[Federal Register Volume 60, Number 75 (Wednesday, April 19, 1995)]
[Notices]
[Pages 19616-19618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9668]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35601; File No. SR-PHLX-95-18]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc., Relating to the Automated Options Market System and
AUTO-X Eligibility of Certain Orders
April 13, 1995.
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 April 4,
1995, the Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'')
filed with the Securities 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 self-regulatory
organization. The Commission is publishing this notice to solicit
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 proposes to codify its practice of accepting stop, stop-
limit, all-or-none, or better, simple cancel, simple cancel to reduce
size (cancel leaves), cancel to change price, cancel with replacement
order, market-on-close, opening-only-market, and possible duplicate
orders for delivery through the PHLX's Automated Options Market
(``AUTOM'') system. In addition, the PHLX proposes to codify its
practice of accepting orders designated as ``day'' orders, which are
executable on the day they are entered or not at all, and good-till-
cancelled (``GTC'') orders for delivery through AUTOM and execution
through AUTO-X, the automatic execution feature of AUTOM. Currently,
day orders and GTC orders are accepted on the PHLX's trading floor as
both manually entered orders on floor tickets and through AUTOM.
The text of the proposed rule change is available at the Office of
the Secretary, 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 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
The purpose of the proposal is to codify (1) the acceptance of
certain order types and designators for electronic execution through
AUTOM; and (2) the designation of certain types of orders that are
executed through AUTO-X. AUTOM, which has operated on a pilot basis
since 1988 and was most recently extended through December 31, 1995,\1\
is the PHLX's electronic order [[Page 19617]] routing, delivery,
execution and reporting system for equity and index options. AUTOM is
an on-line system that allows electronic delivery of options orders
from member firms directly to the appropriate specialist on the
Exchange's trading floor.
\1\See Securities Exchange Act Release No. 35183 (December 30,
1994), 60 FR 2420 (January 9, 1995) (order approving File No. SR-
PHLX-94-41). See also Securities Exchange Act Release Nos. 25540
(March 31, 1988), 53 FR 11390 (order approving AUTOM on a pilot
basis); 25868 (June 30, 1988), 53 FR 25563 (order approving File No.
SR-PHLX-88-22, extending pilot through December 31, 1988); 26354
(December 13, 1988), 53 FR 51185 (order approving File No. SR-PHLX-
88-33, extending pilot program through June 30, 1989); 26522
(February 3, 1989), 54 FR 6465 (order approving File No. SR-PHLX-89-
1, extending pilot through December 31, 1989); 27599 (January 9,
1990), 55 FR 1751 (order approving File No. SR-PHLX-89-03, extending
pilot through June 30, 1990); 28625 (July 26, 1990), 55 FR 31274
(order approving File No. SR-PHLX-90-16, extending pilot through
December 31, 1990); 28978 (March 15, 1991), 56 FR 12050 (order
approving File No. SR-PHLX-90-34, extending pilot through December
31, 1991); 29662 (September 9, 1991), 56 FR 46816 (order approving
File No. SR-PHLX-91-31, permitting AUTO-X orders up to 20 contracts
in Duracell options only); 29782 (October 3, 1991), 56 FR 55146
(order approving File No. SR-PHLX-91-33, permitting AUTO-X for all
strike prices and expiration months); 29837 (October 18, 1991), 56
FR 36496 (order approving File No. SR-PHLX-90-03, extending pilot
through December 31, 1993); 32906 (September 15, 1993), 58 FR 15168
(order approving File No. SR-PHLX-92-38, permitting AUTO-X orders up
to 25 contracts in all options); and 33405 (December 30, 1993), 59
FR 790 (order approving File No. SR-PHLX-93-57, extending pilot
through December 31, 1994).
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Orders for up to 100 options contracts are eligible for AUTOM and
public customer orders for up to 25 contracts are eligible for AUTO-X,
the automatic execution feature of AUTOM.\2\ AUTO-X orders are executed
automatically at the disseminated quotation price on the Exchange and
reported to the originating firm. Orders that are not eligible for
AUTO-X are handled manually by the specialist.
\2\The Commission recently approved a PHLX proposal to codify
the use of AUTOM and AUTO-X for index options. See Securities
Exchange Act Release No. 34920 (October 31, 1994), 59 FR 5510
(November 7, 1994) (order approving File No. SR-PHLX-94-40).
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At the inception of the AUTOM pilot program, only customer market
orders were AUTOM-eligible. Thereafter, the Commission approved
proposals permitting delivery of marketable limit, GTC, and cabinet
orders (accommodation transactions) through AUTOM.\3\
\3\See Securities Exchange Act Release Nos. 27599 (making day
limit orders eligible for delivery through AUTOM) and 28978 (making
GTC and cabinet orders eligible from AUTOM), supra note 1.
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Exchange By-Law Article X, ``Standing Committees,'' Section 10-18,
``Options Committee,'' grants authority over all connections and
communications on the options floor, including AUTOM, to the Options
Committee. Pursuant to this authority, the Options Committee decided in
1991 to accept certain additional order types for AUTOM and AUTO-X in
the interest of maintaining fair and orderly markets.
The PHLX proposes to incorporate the following order types into the
AUTOM pilot program: stop,\4\ stop-limit,\5\ all-or-none,\6\ market-on-
close,\7\ opening-only-market,\8\ and cancel-replacement orders.\9\ In
addition, the PHLX proposes to codify the following order conditions
into the AUTO pilot program: or better,\10\ possible duplicate
orders,\11\ and several types of cancellation conditions--simple
cancel, simple cancel to reduce size (cancel leaves) and cancel to
change price.\12\ Currently, these orders are accepted and these
designations are utilized for both manual and AUTOM-delivered orders.
\4\A ``stop'' order is a contingency order to buy or sell when
the market for a particular option contract reaches a specified
price. A stop order to buy becomes a market order when the option
contract trades at or above the stop price. A stop order to sell
becomes a market order when the option contract trades at or below
the stop price. See PHLX Rule 1066(c)(2), ``Stop (stop-loss)
Order.''
\5\A stop-limit order is a contingency order to buy or sell at a
limited price when the market for a particular option contract
reaches a specified price. A stop-limit order to buy becomes a limit
order when the option contract trades at or above the stop price. A
stop-limit order to sell becomes a limit order when the option
contract trades at or below the stop price. See PHLX Rule
1066(c)(1), ``Stop-Limit Order.''
\6\An ``all-or-none order'' is a market or limit order to be
executed in its entirety or not at all. See PHLX Rule 1066(c)(4),
``All or None Order.''
\7\A ``market-on-close'' order is a market or limit order to be
executed as close as possible to the closing bell, or during the
closing rotation and should be near to or at the closing price for
the particular series. See PHLX Rule 1066(c)(6), ``Market-on-Close
Order.''
\8\An ``opening-only-market'' order is a market order which is
to be executed in whole or in part during the opening rotation or
not at all. See PHLX Rule 1066(c)(5).
\9\``Cancel-replacement'' is an order which requires the
immediate cancellation of a previous order prior to the replacement
of a new order. See PHLX Rule 1066(c)(7), ``Cancel-Replacement
Order.''
\10\The designation ``or better'' indicates that the originator
of the order is aware that the market is currently better than the
limit price of the order; this order is not filled at a price
outside of the ``or better'' price. The ``or better'' designation is
used to verify the validity of the order and confirms that the order
was entered on the correct side.
\11\``Possible duplicate'' is a status which indicates that
before an AUTOM order is executed manually by the specialist, the
specialist should confirm that the order has not yet been executed.
\12\Various types of cancellation conditions and procedures are
defined in Option Floor Procedure Advise A-6, ``Responsibility to
Cancel Orders on the Book'' as well as PHLX Rule 1066, ``Certain
Types of Orders Defined.'' The designation ``simple cancel''
indicates that an order is to be cancelled, while ``cancel leaves''
indicates that the size of a previous order is being reduced and
``cancel to change price'' cancels the price of a previous order.
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With respect to automatic executions, market and marketable limit
orders currently are eligible for AUTO-X. The PHLX proposes to codify
its practice of designating AUTO-X orders with the conditions ``day''
or ``GTC.'' Market or marketable limit orders, like all AUTOM orders,
are necessarily ``day'' orders expiring at the end of the trading day
or GTC orders that are good until cancelled. Thus the PHLX explains
that the proposal to codify the use of ``day'' and ``GTC'' designators
for AUTO-X merely reveals the life span of AUTO-X orders, without
adding new order types.
The Exchange believes that these order types are appropriate for
AUTOM and AUTO-X because they are commonly utilized in the securities
industry and have been accepted through AUTOM since 1991 without
significant problems reported by AUTOM users. In addition, the PHLX
believes that incorporating such orders into AUTOM extends the benefits
of these systems to additional order types.
The PHLX states that all of the additional order types and
designators are currently accepted on the Exchange as manual orders,
and are thus defined in PHLX Rule 1066, ``Certain Types of Orders
Defined.'' The PHLX specialist can accept these orders for placement on
the limit order book. According to the PHLX, permitting these orders to
be routed by AUTOM directly to the specialist does not affect the
handling of the orders by the specialist. For example, an AUTOM order
can be placed on the book. None of these orders are discretionary
orders, which may not be placed on the book under Floor Procedure
Advice (``Advice'') A-2, ``Types of Orders to be Accepted onto the
Specialist's Book.''\13\ Thus, according to the PHLX, the effect of the
proposal is to permit orders that can now be held by a specialist to be
routed electronically through AUTOM, as opposed to be being routed
manually through trading floor representatives.
\13\Under Advice A-2, a specialist may not accept option orders
consisting of two or more option series (e.g., spread, straddle, and
combination orders).
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The Exchange notes that the material terms of these orders are
relayed to the specialist by AUTOM and displayed on the order ticket,
which is printed at the specialist post. This information is the same
as if the order were manually delivered. A computer screen displays the
following information respecting incoming AUTOM orders to the trading
crowd: numeric designation, buy or sell, call or put, volume, symbol,
month, strike, price, and time received.
Accordingly, the PHLX believes that the proposal is consistent with
Section 6(b) 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 and to protect investors and the public interest by
codifying certain order types and condition designations into the AUTOM
[[Page 19618]] pilot program. Specifically, the Exchange believes that
the additional order types benefit from the advantages of AUTOM,
including efficient and prompt order delivery and execution.
(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
Because the foregoing rule change: (1) Does not significantly
affect the protection of investors or the public interest; (2) does not
impose any significant burden on competition; and (3) does not become
operative for 30 days after April 4, 1995, it has become effective
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6)
thereunder. In particular, the Commission believes that the proposal
does not significantly affect the protection of investors or the public
interest and does not impose any significant burden on competition. At
any time within 60 days of the filing of such 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. 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 at the
Commission's Public Reference Section, 450 Fifth Street NW.,
Washington, DC. 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 May 10, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-9668 Filed 4-18-95; 8:45 am]
BILLING CODE 8010-01-M
