[Federal Register Volume 63, Number 171 (Thursday, September 3, 1998)]
[Notices]
[Pages 47078-47080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40374; File No. SR-Phlx-98-18]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to Options 
Floor Procedure Advice F-24, Auto-X Contra Party Participation (the 
Wheel)

August 27, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(`'Act''),\1\ notice is hereby given that on June 5, 1998, the 
Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange''), filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the Exchange. 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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Options Floor Procedure Advice F-24 
(``Advice F-24''), Auto-X Contra Party Participation (the Wheel), 
paragraph (d), to state that, in extraordinary circumstances, two Floor 
Officials may require all assigned Registered Options Traders 
(``ROTs'') who signed onto the Wheel at any time during the last thirty 
business days to participate on the Wheel. Additionally, the Phlx is

[[Page 47079]]

proposing an amendment to Advice F-24, paragraph (c)(iii), to expressly 
require ROTs to sign off the Wheel when leaving the Wheel assignment 
area for more than a brief interval.\2\ Because paragraph (c)(iii) is 
subject to a fine schedule, the Exchange also proposes to amend its 
minor rule violation enforcement and reporting plan.\3\ The text of the 
proposed rule change is set forth below. Proposed new language is in 
italic; proposed deletions are in brackets.
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    \2\ The Phlx defines ``brief'' to mean 5 minutes or less, or in 
matters of a dispute, the amount of time it takes to call in a Floor 
Official and inform him/her of the issue at hand. See Securities 
Exchange Act Release No. 38881 (July 28, 1997), 62 FR 41986 (Aug. 4, 
1997) (order approving changes to Advice F-24).
    \3\ The Phlx's minor rule violation enforcement and reporting 
plan (``minor rule plan''), codified in Phlx Rule 970, contains 
floor procedure advice with accompanying fine schedules. Rule 19d-
1(c)(2) under the Act authorizes national securities exchanges to 
adopt minor rule violation plans for summary discipline and 
abbreviated reporting. Rule 19d-1(c)(1) under the Act requires 
prompt filing with the Commission on final disciplinary action. 
However, minor rule violations not exceeding $2,500 are deemed not 
final, thereby permitting periodic, as opposed to immediate, 
reporting.
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F-24  AUTO-X Contra-Party Participation (the Wheel)

    (a)-(b) No change.
    (c) Participation Requirements and Sign-on/off--Specialists on the 
Options Floor are required to participate on the Wheel in assigned 
issues in accordance with paragraph (e) of this Advice.
    (i)-(ii) No change.
    (iii) If an ROT who is signed on the Wheel [is away from] leaves 
the Wheel assignment area for more than a brief interval, the ROT is 
responsible to sign off the Wheel. If an ROT fails to do so, a Floor 
Official shall: (A) remove the ROT from any Wheel participation for the 
remainder of the trading day; and (B) issue a fine pursuant to the fine 
schedule below. If such ROT is assigned a Wheel trade while away from 
the Wheel assignment area for more than a brief interval, that ROT is 
responsible for all trades assigned to his/her ROT account unit the 
sign-off is processed.

FINE SCHEDULE (Implemented on a one year running calendar basis)
F-24(c)(iii)


1st Occurrence............................  Warning.                    
2nd Occurrence............................  $100.00.                    
3rd Occurrence............................  $250.00.                    
4th and Thereafter........................  Sanction is discretionary   
                                             with Business conduct      
                                             Committee.                 
                                                                        

    (d)-(e) No change.

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 Exchange 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 Exchange 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 Wheel is an automated mechanism for assigning floor traders 
(i.e., specialists and ROTs), on a rotating basis, as contra-side 
participants for AUTO-X orders. AUTO-X is the automatic execution 
feature of the Exchange's Automated Options Market (``AUTOM'') 
system,\4\ which provides customers with automatic executions of 
eligible option orders at displayed markets.
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    \4\ AUTOM is an electronic order routing system for option 
orders. See Phlx Rule 1080.
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    The Exchange's Wheel provisions were approved by the Commission in 
1994 as Advice F-24.\5\ The purpose of the Wheel is to increase the 
efficiency and liquidity of order execution through AUTO-X by including 
certain floor traders in the automated assignment of contra-parties to 
incoming AUTO-X orders.\6\ Thus, the Wheel is intended to make AUTO-X 
more efficient, as contra-side participation is assigned automatically, 
and no longer entered manually. The Wheel is also intended to include 
ROTs, as opposed to solely specialists, as a contra-side to AUTO-X 
orders. Although specialists are required to participate on the Wheel, 
currently, ROT participation is voluntary, absent extraordinary 
circumstances.
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    \5\ Securities Exchange Act Release No. 35033 (Nov. 30, 1994), 
59 FR 63152 (Dec. 7, 1994) (order approving Advice F-24).
    \6\ The Exchange has clarified the operation of the Wheel. 
Telephone conversation between Linda S. Christie, Counsel, Phlx, and 
Lisa Henderson, Attorney, Division of Market Regulation, SEC (July 
28, 1998).
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    The Phlx is hereby proposing that an extraordinary circumstances, 
to promote liquidity, two Floor Officials may require all ROTs who 
signed onto the Wheel at any time during the last thirty business days 
to participate on the Wheel. This proposed amendment to Advice F-24(d) 
removes the broader ability to require all ROTs to sign on its 
extraordinary circumstances by limiting the provision of ROTs who have 
previously signed on. Thus, ROTs who had not signed on to the Wheel in 
the past thirty days would not be subject to this provision. The 
purpose of this change is to establish a more equitable sign-on 
requirement, affecting only those ROTs who have previously participated 
on the Wheel.
    Additionally, the Phlx is proposing an amendment to Advice F-
24(c)(iii) to expressly require ROTs to sign off the Wheel when leaving 
the Wheel assignment area for more than a brief interval.\7\ The 
purpose of this aspect of the amendment is to clarify the obligations 
of an ROT to sign off the Wheel by incorporating affirmative language 
into Advice F-24(c)(iii). The proposal is designed to ensure that ROTs 
are aware of and meet the responsibilities pertaining to the sign-off 
requirements on the Wheel
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    \7\ The Exchange has clarified that ROTs who signed off to leave 
the wheel assignment area may return and sign back on to the Wheel 
the same day. Telephone conversation between Linda S. Christie, 
Counsel, Phlx, and Lisa Henderson, Attorney, Division of Market 
Regulation, SEC (July 23, 1998).
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2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\8\ in general, and furthers the objectives of 
Section 6(b)(5),\9\ in particular, in that it is designed to promote 
just and equitable principles of trade, prevent fraudulent and 
manipulative acts and practices, facilitate transactions in securities, 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, as well as protect investors and 
the public interests, by promoting liquidity and equity in the 
marketplace and clarifying ROTs' responsibilities with respect to sign-
off requirements and ensuring they meet their responsibilities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organizations's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

[[Page 47080]]

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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of 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 Exchange consents, the Commission will:
    (A) By order approve such 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, including whether the proposed rule 
change is consistent with the Act. 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 in the 
Commission's Public Reference Room, 450 Fifth Street, NW, Washington, 
DC 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of the Phlx. All submissions should 
refer to File No. SR-Phlx-98-18 and should be submitted by September 
24, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23770 Filed 9-2-98; 8:45 am]
BILLING CODE 8010-01-M