[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4515-4517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2192]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39571; File No. SR-Phlx-97-53]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendments 1 and 2 Thereto by the Philadelphia Stock
Exchange, Inc. Relating to Amending Its Floor Procedure Advice A-1
Regarding Displaying Best Bids and Offers
January 22, 1998.
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 3, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'')
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the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the self-regulatory organization. On
December 23, 1997, and January 20, 1998, respectively, the Exchange
filed amendments 1 and 2 to the proposal with the Commission.\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\ See Letter from Michele R. Weisbaum, Vice President and
Associate General Counsel, Phlx to David Sieradzki, Attorney, SEC
dated December 18, 1997 and letter from J. Keith Kessel, Phlx to
David Sieradzki, Attorney, SEC dated January 16 1998. Amendments 1
and 2 made several changes to clarify the purpose section of the
filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx hereby proposes to amend its Floor Procedure Advice A-1,
regarding Displaying Best Bids and Offers, in order to require Floor
Brokers and Registered Options Traders (``ROT''s) to immediately remove
stale bids/offers. Accordingly, the Phlx is proposing to amend Floor
Procedure Advice (``Advice'') A-1 to require that the Floor Broker or
ROT, after voicing a bid/offer, use due diligence to inform the
Specialist when s/he is no longer bidding/offering at that price. The
Floor Broker or ROT must immediately inform the Specialist when s/he is
``out'' of that bid/offer, including due to an execution or departure
from the crowd.
The Phlx also proposes to adopt a fine schedule, pursuant to the
Exchange's minor rule violation enforcement and reporting plan (``minor
rule plan''),\4\ for minor violations of proposed new paragraph (b) of
the Advice.
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\4\ The Phlx's minor rule plan, codified in Phlx Rule 970,
contains floor procedure advices, such as Advice A-1, along with the
accompanying fine schedules. Rule 19d-1(c)(2) under the Act
authorizes national securities exchanges and other self-regulatory
organizations (SRO's) to adopt minor rule violation plans for
summary discipline and abbreviated reporting. Rule 19d-1(c)(1) under
the Act requires that SROs promptly file notice with the Commission
of any final disciplinary actions. However, minor rule violations
not exceeding $2,500 where the sanctioned person has not sought an
adjudication, including a hearing, or otherwise exhausted his
administrative remedies at the SRO with respect to the matter are
deemed not final for purposes of Rule 19d-1(c)(1), thereby
permitting periodic, as opposed to immediate, reporting. See Phlx
Rule 970 and 17 CFR 240.19d-1(c).
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The text of the proposed rule change is available at the Office of
the Secretary, the Phlx 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 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 Phlx is proposing to amend its Advice A-1, regarding Displaying
Best Bids and Offers in order to require Floor Brokers and ROTs to
immediately remove stale bids/offers. Currently, Advice A-1 requires
that Specialists use due diligence to ensure that the best available
bid and offer is displayed for those option series in which s/he is
assigned. For the purposes of Advice A-1, bids and offers for the
Specialist's own account, bids and offers on the book, and bids and
offers established in the crowd are deemed to be available for display
purposes. The Phlx proposes: (i) To designate the foregoing display
advice as paragraph (a) and (ii) to create an additional paragraph,
(b), to govern situations where a member of the trading crowd is no
longer bidding and offering. In the latter situations, the Floor Broker
or ROT shall use due diligence to inform the Specialist when s/he is no
longer bidding/offering at that price. The Floor Broker or ROT must
immediately inform the Specialist when s/he is ``out'' of that bid/
offer, including due to an execution or departure from the crowd.
Maintaining accurate option quotes is integral to the Specialist's
role in the marketplace. Thus, although a member posting a bid/offer is
generally not held to that market after leaving the trading crowd, the
purpose of the proposed rule change is to discourage stale markets by
giving the Exchange the ability to impose fines for failure to remove
such a bid/offer. Failure to remove a bid/offer may cause the member
making the bid/offer or other crowd participants to have to honor an
incorrectly disseminated quote that may have attracted order flow,
including Phlx Automatic Execution System orders.
The proposed new paragraph (b) is being proposed to address
situations where members have been ``out'' of a bid/offer, yet failed
to inform the Specialist. Oftentimes, that member is no longer present
in the trading crowd. In that instance, if a trade occurs because
someone accepted the stale bid/offer, either the member who initiated
the bid/offer, the Specialist or the other members of the trading crowd
will be required to honor the trade. Regardless of who honors the
trade, the intent of this proposal is to deter these occurrences by
imposing fines for such conduct. The proposed language refers to being
``out'' of a market for reasons including (but not limited to) an
execution or a departure from the crowd. Other reasons may also apply,
but the Exchange determined that an exhaustive list is neither
possible, nor necessary, and, therefore, the violation involve the
general failure to inform the Specialist, regardless of the particular
reason for being ``out.''
Failure to uphold the obligations imposed by new paragraph (b) will
subject the member of the fine.\5\ Fines are imposed by Option Floor
Officials who would make a determination based upon the facts of the
case whether a stale quote was caused by a Specialist not using the due
diligence to ensure that the best available bid and offer is displayed
pursuant to paragraph (a) or whether it was caused by a Floor Broker or
ROT not using due diligence to inform the Specialist that it was longer
bidding/offering at that price, pursuant to paragraph (b) of the
Advice. The Exchange believes that the proposed fine schedule is
appropriate and reasonable. Specifically, violations of proposed new
paragraph (b) of the Advice involving a failure to notify the
Specialist when a Floor Broker or ROT is ``out'' of a market are within
the purview of Phlx Rule 970 and are otherwise designed to be easily
verifiable and objective. The proposed fines are comparable to those in
other advices, such as Advices A-2, B-4 and B-5.
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\5\ The fine schedule applicable to proposed new paragraph (b)
of the Advice will be as follows:
1st Occurrence--$250.000.
2nd Occurrence--$500.000.
3rd and Thereafter--Sanction is discretionary with Business
Conduct Committee.
The fine schedule applicable to specialists, which will remain
unchanged, is as follows:
1st Occurrence--$50.00.
2nd Occurrence--$100.00.
3rd Occurrence--$250.00.
4th and Thereafter--Sanction is discretionary with Business
Conduct Committee.
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The Advice will apply on both the Equity/Index Options floor and
the Foreign Currency Options floor.
[[Page 4517]]
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b)(5) of the Act \6\ in that it is designed to promote
just and equitable principles of trade, prevent fraudulent and
manipulative acts and practices, protect investors and the public
interest, as well as prevent unfair discrimination among customers,
issuers, brokers or dealers by ensuring the dissemination of accurate
option market quotes.
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\6\ 15 U.S.C. 78f(b)(5).
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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 represents that no written comments were solicited or
received regarding the proposed rule change.
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 longer 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. 552, will be available for inspection and copying of the
Commission's Public Reference Room. 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-97-53 and should
be submitted by February 19, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2192 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M
