[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Notices]
[Pages 64751-64752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31226]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40681; File No. SR-Phlx-98-44]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Amend Exchange Rule 
1080 To Permit Automatic Execution of U.S. Top 100 Index Options Orders 
for the Accounts of Broker Dealers

November 16, 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 20, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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

    The Phlx proposes to amend Exchange Rule 1080 to permit orders for 
U.S. Top 100 Index (``TPX'') options for the accounts of broker-dealers 
to be made eligible for execution on the Automatic Execution System 
(``AUTO-X''), a feature of the Phlx Automated Options Market 
(``AUTOM'').\3\
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    \3\ AUTOM is an electronic order routing system for options 
orders. See Phlx Rule 1080.
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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 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 U.S. Top 100 Index is a capitalization-weighted, broad-based 
stock index composed of 100 of the most highly capitalized, widely held 
U.S. common stocks representing a variety of industries including, but 
not limited to, technology, manufacturing, and service industries, of 
which ninety-six are listed on the New York Stock Exchange and four are 
Nasdaq National Market securities.\4\ Currently, with respect to TPX 
options, broker-dealer orders may be entered into AUTOM, but are not 
eligible for AUTO-X.\5\ AUTO-X is a feature of AUTOM that automatically 
executes agency market and marketable limit orders up to the number of 
contracts permitted by the Exchange in equity and index options.\6\ As 
stated above, only agency orders are eligible for AUTO-X.\7\ Agency 
orders for up to 500 TPX option contracts are eligible for AUTOM.\8\ 
For purposes of AUTOM and AUTO-X eligibility, an agency order is an 
order entered on behalf of a public customer, and does not include any 
order entered for the account of a broker-dealer or any account in 
which a broker-dealer or an associated person of a broker-dealer has 
any direct or indirect interest.\9\
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    \4\ See Securities Exchange Act Release No. 35591 (April 11, 
1995), 60 FR 19423 (April 18, 1995) (order approving File No. SR-
Phlx-95-07). Telephone conversation between Richard Rudolph, 
Counsel, Phlx, and David Sieradzki, Attorney, Division of Market 
Regulation, Commission on November 3, 1998 (``Telephone 
Conversation'').
    \5\ See Securities Exchange Act Release No. 36429 (October 27, 
1995), 60 FR 55874 (November 3, 1995) (order approving File No. SR-
Phlx-95-35). Other than broker-dealer orders in TPX options, only 
agency options orders are eligible for AUTOM. Id.
    \6\ See Securities Exchange Act Release No. 38792 (June 30, 
1997), 62 FR 36602 (July 8, 1997) (order approving SR-Phlx-97-24).
    \7\ Telephone Conversation, supra note 4.
    \8\ See Securities Exchange Act Release No. 35782 (May 30, 
1995), 60 FR 30136 (June 7, 1995) (order approving SR-Phlx-95-30).
    \9\See supra note 6.
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    The Phlx is proposing to provide AUTO-X eligibility for broker-
dealer orders for TPX options for up to 50 contracts. Presently, the 
maximum AUTO-X agency order size is currently 50 contracts.\10\ Thus, 
the 50-contract aspect of the proposal is consistent with the current 
order size provisions of Rule 1080. The Phlx believes that providing 
AUTO-X eligibility for TPX option orders entered by broker-dealers 
should expand to liquidity of, and add depth to, the Phlx marketplace 
by attracting additional institutional investors to TPX.
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    \10\ See Exchange Rule 1080(c).
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    The Phlx believes that the TPX, typically a high-priced options 
index, appeals to institutional investors more so than to individual 
investors. Therefore, automatic execution at higher contract levels is 
particularly important to institutional investors. The Phlx believes 
that permitting broker-dealer TPX options orders to be executed via 
AUTO-X will allow broker-dealers to benefit from prompt and efficient 
automatic execution and reporting.\11\ This, in turn, should add depth 
and liquidity to the Phlx's marketplace for TPX options by attracting 
orders from broker-dealers who seek immediate, automatic executions 
through AUTO-X. The Exchange is only proposing to permit broker-dealer 
orders to be AUTO-X eligible in TPX options, recognizing that broker-
dealer access to a small order execution system is new.\12\ The 
Exchange believes that TPX is particularly well-suited for this 
endeavor because of the composition of the index and the investor 
participants and trading patterns it generates.
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    \11\ Telephone Conversation, supra note 4.
    \12\ Id.
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2. Statutory Basis
    For these reasons, 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 add depth and liquidity to the marketplace for 
TPX options, and to facilitate execution and reporting of broker-dealer 
orders for TPX options.

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

[[Page 64752]]

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 proposed rule 
is consistent with the Act. 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. 
Sec. 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-98-44 and should 
be submitted by December 14, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc 98-31226 Filed 11-20-98; 8:45 am]
BILLING CODE 8010-01-M