[Federal Register Volume 64, Number 20 (Monday, February 1, 1999)]
[Notices]
[Page 4922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40970; File No. SR-Phlx-98-44]


Self-Regulatory Organizations; Order Approving 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

January 25, 1999.

I. Introduction

    On October 20, 1998, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 
19b-4 thereunder.\2\ In its proposal, the Phlx seeks to allow automatic 
execution of broker-dealer orders in U.S. Top 100 Index (``TPX'') 
options through the Phlx's AUTO-X system. Notice of the proposal was 
published in the Federal Register on November 23, 1998.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 40681 (Nov. 16, 
1998), 63 FR 64751 (File No. SR-Phlx-98-44).
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II. Description of the Proposal

    AUTOM is Phlx's electronic order routing system for options orders. 
Until 1995, only public customer orders were eligible for routing 
through AUTOM.\4\ For purposes of AUTOM eligibility, public customer 
orders do 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. In 1995, 
however, the Commission approved the Exchange's proposal to route Phlx 
member and non-member broker-dealer orders for TPX options through 
AUTOM.\5\ The Phlx limits AUTOM routed public customer and broker-
dealer TPX orders to 500 contracts.\6\ Currently, when a broker-dealer 
TPX order is entered into AUTOM, the order is executed manually by the 
specialist.
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    \4\ See Securities Exchange Act Release No. 36429 (Oct. 27, 
1995), 60 FR 55874 (Nov. 3, 1995) (File No. SR-Phlx-95-35) (order 
approving the Phlx's proposal seeking to route broker-dealer TPX 
options orders through AUTOM).
    \5\ Pursuant to Phlx Rule 1080(b)(i), with the exception of 
orders for TPX options contracts, broker-dealer orders are not 
eligible for AUTOM.
    \6\ Phlx Rule 1080(b)(ii).
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    AUTO-X is a feature of AUTOM that automatically executes public 
customer orders. AUTO-X currently is limited to public customer orders. 
AUTO-X orders are executed automatically at the disseminated quotation 
price on the Exchange and reported to the originating firm. Presently, 
public customer orders for up to 50 contracts can be automatically 
executed through AUTO-X.\7\
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    \7\ Phlx Rule 1080(c).
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    The Phlx seeks to amend Rule 1080 to allow broker-dealer orders for 
TPX options contracts to be automatically executed through AUTO-X. In 
making this change, the Phlx will still limit the size of orders that 
can be automatically executed through AUTO-X to 50 contracts. The Phlx 
believes that the change will help attract more broker-dealer orders in 
TPX options. According to the Phlx, TPX options appeal more to broker-
dealers because these options are high-priced.\8\ Further, the Phlx 
believes that permitting broker-dealer TPX orders to be executed via 
AUTO-X will allow broker-dealers to benefit from prompt and efficient 
automatic execution and reporting.
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    \8\ See letter from Richard Rudolph, Counsel, Phlx, to Joe 
Corcoran, Attorney, Division of Market Regulation, Commission, dated 
December 22, 1998 (``Phlx Letter''). According to the Phlx, the 
average price for a TPX option contract during the third quarter of 
1998 was $4,165.62.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of sections 6 and 11A.\9\ Specifically, 
the Commission believes that the proposal is consistent with section 
6(b)(5) of the Act,\10\ which requires that the rules of an Exchange be 
designed to promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. Moreover, the Commission 
believes that the proposal is consistent with section 11A(a)(1)(C)(i) 
of the Act,\11\ stating Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure economically 
efficient execution of securities transactions.
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    \9\ 15 U.S.C. 78f and 78k-1.
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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    The Commission believes that allowing broker-dealers to use AUTO-X 
for TPX options orders may facilitate the efficient handling and 
reporting of broker-dealer orders in TPX options, thereby improving TPX 
order processing and turnaround time. In addition, by providing prompt 
execution for broker-dealer TPX orders, the proposal may help to 
attract broker-dealer TPX orders, and thus help to improve the depth 
and liquidity of the market for TPX options.
    The Phlx has represented to the Commission that the Exchange 
anticipates that its systems are capable of processing potential 
resulting increased order flow through the AUTO-X system and that 
public customer TPX orders will continue to be executed efficiently 
through the AUTO-X system.\12\ According to the Exchange, TPX options 
appeal more to broker-dealers because these options are high-priced 
relative to other options.\13\ The Commission believes that it is 
reasonable for the Phlx to allow automatic execution of broker-dealer 
orders in TPX option contracts as long as retail customers are not 
adversely affected. The Commission anticipates that the Exchange will 
monitor its AUTO-X system in light of the addition of broker-dealer TPX 
orders and will implement necessary systems enhancement should they be 
necessary to accommodate any increase in volume resulting from this 
proposal.
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    \12\ See Phlx Letter, supra note 8.
    \13\ Id.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Phlx-98-44) is approved.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-2300 Filed 1-29-99; 8:45 am]
BILLING CODE 8010-01-M