[Federal Register Volume 63, Number 171 (Thursday, September 3, 1998)]
[Notices]
[Pages 47078-47080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23770]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40374; File No. SR-Phlx-98-18]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to Options
Floor Procedure Advice F-24, Auto-X Contra Party Participation (the
Wheel)
August 27, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(`'Act''),\1\ notice is hereby given that on June 5, 1998, the
Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange''), filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
the proposed rule change as described in Items I, II, and III below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend Options Floor Procedure Advice F-24
(``Advice F-24''), Auto-X Contra Party Participation (the Wheel),
paragraph (d), to state that, in extraordinary circumstances, two Floor
Officials may require all assigned Registered Options Traders
(``ROTs'') who signed onto the Wheel at any time during the last thirty
business days to participate on the Wheel. Additionally, the Phlx is
[[Page 47079]]
proposing an amendment to Advice F-24, paragraph (c)(iii), to expressly
require ROTs to sign off the Wheel when leaving the Wheel assignment
area for more than a brief interval.\2\ Because paragraph (c)(iii) is
subject to a fine schedule, the Exchange also proposes to amend its
minor rule violation enforcement and reporting plan.\3\ The text of the
proposed rule change is set forth below. Proposed new language is in
italic; proposed deletions are in brackets.
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\2\ The Phlx defines ``brief'' to mean 5 minutes or less, or in
matters of a dispute, the amount of time it takes to call in a Floor
Official and inform him/her of the issue at hand. See Securities
Exchange Act Release No. 38881 (July 28, 1997), 62 FR 41986 (Aug. 4,
1997) (order approving changes to Advice F-24).
\3\ The Phlx's minor rule violation enforcement and reporting
plan (``minor rule plan''), codified in Phlx Rule 970, contains
floor procedure advice with accompanying fine schedules. Rule 19d-
1(c)(2) under the Act authorizes national securities exchanges to
adopt minor rule violation plans for summary discipline and
abbreviated reporting. Rule 19d-1(c)(1) under the Act requires
prompt filing with the Commission on final disciplinary action.
However, minor rule violations not exceeding $2,500 are deemed not
final, thereby permitting periodic, as opposed to immediate,
reporting.
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F-24 AUTO-X Contra-Party Participation (the Wheel)
(a)-(b) No change.
(c) Participation Requirements and Sign-on/off--Specialists on the
Options Floor are required to participate on the Wheel in assigned
issues in accordance with paragraph (e) of this Advice.
(i)-(ii) No change.
(iii) If an ROT who is signed on the Wheel [is away from] leaves
the Wheel assignment area for more than a brief interval, the ROT is
responsible to sign off the Wheel. If an ROT fails to do so, a Floor
Official shall: (A) remove the ROT from any Wheel participation for the
remainder of the trading day; and (B) issue a fine pursuant to the fine
schedule below. If such ROT is assigned a Wheel trade while away from
the Wheel assignment area for more than a brief interval, that ROT is
responsible for all trades assigned to his/her ROT account unit the
sign-off is processed.
FINE SCHEDULE (Implemented on a one year running calendar basis)
F-24(c)(iii)
1st Occurrence............................ Warning.
2nd Occurrence............................ $100.00.
3rd Occurrence............................ $250.00.
4th and Thereafter........................ Sanction is discretionary
with Business conduct
Committee.
(d)-(e) No change.
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 Exchange 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 Exchange 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
The Wheel is an automated mechanism for assigning floor traders
(i.e., specialists and ROTs), on a rotating basis, as contra-side
participants for AUTO-X orders. AUTO-X is the automatic execution
feature of the Exchange's Automated Options Market (``AUTOM'')
system,\4\ which provides customers with automatic executions of
eligible option orders at displayed markets.
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\4\ AUTOM is an electronic order routing system for option
orders. See Phlx Rule 1080.
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The Exchange's Wheel provisions were approved by the Commission in
1994 as Advice F-24.\5\ The purpose of the Wheel is to increase the
efficiency and liquidity of order execution through AUTO-X by including
certain floor traders in the automated assignment of contra-parties to
incoming AUTO-X orders.\6\ Thus, the Wheel is intended to make AUTO-X
more efficient, as contra-side participation is assigned automatically,
and no longer entered manually. The Wheel is also intended to include
ROTs, as opposed to solely specialists, as a contra-side to AUTO-X
orders. Although specialists are required to participate on the Wheel,
currently, ROT participation is voluntary, absent extraordinary
circumstances.
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\5\ Securities Exchange Act Release No. 35033 (Nov. 30, 1994),
59 FR 63152 (Dec. 7, 1994) (order approving Advice F-24).
\6\ The Exchange has clarified the operation of the Wheel.
Telephone conversation between Linda S. Christie, Counsel, Phlx, and
Lisa Henderson, Attorney, Division of Market Regulation, SEC (July
28, 1998).
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The Phlx is hereby proposing that an extraordinary circumstances,
to promote liquidity, two Floor Officials may require all ROTs who
signed onto the Wheel at any time during the last thirty business days
to participate on the Wheel. This proposed amendment to Advice F-24(d)
removes the broader ability to require all ROTs to sign on its
extraordinary circumstances by limiting the provision of ROTs who have
previously signed on. Thus, ROTs who had not signed on to the Wheel in
the past thirty days would not be subject to this provision. The
purpose of this change is to establish a more equitable sign-on
requirement, affecting only those ROTs who have previously participated
on the Wheel.
Additionally, the Phlx is proposing an amendment to Advice F-
24(c)(iii) to expressly require ROTs to sign off the Wheel when leaving
the Wheel assignment area for more than a brief interval.\7\ The
purpose of this aspect of the amendment is to clarify the obligations
of an ROT to sign off the Wheel by incorporating affirmative language
into Advice F-24(c)(iii). The proposal is designed to ensure that ROTs
are aware of and meet the responsibilities pertaining to the sign-off
requirements on the Wheel
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\7\ The Exchange has clarified that ROTs who signed off to leave
the wheel assignment area may return and sign back on to the Wheel
the same day. Telephone conversation between Linda S. Christie,
Counsel, Phlx, and Lisa Henderson, Attorney, Division of Market
Regulation, SEC (July 23, 1998).
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2. Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act,\8\ in general, and furthers the objectives of
Section 6(b)(5),\9\ in particular, in that it is designed to promote
just and equitable principles of trade, prevent fraudulent and
manipulative acts and practices, facilitate transactions in securities,
remove impediments to and perfect the mechanism of a free and open
market and a national market system, as well as protect investors and
the public interests, by promoting liquidity and equity in the
marketplace and clarifying ROTs' responsibilities with respect to sign-
off requirements and ensuring they meet their responsibilities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organizations's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
[[Page 47080]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments on the proposed rule change were neither solicited
nor 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 Exchange 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, including whether the proposed rule
change is consistent with the Act. 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, 450 Fifth Street, NW, Washington,
DC 20549. 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-98-18 and should be submitted by September
24, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23770 Filed 9-2-98; 8:45 am]
BILLING CODE 8010-01-M
