[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Notices]
[Pages 60435-60436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29974]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40625; File No. SR-PHLX-98-41]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Extension of a Pilot Program for a 
System Enhancement to the X-Station Electronic Book on the Options 
Floor

November 2, 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 October 6, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    On a pilot basis, the Phlx previously implemented an enhancement to 
its X-Station electronic book. The Exchange seeks to extend that pilot 
through April 23, 1999.\3\ Under the pilot, a system enhancement was 
made to the X-Station electronic book on the options floor, which 
matches incoming orders eligible for the Automatic Execution System 
(``AUTO-X'') feature of the Phlx Automated Options Market (``AUTOM'') 
system with orders residing on the specialist's book.
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    \3\ Letter from Richard S. Rudolph, Legal Counsel, Phlx, to 
Anitra T. Cassas, Attorney, Division of Market Regulation, 
Commission, dated October 21, 1998.
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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, 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
    On April 24, 1998, the Exchange filed with the Commission a 
proposed rule change to implement, on a pilot basis, an enhancement to 
the X-Station electronic book on the Exchange's options floor, which 
became effective immediately upon filing.\4\ As described in Phlx Rule 
1080, Commentary .02, the electronic order book is an automated 
mechanism for specialists to hold and display orders based on price/
time priority. The Exchange is currently preparing floor-wide 
deployment of the new X-Station electronic book on the options floor. 
The new X-Station provides certain improvements such as expedited non-
AUTO-X order execution, as well as expedited cancel replacement 
processing.
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    \4\ Exchange Act Release No. 39972 (May 7, 1998) 63 FR 26666 
(May 13, 1998).
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    AUTO-X is the automatic execution feature of the AUTOM System, the 
electronic order delivery and routing system for options orders. 
Previously,

[[Page 60436]]

AUTO-X orders were executed against a ``shadow account'' for which the 
specialist was ultimately responsible. The execution was immediately 
reported back to the sending firm and the specialist was then required 
to manually input the contra-side interest representing the booked 
order that became due as a result of the AUTO-X trade.
    At this time, the Phlx proposes to extend the pilot program, a 
system enhancement to the electronic book that matches incoming AUTO-X 
orders with booked orders, for an additional six months. The matching 
ability allows the specialist to match two participants directly, 
without the specialist participating in the trade, by dropping the 
order to manual status. The match is not automatic, as the specialist 
must ensure that crowd participation under current parity/priority 
rules is not due before executing the trade; thus, the specialist must 
``select'' the orders to execute the trade. Since the AUTO-X order 
drops to manual status (meaning it is not automatically executed), the 
sending firm will only receive an execution report after the specialist 
selects and executes the trade.
    The enhancement implemented through the current pilot program 
affords specialists relief from the manual burden of inserting trade 
participant and clearing information by writing an order ticket for the 
booked order. Without the X-Station itself, the booked order appeared 
on an actual order ticket, which the specialist submitted for key punch 
entry. Thus, implementing the X-Station without the matching feature is 
more burdensome than the process required without the existence of the 
X-Station because the X-Station requires more ticket-writing. The 
enhancement has reduced the amount of paper processed on the options 
floor, which in turn has reduced handling and processing time, 
including the likelihood of errors, thereby facilitating more prompt 
and accurate trade reporting.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \5\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5),\6\ in particular, in that it is designed 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 
enhancing efficiency through automation in the market.
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    \5\ 15 U.S.C. 78f(b).
    \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 would 
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 has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \7\ and subparagraph (e)(5) of Rule 19b-4 
thereunder.\8\ The proposal effects a change in an existing order-entry 
or trading system of a self-regulatory organization that (i) does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not have the effect of limiting the access to or 
availability of the system.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(e)(5).
    \9\ In reviewing this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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. 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-98-41 and should 
be submitted by November 30, 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. 98-29974 Filed 11-6-98; 8:45 am]
BILLING CODE 8010-01-M