[Federal Register Volume 64, Number 118 (Monday, June 21, 1999)]
[Notices]
[Pages 33127-33128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15601]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41524; File No. SR-Phlx-99-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Enhance the Exchange's Automated Options Market 
System and To Employ Trade Reporting Terminals in Certain Options

June 14, 1999.
    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 April 7, 1999, 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 self-regulatory 
organization. On June 10, 1999, the Phlx filed with the Commission 
Amendment No. 1\3\ to the proposed rule change. The Commission is 
publishing this notice, as amended, 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.
    \3\ Letter from Nandita Yagnick, Counsel, Phlx, to Michael 
Walinskas, Associate Director, Division of Market Regulation, 
Commission, dated June 10, 1999 (``Amendment No. 1''). Amendment No. 
1 makes a technical modification to the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes two enhancements to the Phlx Automated Options 
Market (``AUTOM'') \4\ System. The first proposed system enhancement, 
called the Floor Broker Order Entry System (``FBOE''), allows certain 
orders to be placed directly onto the X.Station,\5\ in lieu of a 
``paper'' book. The second proposed enhancement involves employing 
trade reporting terminals in certain options for non-AUTOM delivered 
orders.
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    \4\ See Phlx Rule 1080. AUTOM is the Exchange's electronic order 
delivery and reporting system that provides for the automatic entry 
and routing of Exchange listed equity option and index option 
orders.
    \5\ For a more detailed description of the X.Station, see 
Securities Exchange Act Release Nos. 40625 (Nov. 2, 1998), 63 FR 
60435 (Nov. 9, 1998) and 39972 (May 7, 1998), 63FR 26666 (May 13, 
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 self-regulatory organization 
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 X.Station is the Exchange's full service options electronic 
book and trading system. The X.Station provides order execution and 
order canceling by specialists. Orders delivered through AUTOM, if not 
automatically executed, are placed on the X. Station on the electronic 
book for execution by the specialist. Orders not delivered through 
AUTOM are placed on the ``paper'' book. Currently, orders, that are on 
the paper book, when due an execution, are manually executed by the 
specialist. The specialist then writes out tickets for both sides of 
the trade and submits them to Exchange staff for reporting to the 
Options Price Reporting Authority (``OPRA'') and for the entry of 
clearing information.
    The Exchange is now proposing a system--The FBOE--that would allow 
hand-delivered orders \6\ to be entered directly onto the X.Station 
rather than on a paper book. The FBOE will place all orders, except 
all-or-none, stop, and stop limit orders.\7\
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    \6\ The FBOE will not accept orders of Registered Options 
Traders (ROTs) nor will it accept ``firm'' (member) orders entered 
by a floor broker.
    \7\ see Phlx Rule 1066. An all-or-nore order is a market or 
limit order that is to be executed in its entirety or not at all. A 
stop order is a contingency order to buy or sell at a specified 
price. A stop limit order is a contingency order to buy or sell at 
limited price when the market for the particular option reaches a 
specified price.
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    The FBOE will operate as follows: The floor broker will give orders 
to the specialist; the specialist or his clerk will enter the orders 
into the FBOE terminal located at the specialist post. The floor broker 
also may enter the order through terminals located at his floor broker 
booth. The orders will be displayed on the X.Station and reflected in 
the Auto-

[[Page 33128]]

Quote \8\ bids and offers. Once the specialist executes an order (using 
the X.Station), the execution ticket is immediately printed at the 
floor broker's post and the trade is reported to OPRA.
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    \8\ See Phlx Rule 1080, Commentary .01. Automatic Quotation 
(Auto-Quote) is the Exchange's electronic options pricing system the 
enables specialists to automatically monitor and instantly update 
quotations.
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    Cancellation of orders will operate in the same manner. The floor 
broker will either deliver the order to the specialist, where the 
specialist or his clerk will enter the cancellation and the X.Station 
or the floor broker will cancel the orders from the terminal located at 
this booth. The cancellation ticket will also be printed at the 
broker's booth.
    The FBOE will provide notification of executions and ``outs'' as 
well as query capabilities to determine the status of orders and 
cleared trades, from the floor broker's booth. The FBOE will allow 
paper orders originating with floor brokers to exist thereafter on the 
X.Station just like AUTOM delivered orders. This measure will allow a 
greater number of orders to be processed electronically through the 
AUTOM system, which in turn enables the Exchange to better process 
order flow in the more active issues.
    Secondly, in addition to the FBOE system, trade reporting terminals 
will be placed near the crowd in certain options so that trades that 
are not executed by the X.Station (non-AUTOM delivered orders) can be 
reported promptly at the time of the trade, rather than after clearing 
information is entered into the system. This will result in trades 
being reported to the participants and OPRA more efficiently.
2. Statutory Basis
    The Exchange believes that the proposed enhancements to the AUTOM 
system are consistent with Section 6 of the Act \9\ in general, and 
Section 6(b)(5)\10\ in particular, in that they are designed to 
facilitate transactions in securities and remove impediments to and 
perfect the mechanism of a free and open market and national market 
system, as well as to protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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 solicited or received on the proposed rule 
change.

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

    The proposed rule change, as amended, will become effective upon 
filing pursuant to Section 19(b)(3)(A) of the Act,\11\ and Rule 19b-
4(f)(5) \12\ thereunder, in that it is designated by the Exchange as 
effecting a change in an existing order entry 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 access to or availability of the system. At any time 
within 60 days of the filing of such 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(5).
    \13\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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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 20549-0609. 
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 in Washington DC. Copies of such 
filing will also be available for inspection and copying at the 
principal office of the Phlx. All submissions should refer to the File 
No. SR-Phlx-99-11 and should be submitted by July 12, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15601 Filed 6-18-99; 8:45 am]
BILLING CODE 8010-01-M