[Federal Register Volume 61, Number 18 (Friday, January 26, 1996)]
[Notices]
[Pages 2557-2559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1361]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36752; File No. SR-Phlx-95-77]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to the Rules
of the Allocation, Evaluation and Securities Committee.
January 22, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
December 22, 1995, 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 Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to update its rules relating to the
Allocation, Evaluation and Securities Committee (``Committee'').
Specifically, Rules 500, 501, 505, 506, 508 and 511 are being amended
as well as By-Law Article X, Section 10-7. The text of the proposed
rule change is available at the Exchange and at the Commission.
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 self-regulatory organization
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 update the Exchange's
500 Series of rules, which govern the allocation of specialist
privileges. The rules that are currently in place have not been
significantly amended since they were adopted in 1987 as a pilot
program.\1\ as described below, almost all of the rules are being
revised in order to address issues that have come up over the past
eight years. All of the proposed changes are described below.
\1\ The rules initially were approved by the Commission as an
eight month pilot program on May 21, 1987. See Securities Exchange
act Release No. 24496 (May 21, 1987), 52 FR 20183 (May 29, 1987). On
February 23, 1988, the pilot program was extended indefinitely until
further action was taken by the Commission. See Securities Exchange
Act Release No. 25388 (Feb. 23, 1988), 53 FR 6725 (Mar. 2, 1988).
The rules were permanently approved on June 26, 1991. See Securities
Exchange Act Release No. 29369 (June 26, 1991), 56 FR 30604 (July 3,
1991).
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Composition of Allocation, Evaluation and Securities Committee
Currently, the Committee has a minimum nine member requirement but
has no maximum requirement. For competitive reasons, the Committee is
often called upon to meet on short notice and meets more frequently
than other committees that may only hold monthly meeting. Having a
large committee makes it difficult to obtain a quorum, and thus,
conduct business.
Accordingly, By-Law Article X, Section 10-7 and Rule 500 are being
amended to revise the Committee size and structure. The By-Law section
will still require a minimum of nine members on the Committee but would
add that a quorum will always be five members. The Committee would also
be structured differently. Pursuant to proposed new subsection (b) to
Rule 500, for each meeting, the Committee will be composed of five core
committee members and four members of a 20 member allocation panel. The
core committee, whose members would serve for three year terms (no more
than two consecutive terms), would be created to assure some continuity
of membership on the Committee. The allocation panel would also be
created, whose members would serve for one-year terms, to allow for new
persons with fresh perspectives.
Rule 500 would be amended to provide who may serve on the core
committee and allocation panel and how many members of each must attend
meetings in order for a quorum to be reached. Specifically, the core
committee would have five members: three who conduct a public
securities business, one from the equity floor, and one from the
options floor. The allocation panel would have twenty members: six who
conduct a public securities business, five from the equity floor, five
from the options floor, and four from the foreign currency options
(``FCO'') floor.
For each meeting, the Committee will be composed of the five core
committee members and four members of the 20 member panel chosen on a
rotating alphabetical basis. The Chairman will, however, have the
discretion to also specifically invite any other members of the panel
who he believes would have particular knowledge or expertise respecting
the subject matter of the meeting. For example, if a FCQ is being
allocated and the four alphabetically chosen panel members for the
meeting happen to all be from the equity and equity options floors, the
Chairman could also invite any or all of the four FCO panel members to
the meeting. Additionally, all other members of the panel will always
be notified of meetings and may attend and vote if they so chose even
if they are not at the top of the rotation list. Finally, at least two
of the core committee members must be part of the quorum at every
meeting in order to assure that there are some experienced committee
members in attendance.\2\
\2\ At least one of the core committee members in attendance
must conduct a public securities business.
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Transfers of Specialist Privileges
Currently, a specialist does not have to seek Committee approval
when it proposes to transfer all of its specialist privileges, but it
must do so in order to transfer less than all of its privileges. The
Exchange has determined to amend Rule 508 to now require that all
proposed transfers of specialist privileges be subject to prior
Committee approval so that the Committee has the ability to consider
the qualifications of all proposed transferees. The criteria provided
in Rule 511 that is currently used for making allocation and
reallocation decisions would now also
[[Page 2558]]
be applicable to transfer approval decisions.
Often, when option specialist privileges are transferred, the
physical trading location on the floor is also moved. In the past, the
Exchange has often been requested to effect a move of screens and
equipment overnight. Not only is this difficult for the staff to
accomplish but it could also cause problems for the market makers in
the trading crowd who may have part of their assigned classes of
options moved.\3\ Thus, new Commentary .01 would also be added to Rule
508 in order to impose a 45 day moratorium on trading floor location
moves in order to give the staff and the traders in the crowd time to
prepare for the move.
\3\ Registered Options Traders (``ROTs'') are assigned one or
more classes of options by the Exchange and have affirmative
obligations to make markets in such options pursuant to Exchange
Rule 1014. ROTs, thus, usually request assignments in options
classes that are physically traded in the same general area of the
floor.
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Specialist Unit Performance Reviews
Currently, the Committee conducts two kinds of reviews of
specialist units pursuant to Exchange Rule 511. First, the Committee
performs routine quarterly reviews of any specialist unit. Second,
special reviews are conducted within 60 days after a transfer has been
effected or a material change in a specialist unit has occurred. The
Committee will still conduct the routine reviews, except that now the
Quality of Markets Subcommittee will perform the initial stage of the
review.\4\
\4\ The Exchange is concurrently filing SR-PHLX 95-91, which
proposes to revise the options specialist evaluation form and review
procedure. The proposed amendments to Rule 511(c) herein are the
same as those proposed in that filing and are explained in more
detail.
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In the cases of transfers of specialist privileges and material
changes to the units, the Exchange proposes to commence the reviews
after 90 days rather than 60 days because the Exchange has found that
60 days is not enough time in which to determine the adequacy of
performance. The second proposed change to these types of reviews is
that in the case of transfer reviews, if the new unit's performance is
below minimum standards, the unit will be given 30 days in which to
improve prior to beginning reallocation proceedings. This review
provision will be renumbered as new subsection (d)(2) to Rule 511.
Finally, a new type of review will be instituted regarding new
allocations of specialist privileges in new proposed subsection (d)(1)
to Rule 511. When a specialist unit applies for a new equity book or
options class, it is required to fill out an application and sometimes
to have a representative appear before the Committee. The Committee
makes allocation decisions, in part, based on representations made by
the applicant either orally or in writing. For instance, an options
specialist might commit to being 100 up on all displayed markets or an
equity specialist might commit to a volume guarantee on PACE
significantly larger than the minimum. In order to help ensure that the
Committee is making allocations based on realistic expectations of
performance, the Exchange proposes to now commence reviews of
specialist units that are awarded books within 90 days thereafter to
specifically consider whether the unit has attempted to comply with the
information that it gave to the Committee when applying. If the
Committee finds that the unit is not in compliance, they will be given
30 days in which to comply prior to instituting reallocation
proceedings.
Registration of Specialist Privileges
Presently, equity books and options classes may be registered in
the name of either the specialist unit, the individual specialist or
both. There is no requirement, however, in the rules that the
registrant be an Exchange member or approved specialist. The Exchange
proposes to add this language into Rule 505. Also, where a specialist
unit has leased its specialist privileges to another unit, the Exchange
will now require that both the lessor and the lessee be noted on the
Registration form.
Specialist Applications
Exchange Rule 501 only presently addresses the contents of
applications to become specialist units. The Committee's practice has
been, however, to require both specialist units and individual
specialists to apply in writing to the Committee for approval.
Therefore, Rule 501 is being amended to specify that both specialists
and specialist units must apply in writing to the Committee and to note
what information must be in the applications.
Exchange Rule 506 will also be amended to require that when five or
more specialist units apply for a particular equity book or options
class, personal appearances before the Committee will be required.
Currently, appearances are discretionary with the Committee. Finally,
various amendments have been made to the rules to include references to
the Foreign Currency Options Committee where appropriate.
2. Statutory Basis
The proposed rule change is consistent with Section 6 of the Act in
general, and in particular, with Section 6(b)(5), in that it is
designed to promote just and equitable principles of trade, prevent
fraudulent and manipulative acts and practices, to foster 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.
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
No written comments were received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such other period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. 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.
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. Sec. 552, will be
[[Page 2559]]
available for inspection and copying at the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such filing will also be available for inspection and copying
at the principal office of the Exchange. All submissions should refer
to File No. SR-Phlx-95-77 and should be submitted by February 16, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1361 Filed 1-25-96; 8:45 am]
BILLING CODE 8010-01-M
