[Federal Register Volume 59, Number 192 (Wednesday, October 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24614]
[[Page Unknown]]
[Federal Register: October 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34742; File No. SR-Phlx-91-46
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Approving and Notice of Filing and Order Granting Accelerated
Approved to Amendment No. 1 to a Proposed Rule Change Relating to Firm
Quote Responsibilities for Customer and Broker-Dealer Orders
September 28, 1994.
On December 9, 1991, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b) of
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the Phlx's Options Floor
Procedure Advice (``OFPA'') F-7 relating to firm quotes for customer
and broker-dealer orders. On September 27, 1994, the Phlx filed
Amendment No. 1 (``Amendment No. 1'') to the proposal to eliminate a
reference to public customers in OFPA F-7 and to replace a reference to
its Ten-up rule (``ten-up'' rule) with the actual Options Floor
Procedure Advice section (``OFPA A-11'') governing minimum volume
guarantees.\3\
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\1\15 U.S.C. 78s(b)(1) (1982).
\2\17 CFR 240.19b-4 (1991).
\3\See Letter from Gerald D. O'Connell, First Vice President,
Phlx, to Michael Walinskas, Derivative Products Regulation, SEC,
dated September 27, 1994.
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Notice of the proposed rule change was published for comment in
Securities Exchange Act Release No. 30134 (Dec. 31, 1991), 57 FR 730
(Jan. 8, 1992). No comments were received on the proposal. This order
approves the proposal, as amended.
I. Description of the Proposal
OFPA F-7 currently states that bid and offer prices shall be
general ones and shall not be specified for acceptance by particular
members. The proposed amendment modifies OFPA F-7 to reflect the
development of different execution guarantees depending on the status
of the order to be executed. Under Phlx Rule 1033(a), the current
``ten-up'' rule, public customer orders are afforded a ten-up guarantee
on the Exchange, receiving an execution of up to ten contracts at the
best market price regardless of whether size was quoted. Broker-dealer
orders do not qualify for the ten-up guarantee. Accordingly, the stated
purpose of the proposed rule change is to permit floor traders to
provide greater bid and/or offer sizes (i.e., more than 10 contract
guarantee) to facilitate customer orders while not being under such
obligation with respect to broker-dealer orders, unless specified.
However, the proposed amendment to OFPA F-7 requires that quote sizes
be maintained equally for all orders of the same account type.
Therefore, if a specialist elects to give a size of twenty-up to one-
broker-dealer, he must honor the size of twenty-up for all broker-
dealer orders.
II. Discussion
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 Section 6(b)(5).\4\ In particular, the
Commission believes the proposal is consistent with the Section 6(b)(5)
requirement that the rules of an exchange be designed to promote just
and equitable principles of trade and not to permit unfair
discrimination between customers, issuers, brokers, and dealers.
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\4\15 U.S.C. 78f(b)(5) (1982)
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In approving the Phlx's ``ten-up'' in rule in June 1987,\5\ the
Commission found that it was designed to benefit public customers by
increasing the size of orders for which they can be assured executions
to a minimum depth of ten contracts at the best bid or offer as quoted
by a specialist or Registered Options Trader (``ROT''). Although the
Commission carefully scrutinizes discriminatory order execution
practices, limiting the ``ten-up'' rule for public customers furthers
the purposes of the Act. The intent of the ``ten-up'' rule is to
encourage options specialists and ROTs to become more competitive in
making markets, thereby contributing to a more free and open market.
Because the ``ten-up'' rule was designed by the options exchanges for
the benefit of public customers, however, the incentive for market
makers and ROTs to benefit public customers through the ``ten-up'' rule
is contingent on the assurance that these market makers volume
guarantees will not be exhausted by competitors to the detriment of
public customers.
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\5\See Securities Exchange Act Release No. 24580 (June 11,
1987), 52 FR 23120.
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The Commission believes that allowing floor traders to provide
customers with quote sizes greater than the minimum ``ten-up''
guarantee, while not being obligated with respect to broker-dealer
orders, is consistent with the Act in that it will facilitate customer
orders. The Commission also believes the rule change will encourage
market participants to make larger markets, resulting in tighter
spreads, which, in turn, should contribute to more liquid options
markets. Furthermore, allowing floor traders to increase the quote
sizes available to customer orders furthers the underlying purposes of
the ``ten-up'' rule. The proposal also requires that order sizes be
maintained equally for all orders of the same account type, as defined
by OFPA B-6. Accordingly, if a specialist elects to give a size of
twenty-up to one broker-dealer, he must honor the size of twenty-up for
all broker-dealer orders. In the absence of a stated size to any bid or
offer, the size shall be deemed to be for one contract only, subject to
the minimum volume guarantees for public customers orders, as
established in Rule 1033(a). The Commission believes this requirement
will help to ensure the integrity and fairness of the Phlx's markets in
that it will help prevent order discrimination within account types.
The Commission finds good cause for approving Amendment No. 1 to
the Exchange's proposal prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register.
Amendment No. 1 eliminates the term ``public customers'' from OFPA B-7,
which was proposed in the original filing. Because existing Phlx OFPA
B-6 already distinguishes between account types, of which ``public
customers'' is one type, the Commission does not believe the proposal's
elimination of the term raises any new or substantive issues. Moreover,
the minimum volume guarantees afforded by Rule 1033(a) are only
available to public customer orders and the elimination of the term
from OFPA B-7 does not affect the ten-up guarantee. Amendment No. 1
also replaces a reference to the Phlx ``ten-up'' rule with a citation
to OFPA A-11, which is the floor advice currently governing minimum
volume guarantees. The Commission believes this change is non-
substantive and does not affect the operation or implementation of
either Rule 1033(a), OFPA A-11, or the filing.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. Persons making written submission
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 at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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 October 26,
1994.
It therefore is ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-Phlx-91-46) is approved, as
amended.
\6\15 U.S.C. 78s(b)(2) (1982).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\2\
\2\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24614 Filed 10-4-94; 8:45 am]
BILLING CODE 8010-01-M
