[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Notices]
[Pages 64751-64752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31226]
[[Page 64751]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40681; File No. SR-Phlx-98-44]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. To Amend Exchange Rule
1080 To Permit Automatic Execution of U.S. Top 100 Index Options Orders
for the Accounts of Broker Dealers
November 16, 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 October 20, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend Exchange Rule 1080 to permit orders for
U.S. Top 100 Index (``TPX'') options for the accounts of broker-dealers
to be made eligible for execution on the Automatic Execution System
(``AUTO-X''), a feature of the Phlx Automated Options Market
(``AUTOM'').\3\
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\3\ AUTOM is an electronic order routing system for options
orders. See Phlx Rule 1080.
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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 Exchange 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 Exchange 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 U.S. Top 100 Index is a capitalization-weighted, broad-based
stock index composed of 100 of the most highly capitalized, widely held
U.S. common stocks representing a variety of industries including, but
not limited to, technology, manufacturing, and service industries, of
which ninety-six are listed on the New York Stock Exchange and four are
Nasdaq National Market securities.\4\ Currently, with respect to TPX
options, broker-dealer orders may be entered into AUTOM, but are not
eligible for AUTO-X.\5\ AUTO-X is a feature of AUTOM that automatically
executes agency market and marketable limit orders up to the number of
contracts permitted by the Exchange in equity and index options.\6\ As
stated above, only agency orders are eligible for AUTO-X.\7\ Agency
orders for up to 500 TPX option contracts are eligible for AUTOM.\8\
For purposes of AUTOM and AUTO-X eligibility, an agency order is an
order entered on behalf of a public customer, and does not include any
order entered for the account of a broker-dealer or any account in
which a broker-dealer or an associated person of a broker-dealer has
any direct or indirect interest.\9\
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\4\ See Securities Exchange Act Release No. 35591 (April 11,
1995), 60 FR 19423 (April 18, 1995) (order approving File No. SR-
Phlx-95-07). Telephone conversation between Richard Rudolph,
Counsel, Phlx, and David Sieradzki, Attorney, Division of Market
Regulation, Commission on November 3, 1998 (``Telephone
Conversation'').
\5\ See Securities Exchange Act Release No. 36429 (October 27,
1995), 60 FR 55874 (November 3, 1995) (order approving File No. SR-
Phlx-95-35). Other than broker-dealer orders in TPX options, only
agency options orders are eligible for AUTOM. Id.
\6\ See Securities Exchange Act Release No. 38792 (June 30,
1997), 62 FR 36602 (July 8, 1997) (order approving SR-Phlx-97-24).
\7\ Telephone Conversation, supra note 4.
\8\ See Securities Exchange Act Release No. 35782 (May 30,
1995), 60 FR 30136 (June 7, 1995) (order approving SR-Phlx-95-30).
\9\See supra note 6.
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The Phlx is proposing to provide AUTO-X eligibility for broker-
dealer orders for TPX options for up to 50 contracts. Presently, the
maximum AUTO-X agency order size is currently 50 contracts.\10\ Thus,
the 50-contract aspect of the proposal is consistent with the current
order size provisions of Rule 1080. The Phlx believes that providing
AUTO-X eligibility for TPX option orders entered by broker-dealers
should expand to liquidity of, and add depth to, the Phlx marketplace
by attracting additional institutional investors to TPX.
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\10\ See Exchange Rule 1080(c).
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The Phlx believes that the TPX, typically a high-priced options
index, appeals to institutional investors more so than to individual
investors. Therefore, automatic execution at higher contract levels is
particularly important to institutional investors. The Phlx believes
that permitting broker-dealer TPX options orders to be executed via
AUTO-X will allow broker-dealers to benefit from prompt and efficient
automatic execution and reporting.\11\ This, in turn, should add depth
and liquidity to the Phlx's marketplace for TPX options by attracting
orders from broker-dealers who seek immediate, automatic executions
through AUTO-X. The Exchange is only proposing to permit broker-dealer
orders to be AUTO-X eligible in TPX options, recognizing that broker-
dealer access to a small order execution system is new.\12\ The
Exchange believes that TPX is particularly well-suited for this
endeavor because of the composition of the index and the investor
participants and trading patterns it generates.
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\11\ Telephone Conversation, supra note 4.
\12\ Id.
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2. Statutory Basis
For these reasons, the proposed rule change is consistent with
Section 6 of the Act in general, and in particular, with Section
6(b)(5), in that it is designed to promote just and equitable
principles of trade, to add depth and liquidity to the marketplace for
TPX options, and to facilitate execution and reporting of broker-dealer
orders for TPX options.
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 on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of 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
[[Page 64752]]
organization consents, the Commission will:
(A) by order approve such 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, including whether the proposed rule
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, 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.
Sec. 552, will be available for inspection and copying in the
Commission's Public Reference Room. 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-98-44 and should
be submitted by December 14, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc 98-31226 Filed 11-20-98; 8:45 am]
BILLING CODE 8010-01-M
