[Federal Register Volume 64, Number 226 (Wednesday, November 24, 1999)]
[Notices]
[Pages 66224-66226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30586]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42143; File No. SR-Phlx-99-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Deleting Rules Adopted When Phlx Dell Options were 
Traded on Amex Technology

November 16, 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 November 9, 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. The Exchange has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under paragraph (f)(6) 
of Rule 19b-4 under the Act,\3\ rendering the proposal effective upon 
receipt of this filing by the Commission.\4\ 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\ 17 CFR 240.19b-4(f)(6).
    \4\ The Exchange has represented that the proposed rule change: 
(i) will not significantly affect the protection of investors or the 
public interest; (ii) will not impose any significant burden on 
competition; and (iii) will not become operative for 30 days after 
the date of this filing, unless otherwise accelerated by the 
Commission. The Exchange also has provided at least five business 
days notice to the Commission of its intent to file this proposed 
rule change, as required by Rule 19b-4(f)(6) under the Act. Id.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change.

    The Phlx proposes to delete the following rules related to using 
American Stock Exchange LLC (``Amex'') technology for the trading of 
Phlx Dell options: Rule 1051, Commentary .01; Rule 1052, Commentary 
.01; Rule 1053, Commentary .01; and Rule 1054, Commentary .01. The 
Exchange also proposes to modify Rule 1080, Commentary .03 to refer to 
Phlx options that were traded using Amex technology.

[[Page 66225]]

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 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. The 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
    The purpose of the proposed rule change is to delete rules adopted 
when Phlx Dell options traded on Amex systems. The Amex rules are no 
longer necessary as Phlx is using its own system for trading all of its 
options, including Dell.
a. Background
    On June 12, 1998, the Phlx received Commission approval to relocate 
Phlx Dell options to the Amex trading floor on a temporary basis.\5\ 
The relocation was for a six-month period expiring December 12, 1998. 
Subsequently, Phlx Dell options returned to the Phlx trading floor, 
operating on Amex technology, on December 7, 1998.\6\
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    \5\ See Securities Exchange Act Release No. 40088 (June 12, 
1998), 63 FR 33426 (June 18, 1998) (SR-Phlx-98-25).
    \6\ See Securities Exchange Act Release No. 40750 (December 4, 
1998), 63 FR 69128 (December 15, 1998) (SR-Phlx-98-54).
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    During this time, the Exchange continued and still continues to 
implement technological improvements to its AUTOM \7\ System, such as 
upgrading the features of its electronic limit order book, the 
X.Station.\8\ Specifically, the Exchange has implemented the X.Station 
on a floor-wide basis, which improved, among other things, cancellation 
order processing. The Phlx continues to believe that these improvements 
are benefiting AUTOM users.
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    \7\ The Phlx Automated Options Market (AUTOM) System is the 
Exchange's electronic order delivery system, which provides 
automatic entry and routing of option orders to the Exchange trading 
floor, pursuant to Phlx Rule 1080.
    \8\ See, e.g., Securities Exchange Act Release No. 39972 (May 7, 
1998), 63 FR 26666 (May 13, 1998) (SR-Phlx-98-20) (relating to 
enhancements to the X.Station).
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    Recently, the Exchange introduced the Floor Broker Order Entry 
System (``FBOE'') which allows floor brokers to electronically transmit 
customer orders, with the exception of all-or-none orders, stop and 
stop limit orders, to the specialist for placement on the X.Station 
electronic book.\9\ In addition, the Exchange intends to implement 
other system enhancements, in order to provide technologically current 
features to its customers. The Phlx also remains committed to 
continuing to address AUTOM users' concerns regarding the system. 
Further, the Exchange also implemented rules requiring floor members 
and their employees to participate in Exchange-sponsored training 
respecting new automation introduced to the trading floor in order to 
ensure floor personnel are well acquainted with the new automated 
systems and features.\10\
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    \9\ See Securities Exchange Act Release No. 41524 (June 14, 
1999), 64 FR 33127 (June 21, 1999) (SR-Phlx-99-11).
    \10\ See Options Floor Procedure Advice F-30 and Phlx Rule 625.
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    Using Amex technology for Phlx Dell options was a temporary measure 
that was approved by the Commission on a pilot basis for one year. As 
described above the Exchange has made significant technological 
strides, which should facilitate transactions in Phlx Dell options. On 
August 23, 1999, the Exchange returned to Phlx technology for Phlx Dell 
options.
b. Proposal
    The Exchange therefore proposes to delete Commentary .01 to Rules 
1051-1055 relating to Phlx Dell options trading on Amex technology 
because they are no longer applicable to the trading of Phlx Dell 
options. As discussed in the proposed rule change to utilize Amex 
technology on the Phlx trading floor for Phlx Dell options, Amex and 
Phlx have significant differences in options trade processing primarily 
because of the timing and method of submission of trade participant 
information. These differences are discussed in a prior proposed rule 
change.\11\
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    \11\ See supra note 6.
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    Phlx rules 1051--1055 were modified to account for these 
differences in trade processing by Amex systems. First, the Exchange 
modified Rule 1051, General Comparison and Clearance Rule, by adding 
Commentary .01, which provides that Phlx Dell options utilizing Amex 
technology would result in the submission of some, but not all, trade 
information at the specialist's post, as clearing and detailed 
participant information would follow via the intra-Day Comparison 
(``IDC'') System. The Exchange now proposes that the commentary .01, be 
deleted from rule 1051. Thus, all Exchange options transactions shall 
be again reported at the time of execution to the Exchange for 
comparison of trade information at the specialist's post and all 
compared transactions shall be cleared through the Options Clearing 
Corporation (``OCC'').
    Second, Rule 1052 places responsibility on clearing member 
organizations to clear Exchange options transactions. The Phlx 
clarified in rule 1052 (and Rule 1051 as well) that Phlx Dell options 
trading on Amex technology are ``Exchange'' transactions for this 
purpose as well. This clarification is no longer necessary; therefore, 
the Exchange proposes that commentary .01 to Phlx Rule 1052 be deleted.
    Phlx Rules 1053 (Filing of Trade Information), Commentary. 01; 1054 
(Verification of Contracts and Reconciliation of Uncompared Trades), 
commentary .01; and Rule 1055 (Reporting of Compared Trades to The 
Options Clearing Corporation), Commentary .01 were modified to account 
for the differences between the Amex and Phlx technology. Therefore, 
with the return to Phlx technology, such modifications to the rules are 
no longer necessary, as trade information will again be supplied or 
verified ``at the time of execution.'' These rules also provide that 
such information should be in a form prescribed by the Exchange, and, 
respectively, in accordance with procedures established by the 
Exchange.
    Lastly, in order to trade Phlx Dell options on Amex technology, the 
Phlx adopted Commentary .03 to Rule 1080, which limited the liability 
of Amex and its affiliates for any damages sustained by a member or 
member organization growing out of the use or enjoyment of such Amex 
technology. In addition, Commentary .03 prohibited members from 
copying, modifying, disclosing or damaging Amex technology. Because 
Amex technology will no longer be used for Phlx Dell options, the 
Exchange proposes to modify Rule 1080, Commentary .03 such that it 
refers back to when Phlx Dell options traded using the Amex system.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) \12\ of the Act in general and furthers the 
objectives of Section 6(b)(5) \13\ in particular in that it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling,

[[Page 66226]]

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 national market system, as well as to protect 
investors and the public interest by changing rules to reflect the 
processing of Phlx Dell options on Phlx technology.\14\
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ In approving these rules, the Commission has considered the 
proposed rules' 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 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

    This proposed rule filing has been filed by the Exchange as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(i) of 
the Act \15\ and subparagraph (f)(6) of rule 19b-4 thereunder.\16\ 
Consequently, because the foregoing proposed rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative until December 9, 1999, 30 days from 
November 9, 1999, the date on which it was filed, and the Exchange 
provided the Commission with written notice of its intent to file the 
proposed rule change at least five days prior to the filing date, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act and 
rule 19b-4(f)(6) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(i).
    \16\ 17 CFR 240.19b-4(e)(6).
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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, N.W., Washington, D.C. 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-99-22 and should 
be submitted by December 15, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30586 Filed 11-23-99; 8:45 am]
BILLING CODE 8010-01-M