[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56685-56686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28317]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40554; File No. SR-PHLX 98-24]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Amend Floor 
Procedure Advice A-1 (Responsibility of Displaying Best Bid and Offer 
Prices Established on the Equity Floor)

October 14, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 13, 1998, the 
Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange Phlx submitted Amendment No. 1 
on September 14, 1998.\2\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.

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

    The Exchange, pursuant to Rule 19b-4 of the Act, proposes to update 
and amend its Equity Floor Procedure Advice A-1 to more closely track 
the SEC's customer limit order display rules. Proposed new language is 
italicized; proposed deletions are in brackets.
* * * * *

Specialists

A-1  Responsibility of Displaying Best Bid and Offer Prices Established 
on the Equity Floor

Primary-Listed Equities Issues on the Exchange

    (i) A Specialist shall use due diligence to ensure that the best 
available bid price and offer price on the floor in each ``primary 
stock issue'' assigned to him is properly and timely displayed for 
dissemination purposes throughout the trading day.

Secondary--Unlisted Trading Privileges Issues

    (ii) [A Specialist shall use due diligence to ensure proper and 
timely display of any bid or offer price of any order on the book in a 
``secondary issue'' assigned to him for so long as such bid or offer is 
equal or superior to the consolidated best bid or offer of those 
disseminated by the national securities exchanges.] Specialists are 
required to comply with SEC Rule 11Ac1-4 display requirements for 
certain customer limit orders. Specifically, under normal market 
conditions, specialists must immediately (but no later than 30 seconds) 
display the price and full size of customer limit orders (i) better 
than the Specialist's quote, and (ii) where the Specialist's quote is 
the NBBO, that add more than 10% to the size of the Specialist's quote, 
with certain exceptions contained in SEC Rule 11Ac1-4.
[(iii) For the purposes of the above paragraphs, the fine schedule 
below will apply in any instance of any Exchange review which 
identifies that five percent or more of such orders have not been 
properly displayed in a timely fashion for the review period.]

                                                  Fine Schedule
                              [Implemented on a three year running calendar basis]
----------------------------------------------------------------------------------------------------------------
A-1:
1st Occurrence...............  [$100.00] Written Warning
[2nd Occurrence].............  [$250.00]
2nd Occurrence and Thereafter  Sanction is discretionary with Business Conduct Committee
[3rd Occurrence].............  [$500.00]
[4th Occurrence and            [Sanction is discretionary with Business Conduct Committee]
 Thereafter].
----------------------------------------------------------------------------------------------------------------

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

    In its filing with the Commission, 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. Phlx has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
    \1\ 15 U.S.C. 78s(b)(1).
    \2\ See Letter from Nandita Yagnik, Phlx, to Michael Walinskas, 
Deputy Associate Director, Division of Market Regulation, 
Commission, dated September 10, 1998 (``Amendment No. 1''). 
Amendment No. 1 replaces the original rule filing in its entirety.

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

[[Page 56686]]

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

    Currently, Advice A-1 (``Responsibility of Displaying Best Bid and 
Offer Prices Established on the Equity Floor'') requires specialists to 
use due diligence to ensure proper and timely display of bids and 
offers respecting primary issues. For secondary issues, this 
requirement applies where the bid or offer is equal to or better than 
the national best bid or offer (``NBBO''). Advice A-1 pre-dates SEC 
Rule 11Ac1-4 \3\ which imposed new display requirements for ``reported 
securities'' and any other security for which a transaction report, 
last sale data or quotation information is disseminated through an 
automated quotation system as described in Section 3(a)(51)(A)(ii) of 
the Act. Since primary stock issues assigned to specialists on regional 
exchanges are not subject to this requirement, the proposed rule change 
would amend Advice A-1 only with respect to secondary issues that are 
traded pursuant to unlisted trading privileges (``UTP''). The proposed 
change would amend Advice A-1 to provide that the display requirement 
for secondary issues is the Commission's display rule, which requires 
specialists, subject to certain exceptions, to display not only those 
orders that are at or better than the NBBO, but also those that improve 
the specialist's quote or add 10% or more to the specialist's quote 
when the quote is the NBBO.\4\
---------------------------------------------------------------------------

    \3\ The limit order display rule was adopted by the SEC as part 
of its Order Handling Rules. See Securities Exchange Act Release No. 
37619A (September 6, 1996), 61 FR 48290 (September 12, 1996) 
(``Order Handling Rules Adopting Release''); amended in Securities 
Exchange Act Release No. 38139 (January 8, 1997), 62 FR 1385 
(January 10, 1997).
    \4\ In the Order Handling Rules Adopting Release, the Commission 
stated that a customer limit order should be considered de minimis 
if it is less than or equal to 10% of the displayed size associated 
with a specialist's bid or offer. If a customer limit order is de 
minimis, the specialist does not need to add that order to his 
quote. See Order Handling Rules Adopting Release, supra note 3, at 
not 177 and accompanying text. For this reason, the Exchange is 
requiring a specialist to display only those customer orders that 
add 10% or more to the size of the specialist's quote.
---------------------------------------------------------------------------

    Currently, Advice A-1 contains a fine schedule, which is 
administered pursuant to the Exchange's minor rule violation 
enforcement and reporting plan.\5\ The proposed amendment would also 
delete the reference to a minimum number of occurrences and would refer 
violations to the Business Conduct Committee for both primary and 
secondary issues.
---------------------------------------------------------------------------

    \5\ 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. SEC Rule 
19d-1(c)(2) authorizes national securities exchanges to adopt minor 
rule violation plans for summary discipline and abbreviated 
reporting; Rule 19d-1(c)(1) 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.
---------------------------------------------------------------------------

    The proposed rule change is consistent with Section 6 of the Act in 
general, and in particular, with Section 6(b)(5), in that it is 
designed to promote just and equitable principles of trade, to 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, in that it 
requires specialists to provide enhanced information regarding orders 
to the market by revising Advice A-1 to correspond to SEC Rule 11Ac1-4.

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 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 self-regulatory organization 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 proposal 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 Section, 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-98-24 and should be submitted by November 12, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28317 Filed 10-21-98; 8:45 am]
BILLING CODE 8010-01-M