[Federal Register Volume 60, Number 188 (Thursday, September 28, 1995)]
[Notices]
[Pages 50225-50226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24096]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36271; File No. SR-Phlx-95-66]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to P/A Orders
September 22, 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
September 15, 1995, 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 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 is proposing to amend: (i) Phlx Rule 1066\1\ by adding new
paragraph (h), P/A Orders (Principal Acting as Agent); and (ii) Phlx
Rule 1015\2\ by adding new paragraph (c). Below is the text of the
proposed rule change. Proposed new language is in italics.
\1\ Philadelphia Stock Exchange Guide, Options Rules, Rule 1066
(CCH) para.3066.
\2\ Philadelphia Stock Exchange Guide, Options Rules, Rule 1015
(CCH) para.3015.
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Options Rules
* * * * *
Certain Types of Orders Defined
Rule 1066
* * * * *
(h) P/A Order (``Principal Acting as Agent'')--A P/A order is an
order received on the Exchange in the name (``give-up'') of a
registered floor trader on another national options exchange (i.e., an
``N'' account type) sent while that floor trader is holding a similar
customer order in that same option series for the account of a public
customer for which price improvement is sought on the basis that the
PHLX is displaying a superior bid or offer.
* * * * *
Quotation Guarantees
Rule 1015
* * * * *
(c) P/A Orders--the P/A order type shall only exist with respect to
those multiply traded equity options for which the originating options
exchange affords reciprocal P/A treatment. P/A orders received on the
PHLX must be provided with the customer volume guarantees of Rules 1015
and 1033, if the PHLX specialist agreement to accept P/A orders is
reciprocated by the sending floor trader in the same option on another
national options exchange. P/A orders may not be for more than the
number of contracts on the customer's order and must be market or
marketable limit orders. An order does not qualify as a P/A order if
the customer's order on the other exchange was given an execution prior
to the time the P/A order is sent on its behalf.
* * * * *
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 Phlx included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments if received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Phlx 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 proposed rule change is to create a new equity
options order designator, the P/A order, to ensure that when a floor
trader (i.e., Specialist, market maker, Registered Options Trader, Lead
Market Maker or Designated Primary Market Maker) from another options
exchange in possession of a public customer order sends a mirror-image
order \3\ to the Phlx to obtain price improvement for that customer,
the customer will receive the benefit of that better execution price,
notwithstanding that the mirror-image order has been sent in the name
of floor trader. Similarly, the P/A order is intended to ensure that
when a Phlx floor trader sends such an order to another options
exchange, the customer for whom the Phlx order is sent receives the
benefit of the better price available on that exchange.
\3\ A mirror-image order is an order sent by the floor trader
for the exact number of contracts specified in the customer order.
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The proposed rule change recognizes that orders received on
national options exchanges in the name of public customers are provided
firm quotes and volume guarantees not available to orders received in
the name of broker-dealers. These volume guarantees are not
insignificant, established by rule as a minimum of ten contracts and
are frequently much higher.
Because orders emanating from the floor of one exchange and sent to
another in multiply-listed options normally are sent in the name of the
floor trader, they are often deprived of the opportunity to receive
such guarantees. For example, a customer buy order may be ``stopped''
by a floor trader on the receiving exchange at that
[[Page 50226]]
exchange's displayed price of 2\3/4\ while that floor trader sends a
mirror-image order to an exchange displaying an offer price of 2\5/8\.
The floor trader sends such order under his own broker-dealer give-up.
The receiving exchange's floor traders do not know that the order is
for the benefit of a customer and are under no obligation to provide
the order with its exchange customer guarantee. Consequently, the order
may not be executed and the quote, in accordance with the ``trade or
fade'' rules on the options exchanges, may then be changed to a 2\3/4\
offer. Once the quote has faded to 2\3/4\, the customer is deprived of
an opportunity to receive a 2\5/8\ fill, as the floor trader who sent
the order may then fill the customer at his own exchange's displayed
price of 2\3/4\, without the concern of creating a trade-through.
As proposed herein, the P/A designator would serve to inform
receiving markets that a customer order is being represented by the
floor trader's order.\4\ Knowledge that the order is for the benefit of
a customer will form the basis for such orders to be provided with
those customer volume guarantees currently afforded to customer orders
received directly by the various exchanges. Use of the P/A designator
therefore will ensure that the customer receives the volume guarantee
provided on the exchange displaying the superior price and will reverse
the deleterious effects the trade-or-fade rules may have had in
promoting fades of such prices, at least in instances where a customer
order is involved. By providing orders placed in the name of floor
traders, but for the benefit of customers, with public customer volume
guarantees, the proposal promotes objectives of the national market
system in the options marketplace. Specifically, the proposal promotes
the practicability of brokers executing investors' orders in the best
market.\5\ In addition, the proposal is intended to assure the
economically efficient execution of securities transactions.\6\
\4\ The Phlx will surveil for compliance with the provision to
assure that its traders are sending orders on behalf of a bona fide
customer account prior to such customer order being executed on the
exchange where that order was routed to receive the benefit of the
better price available on that exchange. The Phlx expects equivalent
surveillance to be conducted on all participating exchanges.
\5\ 15 U.S.C. 78k-1(a)(1)(C)(iv).
\6\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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As an interim step toward implementing these national market system
objectives in the equity options marketplace, the use of the P/A
designator would be adopted on a voluntary basis by Phlx floor traders
and available to any reciprocating floor traders on other national
options exchanges who have agreed to execute Phlx P/A orders in the
same multiply-listed options on the same basis. In preparation for such
implementation, the Exchange has identified its multiply-listed options
participating in the voluntary P/A designation.
To qualify as a P/A order, the mirror-image order sent by the floor
trader must be for no more than the number of contracts on the
customer's order in-hand and must be either a market or a marketable
limit order. An order would not qualify as a P/A order if the
customer's order has already been executed prior to the time the
mirror-image order is sent to the Phlx. To qualify as ``customer,'' the
account for which price improvement is sought must be a non-broker-
dealer account.
The proposed rule change is consistent with Section 6(b)(5) of the
Act \7\ in that it is designed to promote just and equitable principles
of trade, prevent fraudulent and manipulative acts and practices,
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 improving the execution procedure for
principal-acting-as-agent orders in multiply-listed options.
\7\ 15 U.S.C. Sec. 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 result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
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 date of 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 Phlx consents, the Commission will:
(A) by order approve such 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 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-95-66 and should
be submitted by October 19, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-24096 Filed 9-27-95; 8:45 am]
BILLING CODE 8010-01-M
