[Federal Register Volume 64, Number 20 (Monday, February 1, 1999)]
[Notices]
[Page 4922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2300]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40970; File No. SR-Phlx-98-44]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. to Amend Exchange Rule
1080 To Permit Automatic Execution of U.S. Top 100 Index Options Orders
for the Accounts of Broker-Dealers
January 25, 1999.
I. Introduction
On October 20, 1998, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule
19b-4 thereunder.\2\ In its proposal, the Phlx seeks to allow automatic
execution of broker-dealer orders in U.S. Top 100 Index (``TPX'')
options through the Phlx's AUTO-X system. Notice of the proposal was
published in the Federal Register on November 23, 1998.\3\ The
Commission received no comments on the proposal. This order approves
the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 40681 (Nov. 16,
1998), 63 FR 64751 (File No. SR-Phlx-98-44).
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II. Description of the Proposal
AUTOM is Phlx's electronic order routing system for options orders.
Until 1995, only public customer orders were eligible for routing
through AUTOM.\4\ For purposes of AUTOM eligibility, public customer
orders do not include any order entered for the account of a broker-
dealer or any account in which a broker-dealer or an associated person
of a broker-dealer has any direct or indirect interest. In 1995,
however, the Commission approved the Exchange's proposal to route Phlx
member and non-member broker-dealer orders for TPX options through
AUTOM.\5\ The Phlx limits AUTOM routed public customer and broker-
dealer TPX orders to 500 contracts.\6\ Currently, when a broker-dealer
TPX order is entered into AUTOM, the order is executed manually by the
specialist.
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\4\ See Securities Exchange Act Release No. 36429 (Oct. 27,
1995), 60 FR 55874 (Nov. 3, 1995) (File No. SR-Phlx-95-35) (order
approving the Phlx's proposal seeking to route broker-dealer TPX
options orders through AUTOM).
\5\ Pursuant to Phlx Rule 1080(b)(i), with the exception of
orders for TPX options contracts, broker-dealer orders are not
eligible for AUTOM.
\6\ Phlx Rule 1080(b)(ii).
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AUTO-X is a feature of AUTOM that automatically executes public
customer orders. AUTO-X currently is limited to public customer orders.
AUTO-X orders are executed automatically at the disseminated quotation
price on the Exchange and reported to the originating firm. Presently,
public customer orders for up to 50 contracts can be automatically
executed through AUTO-X.\7\
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\7\ Phlx Rule 1080(c).
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The Phlx seeks to amend Rule 1080 to allow broker-dealer orders for
TPX options contracts to be automatically executed through AUTO-X. In
making this change, the Phlx will still limit the size of orders that
can be automatically executed through AUTO-X to 50 contracts. The Phlx
believes that the change will help attract more broker-dealer orders in
TPX options. According to the Phlx, TPX options appeal more to broker-
dealers because these options are high-priced.\8\ Further, the Phlx
believes that permitting broker-dealer TPX orders to be executed via
AUTO-X will allow broker-dealers to benefit from prompt and efficient
automatic execution and reporting.
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\8\ See letter from Richard Rudolph, Counsel, Phlx, to Joe
Corcoran, Attorney, Division of Market Regulation, Commission, dated
December 22, 1998 (``Phlx Letter''). According to the Phlx, the
average price for a TPX option contract during the third quarter of
1998 was $4,165.62.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of sections 6 and 11A.\9\ Specifically,
the Commission believes that the proposal is consistent with section
6(b)(5) of the Act,\10\ which requires that the rules of an Exchange be
designed to promote just and equitable principles of trade, foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities. Moreover, the Commission
believes that the proposal is consistent with section 11A(a)(1)(C)(i)
of the Act,\11\ stating Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure economically
efficient execution of securities transactions.
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\9\ 15 U.S.C. 78f and 78k-1.
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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The Commission believes that allowing broker-dealers to use AUTO-X
for TPX options orders may facilitate the efficient handling and
reporting of broker-dealer orders in TPX options, thereby improving TPX
order processing and turnaround time. In addition, by providing prompt
execution for broker-dealer TPX orders, the proposal may help to
attract broker-dealer TPX orders, and thus help to improve the depth
and liquidity of the market for TPX options.
The Phlx has represented to the Commission that the Exchange
anticipates that its systems are capable of processing potential
resulting increased order flow through the AUTO-X system and that
public customer TPX orders will continue to be executed efficiently
through the AUTO-X system.\12\ According to the Exchange, TPX options
appeal more to broker-dealers because these options are high-priced
relative to other options.\13\ The Commission believes that it is
reasonable for the Phlx to allow automatic execution of broker-dealer
orders in TPX option contracts as long as retail customers are not
adversely affected. The Commission anticipates that the Exchange will
monitor its AUTO-X system in light of the addition of broker-dealer TPX
orders and will implement necessary systems enhancement should they be
necessary to accommodate any increase in volume resulting from this
proposal.
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\12\ See Phlx Letter, supra note 8.
\13\ Id.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-Phlx-98-44) is approved.
\14\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-2300 Filed 1-29-99; 8:45 am]
BILLING CODE 8010-01-M