[Federal Register Volume 64, Number 222 (Thursday, November 18, 1999)]
[Notices]
[Pages 63101-63102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30089]
[[Page 63101]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42120; File No. SR-Phlx-99-33]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 to the
Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating
to the Phlx Automatic Communication and Execution System
November 9, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 24, 1999, 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
Exchange. The proposal amends rules governing the Phlx Automatic
Communication and Execution System (``PACE'')-- the Phlx's automatic
order routing and execution system on the equity trading floor. On
October 12, 1999, the Exchange filed Amendment No. 1 to the proposed
rule change, which entirely replaces and supercedes the initial
proposal.\3\ On November 1, 1999, the Exchange filed Amendment No. 2 to
the proposed rule change.\4\ The Exchange has designated this proposal
as one which does not significantly affect the protection of investors
or the public interest, and does not impose any significant burden on
competition under Section 19(b)(3)(A) of the Act \5\ and Rule 19b-
4(f)(6) thereunder,\6\ which renders the proposal effective upon filing
with the Commission.\7\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange filed the original proposal under Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(5) thereunder,
characterizing the proposal as effecting a change in PACE. 15 U.S.C.
78s(b)(3)(A) and 17 CFR 240.19b-4(f)(5). The Exchange later
clarified that the purpose of the proposal was to conform the
language of Phlx Rule 229 to reflect the manner in which PACE
currently operates. Because the proposal will not effect any
significant change other than to amend Phlx Rule 229 to conform to
how PACE's automatic price improvement feature currently operates,
the Exchange filed Amendment No. 1 to reflect that the proposal has
become effective upon filing of Amendment No. 1, pursuant to Section
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 15 U.S.C.
78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6). The Commission accepted the
August 24, 1999 proposal as meeting the 5-day pre-filing requirement
under Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
\4\ See letter from Nandita Yagnik, Attorney, Phlx, to Nancy
Sanow, Senior Special Counsel, Division of Market Regulation, SEC,
dated October 29, 1999 (Amendment No. 2''). In Amendment No. 2, the
Phlx corrects inaccuracies in the language of Phlx Rule 229.
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4(f)(6).
\7\ Because Amendment No. 1 was substantive, the Commission
deems the proposal effective as of October 12, 1999, the date that
the Exchange filed Amendment No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend Phlx Rule 229, Commentary .07(c)(i),
the automatic price improvement feature of PACE, to state that PACE
will determine whether the last sale is an uptick or downtick for
providing automatic price improvement, and that the previous day's last
sale will not be considered in improving the price. The purpose of this
amendment is to conform the language of Phlx Rule 229, Commentary
.07(c)(i)(B) to reflect the manner in which PACE currently operates.
The text of the proposal is below. Additions are in italic.
Rule 229
Philadelphia Stock Exchange Automated Communication and Execution
System
Commentary .01-.06 No change.
.07
(a) No change.
(b) No change.
(c) Price Improvement for PACE Orders
(i) Automatic Price Improvement--Where the specialist voluntarily
agrees to provide automatic price improvement to all customers and
eligible market orders in a security, automatically executable market
and marketable limit orders in New York Stock Exchange and American
Stock Exchange listed securities received through PACE for 599 shares
or less shall be provided with automatic price improvement of 1/16 from
the PACE Quote when received beginning at 9:45 A.M. except where:
(A) a buy order would be improved to a price less than the last
sale or a sell order would be improved to a price higher than the last
sale; or
(B) a buy order would be improved to the last sale price which is a
downtick or a sell order would be improved to the last sale price which
is an uptick. The PACE System will determine whether the last sale
price is a downtick or an uptick. The PACE System does not recognize
changes from the previous day's close.
In these situations, the order is not eligible for automatic price
improvement, and is, instead, automatically executed at the PACE Quote.
A specialist may voluntarily agree to provide automatic price
improvement to larger orders in a particular security to all customers
under this provision. A specialist may choose to provide automatic
price improvement where the PACE Quote is 3/16 or greater or 1/8 or
greater.
(C)-(D) No change.
(ii)-(iv) No change.
.08-.19 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
PACE is the Exchange's automatic order routing and execution system
on the equity trading floor.\8\ PACE accepts orders for manual and
automatic execution in accordance with the provisions of Phlx Rule 229,
which governs PACE and defines its objectives and parameters. Recently,
the Exchange implemented automatic price improvement \9\ where
specialists could voluntarily provide \1/16\ automatic price
improvement to eligible orders in markets where the difference in price
between the bid and the offer is either \1/8\ or greater, or \3/16\ or
great.
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\8\ See Phlx Rule 229.
\9\ See Securities Exchange Act Release No. 40006 (May 19,
1998), 63 FR 29288 (May 28, 1998) (SR-Phlx-98-10).
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There are certain exceptions to providing automatic price
improvement. One exception is when a buy order would be improved (if
automatic price improvement were provided) to the last sale price which
is a downtick (or a sell order would be improved to the last sale price
which is an uptick).\10\ For example, when the market is 41\7/8\ x
42\1/16\, and the last sale is 42--(a downtick), a buy order would not
be automatically improved to 42, but
[[Page 63102]]
instead executed at 42\1/16\, because it would have improved to the
last sale, which is a downtick. However, a sell order would be
automatically improved and executed at 41\15/16\. As it currently
operates, PACE does not recognize an uptick or downtick from the
previous day's close. Thus, for example, on the opening, eligible buy
orders are automatically improved to the last sale, regardless of
whether the last sale is a downtick from the previous day's close.
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\10\ See Phlx Rule 229, Commentary .07(c)(i)(B).
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To ensure that Phlx Rule 229 accurately reflects the manner in
which the automatic price improvement feature currently operates, the
Exchange proposes to amend the automatic price improvement provisions
to state that PACE will determine whether the last sale is a downtick
or an uptick, and will not recognize changes from the previous day's
close. Each day, the first sale is neither an uptick nor downtick from
the previous day's close. This allows automatic price improvement to
occur, even if the last sale is a downtick from the previous day's
close (or in the case of a sell order, an uptick from the previous
day's close). For example, if the previous day's closing price was
42\1/8\, and the stock opens at 42, the downtick is not relevant to the
automatic price improvement process in this example. Thus, where the
PACE quote is 41\7/8\ x 42\1/16\, a buy order may be automatically
improved to 42 because PACE will not recognize the 42 as a downtick
from the previous day's last sale.
While the Exchange originally did not intend for PACE to operate in
this manner, the system has operated this way for approximately 12
months. The Exchange believes that conforming the language of Phlx Rule
229 to reflect the manner in which PACE has been operating is the most
efficient way to correct the discrepancy between the language of Phlx
Rule 229 and the current method of operation of the automatic price
improvement feature. The Exchange stated it has not been notified of
any negative impact on customers resulting from the current method of
operation of the automatic price improvement feature.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6 of the Act) \11\ in general, and Section 6(b)(5) of the Act
\12\ in particular, because it is designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms of a free and open market and a nation market system and
protect investors and the public interest by providing PACE customers
the ability to receive automatic price improvement, resulting in better
execution.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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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 inappropriate 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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The proposed rule change, as amended, as become effective pursuant
to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) thereunder
\14\ because the proposal (1) does not significantly affect the
protection of investors or the public interest; (2) does not impose any
significant burden on competition; and (3) does not become operative
for 30 days after the date of filing or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest; provided that the Exchange has given the
Commission written notice of its intent to file the proposed rule
change at least five business days prior to the filing date of the
proposed rule change,\15\ or such shorter time as designated by the
Commission.\16\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
\15\ The Exchange pre-filed the proposed rule change on August
24, 1999. See footnote 3, supra.
\16\ In reviewing this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f)
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The Exchange has requested that the Commission accelerate the
operative date because the Exchange has not been notified of any
negative effects in the current operation of PACE, and because Phlx
Rule 229 should reflect PACE's current method of operation.
The Commission finds that it is appropriate to designate the
proposal to become operative today, because such designation is
consistent with the protection of investors and the public interest.
Specifically, the Commission finds that it is appropriate to accelerate
the operative date of the proposal because it is in the best interests
of investors that the discrepancy between the language of Phlx Rule 229
and the current method of operation of PACE be corrected as soon as
possible, to minimize any potential confusion. For this reason, the
Commission finds that designation of the proposal to become operative
today is consistent with the protection of investors and the public
interest.
At any time within 60 days of the filing of this proposed rule
change, the Commission may summarily abrogate this rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest or 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, including whether the proposal 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 20549-0609. 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 Exchange. All
submissions should refer to file number SR-Phlx-99-33, and should be
submitted by December 9, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30089 Filed 11-17-99; 8:45 am]
BILLING CODE 8010-01-M