[Federal Register Volume 60, Number 166 (Monday, August 28, 1995)]
[Notices]
[Pages 44530-44532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21275]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36122; File No. SR-Phlx-95-54]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc., Extending the Pilot Program for Equity and Index Option
Specialist Enhanced Parity Split Participations
August 18, 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 August
3, 1995, 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 and
II below, which Items have been prepared
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by the Exchange. 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 proposes to extend until August 26, 1996, the Exchange's
enhanced parity participation (``Enhanced Parity Split'') pilot program
for Equity and index option specialists (``Pilot Program''). Amendments
to the wording in Exchange Rule 1014(g)(ii) and Options Floor Procedure
Advice B-6 (Priority of Option Orders for Equity Options and Index
Options by Account Type) (``Advice B-6'') are also being made to
correct certain language pertaining to the Enhanced Parity Split and to
note the change in the expiration date of the Pilot Program. The text
of the proposed rule change is available at the Office of the
Secretary, the Phlx, and at the Commission.
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. The
Text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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
In August 1994, the Commission approved, as a one-year pilot
program, which expires on August 26, 1995, the Exchange's proposal to
adopt an enhanced specialist participation in parity equity option
trades.\1\ In November 1994, the Commission approved the Exchange's
request to expand the Enhanced Parity Split to include index option
specialists as well as equity option specialists.\2\ The Enhanced
Parity Split was again amended in March 1995, to modify the Pilot
Program where less than three controlled accounts \3\ are on parity
with the specialist.\4\ The Enhanced Parity Split is only applicable to
50% of each specialist units's issues listed prior to August 26, 1994,
and to all option classes listed after that date.\5\
\1\ See Securities Exchange Act Release No. 34606 (August 26,
1994), 59 FR 45741 (September 2, 1994).
\2\ See Securities Exchange Act Release No. 35028 (November 30,
1994), 59 FR 63151 (December 7, 1994).
\3\ A controlled account is defined as ``any account controlled
by or under common control with a member broker-dealer.'' Customer
accounts, which include discretionary accounts, are defined as all
accounts other than controlled accounts and specialists accounts.
See Phlx Rule 1014(g).
\4\ See Securities Exchange Act Release No. 35429 (March 1,
1995), 60 FR 12802 (March 8, 1995).
\5\ The Exchange also has an additional enhanced parity split
program that is limited to ``new'' option specialist units trading
newly listed options classes where the specialist is on parity with
two or more registered options traders. The enhanced parity split
for new specialist units was approved on a permanent basis and is
therefore not included in this proposed rule change. See Securities
Exchange Act Release No. 34109 (May 25, 1994), 59 FR 28570 (June 2,
1994).
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The Enhanced Parity Split, as amended, applies in those situations
where an equity or index options specialist is on parity with one or
more controlled accounts for orders involving more than five contracts.
Specifically: when an equity or index option specialist is on parity
with one controlled account, the specialist receives 60% of the
contracts and the controlled account receives the remaining 40%; when a
specialist is on parity with two controlled accounts, the specialist
receives 40% of the contracts and each controlled account receives 30%;
and when a specialist is on parity with three or more controlled
accounts, the specialist is counted as two crowd participants for
purposes of allocating the contracts. In all of these situations, if a
customer is on parity, the customer will not be disadvantaged by
receiving a lesser allotment than any other crowd participant,
including the specialist.
Although the Enhanced Parity Split was approved in August 1994, the
Exchange did not actually implement the program until late October
1994, due to logistical issues regarding the specialists' lists of
options classes that would be subject to the Enhanced Parity Split and
how to divide the contracts where there was an odd number of contracts
involved. The Exchange therefore represents that it has only had the
opportunity to conduct two quarterly reviews of the Enhanced Parity
Split pursuant to Exchange Rule 509 to ensure that specialists
receiving the Enhanced Parity Split are complying with the Exchange's
minimum performance standards.\6\ Thus, because the Enhanced Parity
Split has not been in operation for a full year and because the
Exchange's Quality of Markets Subcommittee has not had the opportunity,
in the Phlx's opinion, to properly judge the effectiveness of the Pilot
Program, the Exchange has determined to extend the program for an
additional year. Accordingly, the Phlx requests that the Enhanced
Parity Split be extended until August 26, 1996. Exchange Rule
1014(g)(ii) Advice B-6, which contains the text of Rule 1014, will be
amended to reflect the new expiration date for the Pilot Program.
\6\ See sipra note 1.
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In addition, Exchange Rule 1014(g)(ii), which describes the
Enhanced Parity Split, is being amended in order to correct an error
that the Exchange represents was made when the program was amended in
March 1995.\7\ The Exchange statues that the intent of that amendment,
as stated in the Phlx's proposal and in the Commission's approval
order, was to give specialists the following levels of enhanced
participation for parity trades involving more than five contracts: 60%
of the contracts when the specialist is on parity with only one
controlled account; 40% when the specialist is on parity with two
controlled account; and to count the specialist as two crowd
participants when the specialist is on parity with three or more
controlled accounts.\8\ The rule language proposed by the Exchange and
subsequently approved by the Commission in connection with that filing,
however, incorrectly states that ``where there are two or more
controlled accounts are on parity * * * the specialist is entitled to
40% of the initiating order'' (emphasis added). The Exchange states
that the phrase ``or more'' is incorrect. Accordingly, the Exchange is
also proposing to delete the phrase ``or more'' from the rule language
cited above. Similarly, the Exchange is also amending Section C of
Advice B-6 to make the same change.
\7\ See sipra note 4.
\8\ Id.
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In the Commission's order originally approving the Enhanced Parity
Split, it was noted that prior to granting an extension or permanent
approval of the Pilot Program, the Commission would require the
Exchange to make any changes necessary to ensure that competition is
not being unnecessarily restrained and that investors are not being
harmed by the enhanced participation provisions.\9\ As to the issue of
competition, the Exchange represents that it did find that the Enhanced
Parity Split as originally approved was overly burdensome when only one
or two controlled accounts were on parity with the specialist. As a
result, the Exchange states that it corrected this problem by its
amendment to the Enhanced Parity Split in March 1995, as discussed
above, that
[[Page 44532]]
modified the program with respect to situations where a specialist is
on parity with only one or two controlled accounts. As to the issue of
investor protection, the Exchange believes that the provisions
requiring specialists to assure that customers are not disadvantaged by
the Enhanced Parity Split has been strictly enforced without incident.
Moreover, the Exchange represents that it has not received any
complaints, either orally or in writing, regarding the Enhanced Parity
Split, in general, or from investors regarding inequitable splits, in
particular.
\9\ See supra note 1.
The Phlx represents that the proposed rule change is consistent
with Section 6(b) of the Act, in general, and furthers the objectives
of Section 6(b)(5),\10\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices; to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and to protect
investors and the public interest. Specifically, the Exchange
represents that the proposal balances the competing interests of
specialists and market makers while assisting specialists in making
tight and liquid markets in their assigned options classes, and
protects the public interest by requiring quarterly reviews and
ensuring that customer orders are not disadvantaged by the Enhanced
Parity Split.
\10\ 15 U.S.C. 78f(b)(5) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any 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 solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) the Exchange provided the Commission with notice of its intent
to file the proposed rule change, along with a brief description and
the text of the proposed rule change at least five business days prior
to the date of filing of the proposed rule change, or such shorter time
as designated by the Commission, it has become effective pursuant to
Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) thereunder.\11\
\11\ 17 CFR 240.19b-4(e)(6) (1994).
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A proposed rule change filed under Rule 19b-4(e) \12\ does not
become operative prior to thirty days after the date of filing or such
shorter time as the Commission may designate if such action is
consistent with the protection of investors and the public interest.
The Phlx has requested, in order for the Pilot Program to continue in
operation without interruption, that the Commission accelerate the
implementation of the proposed rule change so that it may take effect
prior to the thirty days specified under Rule 19b-4(e)(6). The
Commission finds that the proposed rule change is consistent with the
protection of investors and the public interest and therefore has
determined to make the proposed rule change operative as of August 27,
1995.
\12\ Id.
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Additionally, the Commission believes that the conditions stated in
the original approval order for extending the Pilot Program have been
satisfied.\13\ Specifically, the Phlx has stated that: (1) The previous
amendments to the Pilot Program have served to assure that the Enhanced
Parity Split is not unnecessarily restraining competition; (2) the
Pilot Program contains sufficient safeguards to prevent customers from
being disadvantaged by the application of the Enhanced Parity Split;
and (3) no complaints have been received by the Phlx regarding the
Pilot Program. As a result, the Commission believes that extending the
Pilot Program for one year, until August 26, 1996, is appropriate and
consistent with the Act.\14\
\13\ See supra note 1.
\14\ The Commission notes that in connection with any future
request by the Exchange for the Commission to either further extend
or permanently approve the Pilot Program, the Exchange will be
required to submit to the Commission a report discussing (1) whether
the Pilot Program has generated any evidence of any adverse effect
on competition or investors, in particular, or the market for equity
or index options, in general, (2) whether the Exchange has received
any complaints, either written or otherwise, concerning the
operation of the Pilot Program, and (3) whether the Exchange has
taken any disciplinary action against, or commenced any
investigations, examinations, or inquiries concerning the operation
of the Pilot Program, as well as the outcome of any such matter. Any
request for either a further extension or permanent approval of the
Pilot Program, along with the above report, should be submitted to
the Commission no later than June 1, 1996.
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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. Sec. 552, will be available for inspection and copying at
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 the Phlx. All
submissions should refer to File No. SR-Phlx-95-54 and should be
submitted by September 18, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
\15\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21275 Filed 8-25-95; 8:45 am]
BILLING CODE 8010-01-M