[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Pages 68339-68347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33992]



[Release No. 34-39481; File No. SR-Phlx-96-14]

Self-Regulatory Organizations; Notice of Filing of Amendment No. 
2 to Proposed Rule Change by the Philadelphia Stock Exchange, Inc. 
Relating to the Universal Trading System's Morning Session

December 22, 1997.
    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 
April 29, 1996 the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a proposed rule change, and on July 26, 
1996, submitted to the Commission Amendment No. 1 to the proposed rule 
change.\1\ The original filing, as amended by Amendment No. 1, was 
published for comment in Securities Exchange Act Release No. 37640 
(September 4, 1996), 61 FR 47993 (September 11, 1996). No comment 
letters were received. On October 29, 1997, the Exchange submitted to 
the Commission Amendment No. 2 to the proposed rule change. The 
proposed rule change, as amended, is 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, as amended, from interested 

    \1\ See Letter from Gerald D. O'Connell, Senior Vice President, 
Market Regulation and Trading, Operations, Phlx, to Jennifer Choi, 
Division of Market Regulation, SEC, dated July 26, 1996 (``Amendment 
No. 1'').

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

    The Exchange, pursuant to Rule 19b-4 under the Act,\2\ proposes to 
implement a daily pre-opening order matching session (``Morning 
Session'' or ``Session'') for the execution of large-sized stock orders 
on a volume weighted average price (``VWAPTM'') basis. This 
amendment restates the original proposal and proposes to: (1) Clarify 
the system functions of the Exchange and the Universal Trading System 
(``System'' or ``UTSTM''); (2) delete references to over-
the-counter (``OTC'') securities; (3) provide for an equity trading 
floor UTS terminal and prohibit floor members from UTS trading in non-
specialty issues; (4) update and detail matching priority provisions; 
(5) update and detail order types and order entry procedures; (6) 
clarify participation and subscriber access; (7) separate and elaborate 
``upon extraordinary circumstances'' language; and (8) expand upon the 
liability provisions.

    \2\ 17 CFR 240.19b-4.

    The Morning Session has been designed to provide investors with the 
means to execute large-sized stock orders anonymously and at fair 
market prices approximately 15 minutes prior to the opening of the 
``regular trading session'' (i.e., 9:30 A.M.-4:00 P.M.).\3\ The price 
of Morning Session transactions will be determined at approximately 
4:15 P.M. on the same day. At that time, the Exchange shall assign the 
applicable VWAP and report each such trade to the appropriate reporting 
authority, the Consolidated Tape or other, as ``VWAP'' trades.

    \3\ All times refer to Eastern Time (ET).

    The receipt and matching of orders for the Morning Session will be 
handled electronically through the UTS. The UTS is a system which was 
devised for facilitating the operational aspects of the Morning 
Session. The UTS was developed by Universal Trading Technologies 
Corporation (``UTTC'') by agreement with the Exchange. This proposal 
relates only to the first product of the UTS, the VWAP Trading System 

    \4\ VTS and UTS are trademarks of UTTC and VWAP is a trademark 
of the Dover Group.

    Each of the approximately 2,700 equity securities currently 
available for trading on the Exchange, both listed and traded pursuant 
to Unlisted Trading Privileges (``UTP'') (except OTC securities) will 
be eligible for the Morning Session. However, the Exchange will publish 
a list of securities trading on the UTS, periodically reflecting 
additions and deletions. Upon implementation of this proposal, a 
certain number of Phlx issues will be activated for UTS trading, as a 
phase-in of the System, and a list of these securities will be 
    The present proposal consists of the adoption of a new rule 
applicable solely to the Morning Session, Rule 237--UTS Morning Session 
(``Rule''). In addition, Phlx Rule 101 is proposed to be amended to add 
the Morning Session as an exception to regular trading hours.\5\

    \5\ The Exchange also proposes several minor amendments to Rule 
101, including placing ``A.M.'' and ``P.M.'' in capital letters and 
adding a heading to each commentary.

    The Rule is organized as follows: an introductory paragraph, 
followed by paragraphs: (a) Explaining reporting; (b) defining the UTS; 
(c) governing who the participants are; (d) explaining order entry; (e) 
specifying order priority; (f) defining the VWAP; (g) governing short 
sales in the UTS; (h) concerning disputes; (i) containing provisions 
relating to limitation of liability; (j) pertaining to trading halts; 
and (k) governing extraordinary circumstances.
    UTS trades will be subject to transaction and access fees as 
established in the Exchange's fee schedule.

The Universal Trading System

    The UTS will operate as a separate system, linked to Exchange 
systems at the reporting stage. UTS access will be available to direct 
subscribers, by dial-up into the UTS system, utilizing software and a 
log-on procedure dependent upon whether the subscriber is accessing UTS 
through a personal computer or main-frame system. UTS access is also 
available through subscribers acting as brokers. Participation is 
described more fully below. Thus, UTS access may include various types 
of computer hardware, software and handheld devices.

[[Page 68340]]

    The System links off-floor and on-floor computer terminals to a 
communications base unit. The UTS base unit will: (i) Accept orders and 
commitments, (ii) match buyers with sellers, (iii) give execution 
reports to matched participants, (iv) calculate the back-up VWAP for 
each traded security, (v) report VWAP trades to the entering 
Participant, and (vi) create the necessary audit trail, recording order 
and commitment entry and execution of Morning Session orders. Other 
Exchange systems will calculate the official VWAP and report trades to 
the appropriate reporting authority.
    Participation in the Morning Session may occur by way of a 
commitment from a ``Committer'' or an order from a ``User'' 
(collectively, ``Participants''). Exchange members may participate as 
either Committers or Users, but may not participate as both Committer 
and User in the same security for the same account during the same 
Morning Session.
    Commitments must be entered directly by UTS subscribers or through 
the UTS trading floor terminal at the Exchange. Committers can be 
either Phlx Floor Traders or Phlx Off-Floor Liquidity Providers who may 
commit (on a proprietary basis) to provide contra-side liquidity. UTS 
commitments may only be made by Exchange members, either Phlx Floor 
Traders or Phlx Off-Floor Liquidity Providers, who must register with 
the Exchange in a prescribed manner prior to acting in the capacity of 
a Committer. Phlx floor members qualify as Phlx Floor Traders if they 
are either the Phlx Specialist or Phlx Alternate Specialist in the 
particular stock that is the subject of the commitment. Phlx Off-Floor 
Liquidity Providers must be Phlx members and may only engage as 
Committers for their proprietary accounts. Committers will be able to 
choose which, if any, issues they wish to make commitments, but for 
each chosen issue must provide a minimum volume guarantee of 2,500 
shares on each side of the market. Commitment sizes can vary on each 
side of the market, such as a commitment to buy 2,500 shares and sell 
10,000 shares at the VWAP. Commitments may be restricted to execution 
against non-members only.
    Commitments are only executable through the UTS. Commitments may be 
entered and modified in the UTS during the Order Entry Time Period and 
also during any other periods which the Exchange may make available for 
that purpose. For instance, in order to reflect the busy pre-opening 
time before 9:15 A.M., the Exchange may allow commitments to be entered 
or modified during certain times the previous day, effective for the 
next Morning Session. In such an event, UTS trading still would occur 
only during the Morning Session; the extra time period merely provides 
additional time for the entry of commitments. Committers may make such 
contra-side liquidity commitments through the UTS as day or good-till-
cancelled (GTC) commitments; GTC commitments remain in effect for each 
Morning Session until cancelled and must be established (and cancelled) 
through the enrollment process.\6\

    \6\ The enrollment process is the formal mechanism by which 
participants specify their contractual arrangements for using the 
UTS, specifying the information needed to establish UTS access. UTS 
activation is dependent upon completing the enrollment process and 
submitting the requisite agreements and forms. Enrollment 
parameters, including GTC commitments, may be modified through 
procedures established by the Exchange.

    Users are participants who enter orders, as opposed to commitments, 
into the UTS. UTS orders may only be placed for and by Users who are 
enrolled and activated for the UTS. Users may be either Phlx members or 
non-members. Users may enter orders for customer or proprietary (dealer 
or principal) accounts. Paragraph (c) of the Rule is proposed to be 
amended to reflect that Users may enter orders directly into UTS 
terminals as subscribers or through subscribing brokers. The 
participation method may affect matching priority, pursuant to 
paragraph (e) of the Rule. A UTS terminal may be available on the 
equity trading floor for the entry and reporting of UTS orders and 
commitments. Exchange floor members may participate as Users in their 
specialty issues only.
    All UTS trades will be processed for clearing like any other 
Exchange equity floor trade. The Exchange and the Stock Clearing 
Corporation of Philadelphia (``SCCP'') perform trade reconciliation and 
confirmation functions; once complete, the trades are forwarded to the 
National Securities Clearing Corporation (``NSCC'') for clearance and 
settlement.\7\ For jurisdictional and compliance purposes, Phlx 
membership is also required for all UTS trades, as with all Phlx 
trades. Thus, all Committers and Users must provide both an executing 
and clearing account during the enrollment process.

    \7\ UTS trades, as all Phlx trades, will require both a Phlx and 
SCCP member to be involved. See Securities Exchange Act Release No. 
39223 (October 8, 1997) (SR-SCCP-97-04).

    All non-member UTS orders entered through a broker must be entered 
either through a Phlx member or through a non-member broker with the 
appropriate give-up and three-way agreements in place. UTS non-member 
orders may also be entered directly by subscribing non-members, who 
have both agreements with a Phlx member in place. In the three-way 
agreement between the Exchange, the Phlx member and the non-member 
User, the Phlx member must agree to be jointly and severally liable for 
actions of the non-member through the UTS and the non-member must agree 
to adhere to all applicable by-laws and rules of the Exchange. The 
three-way agreement is in addition to the clearing or ``give-up'' 
agreement. The give-up agreement is intended to ensure that a SCCP 
member, who must also be a Phlx member, has assumed responsibility for 
the order. Give-up agreements with non-members must be submitted in 
advance to the Exchange's Examinations Department, and must include a 
delineation of the credit limits for the respective customer.
    All Users and Committers must provide proof of compliance officer 
review and approval of enrollment parameters prior to UTS activation.

UTS Order Entry

    Only orders and commitments placed through UTS will be eligible for 
execution during the Morning Session; similarly, orders and commitments 
entered into the UTS are only eligible for execution through the UTS. 
Thus, UTS orders do not automatically migrate to the Exchange's regular 
equity trading session. UTS orders will only be accepted during the UTS 
order entry time period, 5:00 A.M. to 9:15:00 A.M., except that the 
Exchange may establish a different period respecting the UTS trading 
floor terminal. The proposed establishment of an equity trading floor 
terminal amends the original proposal and is intended to facilitate 
Floor Trader participation. The Phlx believes that trading floor real 
estate concerns \8\ may discourage direct subscription, such that the 
floor terminal would provide an alternate means for access. Unlike UTS 
commitments, all UTS orders will only be eligible for a UTS execution 
on the day the order has been placed. UTS orders and commitments may be 
cancelled until 9:15 A.M. Confirmation of order placement and 
cancellation occurs electronically through the UTS.

    \8\ Phlx represents that physical space for additional screens 
or computers on the floor is extremely limited. Telephone 
conversation between Edith Hallahan, Director, Associate General 
Counsel, Phlx, and Mike Walinskas, Senior Special Counsel, Division 
of Market Regulation, SEC, on December 17, 1997.

    As discussed above, Morning Session trading interest may be entered 
into UTS in the form of either: (i) An order

[[Page 68341]]

to trade as a User; or (ii) as a commitment to provide contra-side 
liquidity to User orders. The minimum order size for individual User 
orders shall be 5,000 shares, while Committers will be permitted to 
commit in sizes of 2,500 or greater. In addition to these minimums, all 
orders and commitments must be in 500 share increments, including any 
``AON'' or ``MON'' designations, as defined below. This amendment 
eliminates reference to round-lots, meaning 100 shares. Further, the 
Exchange's Floor Procedure Committee (``FPC'') may determine whether 
different sizes should be established. This ability is intended to be 
responsive to adjustments based on market and participant need, which 
would be subject to prior written notice.
    In placing orders and commitments on the System, Participants will 
be required to provide order/commitment description and account 
identification information necessary for UTS to establish the priority 
and eligibility of orders on the System. Specifically, UTS orders and 
commitments are to be placed with the following designations: (i) Buy/
sell; (ii) volume; (iii) stock symbol; (iv) Participant status: 
Committer or User; (v) Committer account status: Off-Floor Liquidity 
Provider, Specialist or Alternative Specialist; (vi) User account 
status: member or non-member, and order type (basic, cross, 
facilitation, constraints, restrictions); (vii) clearing account 
number; (viii) trade account information; and (iv) subscriber 
identification number.

Order Types

    The UTS order types in paragraph (i) of the Rule are being amended 
for better organization and definition within the Rule. Eligible order 
types for the Morning Session are divided into three categories: basic, 
facilitation and cross. Basic and facilitation orders can be 
unconstrained, meaning executable to the extent possible, or 
constrained. The following two constraints are proposed: All-or-none 
(AON), meaning execute all shares of the order or none at all; and 
Minimum-or-none (MON), meaning execute at least a specified number of 
shares or none at all. Basic orders can also be restricted, meaning 
executable against non-members only.
    Facilitation orders, on the other hand, are two-sided orders with 
an identified Phlx member contra-side, who acts as a facilitator to 
that order, and is known as a ``Guarantor.'' The Guarantor definition 
has also been added to paragraph (c) of the Rule, which delineates the 
categories of access to the UTS. The contra-side may be entered 
together with or separate from the facilitation order; if the sizes do 
not match, the remainder is unexecuted. Facilitation orders can be 
submitted on behalf of Phlx members or non-members. There are three 
types of facilitation orders. The first type is an unconditional 
facilitation, which is to be executed against an identified Guarantor 
or not at all; as such, the order is a type of cross, involving a Phlx 
member Guarantor. The second type of facilitation order is a 
conditional facilitation order, which is executable against an 
identified Guarantor after attempting to be executed against non-
members to the extent possible. For instance, User A may enter an order 
designating X as its conditional Guarantor, such that if no non-member 
orders are matched with this order, User A is matched with X, even if 
other Phlx members would have matched. Third, a last resort 
facilitation order is executable against an identified Guarantor only 
after attempting to execute against all other orders and commitments to 
the extent possible. Extending the previous example, the last resort 
Guarantor X would only match with User A after all other orders and 
commitments have had the opportunity to match, not just non-member 
orders. Facilitation orders cannot be restricted to non-members in 
general, because they contain a contra-side.
    A cross order is a two-sided order, with both sides comprised of 
non-member interest, with instructions to match the identified buy-side 
with the identified sell-side. The two sides of a cross can be entered 
separately, with the contra-side identified. If the sizes do not match, 
the remainder is unexecuted.

Execution and Priority of Orders

    Orders for the Morning Session will be matched at approximately 
9:16 A.M. Trades executed through the UTS are printed and cleared as 
Phlx transactions, executed on the Exchange and processed through SCCP, 
as explained above. In matching VWAP orders for execution during the 
Morning Session, execution priority is determined in accordance with 23 
matching steps, which appear below. Commitments are not matched with 
other Commitments.
    Generally, User orders are afforded priority by account type, then 
by order size (largest first); and for orders of the same size and 
account type, on a chronological basis by time-of-entry. As outlined 
below, account types are based on status as a non-member or Phlx 
member, type of non-member account, constraints, and direct 
subscription versus broker access.
    Similarly, commitments are prioritized, first, on the basis of sub-
account types, meaning Phlx Off-Floor Liquidity Providers then 
Specialists and then Alternate Specialists; then, on the basis of 
commitment size (largest first); and among those commitments at the 
same size, priority rotates among Committers with the fewest aggregate 
UTS shares (in all securities) matched at that time. For example, among 
three 5,000 share specialist commitments in stock XYZ, priority would 
be afforded to A who has received 10,000 shares of stock XYZ so far, 
then B who has 15,000 shares of TTT, and lastly to C who has 3,000 
shares of XYZ and 20,000 of TTT. In the previous version of this 
proposal, the matching was proposed to occur on a rotational basis 
among those of the same size and sub-account type.
    An additional amendment to the original proposal is the 
incorporation of a Liquidity Rotation Parameter (``LRP''), also known 
as the ``anti-bully'' rule. Even though priority is generally based on 
size, the LRP provides that order an commitment participation will 
rotate in 25,000 share increments, to more fairly allocate order flow, 
as opposed to filling the largest first. The LRP operates within each 
matching step (after step 1) to match in 25,000 share increments, 
moving to the next order/commitment after 25,000 shares have been 
matched, and then returning to the remainder of that unfilled portion 
once all other orders/commitments have received their first 25,000 
share match. For example, where there is one large buyer (``buyer 1'') 
for 100,000 shares and three buyers of 10,000 shares of ABC (``buyers 
2-4''), without this provision, a seller of 100,000 shares would match 
with the buyer 1 for all 100,000 shares, thereby excluding the other 
buyers. Instead, the LRP results in a match of 25,000 shares for buyer 
1, 10,000 shares each for buyers 2-4 (sub-totaling 55,000), 25,000 
shares more for buyer 1, with the remainder of 20,000 shares going to 
buyer 1 (as there are no other buyers with which to rotate liquidity); 
the LRP ensured that buyers 2-4 participated, while buyer 1 received 
70,000 shares. The proposal would permit the FPC to establish a 
different size (than 25,000 shares) based on operational experience, 
practicality and demonstrated market need.
    As a follow-up to these introductory paragraphs respecting the 
order matching principles of UTS, the specific matching steps to be 
conducted in each security are outlined below. First, the following 
two-sided orders are matched: non-member/non-member crosses, then non-
member/member unconditional facilitation orders and then member/

[[Page 68342]]

member unconditional facilitation orders. Any partially unmatched 
orders due to excess size entered by one side remains unexecuted.
    Second, non-member unconstrained orders (both basic and 
facilitation) are matched with each other. For example, a buy of 10,000 
shares of XYZ would be matched with a sell of 10,000 shares of XYZ by 
non-members. Within this step 2, as within all matching steps, priority 
is determined based on size and time of entry. Although step 2 refers 
to non-member unconstrained orders, including facilitation orders, 
unconditional facilitation orders are not matched at this step, because 
they have already been matched in step 1. Non-member unconstrained 
orders for non-member broker-dealers are matched in step 6.
    Third, any remaining non-member unconstrained orders are matched 
with non-member constrained (AON and MON) orders. Any such non-member 
constrained orders not matched with the unconstrained orders left over 
from step 1 are then matched with other non-member constrained orders. 
Non-member constrained orders for non-member broker-dealers are matched 
in step 6.
    Fourth, any remaining non-member orders from steps 2 and 3 are 
matched with non-member institutions' orders participating through a 
broker. Brokers may be members or non-members as explained in the 
participation and access portions of this proposal. Such non-member 
institutions' orders are then matched with each other. Non-member 
institutions entering orders directly would have participated in steps 
2 or 3 above, depending on whether the order is constrained; 
constraints are not relevant to determining priority in step 4 among 
institutions participating through a broker.
    Fifth, any remaining non-member orders are matched with non-member 
non-institution orders participating through a broker. The remaining 
non-member orders filtering down through each step may include 
unmatched orders and partially unmatched orders from all prior steps. 
These remaining orders are matched with the new category of orders in 
each step first, before that category is matched against itself. Thus, 
after non-member non-institution orders participating through a broker 
are matched against the unmatched orders of non-member orders, such 
non-member non-institution orders are matched with each other. Non-
member non-institution orders include non-member broker-dealer orders 
as well as non-member, non-broker-dealer, non-institution orders, such 
as retail customer orders.
    Sixth, any remaining non-member orders are matched with non-member 
broker-dealers subscribing directly. Non-member broker-dealer orders 
subscribing directly are then matched with each other. Instead of 
dealer activity, if the non-member broker-dealer is acting as a broker, 
then the order would be matched in steps 4 or 5, depending on who he or 
she is representing as a broker.
    Seventh, the matching process is ended respecting non-member 
orders. Thus, any remaining non-member orders that are restricted to 
matching with non-members only are removed; these are unmatched, except 
as provided in step 23 below.
    Eighth, any remaining non-member conditional facilitation orders 
are matched with their conditional Guarantors (facilitating members). 
These conditional orders were first subject to matching against other 
non-member orders in the prior steps, and are now eligible for matching 
against the identified Guarantor, who is a member.
    Ninth, any remaining non-member orders are matched with member 
orders participating through brokers. Any unmatched member orders 
participating through brokers are then removed.
    Tenth, any remaining non-member orders are matched with orders of 
off-floor members. Any unmatched off-floor members' orders are then 
    Step 11 involves matching any remaining non-member orders with 
order of Phlx Floor Traders. Any unmatched Phlx Floor Traders' orders 
are then removed. This category includes one-sided orders (as opposed 
to commitments) of Specialists and Alternate Specialists, who are 
permitted to trade as a ``dealer'' in specialty issues.
    Steps 12 through 14 introduce commitments into the matching 
process. In step 12, any remaining non-member orders are matched with 
commitments of Phlx Off-Floor Liquidity Providers. The remaining 
commitments of Phlx Off-Floor Liquidity Providers are then removed. In 
step 13, any remaining non-member orders are matched with commitments 
of Specialists; unmatched Specialist commitments are then removed. In 
step 14, any remaining non-member orders are matched with commitments 
of Alternate Specialists; unmatched Alternate Specialist commitments 
are then removed.
    In step 15, any remaining non-member orders are matched with member 
facilitation orders (those with conditional or last resort Guarantors). 
The other type of facilitation order, an unconditional facilitation, is 
already matched in step 1.
    In step 16, non-member last resort facilitation orders are matched 
with their identified last resort Guarantors.
    Step 17 represents the end of non-member matching. Any remaining 
non-member orders are unmatched, except as provided in step 23 below.
    In step 18, Phlx member conditional facilitation orders are matched 
with their identified conditional Guarantor. Again, the unconditional 
facilitation orders have already been matched; the last resort 
facilitation orders are matched later in the process.
    Step 19 involves extensive Phlx member matching. All remaining 
member orders are matched with each other, as long as they are not 
restricted to matching against non-members only. This includes the 
following types of Phlx member orders from steps 9-11 and 15 above: 
Phlx member orders participating through brokers, Phlx off-floor member 
orders, Phlx floor members' orders, and member last resort facilitation 
    Step 20 involves matching Phlx member orders with commitments that 
have not been restricted to matching against non-member only. First, 
any remaining Phlx member orders are matched with commitments of Off-
Floor Liquidity Providers, and then with commitments of Specialists and 
Alternate Specialists. Unmatched commitments are then removed.
    In Step 21, Phlx member last resort facilitation orders are matched 
with their identified last resort Guarantor.
    Step 22 signals the end of the whole matching ``round'' in a 
security. Any remaining Phlx member orders and commitments are 
unmatched, except as provided in step 23.
    Step (23), the last step, involves performing matching rounds, 
which amends the original proposal. Specifically, if any unmatched 
orders remain, the largest unsatisfied constrained order is permanently 
removed, the matches after step 1 are unmatched and the matching 
process starts again; among unsatisfied orders of the same size, Phlx 
member orders would be removed before non-member orders, and among two 
Phlx members (or non-members), the latest in time is removed first. 
Additional matching rounds occur, each removing another unsatisfied 
constrained order, until no unsatisfied constrained orders remain. 
Matching rounds are intended to maximize the number of executions.


    The VWAP that the Exchange shall assign to each eligible security, 

[[Page 68343]]

shall be derived daily and publicly disseminated promptly following 
calculation at 4:15 P.M. for each security where a UTS match occurred 
that day, will be calculated on the basis of those transactions 
reported during the regular trading session to the appropriate 
reporting authority. Generally, consistent with Phlx Rule 111, all UTS 
matches create a binding contract. However, in the case where a 
transaction occurs in the Morning Session in a security which has not 
opened for trading by 3:00 P.M. on the primary market, the respective 
Morning Session transaction will be voided and a report to that effect 
will be sent immediately to all matched Participants.
    In general, the VWAP for each eligible security shall be calculated 
by: (i) Utilizing all regular way trades that appear on the 
Consolidated Tape (including sold sales and late sales \9\) effected 
from the opening of the regular trading session and printed prior to 
4:15 P.M. by the appropriate reporting authority,\10\ (ii) multiplying 
each respective reported price by the total number of shares traded at 
that price; (iii) adding together each of these calculated values, 
compiling an aggregate sum; and (iv) dividing the aggregate sum by the 
total number of reported shares used in item (i) in the security. The 
resulting VWAP will be reported in the form of a fraction, rounded to 
the nearest 1/256th.

    \9\ A late sale is a transaction which is a correct last sale 
but is publicly disseminated later than is generally required. 
Generally, transactions are required to be publicly disseminated 
within 90 seconds after the execution. A sold sale designates a 
transaction appearing on the Consolidated Tape out of its proper 
    \10\ However, prints representing trades executed after regular 
trading hours (9:30 A.M. to 4:00 P.M., such as the Phlx's Post 
Primary Session (``PPS'') will not be utilized in the VWAP 
calculation after 4:02 P.M.


    All UTS transactions will first be reported to the reporting 
authority at approximately 9:20 A.M. as a single volume print including 
all matches in all securities. The morning print for all UTS matches 
will occur by way of an administrative message over the Consolidated 
Tape reflecting total volume in Exchange listed securities. For 
example, that message would indicate that 3 million shares traded 
through the UTS at the VWAP. The morning print is intended to notify 
investors regarding pre-opening volume.
    Participants, under normal circumstances, will also be notified of 
their levels of participation by 9:20 A.M. UTS transactions will be 
reported to the entering subscriber in the form of automated reports 
reflecting the number of shares traded by the Participant (whether User 
or Committer) through the UTS in each issue.
    Promptly following calculation of the final VWAP at approximately 
4:20 P.M., trades are assigned that day's VWAP for that security and 
will, at that time, be reported trade-by-trade to the appropriate 
reporting authority. The Exchange will continuously calculate the VWAP 
throughout the trading day for each issue available for trading. The 
final VWAP will be available through the System to UTS subscribers who 
received Morning Session executions. Each Morning Session match, once a 
VWAP is assigned, constitutes a completed transaction for the purpose 
of reporting the trade to the appropriate reporting authority.
    End-of-day prints will normally be reported promptly following 
calculation of the final VWAP at 4:15 P.M. and, unlike the morning 
print, the end-of-day prints will be printed on a trade-by-trade basis 
representing all matches that morning. Each print will reflect a 
matched trade and the corresponding VWAP. These trades will be reported 
to the Consolidated Tape with the sale condition ``B'' indicating 
average weighted pricing, which will distinguish VWAP trades from other 
transactions that may possibly be reported after the close (such as 
after-hours, crossing session, or late sales transactions). Thus, these 
trades will not impact the determination of the last sale price in a 
security. Because reporting is trade-by-trade, if no UTS trade occurred 
that day, the final VWAP will not be reported to the Consolidated Tape 
that day.
    The UTS will not disseminate or disclose orders or commitments, 
including UTS bid/ask sizes, prior to the Morning Session match, nor 
UTS imbalances remaining after the Morning Session match, except to the 
entering Participant. The purpose of this anonymity is to safeguard 
against dissemination to any other participant or to the marketplace 
the existence of executed or unexecuted orders, which, in turn, could, 
if disseminated, influence the market after the opening of the regular 
trading day.

Other Provisions

    Pursuant to paragraph (h) of the Rule, disputes respecting Morning 
Session participation, or eligibility of orders or participants, are to 
be resolved by the Exchange, in accordance with Phlx Rule 124.
    The Exchange's liability respecting the UTS is limited pursuant to 
Phlx By-Law Article 12-11 and paragraph (i) of the Rule. Thus, the 
Exchange is not liable for any damage arising from the use of the UTS. 
Specifically, this provision states that pursuant to By-Law Article 12-
11, the Exchange shall not be liable for any damages, claims, losses or 
expenses caused by any errors, omissions or delays resulting from any 
act, condition or cause beyond the reasonable control of the Exchange, 
including but not limited to, an act of God; fire; flood; extraordinary 
weather conditions; war; insurrection; riot; strike; accident; action 
of government; communications or power failure; equipment or software 
malfunction arising from the use of the UTS, the calculation of the 
VWAP or any and all other matters respecting the operation of the 
System or Morning Session.
    With respect to trading halts, the Rule is not intended to limit 
the ability of the Exchange to otherwise halt or suspend trading in any 
stock traded through the UTS. Further, as stated in paragraph (k) of 
the Rule, a new provision respecting extraordinary market conditions, 
the Floor Procedure Committee may determine, due to extraordinary 
circumstances, to adjust or modify any of the times referenced by this 
Rule respecting the order entry period, order matching period or any 
aspect of the transaction reporting procedures. In addition to fast 
market conditions, for purposes of this paragraph, extraordinary 
circumstances also include systems malfunctions and other circumstances 
that limit the Exchange's ability to receive, disseminate or report UTS 
information in a timely and accurate manner.
    Lastly, short sales are governed by paragraph (g) of the Rule, 
which states that Morning Session orders and commitments must be 
appropriately marked pursuant to Phlx Rule 455, but are exempt from the 
``tick test'' short sale restrictions of Rule 455. Further, positions 
resulting from Morning Session transactions are effective for the 
purpose of determining long or short status, immediately upon 
notification to the participant of a UTS execution, notwithstanding 
that the VWAP has not yet been determined.
    The specific text of the proposed rule change is available at the 
places described in item IV below.

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

[[Page 68344]]

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

    During the past ten years, listed equities trading volume has 
experience explosive growth, from 18 billion shares in 1982 to a 
projected 140 billion shares in 1997, representing a sevenfold increase 
in 15 years. A contributing factor to this volume surge is the 
increasing presence of institutional trading. The Exchange expects that 
over 11 million trades of 5,000 shares or more will be executed in the 
markets during this year.
    Although institutional trading of block orders often consists of 
exchange member firms trading for their proprietary accounts, the vast 
majority of such trading is for the benefit of non-member accounts. The 
common thread among most of these non-member block orders is that the 
investment focus is long-term, rather than short-term. When the 
investment focus is long-term, intra-day price drops occurring when 
positions are purchased or sold are problematic ``bumps'' in the road. 
Many long-term investors prefer to avoid such drops, even though an 
opportunity to buy at the low or sell at the high may be lost. 
Smoothing over these bumps would be beneficial to long-term investors. 
In this vein, long-term investors often link the ability to secure fair 
prices to the ability to retain anonymity while ``working'' large 
    On the other hand, member firms typically use intra-day volatility 
as an opportunity to trade in the short term. Such firms do so either 
as facilitator for their customer orders, arbitrageur or as registered 
floor traders. Many of these traders welcome the opportunities 
presented by additional volume and volatility. Thus, diverting such 
intra-day risks from long-term investors (who seek to avoid such risks) 
to proprietary traders (who seek to assume such risks) is an important 
benefit of the proposed Morning Session for the execution of large-
sized securities on a VWAP basis.
    By placing intra-day price risks on those most willing, and most 
suited, to accept such risks, the Morning Session will serve both 
institutional investors and proprietary traders. The advantages of the 
Morning Session will be available to all qualified market participants 
for eligible sized orders. Institutions which will particularly benefit 
from the session include corporate pension funds, state and municipal 
pension funds, major money managers and mutual funds. In addition to 
offering fair pricing, the session should also be cost effective, as it 
will often replace the costs of working a VWAP or regular order over 
the course of a day or longer, with the ease of a single execution and 
single transaction charge.
    In its role as a national securities exchange and trading venue for 
equity securities, the Phlx seeks to provide liquidity and a 
marketplace for all types of investors. In addition to its current 
market structure and products, the Exchange endeavors to provide new 
products and systems, thereby enhancing liquidity, while preserving 
full investor protection. The UTS adds an important dimension to these 
goals by way of the VTS, which offers institutional money managers, 
broker-dealers and investors the ability to receive large executions 
more efficiently, with less market impact. The VTS is intended to 
provide liquidity, complete anonymity, and end-to-end data security in 
an electronic environment. All VTS trades will be priced at the VWAP, 
which the Phlx believes is regarded industry-wide as providing a useful 
execution price measurement at a reasonable cost. Institutions have 
been receiving VWAP executions since 1985. the VTS is intended to 
standardize this pricing method so that investors can obtain ``at 
market returns'' and implement investment strategies utilizing the new 
standard VWAP.
    The Phlx believes that the UTS is an innovative new automated 
securities trading system that complements the existing auction market. 
By providing an automated matching system with floor traders as well as 
off-floor traders serving as facilitators for executions on a VWAP 
basis, the UTS incorporates the principles of an auction market with 
the automation benefits of an electronic execution system. Thus, the 
Exchange believes that the UTS, as a new data processing and 
communication technique, creates the opportunity for more efficient and 
effective market operations, consistent with Section 11A(a)(1)(B) of 
the Act,\11\ by providing increased execution alternatives to 
investors. By combining pricing in terms of a VWAP with the ability to 
access block-sized liquidity commitments, and by providing the ability 
to anonymously effect such block-sized orders prior to the opening of 
the regular session, the Exchange's Morning Session should particularly 
accommodate institutional customer interests.

    \11\ 15 U.S.C. Sec. 78k-1(a)(1)(B)

    The Exchange proposes to adopt the Rule in order to establish and 
govern the UTS. In general, the UTS will accept orders and commitments 
of established minimum volumes (i.e., 5,000 shares for orders and 2,500 
shares for commitments), executing orders against other orders and 
commitments at the VWAP. The VWAP will be assigned to each matched 
trade and reported to the appropriate reporting authority, including 
trade-by-trade volume and the VWAP. Consistent with Rule 11Aa3-1 under 
the Act,\12\ the Exchange will thereby provide for the collection and 
dissemination of transaction reports containing, among other things, 
the price of the security. The Exchange believes that the proposed 
reporting structure provides transparency to Morning Session 
executions, specifically identifying the total volume executed before 
the opening, first as a single print and, once the VWAP is calculated, 
trade-by-trade. The Exchange recognizes that within the meaning of Rule 
11Ac1-1 under the Act,\13\ bids/offers will not be utilized in the UTS, 
because all orders are executable only at the VWAP, rendering bids/
offers meaningless.\14\

    \12\17 CFR 240.11Aa3-1
    \13\17 CFR 240.11Ac1-1
    \14\ Accordingly, the Exchange has requested exemptive relief 
from the requirements of Rule 11Ac1-1 under the Act. See Letter from 
Gerald D. O'Connell, First Vice President, Phlx, to Larry E. 
Bergmann, Assistant Director, Division of Market Regulation, SEC, 
dated February 28, 1996. In this letter, the Exchange has also 
requested interpretive relief regarding Rule 11A2-2(T) under the 
Act, 17 CFR 240.11A2-2(T) and exemptive relief from Section 10(a) of 
the Act, 15 U.S.C. Sec. 78j(a). A revised letter, which reflects the 
changes made to the proposed rule change as a result of Amendment 
No. 2, will be submitted separately.

    Because the System's matching process should be complete prior the 
time of the opening of the Phlx market (and other equity markets) at 
9:30 A.M., the Exchange believes that the issue of the integration of 
UTS orders into the auction market is not raised by the proposal. 
Specifically, the Exchange does not believe that the UTS raises market 
integration issues, such as the role of the Intermarket Trading System 
(``ITS'') or integrating booked orders, because UTS matching would 
occur pre-opening, when the markets are not yet open for regular 
trading. Therefore, the Exchange concludes that the operation of the 
UTS is outside of the scope of the ITS Plan, which is based on access 
across various markets to continuous two-sided quotations.\15\ As a 
result, the

[[Page 68345]]

Exchange believes that UTS pre-opening matching does not implicate the 
intermarket price protection obligations of the ITS Plan, as no UTS 
price is calculated until the end of the trading day, nor does UTS 
order flow impact or create bids/offers for purposes of other market 
center quoting during the trading day.\16\

    \15\ See ITS Plan, Section 6.
    \16\ The Exchange notes that, in comparison, the Optimark 
System, which would operate as a periodic call market and was 
recently approved by the Commission, does give rise to ITS Plan 
issues. See Securities Exchange Act Release No. 39086 (September 17, 
1997), 62 FR 50036 (September 24, 1997) (File No. SR-PCX-97-18) 
(order granting approval to PCX Application of the OptiMark System).

    Further, the assignment of a final VWAP to Morning Session 
executions would occur after the close of trading. It is possible that 
an order on the Phlx specialist's limit order book may remain 
unexecuted at the end of a trading day at a price equal or better than 
the VWAP in that security, meaning UTS orders would be executed at that 
price. However, the Exchange does not believe that this presents a 
market fragmentation concern, because the booked order was never 
eligible for the VWAP or a UTS execution, as it was not entered as a 
UTS order; it may not have been eligible for a UTS execution due to 
size or account status. Further, that booked order was entered for 
execution at a specified limit price or better, not at the VWAP, which 
could have resulted in a different price. For these reasons, no 
expectation will be created for such orders to look to the UTS or VWAP 
execution price; orders entered for execution on the Phlx will continue 
to be governed by existing rules. Requiring that such regular Phlx non-
UTS orders be protected in light of only better VWAP prices after the 
close is unfair\17\ and illogical, as these orders would then be 
executable after the close; not subject to the risk of a different 
VWAP; and in effect, guaranteed a price based on prints in a system for 
which the order was not eligible and in which it was never entered. In 
fact, this would disadvantage unexecuted UTS orders.

    \17\ In fact, if Phlx orders were guaranteed an execution 
related to the UTS VWAP, various market manipulation concerns could 
arise; for instance, buy orders in a surging stock could unfairly 
benefit from a VWAP that the buyer knows will be lower than the last 
sale in that security.

    Further, the Exchange believes that UTS orders do not raise price 
priority issues, because all orders have been entered for execution at 
the VWAP. The UTS will execute orders based on the priority principles 
enumerated in the Rule, which, according to the Exchange, is consistent 
with Section 11 of the Act \18\ and the rules thereunder, in that 
specialist activity will be consistent with Section 11(a)(1)(A) of the 
Act, members will generally yield priority to non-members pursuant to 
Section 11(a)(1)(G) of the Act, and Committers will fulfill the 
obligations of Section 11(b) of the Act. Phlx Off-Floor Liquidity 
Providers receive priority over Floor Traders in order to encourage 
commitments. Because Phlx Floor Traders' priority is last-in-line, no 
issue of Specialist trading ahead of customers in raised by the UTS. As 
amended, the Rule affords priority to orders by account type (meaning, 
except crosses, non-member before member, type of non-member account, 
constraints, and direct subscription versus broker access); then by 
order size (largest first); and for orders of the same size and account 
type, on a chronological basis by time of entry.

    \18\ 15 U.S.C. Sec. 78k.

    The UTS will operate as a facility of the Exchange within the 
meaning of Section 3(a)(2) of the Act,\19\ in that the UTS utilizes 
Phlx equipment and personnel, floor trader participation, and SCCP to 
process UTS trades. Thus, Morning Session trades will be appropriately 
regulated and reported as Exchange trades. The Phlx notes that this is 
similar to the regulatory treatment afforded to after-hours trading 
sessions on the Exchange as well as other exchanges.\20\

    \19\ 15 U.S.C. Sec. 78c(a)(2).
    \20\ See, e.g., Securities Exchange Act Release No. 29237 (May 
24, 1991) (File Nos. SR-NYSE-90-52 and SR-NYSE-90-53 establishing an 
off-hours trading facility).

    As previously stated, the VWAP will be calculated on the basis of 
those transactions reported by the appropriate reporting authority for 
the respective security from the beginning of the regular trading 
session until 4:15 P.M. In the case where a transaction occurs in the 
Morning Session in a security which has not opened for trading that day 
for any reason in the primary market by 3:00 P.M., the respective 
Morning Session transaction will be voided and a report to that effect 
will be immediately sent. The Exchange believes that establishing a 
specific time frame by which a security must trade gives further 
assurance that the VWAP will consist of a representative sample of 
trades from which to derive a calculation. Additionally, this provision 
will also serve the important function of prompt notice that the 
Morning Session transaction will be voided if the primary market has 
not yet opened in a particular issue. Although written or electronic 
confirmation will follow, Participants should be aware that this rare 
exception to the creation of a binding contract through the UTS may 
occur by observing that an issue failed to open on its primary market. 
The 3:00 P.M. cut-off provides an objective limitation on the VWAP 
calculation, which notifies the User that a representative VWAP cannot 
be calculated for that day. The Exchange has determined that the 3:00 
P.M. provision is preferable to calculating a VWAP based on the 
previous day's pricing, because an important purpose of the VWAP is to 
incorporate and average that day's price movement.
    With respect to trading halts, if a security opens for trading but 
is the subject of a halt and does not resume trading for the remainder 
of the day, the Morning Session transaction is based on the prints that 
occurred before the halt. The Exchange realizes that a security may 
only be open for a short time before it is halted; however, the 
Exchange believes that for the purposes of the UTS VWAP calculation, 
trading that occurs prior to a halt forms a reasonable basis for 
calculating a VWAP for that day, even if the security does not reopen 
that day. A significant amount of price discovery is involved in an 
opening print, such that it provides an appropriate VWAP measure, which 
is preferable to voiding that day's UTS trades. For these reasons, the 
Exchange has determined that even a few minutes of trading provides 
adequate pricing information, which is preferable to voiding UTS trades 
and consistent with the creation of a binding contract.
    Nevertheless, the Exchange maintains that the Morning Session 
execution is an executed Exchange contract, with only the one unusual 
circumstances enumerated above. The Exchange notes that although 
utilizing the VWAP as a pricing mechanism is new to exchange trading, 
block trades as well as certain Nasdaq trades are currently reported as 
average weighted pricing trades.\21\

    \21\ Such trades are currently reported using the indicator 

    With respect to access to the System, as stated above, Participants 
may be either Users, who may enter orders, or Committers, who must be 
Exchange members. Because Users may be non-members of the Exchange, 
qualified non-member access to the UTS is proposed. The Exchange 
believes that the UTS provides adequate controls regarding limited non-
member access to the System. For computer processing purposes, one 
control mechanism requires SCCP account information for UTS trades, 
just as for all Phlx equity trades. For disciplinary jurisdiction and 
compliance purposes, the second

[[Page 68346]]

control mechanism over non-member access to the UTS is the requirement 
of a three-way agreement. As described above, in the three-way 
agreement, the Phlx member must agree to be jointly and severally 
liable for actions of the non-member through the UTS; and the non-
member must agree to adhere to all applicable by-laws and rules of the 
Exchange. This is intended to provide a jurisdictional basis for 
disciplinary action against such non-member, to the same degree as if 
the order were placed directly. The required agreement with the non-
member provides that the Exchange has the right to terminate access to 
the UTS, without prior notice for any reasons, or no reason whatsoever. 
Because both a three-way and give-up agreement are required, 
termination of either agreement necessarily results in the Exchange's 
ability to terminate access to the UTS. In sum, the Exchange believes 
that these requirements ensure adequate controls over non-member 
access, including Exchange supervision of and jurisdiction over non-
member Users. The Exchange notes that similar non-member access has 
been afforded to other exchange system.\20\ Utilizing SCCP facilities 
and requiring Exchange agreements with non-members is intended to 
facilitate coordination with persons engaged in clearing and settling 
these transactions, consistent with Section 6(b)(5) of the Act.\23\

    \22\ See Securities Exchange Act Release No. 35030 (November 30, 
1994) (File No. SR-CHX-93-19) (order approving Chicago Match and, at 
n.70 therein, reference to the New York Stock Exchange's SuperDOT).
    \23\ 15 U.S.C. Sec. 78f(b)(5).

    Section 10(a) of the Act governs short sales in securities, while 
Rule 3b-3 under the Act \24\ defines the term ``short sale'' as ``any 
sale of a security which the seller does not own or any sale which is 
consummated by the delivery of a security borrowed by, or for the 
account of, the seller.'' Further, Rule 3b-3 provides that if a person 
has ``purchased, or has entered into an unconditional contract, finding 
on both parties thereto, to purchase'' a security, then that person 
shall be deemed to own that security.\25\ Separately, the Exchange has 
requested exemptive relief from the ``tick test'' of Section 10(a) of 
the Act.\26\ Thus, pursuant to paragraph (g) of the Rule, Morning 
Session orders and commitments should not be subject to the tick test/
short sale restrictions of Phlx Rule 455. Nevertheless, UTS orders must 
be marketed in accordance with that rule. Further, because a long 
position creates an irrevocable contract, a purchase during the Morning 
Session may be followed by sales during the regular trading session in 
that security, without such sales deemed to be short sales.

    \24\ CFR 240.30b-3.
    \25\ The Exchange understands that proposed amendments to these 
provisions provide that if the ownership of a security is claimed by 
virture of having entered into a contract to purchase it, the 
contract must involve a fixed, currently ascertainable amount of the 
security at a fixed, currently ascertainable price. Separately, the 
Exchange requested that an exemption for the Morning Session be 
incorporated into these proposed amendments. See letter from Gerald 
D. O'Connell, First Vice President, Phlx, to Larry E. Bergmann, 
Assistant Director, Division of Market Regulation, SEC, dated 
November 9, 1995.
    \26\ See supra note 14.

    Lastly, the Exchange proposes to amend Phlx Rule 101 to adopt 
Commentary .03 reflecting the Morning Session and providing reference 
to the Rule. The Exchange also proposes minor changes to Rule 101 for 
clarity and correction. Specifically, ``A.M.'' and ``P.M.'' would 
appear in capital letters consistently throughout the rule, and there 
would be a heading for each commentary. The Exchange believes that 
these changes to Rule 101 should both correct and clarify its 
    For the reason stated above, the Phlx believes that the proposal to 
operate a Morning Session utilizing the UTS is consistent with the Act, 
and particularly with Sections 6, 11 and 11A thereof. Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act, 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, by providing an 
automated order entry and execution system for securities traded during 
the Morning Session, based on a comprehensive rule and extensive 
matching algorithm.
    The Exchange anticipates that significant institutional volume 
could be attracted to the Phlx, which should, in turn, add liquidity to 
both the Morning Session as well as to the Phlx's regular trading 
session. The Exchange believes that the UTS provides an important new 
pricing mechanism for exchange trades the VWAP. Further, the Exchange 
believes that the Morning Session should provide a unique opportunity 
to electronically submit block-sized orders for automatic matching 
before the regular opening at 9:30 A.M. Thus, the UTS should perfect 
the mechanism of a free and open market and a national market system. 
The proposal at hand employs specific procedures and safeguards 
designed to protect investors and the public interest, prevent 
fraudulent and manipulative acts and practices, and promote just and 
equitable principles of trade. These procedures include specific 
execution priority parameters, order entry specifications and Exchange 
surveillance procedures (separately submitted) designed to monitor UTS 
transactions. The Exchange also believes that because the Morning 
Session is limited to a once-per-day session and adequately provides 
for transparency, despite the requested limited exemptive relief, the 
proposal is consistent with the Act.

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 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 amendment, 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

[[Page 68347]]

public in accordance with the provisions of 5 U.S.C. Sec. 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-96-14 and should be submitted by January 21, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\

    \27\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33992 Filed 12-30-97; 8:45 am]