[Federal Register Volume 63, Number 200 (Friday, October 16, 1998)]
[Notices]
[Pages 55670-55671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27825]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40530; File No. SR-PHLX-98-18]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 1 to Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Auto-X Contra Party Participation (the 
Wheel)

October 7, 1998.

I. Introduction

    On June 5, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend Options Floor Procedure 
Advice F-24 (``Advice F-24'') governing AUTO-X Contra Party 
Participation (the Wheel). The proposed rule change was published for 
comment in the Federal Register on September 3, 1998.\3\ The Commission 
received no comments regarding the proposal. On September 15, 1998, the 
Phlx filed with the Commission Amendment No. 1 to the proposed rule 
change.\4\ This order approves the proposed rule change. In addition, 
the Commission is publishing this notice to solicit comments on 
Amendment No. 1 to the proposed rule change and is simultaneously 
approving Amendment No. 1 on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 40374 (August 27, 1998) 
63 FR 47078.
    \4\ In Amendment No. 1, the Exchange noted additional language 
in Advice F-24 that had become effective pursuant to a separate rule 
filing. See Letter from Linda S. Christie, Counsel, Exchange, to 
Richard Strasser, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated September 14, 1998 (``Amendment 
No. 1'').
---------------------------------------------------------------------------

I. Description of the Proposal

    AUTO-X is the automatic execution feature of the Exchange's 
Automated Options Market (``AUTOM'') system,\5\ which provides 
customers with automatic executions of eligible option orders at 
displayed markets. The Wheel is an automated mechanism for assigning 
floor traders (i.e., specialists and Registered Options Traders 
(``ROTs'')), on a rotaing basis, as contra-side participants to AUTO-X 
orders.
---------------------------------------------------------------------------

    \5\ AUTOM is an electronic order routing system for option 
orders. See Phlx Rule 1080.
---------------------------------------------------------------------------

    In 1994, the Commission approved the Exchange's Wheel provisions as 
Advice F-24.\6\ 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. Thus, the Wheel is intended to make AUTO-X more 
efficient, as contra-side participation is assigned automatically. 
Although specialists are required to participate on the Wheel, 
currently, ROT participation is voluntary, absent extraordinary 
circumstances.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 35033 (November 30, 
1994), 59 FR 63152 (December 7, 1994) (order approving Advice F-24).
---------------------------------------------------------------------------

    In its filing, the Phlx proposes that in 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 
section (d) of Advice F-24 removes the broader ability to require all 
ROTs to sign on in extraordinary circumstances by limiting the 
provision to ROTs who have previously signed on. Thus, ROTs who had not 
signed onto 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.
    The Phlx also proposes to amend section (c)(iii) of Advice F-24 to 
require expressly that ROTs sign off the Wheel when leaving the Wheel 
assignment area for more than a brief interval.\7\ The Exchange 
explains that this change should clarify the obligations of a 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 their responsibilities pertaining to the sign-off requirements 
for the Wheel. Because section (c)(iii) is subject to a fine schedule, 
the Exchange also proposes to amend its minor rule violation 
enforcement and reporting plan.\8\ Moreover, Amendment No. 1 
incorporated language into Advice F-24 that became effective pursuant 
to a rule filing submitted subsequent to the current proposal.\9\
---------------------------------------------------------------------------

    \7\ 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 (August 
4, 1997) (order approving changes to Advice F-24). The Exchange has 
clarified that ROTs who signed off to leave the Wheel assignment 
area may return and sign back onto the Wheel the same day. Telephone 
conversation between Linda S. Christie, Counsel, Phlx, and Lisa 
Henderson, Attorney, Division, Commission (July 23, 1998).
    \8\ The Phlx's minor rule violation enforcement and reporting 
plan (``minor rule plan''), codified in Phlx Rule 970, contains 
floor procedure advices 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 of any final disciplinary action. 
However, minor rule violations not exceeding $2,500 are deemed not 
final, thereby permitting periodic, as opposed to immediate, 
reporting.
    \9\ See Securities Exchange Act Release No. 40370 (August 27, 
1998) 63 FR 47077 (September 3, 1998) (notice of immediate 
effectiveness of SR-PHLX-98-34).
---------------------------------------------------------------------------

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act. In particular, the Commission 
believes the proposal is consistent with Section 6(b)(5) \10\ of the 
Act.\11\ Section 6(b)(5) requires, among other things, that the rules 
of an exchange be designed to remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(5).
    \11\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    As the Commission previously has noted, AUTO-X enhances the 
Exchange's ability to execute small public customer orders in a timely, 
accurate, and efficient manner, and the automation of assignments of 
contra-parties for AUTO-X trades should improve order processing and 
turnaround time.\12\ The Commission agrees with the Exchange that it 
should be more equitable, in extraordinary circumstances when ROTs are 
forced onto the Wheel, to limit those ROTs compelled to serve as 
contra-parties to those who have taken advantage of Wheel participation 
in the past thirty days. Moreover, given the significance of 
maintaining orderly Wheel operations, it is sensible to clarify the 
affirmative responsibility of Wheel participants to sign-off the wheel 
when they leave the Wheel assignment area

[[Page 55671]]

for more than a brief interval and to adjust the Exchange's Minor Rule 
Violation Plan accordingly.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 35033 (November 30, 
1994) 59 FR 63152 (December 7, 1994) (order approving SR-PHLX-94-
32).
---------------------------------------------------------------------------

    Finally, the Commission finds good cause for approving proposed 
Amendment No. 1 prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. The 
Amendment merely updates the proposed Advice F-24 to reflect changes in 
the Advice made pursuant to a separate rule filing.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1, including whether the proposed 
Amendment 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. 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 November 6, 1998.

Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PHLX-98-18), as amended, is 
hereby approved.

    \13\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)912).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27825 Filed 10-15-98; 8:45 am]
BILLING CODE 8010-01-M