[Federal Register Volume 60, Number 5 (Monday, January 9, 1995)]
[Notices]
[Pages 2420-2422]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35183; File No. SR-Phlx-94-41]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of a Proposed Rule Change and Amendment
No. 1 to the Proposed Rule Change by the Philadelphia Stock Exchange,
Inc., Relating to an Extension of the Automated Options Market
(``AUTOM'') Pilot Program
December 30, 1994.
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 November
21, 1994, 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 and II below, which items have been prepared by the Exchange.
The Exchange subsequently filed Amendment No. 1 to the proposal on
December 1, 1994.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
\1\In Amendment No. 1, the Exchange requested accelerated
approval of the proposed rule change. See Letter from Edith
Hallahan, Special Counsel, Phlx, to Michael Walinskas, Branch Chief,
Office of Market Supervision (``OMS''), Division of Market
Regulation (``Division''), Commission, dated December 1, 1994
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to extend the Exchange's Automated Options Market
(``AUTOM'') pilot program until December 31, 1995. The text of the
proposal is available at the Office of the Secretary, the Phlx, and the
Commission. [[Page 2421]]
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
AUTOM is the Exchange's electronic order routing, delivery,
execution, and reporting system for equity and index options. AUTOM is
an on-line system that allows electronic delivery of options orders
from member firms directly to the appropriate specialists on the Phlx
options trading floor, with electronic confirmation of order
executions. Certain orders are eligible for AUTOM's automatic execution
feature, AUTO-X. AUTO-X orders are executed automatically at the
disseminated quotation price on the Exchange and reported to the
Options Price Reporting Authority (``OPRA'') and to the originating
firm. Generally, the specialist is the contra-side to AUTO-X trades.\2\
Those orders not eligible for AUTO-X are executed manually by the
specialist, and, upon execution of the order, are entered into the
Exchange's systems for reporting to OPRA and to the firm that placed
the order.
\2\See Securities Exchange Act Release No. 35033 (November 30,
1994), 59 FR 63152 (December 7, 1994) (order approving a ``wheel''
execution system to automatically assign the specialist and
participating Registered Options traders, on a rotating basis, as
the contra-side to AUTO-X trades).
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The AUTOM system has operated on a pilot basis since 1988, when it
was first approved by the Commission for market orders of up to five
contracts for all exercise prices in the near-month covering 12 Phlx-
traded equity options.\3\ Since that time, AUTOM has been extended and
amended several times.\4\
\3\See Securities Exchange Act Release No. 25540 (March 31,
1988), 53 FR 11390 (April 6, 1988).
\4\See Securities Exchange Act Release Nos.: 25868 (June 30,
1988), 53 FR 25563 (July 7, 1988) (order extending the pilot program
to include 25 additional equity options and extending the pilot
through December 31, 1988); 26354 (December 13, 1988), 53 FR 51185
(December 20, 1988) (order extending pilot program through June 30,
1989); 26522 (February 3, 1989), 54 FR 6465 (February 10, 1989)
(order extending pilot through December 31, 1989); 27599 (January 9,
1990), 55 FR 1751 (January 18, 1990) (order extending pilot through
June 30, 1990); 28265 (July 26, 1990), 55 FR 31274 (August 1, 1990)
(order extending pilot through December 31, 1990); 28978 (March 15,
1991), 56 FR 12050 (March 21, 1991) (order extending pilot through
December 31, 1991 and approving the use of AUTO-X as part of the
AUTOM pilot program); 29662 (September 9, 1991), 56 FR 46816
(September 16, 1991) (order permitting AUTO-X orders up to 20
contracts in Duracell operations only); 29782 (October 3, 1991), 56
FR 51247 (October 10, 1991) (order permitting AUTO-X for all strike
prices and expiration months); 29837 (October 18, 1991), 56 FR 55146
(October 24, 1991) (order extending pilot through December 31,
1993); 32000 (March 15, 1993), 58 FR 15168 (March 19, 1993) (order
approving the delivery of orders for up to 100 contracts through
AUTOM and execution of orders for up to 25 contracts through AUTO-
X); 32906 (September 15, 1993), 58 FR 49345) (September 22, 1993)
(order permitting AUTO-X orders up to 25 contracts in all equity
options); 33405 (December 30, 1993), 59 FR 790 (January 6, 1994)
(order extending pilot through December 31, 1994) (``Exchange Act
Release No. 33405''); and 34920 (October 31, 1994), 59 FR 55510
(November 7, 1994) (order approving use of AUTOM and AUTO-X for
index option orders).
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The purpose of the proposed rule change is to extend the AUTOM
pilot program until December 31, 1995. The Phlx believes that this
extension of the pilot program should provide the Exchange, as well as
the Commission, with additional time to study the effectiveness of
AUTOM prior to either a further extension or permanent approval of the
pilot program. During this extension, the Exchange intends to monitor
the implementation of certain enhancements to AUTOm as well as to
codify the entire pilot program as an Exchange rule.\5\
\5\Separately, the Exchange is proposing to limit the
eligibility of National Over-the-Counter Index options for execution
through AUTO-X. See File No. SR-Phlx-94-60. Additionally, the
Exchange is proposing to codify the types of orders eligible for
AUTOM and AUTO-X. See File No. SR-Phlx-94-62. See also, supra note
2.
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Generally, the Exchange believes that since the last extension of
the pilot program,\6\ AUTOM has functioned properly and efficiently,
without any material problems reported by Phlx members of AUTOM users,
and without significant malfunctions or operational failures.
\6\See Exchange Act Release No. 33405, Supra note 4.
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The Exchange believes that AUTOM provides small customer option
orders with the benefits of electronic delivery and reporting, while
AUTO-X provides automatic executions as well. Accordingly, the Exchange
believes that AUTOM increases the speed and efficiency of order
delivery, execution and reporting. This, the Exchange believes,
promotes both liquidity and fair and orderly markets. For these
reasons, the Phlx believes that extending the AUTOM pilot program until
December 31, 1995, is consistent with Section 6 of the Act, in general,
and, Section 6(b)(5), the particular, in that the proposal is designed
to promote just and equitable principles of trade, and to protect
investors and the public interest. In addition, the Exchange believes
that the proposed rule change is consistent with Section 11A(a)(1)(B)
of the Act in the that AUTOM is intended to improve, through the use of
new data processing and communications techniques, the efficiency with
which transactions in Phlx equity and index options are executive.
Further, the Exchange believes that AUTOM fosters competition among
options exchanges, which have similar systems in place.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change will impose
any inappropriate burden on competition.
(C) Self-Regulatory Organization's Statement of Comments on the
Proposed Rule Change Change Received From Members, Participants or
Others
No written comments were either solicited or received by the
Exchange.
No written comments were either solicited or received by the
Exchange.
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.\7\
\7\See Amendment No. 1, supra note 1.
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The Commission finds that 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.\8\ 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 options through the use of new data
processing and communications techniques, thereby improving order
processing and turnaround time.\9\ The Commission also
[[Page 2422]] believes that the extension of the pilot program until
December 31, 1995, will provide the Exchange with a better opportunity
to further study the operation and effectiveness of the pilot program,
and the proposed modifications to be implemented during the
extension,\10\ prior to either a further extension or permanent
approval of the pilot program.\11\
\8\15 U.S.C. Sec. Sec. 78f and 78k-1 (1988).
\9\The Commission notes that in the last extension of the pilot
program, the Commission stated that prior to granting permanent
approval or any further extension of the pilot, the Phlx would be
required to submit a full report: (1) describing certain system
modifications then in progress by the Exchange and describing the
effect those modifications have subsequently had on AUTOM; and (2)
updating a report submitted by the Phlx dated November 24, 1993; in
connection with the last extension of the pilot program. See
Exchange Act Release No. 33405, supra note 4. The Phlx has filed the
required reports in connection with the current request for an
extension of the pilot program. See Letter from Gerald O'Connell,
First Vice President, Market Regulation and Trading Operations,
Phlx, to Michael Walinskas, Branch Chief, OMS, Division, Commission,
dated December 14, 1994, and letter from Jack McCarthy, Vice
President, Equity Options Trading Systems, Phlx, to Michael
Walinskas, Branch Chief, OMS, Division, Commission, dated December
21, 1994 (``December 21 Letter'').
\10\See supra note 5.
\11\Before granting permanent approval of the pilot program, the
Commission expects the Phlx to submit a full report, on or before
November 1, 1995, describing the operation of AUTOM during this
extension and the effect of any modifications made to AUTOM system
implemented during the extension. Additionally, the Phlx's AUTOM
pilot report should include: (1) a description of the benefits
provided by AUTOM; (2) the degree of AUTOM usage, including the
number and size of the orders routed through AUTOM and the number
and size of the orders executed automatically through the AUTO-X
system; (3) the system capacity of AUTOM and AUTO-X; and (4) any
problems the Exchange has encountered with the routing and execution
features. The Commission also requests that the Phlx submit its
request for either an extension or permanent approval of the pilot
program on or before November 1, 1995.
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The Commission further notes that the Exchange has represented that
since the last extension of the pilot program,\12\ AUTOM has functioned
properly and efficiently, that no material problems have been reported
by Phlx members or AUTOM users, and that AUTOM has not had significant
malfunctions or operational failures.\13\ Finally, because 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.\14\
\12\See Exchange Act Release No. 33405, supra note 4.
\13\Telephone conversation between Edith Hallahan, Special
Counsel, Phlx, and Brad Ritter, Senior Counsel, OMS, Division,
Commission, on December 29, 1994.
\14\The Commission expects the Phlx to immediately notify the
Commission of any and all developments during this extension of the
pilot program having a material effect on the capacity of the Phlx's
automated systems. See also, December 21 Letter, supra note 9.
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The Commission finds good cause for approving the proposed rule
change and Amendment No. 1 thereto 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 because it merely extends the pilot program as it is
currently operating. Further, the Commission continues to believe that
the pilot program is beneficial to maintaining the quality and
efficiency of the Phlx's market. Finally, the Commission 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 foregoing. 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 at 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 Phlx. All
submissions should refer to File No. SR-Phlx-94-41 and should be
submitted by January 30, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-Phlx-94-41), as amended, is
approved through December 31, 1995.
\15\15 U.S.C. Sec. 78s(b)(2) (1982).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
\16\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-384 Filed 1-6-95; 8:45 am]
BILLING CODE 8010-01-M
