[Federal Register Volume 62, Number 117 (Wednesday, June 18, 1997)]
[Notices]
[Pages 33149-33150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15936]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38738; File No. SR-Phlx-97-20]
Self-Regulatory Organizations; Order Granting Accelerated
Approval To Proposed Rule Change and Amendment No. 1 Thereto by the
Philadelphia Stock Exchange, Inc. Relating to Specialist Wheel Rotation
Frequency
June 11, 1997.
On April 24, 1997, the Philadelphia Stock Exchange, Inc. (``Phlx''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Floor Procedure Advice
(``Advice'') F-24, AUTO-X Contra-Party Participation (the ``Wheel''),
regarding Wheel rotations to the specialist. On May 9, 1997, the Phlx
submitted Amendment No. 1 to the proposed rule change.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Philip H. Becker, Senior Vice President and
Chief Regulatory Officer, Phlx, to Michael Walinskas, Senior Special
Counsel, Division of Market Regulation, SEC, dated May 8, 1997
(``Amendment No. 1''). In Amendment No. 1, the Phlx designated File
No. SR-Phlx-97-20 as submitted pursuant to Section 19(b)(2) of the
Act, rather than pursuant to Section 19(b)(3)(A), as originally
filed.
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The proposed rule change was published for comment in the Federal
Register on May 16, 1997.\4\ No comments were received on the proposal.
This order grants accelerated approval to the proposal.
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\4\ See Securities Exchange Act Release No. 38606 (May 9, 1997),
62 FR 27099 (May 16, 1997).
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II. Description of the Proposal
The Wheel is an automated mechanism for assigning floor traders
(i.e., specialists and registered options traders (``ROTs'')), on a
rotating basis, as contra-side participants to AUTO-X orders. AUTO-X is
the automatic execution feature of the Exchange's Automated Options
Market (``AUTOM'') system,\5\ which provides customers with automatic
executions of eligible equity option and index option orders at
displayed markets. Currently, the Wheel allocates the first trade of
every day to the specialist. Thereafter, if four or less ROTs are
participating on the Wheel, the specialist participates in a normal
rotation. However, if five or more ROTs have signed-on the Wheel, the
specialist receives every fifth execution.
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\5\ AUTOM is an electronic order routing and delivery system for
options orders.
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The proposal would reduce the rotation frequency for the specialist
in larger crowds. Specifically, if there are, on average, five to 15
Wheel participants (including the specialist), the specialist would
receive every fifth execution, and if there are, on average, 16 or more
Wheel participants, the specialist would receive every tenth execution.
Where the Wheel will be set to ``every tenth execution,'' the
specialist's rotation frequency will thereafter be automatically
reduced from every tenth execution to a normal, consecutive rotation,
when the number of signed-on Wheel participants becomes less than ten.
The proposal also would enable the Options Committee to establish a
different rotation increment not to exceed ten contracts. Currently,
the Wheel rotates in different increments, depending upon the size of
the AUTO-X guarantee in that issue. For example, where the AUTO-X
guarantee is for one to ten contracts, the Wheel rotates in two lot
increments, meaning a ten lot would be divided in two lots to five
Wheel participants. Where the AUTO-X guarantee is 11 to 25 contracts,
the Wheel rotates in five lot increments, and where the guarantee
exceeds 25 contracts, up to the maximum permissible 50 contracts, the
Wheel rotates in ten lot increments. The proposal would allow the Wheel
to rotate in an increment larger than permissible under the current
framework, but no greater than ten contracts. The Options Committee may
determine to allow a differing rotation, if requested by the specialist
and Wheel participants, and following adequate notice to the trading
floor.
III. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful review, 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.
Specifically, the Commission believes the proposal is consistent with
the requirements of Section 6 of the Act \6\ in general, and in
particular, with Section 6(b)(5).\7\ Section 6(b)(5) provides that the
rules of the
[[Page 33150]]
Exchange must be designed to promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and in general, to protect investors and the public
interest.\8\
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5).
\8\Id.
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The Commission believes that reducing the rotation frequency for
specialists in larger crowds will promote equitable principles of trade
by encouraging more ROTs to participate on the Wheel. The anticipation
of more frequent Wheel executions will likely provide ROTs with an
incentive to participate on the Wheel, thereby increasing liquidity in
Phlx equity and index options. The proposal also will eliminate the
perceived disproportionate allotment to the specialist in larger
crowds.
In addition, the Commission notes that reducing the rotation
frequency for specialists will have no discernible impact on public
customers as the Exchange represents that neither the price nor the
time of AUTO-X executions will be affected. Instead, the proposal will
modify only the identity of the contra-side participant for AUTO-X
trades. The proposal will, therefore, assure ROTs of more frequent
execution in larger crowds, without affecting the execution of public
customer orders.
The Commission believes that providing the Options committee with
the authority to establish, at the request of Wheel participants, a
rotation increment larger than that permissible under the current
framework, but no greater than ten contracts, will remove impediments
to a free and open market by providing the Phlx with additional
flexibility to determine, within established parameters, the
appropriate rotation procedures for a given option. In certain
circumstances, the Phlx may determine it is preferable to all Wheel
participants to receive larger, but less frequent, executions than
allowable under the existing rules. The Commission believes that the
proposal's limitation of ten contracts on the Option committee's
authority to establish rotation increments is appropriate given that
the original Wheel provisions provided for a rotation increment of ten
contracts.\9\ The Commission notes that any proposed increase in the
rotation increment in excess of ten contracts would have to be
submitted to the Commission for approval pursuant to Rule 19b-4.
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\9\ See Securities Exchange Act Release No. 35033 (November 30,
1994), 59 FR 63152 (December 7, 1994) (SR-Phlx-94-32).
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Finally, the Commission finds good cause for approving the proposed
rule change and Amendment No. 1 thereto prior to the thirtieth day
after the date of publication of notice of filing thereof in the
Federal Register. The proposed rule change, as amended, should add
additional liquidity to Phlx's equity and index options traded through
AUTO-X. In addition, the Commission did not receive any comments on
this proposal, which was noticed for the full 21-day period. As the
implementation of these proposed changes is expected to assist the
Exchange in facilitating a fair and orderly market, the Commission
believes that granting accelerated approval of the proposed rule change
is appropriate and consistent with Section 6 of the Act.\10\
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\10\ 15 U.S.C. 78f.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-Phlx-97-20), including
Amendement No. 1, is approved on an accelerated basis.
\11\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15936 Filed 6-17-97; 8:45 am]
BILLING CODE 8010-01-M
