[Federal Register Volume 65, Number 125 (Wednesday, June 28, 2000)]
[Notices]
[Pages 39974-39975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-16304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42973; File No. SR-Phlx-00-43]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Adopting Enhancements to the PACE Systems Automatic 
Price Improvement Feature

June 21, 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 May 12, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as 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 Phlx proposes to adopt a system change to the Exchange's 
Automatic Communication and Execution (``PACE'') System Automatic Price 
Improvement (``API'') feature and adopt Rule 229, Commentary 
.07(c)(i)(E) to provide specialists the ability to implement automatic 
price improvement to allow sell orders to improve to the last sale on 
an uptick and/or allow sell orders to improve to a price higher than 
the last sale (``Sell Order Enahncement features'').

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

1. Purpose
    PACE is the Exchange's automated order routing and execution system 
on the equity trading floor. PACE accepts orders for automatic or 
manual execution in accordance with the provisions of Rule 229, which 
governs the PACE System and defines its parameters. The API features of 
the PACE System allows the specialist to voluntarily provide automatic 
price improvement to market and marketable limit orders to all 
customers in a security when the orders are 599 shares or less and the 
PACE quote \3\ is 3/16 or 1/8 or greater.\4\ When the API feature was 
first introdced, there were certain exceptions which prevented a sell 
order from being executed on the last sale if the last sale is an 
uptick and prevented a sell order from being executed at a price higher 
than the last sale.\5\ In those situations, the order would be executed 
at the PACE quote.
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    \3\ The PACE quote means the best bid/ask quote among the 
American, Boston, Cincinnati, Chicago, Pacific, Philadelphia and New 
York Stock Exchanges. See Phlx rule 229.
    \4\ See Phlx Rule 229, Commentary .07(c)(i)
    \5\ See Phlx Rule 229, Commentary .07(c)(i)(A) and (B).
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    The Exchange proposes to enhance the API feature to allow the 
specialist to voluntarily provide automatic price improvement to sell 
orders of a 100 shares or more, as determined by the specialist, in a 
particular security even when the sell order would be executed on the 
last sale and the last sale is an uptick (``Sell Order Enhancement 
I''). In addition, the Exchange also proposes to enhance the API 
feature to allow the specialist to voluntarily provide automatic price 
improvement to sell orders of 100 shares or more, as determined by the 
specialist, in a particular security when the improved

[[Page 39975]]

price would be higher than the last sale (``Sell Order Enhancement 
II''). The specialist may choose to provide either or both of the Sell 
Order Enhancement features on a symbol-by-symbol basis to all eligible 
orders for all customers.
    The Sell Order Enhancement features will be disengaged when the API 
feature is disengaged in accordance with Rule 229, Commentary 
.07(c)(iii).\6\ As with the API feature, specialists choosing to 
activate or deactivate either one or both Sell Order Enhancement 
features would be required to notify the Exchange one day prior to 
implementation. The change would be effective the next day in order to 
provide notice to the PACE users of the activation and make the 
necessary system changes.\7\ The Exchange proposes Sell Order 
Enhancement features in order to provide automatic price improvement to 
orders that were previously excluded from price improvement.
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    \6\ See Phlx Rule 229, Commentary. 07(c)(iii)
    \7\ See Securities Exchange Act Release No. 39548 (January 13, 
1998), 63 FR 3595 (January 23, 1998).
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general, and furthers the 
objectives of Section 6(b)(5) \9\ in particular, in that it is designed 
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 providing automatic price improvement to 
more equity orders which should in turn enhance the speed of execution 
for a larger number of orders as well as provide executions at better 
prices.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx represents that it does not believe that the proposed rule 
change will impose any burden on competition that is not necessary or 
appropriate in furtherance 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 proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(5) \11\ thereunder. 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 
pursuant to Rule 229.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the proposed 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, 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. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-00-43 and should 
be submitted by July 19, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-16304 Filed 6-27-00; 8:45 am]
BILLING CODE 8010-01-M