[Federal Register Volume 61, Number 22 (Thursday, February 1, 1996)]
[Notices]
[Pages 3748-3750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2060]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36776; File No. SR-Phlx-95-91]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to Option
Specialist Evaluations
January 26, 1996
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 December
22, 1996, 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 self-regulatory
organization. The Commission is publishing this notice to solicit
[[Page 3749]]
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx, pursuant to Rule 19b-4 of the Act,\1\ proposes to update
its Options Specialist Evaluation System by adopting a new
questionnaire and revising Exchange Rules 509, 511 and 515 regarding
the evaluation procedure.
\1\ 17 CFR 249.19b-4.
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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 self-regulatory organization
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 self-regulatory organization
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
Since at least 1978, the Exchange has been evaluating its options
specialists based on the same questionnaire in use today. This
quarterly survey is a series of subjective questions answered by floor
brokers that have traded with the particular specialist over the last
quarter. The purpose of this filing is to propose a new updated survey
which requests information that the Exchange believes is more relevant
to a specialist's performance in this day and age. The results of these
evaluations are used by the Allocation, Evaluation and Securities
Committee when making allocation and reallocation decisions regarding
option specialist privileges.
The new survey has 15 all-new questions and will be answered by
floor brokers who, Exchange records show, have traded at least a
minimum number of contracts over the subject quarter.\2\ Only
specialist units (not individual specialists) will be graded as
allocations are made to units, not individual specialists. The same
questionnaire will be used for equity option specialists, index option
specialists \3\ and foreign currency option specialists. Each question
must be answered by giving the unit a score of 1 through 9 (very poor
to excellent) and any question that is answered with a score of less
than 4 must be accompanied by a written explanation. Floor brokers who
do not complete and return the surveys still will be subject to fines
pursuant to Options Floor Procedure Advice C-8. An overall score of
5.00 or above on the survey continues to be considered acceptable and
will not trigger a review by the Committee.
\2\ The number of contracts is variable based on the number of
contracts traded in a particular quarter and may, for example, be 10
contracts.
\3\ Currently, all of the specialist units that have been
allocated index options are also equity option specialists; however,
if a unit only traded index options, the survey would be equally
applicable.
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The proposed questionnaire covers a wide range of specialist
responsibilities such as the degree of liquidity provided, the
tightness of quotes, timeliness of quote updates, ability to fill small
lot orders, timeliness of reports, ability to conduct opening
rotations, maintenance of crowd control, and clerical staffing.
The process by which a specialist unit's scores will be reviewed
and used as the basis of a reallocation proceeding is also being
amended. Currently, there is a very complicated review system in place
that the Exchange has determined needs to be simplified in order to be
effective. An average score of below 5.00 for the whole survey still
will trigger a review but the existing additional criteria of a score
below 5.00 on three or more questions in a quarter or a score below
5.00 for one question in three consecutive quarters will be eliminated.
Under the proposed new procedure, if a unit receives an average
score of below 5.00 on the whole questionnaire for two consecutive
quarters, it will be deemed to have performed below minimum standards
\4\ and the head specialist will be required to appear before the
Quality of Markets Subcommittee in order to discuss the reasons for
such score and what can be done to improve the unit's performance.\5\
If the specialist unit then receives an overall score below 5.00 for
the next review period, the matter will be brought to the attention of
the full Allocation, Evaluation & Securities Committee, which will
institute proceedings to determine whether to remove or reallocate
specialist privileges from that unit. Rules 511(c) and 515 will be
amended to reflect this new review procedure. The hearing procedures
set forth in Rule 511(e) will not change and decisions still will be
subject to appeal to the Board of Governors, as provided for under
Article XI, Section 11-1 of the Phlx By-Laws.
\4\ Under the current procedure, a specialist unit that receives
an average score under 5.00 in any one quarter would be deemed to
have performed below minimum standards.
\5\ The Quality of Markets Subcommittee was created in 1994 in
order to conduct reviews for specialists subject to the enhanced
parity splits provided for in Exchange Rule 1014. See Securities
Exchange Act Release No. 34606 (August 28, 1994), 59 FR 45741
(September 2, 1994) (File No. SR-Phlx-94-12). Pursuant to Exchange
Rule 509, it is a permanently standing subcommittee composed of a
floor broker chairman (who must be a member of the Allocation,
Evaluation & Securities Committee) and an equal number of
specialists and market makers. Rule 509 will also be amended to
reflect this new added responsibility of the Subcommittee.
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2. Statutory Basis
The proposed rule change is consistent with Section 6 of the Act in
general, and in particular, with Section 6(b)(5),\6\ in that it is
designed to promote just and equitable principles of trade, prevent
fraudulent and manipulative acts and practices, 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.
\6\ 15 U.S.C. 78f(b)(5).
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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 publication of this notice in the Federal
Register or within such other 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 organization consents, the Commission will:
(A) by order approve the 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. Persons making written submissions
[[Page 3750]]
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. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-Phlx-95-91 and should be
submitted by February 22, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2060 Filed 1-31-96; 8:45 am]
BILLING CODE 8010-01-M
