[Federal Register Volume 65, Number 68 (Friday, April 7, 2000)]
[Notices]
[Pages 18416-18417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8488]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 42600; File No. SR-Phlx-00-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Amending PHLX Rule 237 To Add a Credit Limit Feature to 
the Volume Weighted Average Price Trading System (VTS)

March 30, 2000.
    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 March 3, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed a proposed rule change with the Securities and 
Exchange Commission (``SEC'' or ``Commission''). The proposed rule 
change is 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 Exchange proposes to amend Rule 237, ``The Universal Trading 
System Morning Session,'' \3\ to implement a Credit Limit Feature 
(``Feature'') to the Volume Weighted Average Price Trading System 
``VTS'' \TM\).\4\ Specifically, proposed Rule 237(l) states that the 
Credit Limit Feature provides automated validation of credit limits 
imposed by SCCP/Phlx members on users and committers. The Credit Limit 
Feature is engaged when the SCCP/Phlx member provides credit limit 
instructions on a form prescribed by the Exchange. Rule 237(a) states 
that the VTS may remove orders and commitments that exceed the 
established credit limits. The text of the proposed rule change is 
available at the Exchange and at the Commission.
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    \3\ The VTS was developed by Universal Trading Technologies 
Corporation (``UTTC \TM\''), and was approved by the Commission to 
operate as a facility of the Exchange. See Securities Exchange Act 
Release No. 41210 (March 24, 1999) (SR-Phlx-96-14).
    \4\ The Exchange filed a proposed rule change to change the name 
of the VTS to ``eVWAP'', SR-Phlx-00-19.

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[[Page 18417]]

II. Self-Regulatory Organization's Statements Regarding the Purpose 
of, and the 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 VTS provides a morning matching session for the execution of 
large-sized orders at the volume weighted average price (``VWAP''). The 
receipt and matching of these orders is handled electronically through 
the VTS. Non-member users may enter into the system so long as they 
have the appropriate give-up arrangements with a Stock Clearing 
Corporation of Philadelphia (``SCCP'') member, who must also be a Phlx 
member who has assumed responsibility for that order.\5\ In addition, 
Phlx member committers and member users who are not members of SCCP may 
have a clearing arrangement with SCCP member clearing firms who may 
want to impose credit limits on their customers. Currently, VTS users 
and committer credit limits must be monitored and enforced by the 
clearing firm by means external to the system.\6\ In this regard, a 
number of members have requested an automated credit limit validation 
feature to validate their customer's credit limit before allowing the 
VTS committer or user to match and execute orders.
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    \5\ See Exchange Rule 237(c)(ii).
    \6\ The SCCP member and the respective customer agree upon the 
appropriate credit limits. Neither the Exchange nor SCCP approves 
credit limits for customers.
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    Thus, the Exchange proposes to implement the Feature, which 
provides an automated means for SCCP/Phlx members to impose credit 
limits on their customers' use of the system. SCCP/Phlx members, 
through the Feature, may impose credit limits: (i) On an identified 
clearing customer, (ii) On an identified account, or (iii) On an 
identified clearing customer's use of an identified account. The 
Feature permits clearing firms to set credit limits to limit different 
order types such as buys, sells, short sales, internal crosses and two-
sided commitments. The member will specify the appropriate credit 
limits or changes to credit limits to the authorized enrollment 
personnel on a form prescribed by the Exchange, prior to implementation 
of the Feature for that customer. Once engaged, the Feature precludes 
any daily commitments and incoming orders of clearing customers that 
would exceed established credit limits from entering into VTS. 
Consistent with current practice, in determining whether the credit 
limit has been reached, valuation of commitments and orders would be 
based on the previous day's closing prices. Similarly, the Feature also 
permits members to apply their customers' unsettled trades from 
previous day[s] match session[s] against such customers' credit limits.
    The Exchange believes that this proposed system change should 
assist members in ensuring that agreed upon credit limits are enforced, 
and thereby reduce the burden on clearing firms to verify and enforce 
customer credit limits. In addition, the proposed feature should ensure 
that such customers are complying with agreed upon credit limits.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act in that it is designed to promote just and 
equitable principles of trade, prevent fraudulent and manipulative acts 
and practices and protect investors and the public interest by 
installing a Credit Limit Feature to ensure that VTS users and 
committers abide by the credit limit agreed upon with their clearing 
firms.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

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 foregoing rule change has become effective immediately under 
Section 19(b)(3)(A) of the Act \7\ and subparagraph (f)(5) of Rule 19b-
4 thereunder,\8\ in that it constitutes a change in an existing order-
entry or trading system that: does not significantly affect the 
protection of investors or the public interest; does not impose any 
significant burden on competition; and does not have the effect of 
limiting the access to or availability of the system. Specifically, the 
proposed rule change ensures that VTS users and committers abide by the 
credit limit agreed upon with their clearing firms by providing 
automated credit limit validation.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of such 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 or 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, 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 
they 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 
Exchange.
    All submissions should refer to File No. SR-PHLX-00-22 and should 
be submitted by April 28, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8488 Filed 4-6-00; 8:45 am]
BILLING CODE 8010-01-M