[Federal Register Volume 59, Number 153 (Wednesday, August 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19521]
[[Page Unknown]]
[Federal Register: August 10, 1994]
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SECURITIES EXCHANGE COMMISSION
[Release No. 34-34481; File No. SR-PHLX-94-32]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Filing of a Proposed Rule Change Relating to Implementing a ``Wheel''
for the Registered Options Trader Contra-Side Participation to AUTO-X
Trades
August 3, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 18, 1994, 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 Phlx. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
\1\15 U.S.C. Sec. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx, pursuant to Rule 19b-4 under the Act, proposes to adopt
Floor Procedure Advice F-24, AUTO-X Contra-Party Participation (The
Wheel), in order to implement an automated mechanism for assigning
floor traders (i.e., specialists and Registered Option Traders
(``ROTs'')), on a rotating basis, as contra-side participants to AUTO-X
orders.
Advice F-24 codifies Wheel eligibility and the procedures by which
Wheel participants must sign on/sign off. It also establishes the
rotation upon which trades will be allocated among Wheel participants.
Paragraph (a) of the Advice summarizes AUTO-X eligibility by
stating that public customer orders up to the maximum permissible size
would be eligible for AUTO-X.\2\ Paragraph (b) establishes that the
Wheel will assign contra-parties by rotating through the list, in
consecutive order, trade by trade. Paragraph (c) requires specialists
to participate on the Wheel and permits ROTs to participate in assigned
issues. It also limits ROTs to Wheel participation in one Wheel
assignment area, which is defined as two contiguous quarter turrets at
any one given time.\3\ ROTs must sign onto the Wheel in person on the
trading floor from terminals designated by the Exchange and may sign on
in individual options. ROTs who sign on before 9:30 a.m. may remain on
the Wheel for the entire trading day; those who sign on after 9:30 a.m.
are eligible for Wheel participation beginning at 12:30 p.m. After
12:30 p.m., no new sign ons are permitted.
\2\Currently, the maximum permissible size eligible for AUTO-X
is 25 contracts. Securities Exchange Act Release No. 32906
(September 15, 1993), 58 FR 49345.
\3\A turret is one contiguous portion of a post on the option
floor, which is generally divided into four ``quarters.''
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Paragraph (c) also governs signing off the Wheel. An ROT may sign
off the Wheel at any time during the trading day, which becomes
effective for all listed options. However, an ROT may sign off twice
each trading day and still be eligible to sign on again that day; after
the third sign off, that ROT is no longer eligible for the Wheel that
day. ROTs who sign on for the half-day session beginning at 12:30 p.m.
may only sign off once and still be eligible to sign on again that day.
In addition, no two associated or dually affiliated ROTs may be on the
Wheel for the same option at the same time. Paragraph (d) permits a
Floor Official to modify the aforementioned sign on/sign off procedures
in extraordinary circumstances.
Paragraph (e) details the rotation of trades among Wheel
participants. Specifically, the first ten contracts of any AUTO-X order
are assigned to a single Wheel participant, with the specialist
receiving the first execution of the day in each respective listed
option. For those AUTO-X orders greater than ten contracts, each
additional ten-lot or remaining portion thereof is assigned to the next
individual Wheel participant. The next order is similarly assigned,
beginning with the next participant after the last to receive an
execution. If there are five or more ROTs signed onto the Wheel, the
specialist will receive every fifth execution, in addition to being
assigned to the first AUTO-X order in the option.
Lastly, paragraph (f) states that paragraph (e) will be reviewed by
the Exchange's Allocation, Evaluation, and Securities Committee after
six months.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Phlx 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. 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 increase the
efficiency and liquidity of order execution through AUTO-X by adopting
a ``Wheel'' for the automated assignment of floor traders as contra-
parties to incoming AUTO-X orders. The Phlx believes that the Wheel
will make AUTO-X more efficient, as contra-side participation will be
assigned automatically and no longer entered manually.
The AUTO-X system is the automatic execution feature of the
Exchange's Automated Options Market (``AUTOM'') system.\4\ AUTO-X
provides customers with automatic executions of eligible option orders
at displayed markets.\5\ AUTO-X orders are currently given executions
automatically and immediately. ROTs are added later as contra-side
participants to such orders with manual keypunch entries, which can
cause delays and errors in processing executions. The proposed Wheel is
designed to eliminate manual keypunching of contra-side participant
information relating to AUTO-X executions and the errors that sometimes
result from such keypunching. It also provides a rotation schedule by
which floor traders will automatically be assigned as the contra-party
to AUTO-X orders and will do so in a manner that reduces the number of
contra-side participants, which in most cases will be reduced to one
contra-side per trade.
\4\AUTOM is an on-line system that allows electronic delivery of
options orders from member firms directly to the appropriate
specialist on the Phlx options trading floor, with electronic
confirmation of order executions. On March 31, 1988, the Commission
first approved the Phlx's operation of the AUTOM system on a pilot
basis. Securities Exchange Act Release No. 25540 (March 31, 1988),
53 FR 11390.
\5\Orders eligible for automatic execution are (1) printed in
hard copy form at the floor representative booth of the delivering
member organization; (2) displayed on the trading crowd screen with
buy/sell information omitted; and (3) printed in hard copy form at
the specialist post.
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Currently, floor trader contra-side participation currently
defaults to the account of the specialist if no step is taken to
manually add the participation of a ROT. ROTs are eligible for
participation when they have established priority or parity at the
execution price.\6\ Consequently, before contra-side information can be
added, the trading crowd has to resolve among itself which floor
trader(s) had priority or parity at the execution price. Quite often,
several floor traders are on parity, thus requiring keypunch entries
for each such trader. The more contra-side participants which must be
added to a trade, the more of a delay there is in processing the
participant information to the trade and the more the process becomes
prone to keypunch errors and additional manual paperwork.
\6\Currently, if one or more ROTs have priority or parity, the
order will be split as evenly as possible between all such ROTs and
the specialist.
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The Wheel will automatically include eligible ROTs in AUTO-X
executions and specify how such trades will be split among the
specialist and ROTs. The specialist and any signed on ROTs will be
listed on the Wheel, and contra-side participation of AUTO-X orders
will then be assigned to them in circular rotation with each ten lot or
order (whichever is smaller) constituting an assignment. The specialist
receives the first trade of the day in each respective option.
Thereafter, the Wheel turns to assign trades to ROTs in an order
standardized for that day on a random basis.\7\
\7\The first ROT is selected randomly from all ROTs that sign on
prior to 9:30 a.m. All other ROTs are prioritized for receipt of
orders based on the badge numbers following sequentially the first
ROT's badge number. If other ROTs sign on for the 12:30 p.m.
session, the priority list is rerandomized for that session.
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For example, if specialist S and ROTs R, O, and T are on the Wheel
in XYZ option, the first order for 9 contracts is assigned
automatically to S. The next order, which is for 25 contracts, is
assigned ten each to R and O, and five to T. The third order, for 20
contracts, is assigned ten contracts to S and ten to R. If there are
five or more ROTs signed onto the Wheel, the specialist participates in
the first trade of the day and thereafter receives every fifth
execution.
The Exchange believe that the proposed AUTO-X Wheel and
corresponding Advice are intended to facilitate orderly transactions in
AUTO-X, with full trading crowd participation. The sign on/sign off
requirements, including the assigned option and Wheel assignment area
requirements, are intended to ensure that the ROT is present and
actively awaiting AUTO-X orders in those options in which AUTO-X
executions are to be manually received.\8\
\8\Currently, the specialist will only add an ROT as a contra-
side participant if the ROT is present and has bid at the execution
price.
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The Phlx believes that the proposed rule change is consistent with
Section 6 of the Act in general, and in particular, with Section
6(b)(5),\9\ in that it is designed to promote just and equitable
principles of trade, prevent fraudulent and manipulative acts and
practices, as well as to protect investors and the public interest by
promoting ROT participation as contra-parties to AUTO-X trades and
reducing opportunities for keypunching errors through increased
automation.
\9\15 U.S.C. Sec. 78f(b)(5) (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change imposes any
burden on competition 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
Comments on the proposed rule change have not yet been solicited or
received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty 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 ninety days of such date if it finds such longer period
to be appropriate and publishes its reasons for so findings or (ii) as
to which the self-regulatory organizations 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 any person, other than those that
may be withheld from the public in accordance with the provisions of 5
U.S.C. Sec. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of Phlx. All submissions
should refer to file number SR-Phlx-94-32 and should be submitted by
August 31, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-19521 Filed 8-9-94; 8:45 am]
BILLING CODE 8010-01-M