[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4515-4517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2192]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39571; File No. SR-Phlx-97-53]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments 1 and 2 Thereto by the Philadelphia Stock 
Exchange, Inc. Relating to Amending Its Floor Procedure Advice A-1 
Regarding Displaying Best Bids and Offers

January 22, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 3, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'')

[[Page 4516]]

the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the self-regulatory organization. On 
December 23, 1997, and January 20, 1998, respectively, the Exchange 
filed amendments 1 and 2 to the proposal with the Commission.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Michele R. Weisbaum, Vice President and 
Associate General Counsel, Phlx to David Sieradzki, Attorney, SEC 
dated December 18, 1997 and letter from J. Keith Kessel, Phlx to 
David Sieradzki, Attorney, SEC dated January 16 1998. Amendments 1 
and 2 made several changes to clarify the purpose section of the 
filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx hereby proposes to amend its Floor Procedure Advice A-1, 
regarding Displaying Best Bids and Offers, in order to require Floor 
Brokers and Registered Options Traders (``ROT''s) to immediately remove 
stale bids/offers. Accordingly, the Phlx is proposing to amend Floor 
Procedure Advice (``Advice'') A-1 to require that the Floor Broker or 
ROT, after voicing a bid/offer, use due diligence to inform the 
Specialist when s/he is no longer bidding/offering at that price. The 
Floor Broker or ROT must immediately inform the Specialist when s/he is 
``out'' of that bid/offer, including due to an execution or departure 
from the crowd.
    The Phlx also proposes to adopt a fine schedule, pursuant to the 
Exchange's minor rule violation enforcement and reporting plan (``minor 
rule plan''),\4\ for minor violations of proposed new paragraph (b) of 
the Advice.
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    \4\ The Phlx's minor rule plan, codified in Phlx Rule 970, 
contains floor procedure advices, such as Advice A-1, along with the 
accompanying fine schedules. Rule 19d-1(c)(2) under the Act 
authorizes national securities exchanges and other self-regulatory 
organizations (SRO's) to adopt minor rule violation plans for 
summary discipline and abbreviated reporting. Rule 19d-1(c)(1) under 
the Act requires that SROs promptly file notice with the Commission 
of any final disciplinary actions. However, minor rule violations 
not exceeding $2,500 where the sanctioned person has not sought an 
adjudication, including a hearing, or otherwise exhausted his 
administrative remedies at the SRO with respect to the matter are 
deemed not final for purposes of Rule 19d-1(c)(1), thereby 
permitting periodic, as opposed to immediate, reporting. See Phlx 
Rule 970 and 17 CFR 240.19d-1(c).
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    The text of the proposed rule change is available at the Office of 
the Secretary, the Phlx and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Phlx included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Phlx has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Phlx is proposing to amend its Advice A-1, regarding Displaying 
Best Bids and Offers in order to require Floor Brokers and ROTs to 
immediately remove stale bids/offers. Currently, Advice A-1 requires 
that Specialists use due diligence to ensure that the best available 
bid and offer is displayed for those option series in which s/he is 
assigned. For the purposes of Advice A-1, bids and offers for the 
Specialist's own account, bids and offers on the book, and bids and 
offers established in the crowd are deemed to be available for display 
purposes. The Phlx proposes: (i) To designate the foregoing display 
advice as paragraph (a) and (ii) to create an additional paragraph, 
(b), to govern situations where a member of the trading crowd is no 
longer bidding and offering. In the latter situations, the Floor Broker 
or ROT shall use due diligence to inform the Specialist when s/he is no 
longer bidding/offering at that price. The Floor Broker or ROT must 
immediately inform the Specialist when s/he is ``out'' of that bid/
offer, including due to an execution or departure from the crowd.
    Maintaining accurate option quotes is integral to the Specialist's 
role in the marketplace. Thus, although a member posting a bid/offer is 
generally not held to that market after leaving the trading crowd, the 
purpose of the proposed rule change is to discourage stale markets by 
giving the Exchange the ability to impose fines for failure to remove 
such a bid/offer. Failure to remove a bid/offer may cause the member 
making the bid/offer or other crowd participants to have to honor an 
incorrectly disseminated quote that may have attracted order flow, 
including Phlx Automatic Execution System orders.
    The proposed new paragraph (b) is being proposed to address 
situations where members have been ``out'' of a bid/offer, yet failed 
to inform the Specialist. Oftentimes, that member is no longer present 
in the trading crowd. In that instance, if a trade occurs because 
someone accepted the stale bid/offer, either the member who initiated 
the bid/offer, the Specialist or the other members of the trading crowd 
will be required to honor the trade. Regardless of who honors the 
trade, the intent of this proposal is to deter these occurrences by 
imposing fines for such conduct. The proposed language refers to being 
``out'' of a market for reasons including (but not limited to) an 
execution or a departure from the crowd. Other reasons may also apply, 
but the Exchange determined that an exhaustive list is neither 
possible, nor necessary, and, therefore, the violation involve the 
general failure to inform the Specialist, regardless of the particular 
reason for being ``out.''
    Failure to uphold the obligations imposed by new paragraph (b) will 
subject the member of the fine.\5\ Fines are imposed by Option Floor 
Officials who would make a determination based upon the facts of the 
case whether a stale quote was caused by a Specialist not using the due 
diligence to ensure that the best available bid and offer is displayed 
pursuant to paragraph (a) or whether it was caused by a Floor Broker or 
ROT not using due diligence to inform the Specialist that it was longer 
bidding/offering at that price, pursuant to paragraph (b) of the 
Advice. The Exchange believes that the proposed fine schedule is 
appropriate and reasonable. Specifically, violations of proposed new 
paragraph (b) of the Advice involving a failure to notify the 
Specialist when a Floor Broker or ROT is ``out'' of a market are within 
the purview of Phlx Rule 970 and are otherwise designed to be easily 
verifiable and objective. The proposed fines are comparable to those in 
other advices, such as Advices A-2, B-4 and B-5.
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    \5\ The fine schedule applicable to proposed new paragraph (b) 
of the Advice will be as follows:

    1st Occurrence--$250.000.
    2nd Occurrence--$500.000.
    3rd and Thereafter--Sanction is discretionary with Business 
Conduct Committee.

    The fine schedule applicable to specialists, which will remain 
unchanged, is as follows:

    1st Occurrence--$50.00.
    2nd Occurrence--$100.00.
    3rd Occurrence--$250.00.
    4th and Thereafter--Sanction is discretionary with Business 
Conduct Committee.
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    The Advice will apply on both the Equity/Index Options floor and 
the Foreign Currency Options floor.

[[Page 4517]]

2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b)(5) of the Act \6\ in that it is designed to promote 
just and equitable principles of trade, prevent fraudulent and 
manipulative acts and practices, protect investors and the public 
interest, as well as prevent unfair discrimination among customers, 
issuers, brokers or dealers by ensuring the dissemination of accurate 
option market quotes.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange represents that no written comments were solicited or 
received regarding the proposed rule change.

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 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 of the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange.
    All submissions should refer to File No. SR-PHLX-97-53 and should 
be submitted by February 19, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2192 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M