[Federal Register Volume 62, Number 146 (Wednesday, July 30, 1997)]
[Notices]
[Pages 40882-40884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20051]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38864; File No. SR-Phlx-97-32]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Respecting the Public
Order Exposure System for PACE Orders
July 23, 1997.
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 June 30,
1997, 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 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 Exchange, pursuant to Rule 19b-4 under the Act,\1\ proposes to
amend Supplementary Material .05 of Rule 229, to reflect a 30 second
order exposure time period, or ``widow,'' in lieu of 15 seconds, and to
title Supplementary Material .05 as the ``Public Order Exposure
System'' or ``POES,'' as it is known at the Exchange. The operation of
the Philadelphia Stock Exchange Automatic Communications and Execution
(``PACE'') System is governed by Phlx Rule 229 (``PACE Rule''). PACE is
the Exchange's automatic order routing and execution system for
securities on the equity trading floor. Currently, Supplementary
Material .05 to the PACE Rule provides that market orders are stopped
for 15 seconds to provide an opportunity for price improvement, except
where the market
[[Page 40883]]
for the security is quoted at \1/8\ point or less.\2\
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\1\ 17 CFR 240.19b-4.
\2\ The Exchange recently has proposed additional amendments to
both Supplementary Material .05 and other portions of Rule 229. See
Securities Exchange Act Release No. 38544 (July April 24, 1997), 62
FR 24525 (May 5, 1997) (File No. SR-Phlx-97-11) (notice of proposed
rule change).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, 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
Generally, the PACE Rule governs the operation of the PACE system
and defines its objectives and parameters. PACE accepts orders for
automatic or manual execution in accordance with the provisions of the
PACE Rule. The PACE Rule establishes execution parameters for orders
depending in type (market or limit) and size.
With respect to market orders, currently, Supplementary Material
.05 to the PACE Rule provides that round-lot market orders up to 500
shares and partial round-lot (``PRL'') market orders up to 599 shares,
which combine a round-lot with an odd-lot order, are stopped at the
PACE \3\ at the time of their entry into PACE (``stop price'') for 15
seconds to provide the Phlx specialist with the opportunity to effect
price improvement when the spread between PACE Quote exceeds an \1/8\
of a point. Market orders greater than 599 shares that a specialist
voluntary agrees to automatically execute also are entitled to
participation in POES.\4\
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\3\ The PACE Quote consists of the best bid/offer among the
American, Boston, Cincinnati, Chicago, New York, Pacific and
Philadelphia Stock Exchanges as well as the Intermarket Trading
System/Computer Assisted Execution System (``ITS/CAES'') See PACE
Rule.
\4\ See Supplementary Material .05 to the PACE Rule (``subject
to these prodcedures'').
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POES ensures that stopped orders are automatically executed at the
stop price after the time expires. Thus, although these orders are
executable immediately upon their entry into PACE at the PACE Quote,
POES allows an opportunity for price improvement, but guarantees that
the order receive at least the stop price. The purpose of stopping an
order is to permit the specialist to seek a better price for the order,
by probing the market further or facilitating the order in the
specialist's proprietary account at a better price.
POES was adopted in early 1995;\5\ thereafter, following Floor
Procedure Committee (``FPC'') approval in December 1995, the POES order
exposure time period, or ``window,'' was increased from 15 to 30
seconds.\6\ At this time, the Exchange proposes to codify the 30 second
time period into Supplementary Material .05, which currently reflects
the prior 15 second window. The Exchange believes that extending the
POES window to 30 seconds enables the specialist to better gauge the
market and thus, improves the likelihood of price improvement. The
Exchange has learned, in its two years of experience with POES, that
additional time is needed for a meaningful opportunity for price
improvement to be afforded to such orders. The 30 second window enables
the specialist to better locate between-the-market interest and probe
other market centers.\7\
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\5\ Securities Exchange Act Release No. 35283 (January 26,
1995), 60 FR 6333 (February 1, 1995) (File No. SR-Phlx-94-58).
\6\ By Exchange oversight, this change was not filed with the
SEC as a proposed rule change pursuant to Section 19(b) of the Act,
15 U.S.C. 78s(b), and Rule 19b-4 thereunder prior to its
implementation. Upon its discovery in the course of drafting changes
to the PACE Rule, the change was promptly filed with the Commission.
See Securities Exchange Act Release No. 37479 (July 25, 1996), 61 FR
40276 (August 1, 1996) (File No. SR-Phlx-96-25). It is now being re-
filed as a separate proposed rule change due to the withdrawal of
File No. SR-Phlx-96-25. To date, the Exchange has not distributed
marketing material reflecting an order exposure window of 30
seconds.
\7\ The Exchange previously had stated the reasoning behind the
expansion of the POES window, in an amendment letter respecting File
No. SR-Phlx-96-25. See Letter from Gerald D. O'Connell, Senior Vice
President, Phlx, to Jennifer Choi, Attorney, SEC, dated July 19,
1996. Specifically, the Exchange stated that the FPC recognized that
15 seconds was often too short of a time period for the specialist
to act. Specialists indicated that by the time they noticed an order
was stopped, it had been automatically executed. The Exchange's
decision to expand the POES window to 30 seconds is rooted in the
logical principle that more time means more opportunity for price
improvement.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act in general,\8\ and in particular, with
Section 6(b)(5), in that it is designed to promote just and equitable
principles of trade, 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 codifying the extension of
the POES order exposure window to 30 seconds. The Exchange believes
that a 30 second POES window is appropriate, as automatically executed
orders continue to receive the important benefits of speedy execution
and reporting, while also receiving a more meaningful opportunity for
price improvement.
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\8\ 15 U.S.C. 78f.
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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 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 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
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.,
[[Page 40884]]
Washington, DC 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-97-32 and should be
submitted by August 20, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-20051 Filed 7-29-97; 8:45 am]
BILLING CODE 8010-01-M
