visibility to the trading crowd of both 
the screens displaying incoming AUTO-X orders as well as the bids/
offers for the at-the-money strike prices in displayed options.\22\
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    \21\ The specialist's responsibility extends to filling an 
order, as well as maintaining any unexecuted portion of the order on 
the limit order book.  See Amendment No. 1, supra note 3.
    \22\ This provision essentially requires the specialist to 
select a reasonable location for the screens in the trading station 
area. See  Amendment No. 1, supra note 3.
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    In the proposed rule, the Exchange disclaims any liability from 
losses arising from the acts, errors or omissions of its agents, 
employees and members in connection with AUTOM. The proposal also 
apportions responsibility between the specialists and the member 
organizations for losses arising from the failed transmission of order 
messages routed through AUTOM. Under the terms of the proposal, a 
member organization who initiates the transmission of an order message 
to the floor through AUTOM is responsible for that order message up to 
the point that a legible and properly formatted copy of the order 
message is received on the trading floor by the specialist unit. 
Thereafter, the specialist who is registered in the option specified in 
the order message is responsible for the contents of the order message 
received and is responsible for the order until one of the following 
occurs: (i) An execution report for the entire amount of the order is 
properly sent; (ii) a cancellation acknowledgement is properly set; or 
(iii) an order properly expires.
    Proposed Commentary .01 to the rule reflects the existence of 
Automatic Quotation (``Auto-Quote''), another feature of AUTOM. Auto 
Quote is the Exchange's electronic options pricing system, which 
enables specialists to automatically monitor and instantly update 
quotations. Commentary .02 states that the Electronic Order Book is the 
Exchange's automated specialist limit order book, which automatically 
routes all unexecuted AUTOM orders \23\ to the Electronic Order Book 
and displays orders real-time in order of price/time priority. Orders 
not delivered through AUTOM may also be entered onto the Electronic 
Order Book.
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    \23\ Amendment No. 1 clarified that all  unexecuted AUTOM orders 
are automatically routed to the order book. See Amendment No. 1, 
supra note 3.
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    Finally, the proposal incorporates the provisions of Floor 
Procedure Advice F-24, concerning the Wheel, into the proposed AUTOM 
rule. The Wheel is an automated mechanism for assigning floor traders 
(i.e. specialists and ROTs

[[Page 36604]]

signed on the Wheel for a particular option class), on a rotating 
basis, as contra-side participants to AUTO-X orders.\24\
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    \24\ The floor-wide roll-out of the Wheel was completed the week 
of April 21, 1997.
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III. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\25\ The Commission believes the proposal, as 
amended, is consistent with the requirements of Sections 6 and 11A of 
the Act \26\ in general, and in particular, with Sections 6(b)(5) and 
11A(a)(1)(B) of the Act.\27\
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    \25\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f and 78k-1.
    \27\ 15 U.S.C. 78f(b)(5) and 78k-1(a)(1)(B).
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    The Commission believes that the proposal, as amended, is 
consistent with Section 6(b)(5) of the Act \28\ because permanent 
approval of the AUTOM system should facilitate the operation of Phlx's 
options trading floor, which will promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in options. The Commission notes that the 
Phlx has been operating AUTOM as a pilot program for nearly a decade 
and the Commission has not received any negative comments regarding the 
AUTOM pilot program since its implementation. As the Exchange 
represents that it has not experienced any significant problems 
regarding the operation of AUTOM \29\ and believes that the AUTOM 
system is capable of handling a significant increase in additional 
orders,\30\ the Commission believes that it is appropriate to approve 
the AUTOM systems on a permanent basis at this time.
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    \28\ 15 U.S.C. 78f(b)(5).
    \29\ See Proposing Release, supra note 4 at 10.
    \30\ The Phlx estimates that the average peak utilization of the 
AUTOM system is approximately 50% of capacity. See Letter from 
Theresa McCloskey, Vice President, Regulatory Services, Phlx, to 
Michael Walinskas, Senior Special Counsel, Division of Market 
Regulation, SEC, dated June 9, 1997.
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    The Commission notes that the adoption of Rule 1080 will 
incorporate into one rule all rules applicable to the operation of the 
AUTOM system. The Commission believes that it is important to 
incorporate all of the rules relating to AUTOM into the Exchange's 
rules so that the rules are more easily accessible to Phlx members and 
other market participants. The Commission notes that many of the 
proposed provisions consist of rules that either previously were 
approved explicitly by the Commission or codify existing practice that 
has developed pursuant to approved guidelines. The Commission believes 
that such provisions of the proposal do not substantially alter the 
Exchange's current interpretations and policies governing AUTOM, but 
rather, clarify existing operational procedures and codify into the 
Exchange's rules improvements that have been made to the AUTOM system. 
These provisions include the types of orders eligible for AUTOM and 
AUTO-X, respectively; the provisions of Floor Procedure Advice F-24, 
AUTO-X Contra-Party Participation (the Wheel); requirements that 
specialists participate in AUTOM; and the commentaries describing Auto-
Quote and the Electronic Order Book.
    Several other provisions of the rule change proposal are new. For 
example, the Commission notes that the Exchange's proposed AUTOM rule 
includes a general disclaimer from liability arising from the operation 
of AUTOM. Specifically, the proposal provides that, ``[i]n accordance 
with Exchange By-Law Article XII, Section 12-11, the Exchange shall not 
be liable for any loss, expense or damage resulting from or claimed to 
have resulted from the acts, errors or omissions of its agents, 
employees or members in connection with AUTOM, or of the AUTOM 
system.'' In addition, the proposed rule apportions between the 
specialists and the Exchange member organizations any losses that may 
be sustained as to orders entered into AUTOM.
    The Commission believes that the general disclaimer language 
contained in the proposed rule is specifically limited by Article XII, 
Section 12-11 of the Phlx's By-Laws,\31\ which applies solely to 
damages sustained by a member or a member organization. Accordingly, 
the Commission believes that the general disclaimer provision contained 
in this rule does not extend to customer-related losses. Moreover, the 
Commission notes that the proposed rule change provides the Exchange 
with virtually the same protection from liability available to the 
other exchanges.\32\ The Commission also notes that the Phlx represents 
that the general disclaimer provision cannot be used to limit its 
liability for intentional misconduct or for any violations of the 
federal securities laws.\33\ The Commission believes that the proposal, 
as amended, may serve to facilitate transactions in securities, while 
also protecting investors and the public interest.
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    \31\ Phlx By-law Section 12-11 provides, ``[t]he Corporation 
shall not be liable for any damages sustained by a member or member 
organization growing out of the use or enjoyment by such member or 
member organization of the facilities afforded by the Corporation to 
members for the conduct of their business.''
    \32\ See American Stock Exchange Rule 60; New York Stock 
Exchange Rule 123B(e).
    \33\ See Amendment No. 1, supra note 3.
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    The Commission notes that the proposal, as amended, establishes 
procedures for disengaging AUTO-X.\34\ Moreover, the Commission notes 
that the proposal sets forth the specialist's obligations with respect 
to the operation of AUTOM and AUTO-X. The Commission believes that the 
provision requiring specialists to receive orders through AUTO-X except 
under ``extraordinary circumstances,'' coupled with the requirement 
that the specialist obtain the prior approval of two Floor Officials to 
disengage AUTO-X, should help to ensure that AUTO-X eligible public 
customer orders will continue to be executed and thereby, contribute to 
the depth and liquidity of the Phlx's markets. The Commission believes 
that as a general rule, automatic execution systems should remain 
operational at all times. However, if the existence of extraordinary 
circumstances warrants the decision of two concurring Floor Officials 
to disengage AUTO-X, the Exchange should ensure that AUTO-X eligible 
orders are rerouted to the trading floor for prompt manual execution at 
current market prices. The term ``extraordinary circumstances'' has 
been defined to include fast market conditions, systems malfunctions 
and other circumstances that limit the Phlx's ability to disseminate or 
update market quotations in a timely and accurate manner.\35\ This 
provision is similar to the definition utilized by the Chicago Board 
Options Exchange (``CBOE'') for its automatic options execution 
system.\36\
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    \34\ The Commission notes the proposed procedures require: (1) 
the specialist to obtain approval from two concurring Floor 
Officials in order to disengage AUTO-X with respect to a particular 
option; (2) the specialist to notify the Surveillance Post of the 
Floor Officials' approval; and (3) three individuals (two Floor 
Officials and the Options Committee Chairperson or his designee) to 
disengage AUTO-X floor-wide.
    \35\ See supra note 17.
    \36\ See CBOE Rule 8.51(a)(4).
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    Further, the Commission notes that the proposed rule would grant to 
the Phlx's Options Committee the discretion

[[Page 36605]]

to restrict the use of AUTO-X.\37\ Currently, all classes and series of 
Phlx options are eligible for AUTO-X. The Commission believes that the 
discretion granted to the Options Committee to restrict the use of 
AUTO-X should be exercised only in limited situations. For example, the 
Commission believes the Exchange's proposal to restrict \38\ and now to 
reinstate the AUTO-X eligibility of high-priced XOC series to be a 
limited situation within the discretion of the Options Committee. The 
authority granted through this proposal to the Phlx Options Committee 
does not include the authority to make substantial changes that would 
affect a substantial number of classes or series of options eligible 
for AUTO-X.\39\ The Commission therefore believes that the proposed 
rule's grant of such limited authority to the Options Committee \40\ is 
consistent with Section 6(b)(5) of the Act.\41\
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    \37\ The proposed rule, as amended, states, ``[t]he Options 
Committee may for any period restrict the use of AUTO-X on the 
Exchange in any option or series.''
    \38\ See Release No. 36467, supra note 12.
    \39\ The Exchange represents that it ``understands that 
substantial changes to this policy, such as restricting AUTO-X to 
only in-the-money series, would require a filing pursuant to Rule 
19b-4.'' See Amendment No. 1, supra note 3. The Commission believes 
that if the Phlx desires to make substantial changes to the number 
of classes/series of options available on AUTO-X, the Exchange 
should submit a filing for Commission approval pursuant to Section 
19(b) of the Act.
    \40\ See Amendment No. 1, supra note 3.
    \41\ 15 U.S.C. 78f(b)(5).
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    The Commission also notes that Amendment No. 1 deletes the 
definition of ``agency order'' for the purposes of the AUTOM rule in 
Release No. 38683,\42\ which contained an interpretation of the term, 
``public customer.'' The original proposed definition of ``public 
customer,'' for AUTOM purposes, would have restricted use of the AUTOM 
system in a manner not necessarily consistent with the definition of 
``public customer'' contained in Phlx's Guaranteed Quote rule for 
options.\43\
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    \42\ See Release No. 38683, supra note 4.
    \43\ See Phlx Rule 1015.
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    The Commission believes that the proposal, as amended, is 
consistent with Section 11A(a)(1)(B) of the Act \44\ because 
development and implementation of the AUTOM system should provide for 
more fair, accurate, and efficient handling and reporting of orders in 
eligible options. The Commission further believes the proposal should 
facilitate the Phlx's efforts to provide an orderly market and to 
encourage small investor participation in the options markets by 
facilitating the use of ATUO-X, an automated system which enhances the 
Exchange's ability to execute small public customer orders in a timely, 
accurate and efficient manner. Therefore, the Commission believes the 
proposal, as amended, is consistent with Section 11A(a)(1)(B) of the 
Act \45\ because AUTOM is intended to improve, through the use of new 
data processing and communications techniques, the efficiency with 
which transactions in Phlx equity and index options are executed.
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    \44\ 15 U.S.C. 78k-1(a)(1)(B).
    \45\ 15 U.S.C. 78k-1(a)(1)(B).
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    Finally, the Commission finds good cause for approving the proposed 
rule change and Amendment No. 1 prior to the thirtieth day after the 
date of publication of notice of filing thereof in the Federal Register 
in order to permit the Phlx to continue to operate AUTOM on an 
uninterrupted basis. The proposed rule change will grant permanent 
approval to the AUTOM pilot program which is scheduled to expire on 
June 30, 1997. Moreover, the Commission notes that the proposed rule 
change reflects input received from several Exchange committees and 
floor members based on their experiences with AUTOM and AUTO-X to date. 
The Commission also notes that the AUTOM pilot, for the most part, has 
operated and evolved over the past 10 years providing the public an 
opportunity to comment on its commencement and subsequent enhancements. 
In addition, the Commission did not receive any public comments on this 
proposed rule change, which was noticed for the full 21-day period. The 
Commission also finds good cause for approving Amendment No. 1 to the 
proposed rule change on an accelerated basis. The Commission believes 
that the modifications to the proposal contained in Amendment No. 1 are 
substantially similar to the provisions of rules of other exchanges. As 
the proposed rule change and Amendment No. 1 thereto will grant 
permanent approval to a pilot program that has operated for nearly a 
decade, the Commission believes that the adoption of the proposal 
should assist the Exchange in facilitating a fair and orderly market by 
codifying and clarifying the responsibilities of the market 
participants. Therefore, the Commission believes that granting 
accelerated approval of the proposed rule change, as amended, is 
consistent with Section 6 and 19(b)(2) of the Act.\46\
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    \46\ 15 U.S.C. 78f and 78s(b)(2).
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    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1 to the proposed rule. 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, DC 20549. Copies 
of such filing will also be available for inspection at the principal 
office of the Phlx. All submissions should refer to File No. SR-Phlx-
97-24 and should be submitted by July 29, 1997.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\47\ that the proposed rule change (SR-Phlx-97-24), including 
Amendment No. 1, is approved on an accelerated basis.

    \47\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17667 Filed 7-7-97; 8:45 am]
BILLING CODE 8010-01-M