[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Notices]
[Pages 57180-57181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27604]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42006; File No. SR-PHLX-99-36]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to Permanent Approval of the X.Station
Enhancement to the Electronic Order Book on the Options Floor
October 13, 1999.
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 September 3, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items, I, II, and III below, which Items have been prepared by the
Exchange.\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\ Amendment No. 1, which was filed on October 7, 1999,
provided a nonsubstantive discussion about the success of the
X.Station enhancement. See Letter to Mike Walinskas, Associate
Director, Division of Market Regulation (``Division''), SEC, from
Nandita Yagnik, Attorney, Phlx, dated September 30, 1999.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Phlx proposes to adopt the X.Station enhancement to the electronic
order book on the options floor on a permanent basis.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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. 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
On May 7, 1998, the Commission approved, on a pilot basis, the
implementation of the X.Station enhancement to the electronic order
book on the options floor of the Phlx.\4\ The pilot was extended twice
and will expire on October 23, 1999.\5\ As described in Rule 1080,
Commentary .02, the electronic order book is an automated mechanism for
specialists to hold and display orders based on price/time priority.
The X.Station enhancement \6\ provides certain improvements to the
electronic order book such as expedited non-AUTO-X order execution and
expedited cancel replacement processing.
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\4\ Security Exchange Act Release No. 39972 (May 7, 1998), 63 FR
26666 (May 13, 1998).
\5\ Securities Exchange Act Release Nos. 40625 (November 2,
1998), 63 FR 60435 (November 9, 1998) and 41323 (April 22, 1999), 64
FR 23378 (April 30, 1999).
\6\ The X.Station enhancement has been deployed floor-wide.
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AUTO-X is the automatic execution feature of the Automated Options
Market System, the electronic order delivery and routing system for
options orders. Previously, AUTO-X orders were executed against a
``shadow account'' for which the specialist was ultimately responsible.
The execution was immediately reported back to the sending firm, and
then, the specialist manually input the contra-side interest
representing the booked order that became due as a result of the AUTO-X
trade.
At this time, the Exchange proposes to adopt the X.Station
enhancement on a permanent basis. The X.Station enhancement to the
electronic order book matches incoming AUTO-X orders with booked orders
by allowing the specialist to match two participants directly, without
the specialist participating in the trade, by dropping the order to
manual status.\7\ The match is not automatic; the specialist drops the
order to a manual status in order for the
[[Page 57181]]
specialist to determine whether crowd participation under current
parity/priority rules is due before executing the trade.\8\ Thus, the
specialist must ``select'' the orders on the book to execute the trade.
Because the AUTO-X order has dropped to manual, the sending firm will
not receive an execution report until the specialist selects and
executes the trade.
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\7\ The X.Station enhancement only applies to incoming AUTO-X
orders on the electronic order book that are due a fill (e.g., if an
order is touching the book). All other AUTO-X orders are
automatically executed through the wheel. When an AUTO-X order is
due on the electronic order book, the order will flash red,
notifying the specialist. The specialist then clicks on the order,
dropping the order to manual status. Finally, the specialist fills
the order from the crowd, if required by the parity/priority rules,
or fills the order with the matching order from the electronic order
book. Telephone conversation between Nandita Yagnik, Attorney Phlx,
and Heather Traeger, Attorney, Division, SEC (October 13, 1999).
\8\ See Phlx Rule 101(g).
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The X.Station enhancement affords specialists relief from the
manual burden of inserting trade participant and clearing information
by writing an order ticket for the booked order. The X.Station
enhancement should continue to reduce the amount of paper processed on
the options floor; this in turn, should continue to reduce handling and
processing time, including the likelihood of errors, thereby
facilitating more prompt and accurate trade reporting.
2. Statutory Basis
Phlx believes that the proposed rule change is consistent with
Section 6(b) \9\ of the Act in general and furthers the objectives of
Section 6(b)(5) \10\ in particular, because it fosters 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 by enhancing efficiency
through automation in the options market.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ In reviewing the proposed rule change, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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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 burden on competition.
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 \12\ and Rule 19b-4(f)(5) thereunder.\13\ 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. At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such 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.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(5).
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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, N.W., 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 at the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-PHLX-99-36 and should
be submitted by November 12, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-27604 Filed 10-21-99; 8:45 am]
BILLING CODE 8010-01-M
