[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Notices]
[Pages 57180-57181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27604]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42006; File No. SR-PHLX-99-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Permanent Approval of the X.Station 
Enhancement to the Electronic Order Book on the Options Floor

October 13, 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 September 3, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items, I, II, and III below, which Items have been prepared by the 
Exchange.\3\ 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.
    \3\ Amendment No. 1, which was filed on October 7, 1999, 
provided a nonsubstantive discussion about the success of the 
X.Station enhancement. See Letter to Mike Walinskas, Associate 
Director, Division of Market Regulation (``Division''), SEC, from 
Nandita Yagnik, Attorney, Phlx, dated September 30, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Phlx proposes to adopt the X.Station enhancement to the electronic 
order book on the options floor on a permanent basis.

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.

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

1. Purpose
    On May 7, 1998, the Commission approved, on a pilot basis, the 
implementation of the X.Station enhancement to the electronic order 
book on the options floor of the Phlx.\4\ The pilot was extended twice 
and will expire on October 23, 1999.\5\ As described in 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 X.Station enhancement \6\ provides certain improvements to the 
electronic order book such as expedited non-AUTO-X order execution and 
expedited cancel replacement processing.
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    \4\ Security Exchange Act Release No. 39972 (May 7, 1998), 63 FR 
26666 (May 13, 1998).
    \5\ Securities Exchange Act Release Nos. 40625 (November 2, 
1998), 63 FR 60435 (November 9, 1998) and 41323 (April 22, 1999), 64 
FR 23378 (April 30, 1999).
    \6\ The X.Station enhancement has been deployed floor-wide.
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    AUTO-X is the automatic execution feature of the Automated Options 
Market System, the electronic order delivery and routing system for 
options orders. Previously, 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 
then, the specialist 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 Exchange proposes to adopt the X.Station 
enhancement on a permanent basis. The X.Station enhancement to the 
electronic order book matches incoming AUTO-X orders with booked orders 
by allowing the specialist to match two participants directly, without 
the specialist participating in the trade, by dropping the order to 
manual status.\7\ The match is not automatic; the specialist drops the 
order to a manual status in order for the

[[Page 57181]]

specialist to determine whether crowd participation under current 
parity/priority rules is due before executing the trade.\8\ Thus, the 
specialist must ``select'' the orders on the book to execute the trade. 
Because the AUTO-X order has dropped to manual, the sending firm will 
not receive an execution report until the specialist selects and 
executes the trade.
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    \7\ The X.Station enhancement only applies to incoming AUTO-X 
orders on the electronic order book that are due a fill (e.g., if an 
order is touching the book). All other AUTO-X orders are 
automatically executed through the wheel. When an AUTO-X order is 
due on the electronic order book, the order will flash red, 
notifying the specialist. The specialist then clicks on the order, 
dropping the order to manual status. Finally, the specialist fills 
the order from the crowd, if required by the parity/priority rules, 
or fills the order with the matching order from the electronic order 
book. Telephone conversation between Nandita Yagnik, Attorney Phlx, 
and Heather Traeger, Attorney, Division, SEC (October 13, 1999).
    \8\ See Phlx Rule 101(g).
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    The X.Station enhancement affords specialists relief from the 
manual burden of inserting trade participant and clearing information 
by writing an order ticket for the booked order. The X.Station 
enhancement should continue to reduce the amount of paper processed on 
the options floor; this in turn, should continue to reduce handling and 
processing time, including the likelihood of errors, thereby 
facilitating more prompt and accurate trade reporting.
2. Statutory Basis
    Phlx believes that the proposed rule change is consistent with 
Section 6(b) \9\ of the Act in general and furthers the objectives of 
Section 6(b)(5) \10\ in particular, because it fosters 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 options market.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ In reviewing the proposed rule change, the Commission 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any 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 proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \12\ and Rule 19b-4(f)(5) thereunder.\13\ 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. 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(5).
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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, N.W., 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 at the 
Commission's Public Reference Room. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-PHLX-99-36 and should 
be submitted by November 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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Jonathan G. Katz,
Secretary.
[FR Doc. 99-27604 Filed 10-21-99; 8:45 am]
BILLING CODE 8010-01-M