[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Notices]
[Pages 60435-60436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29974]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40625; File No. SR-PHLX-98-41]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to the Extension of a Pilot Program for a
System Enhancement to the X-Station Electronic Book on the Options
Floor
November 2, 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 6, 1998, 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, 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
On a pilot basis, the Phlx previously implemented an enhancement to
its X-Station electronic book. The Exchange seeks to extend that pilot
through April 23, 1999.\3\ Under the pilot, a system enhancement was
made to the X-Station electronic book on the options floor, which
matches incoming orders eligible for the Automatic Execution System
(``AUTO-X'') feature of the Phlx Automated Options Market (``AUTOM'')
system with orders residing on the specialist's book.
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\3\ Letter from Richard S. Rudolph, Legal Counsel, Phlx, to
Anitra T. Cassas, Attorney, Division of Market Regulation,
Commission, dated October 21, 1998.
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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 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, 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 April 24, 1998, the Exchange filed with the Commission a
proposed rule change to implement, on a pilot basis, an enhancement to
the X-Station electronic book on the Exchange's options floor, which
became effective immediately upon filing.\4\ As described in Phlx 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 Exchange is currently preparing floor-wide
deployment of the new X-Station electronic book on the options floor.
The new X-Station provides certain improvements such as expedited non-
AUTO-X order execution, as well as expedited cancel replacement
processing.
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\4\ Exchange Act Release No. 39972 (May 7, 1998) 63 FR 26666
(May 13, 1998).
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AUTO-X is the automatic execution feature of the AUTOM System, the
electronic order delivery and routing system for options orders.
Previously,
[[Page 60436]]
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 the specialist was then required
to 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 Phlx proposes to extend the pilot program, a
system enhancement to the electronic book that matches incoming AUTO-X
orders with booked orders, for an additional six months. The matching
ability allows the specialist to match two participants directly,
without the specialist participating in the trade, by dropping the
order to manual status. The match is not automatic, as the specialist
must ensure that crowd participation under current parity/priority
rules is not due before executing the trade; thus, the specialist must
``select'' the orders to execute the trade. Since the AUTO-X order
drops to manual status (meaning it is not automatically executed), the
sending firm will only receive an execution report after the specialist
selects and executes the trade.
The enhancement implemented through the current pilot program
affords specialists relief from the manual burden of inserting trade
participant and clearing information by writing an order ticket for the
booked order. Without the X-Station itself, the booked order appeared
on an actual order ticket, which the specialist submitted for key punch
entry. Thus, implementing the X-Station without the matching feature is
more burdensome than the process required without the existence of the
X-Station because the X-Station requires more ticket-writing. The
enhancement has reduced the amount of paper processed on the options
floor, which in turn has reduced handling and processing time,
including the likelihood of errors, thereby facilitating more prompt
and accurate trade reporting.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \5\ of the Act, in general, and furthers the objectives of
Section 6(b)(5),\6\ in particular, in that it is designed to foster
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 market.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
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
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 foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \7\ and subparagraph (e)(5) of Rule 19b-4
thereunder.\8\ 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.\9\
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(e)(5).
\9\ In reviewing this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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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.
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, 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 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-98-41 and should
be submitted by November 30, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-29974 Filed 11-6-98; 8:45 am]
BILLING CODE 8010-01-M
