[Federal Register Volume 59, Number 4 (Thursday, January 6, 1994)]
[Notices]
[Pages 790-792]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-239]
[[Page Unknown]]
[Federal Register: January 6, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33405; File No. SR-Phlx-93-57]
Self-Regulatory Organizations; Filing and Order Granting
Accelerated Approval of a Proposed Rule Change by the Philadelphia
Stock Exchange, Inc., Relating To Extending the AUTOM Pilot Program
December 30, 1993.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
1, 1993, the Philadelphia Stock Exchange (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II 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 Phlx is requesting Commission approval to extend the Exchange's
Automated Options Market (``AUTOM'') system, a pilot program, until
December 31, 1994. AUTOM is an electronic delivery system of small
options orders to the Phlx trading floor, with an automatic execution
feature.\1\
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\1\The original proposal included a request for permanent
approval of AUTOM. Because the Phlx is in the process of modifying
and upgrading the computer system on which the AUTOM system
operates, the Phlx submitted a letter, dated December 17, 1993,
withdrawing that request from the proposal (``Amendment No. 1'').
The Phlx states that it will resubmit its request for permanent
approval after the Phlx and the Commission have had the opportunity
to evaluate the operation of the system in light of the current
modifications and upgrades. See letter from J. Keith Kessel, Staff
Counsel, Phlx, to Richard L. Zack, Branch Chief, Division of Market
Regulation, Commission, dated December 17, 1993.
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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 states 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
On March 31, 1988, the Commission approved the establishment of
AUTOM as a pilot program.\2\ The Exchange currently is proposing to
extend the AUTOM pilot program until December 31, 1994. The Exchange
represents that, from the date of the last Commission order extending
the AUTOM pilot program, AUTOM has operated efficiently and without any
material problems being reported by Phlx members or AUTOM users.
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\2\The Commission approved AUTOM on a pilot basis for market
orders of up to five contracts for all exercise prices in the near
month covering twelve Phlx equity options. See Securities Exchange
Act Release No. 25540 (March 31, 1988), 53 FR 11390 (April 6, 1988).
Since then, the order routing feature of AUTOM has been expanded to
include all orders in all exercise prices and months in all Phlx
equity options. In addition, day orders, good until cancelled
orders, and cabinet orders (accommodation transactions) have become
eligible for delivery through the system, and the eligible order
size for the order routing feature of AUTOM has been increased from
five to one hundred contracts. See Securities Exchange Act Release
No. 28643 (November 26, 1990), 55 FR 49960 (December 3, 1990) at
notes 2-6 for citations to Commission orders approving these
expansions of the AUTOM pilot. See also Securities Exchange Act
Release No. 28978 (March 15, 1991), 56 FR 12050 (March 21, 1991).
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The AUTOM system is an online system that allows electronic
delivery of options orders from member firms directly to the
appropriate specialist on the Phlx options trading floor, with
electronic confirmation of order executions. Specifically, once AUTOM
orders are entered into the system and routed to the specialists' post,
they are executed manually by the specialist who, upon execution of the
order, enters the relevant trade information into the system. An
execution report is then automatically transmitted to the firm that
placed the order.
The AUTOM system also has an automatic execution feature called
``Auto-X.'' Currently, Auto-X is available to public customer market
and marketable limit orders of up to 20 contracts. Orders eligible for
automatic execution through AUTOM are: (1) Printed in hard copy form at
the floor representative booth of the delivering member organization;
(2) displayed on the trading crowd screen with buy/sell information
omitted; and (3) printed in hard copy form at the specialist post. The
order is priced and executed automatically at the best displayed bid or
offer, and the execution is reported automatically to the Options Price
Reporting Authority (``OPRA''). A report of the execution also is
electronically sent to the delivering member organization. Under Auto-
X, the specialist is the contra-side of all trades. However, the
specialist is required to ensure participation of bids and offers on
the limit order book and in the trading crowd that are entitled to
execution pursuant to the Phlx's rules of priority, parity, and
precedence.
The Phlx represents that, as a general matter, the AUTOM system has
functioned well, servicing member firms options orders. The Phlx states
that two major groups of figures best reflect the performance of AUTOM:
(1) The capacity figures; and (2) the order flow figures.\3\ First, the
Phlx believes that information regarding AUTOM's system capacity shows
that AUTOM continues to have the ability to service the volume of
incoming orders. Specifically, the Phlx represented, in February 1993,
that it would make enhancements to systems capacity (i.e., the ability
of the system's hardware to properly route orders and service potential
order volume) if order volume during peak time exceeded 80% of CPU
capacity. The Exchange represents that since making these
representations with respect to AUTOM's capacity, this 80% level has
not been attained.
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\3\See letter from J. Keith Kessel, Staff Counsel, Phlx, to
Monica C. Michelizzi, Staff Attorney, Division of Market Regulation,
Commission, dated November 19, 1993.
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Second, the Phlx also believes that an analysis of current customer
order flow demonstrates that the system capacity is adequate to handle
the current and potential number of orders transmitted through the
system. Specifically, the Phlx represents that only about two-thirds of
all orders placed on AUTOM are executed because the other one-third of
the orders are too far away from the market to receive execution. The
orders routed through AUTOM that receive execution are either
automatically executed through Auto-X or are manually executed by the
receiving Phlx specialist.
Accordingly, the Phlx believes that AUTOM continues to facilitate
smooth and liquid markets on the equity options floor, and otherwise
represents a favorable development for all concerned parties. The Phlx
further believes that AUTOM has performed well, servicing member firms'
options orders.
The Phlx, therefore, believes that it is consistent with the Act
and the rules and regulations promulgated thereunder for the Commission
to permanently approve the AUTOM system. Specifically, the Phlx
believes that the current proposal is consistent with section 6(b)(5)
of the Act because it is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Phlx believes that the proposed rule change will not impose a
burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has requested that the proposed rule change be given
accelerated effectiveness pursuant to section 19(b)(2) of the Act.
The Commission finds that the proposed rule change, including
Amendment No. 1 to the proposed rule change, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular, the
requirements of Sections 6 and 11A.\4\ Specifically, the Commission
continues to believe that the development and implementation of the
AUTOM system provides for more efficient handling and reporting of
orders in Phlx equity options through the use of new data processing
and communications techniques, thereby improving order processing and
turnaround time. The Commission also believes that the extension of the
pilot program until December 31, 1994, will provide the Exchange with a
better opportunity to study its operation and effectiveness prior to
permanent approval of the program.\5\
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\4\15 U.S.C. 78f and 78k-1 (1988).
\5\The Commission notes that the Phlx is in the process of
modifying and upgrading the computer system on which AUTOM operates.
Before granting permanent approval or any further extension of the
pilot, the Commission expects the Phlx to submit a full report, by
November 1, 1994, describing the effect these modifications have had
on the operation of AUTOM and updating the information, submitted to
the Commission on November 24, 1993, which set forth the benefits
provided by AUTOM, the degree of AUTOM usage, including the number
and size of the orders routed through AUTOM and the number and size
of the orders automatically executed through the Auto-X system, and
the system capacity of AUTOM and Auto-X and any problems that have
been encountered with the routing and execution features. The
Commission also requests that the Phlx submit its request for an
extension of the pilot or permanent approval by November 1, 1994.
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The Commission further notes that the Exchange has represented that
from January 1, 1993 until present, AUTOM has not suffered any
operational failures and the Phlx has not received any formal
complaints with respect to the system's operation.\6\ Finally, since
the pilot program is being extended without expansion of the scope of
the pilot, the Commission does not believe that the capacity of the
Exchange's automated systems will be adversely effected by this
extension.\7\
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\6\See letter dated December 17, 1993, supra note 3.
\7\The Commission recognizes that additional options classes
added onto the system can have an effect on the systems operations.
In this context, the Commission expects that the Phlx will notify
the Commission if the expansion of options multiple trading,
pursuant to Rule 19c-5 under the Act, has any material effect on the
capacity of the Phlx's automated systems.
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The Commission finds good cause for approving the proposed rule
change, including Amendment No. 1 to the proposed rule change, prior to
the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register in order to permit the Phlx to continue
the AUTOM pilot program on an uninterrupted basis. Specifically, the
Commission believes that the Phlx's proposal to extend the AUTOM pilot
program does not raise any new issues since it merely extends the pilot
program as it is currently operating. Further, the Commission believes
that the pilot is beneficial in maintaining the quality and efficiency
of the Phlx's market.
The Commission also notes that there have been no adverse comments
concerning the pilot program since its implementation. Accordingly, the
Commission believes that granting accelerated approval of the proposed
rule change is appropriate and consistent with Sections 6 and 11A of
the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the proposed rule change, including Amendment No.
1 to the proposed rule change. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 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 in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by January 27,
1994.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-Phlx-93-57) is
approved through December 31, 1994.
\8\15 U.S.C. 78s(b)(2) (1988).
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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) (1993).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-239 Filed 1-5-94; 8:45 am]
BILLING CODE 8010-01-M
