42618 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

14 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Amendment No. 1 makes several clarifying

revisions to the proposal and corrects a

typographical error. See Letter from Philip H.

Becker, Senior Vice President, Chief Regulatory

Officer, Phlx, to James T. McHale, Special Counsel,

Office of Market Supervision (‘‘OMS’’), Division of

Market Regulation (‘‘Division’’), Commission, dated

April 3, 1997 (‘‘Amendment No. 1’’).

4Amendment No. 2 clarifies the operation of the

proposed rule change by revising the fourth

example in Section I, B ‘‘Proposed Changes,’’ infra.

See letter from Philip H. Becker, Senior Vice

President, Chief Regulatory Officer, Phlx, to James

T. McHale, Special Counsel, OMS, Division,

Commission, dated April 17, 1997 (‘‘Amendment

No. 2’’).

5See Securities Exchange Act Release No. 38544

(April 24, 1997), 62 FR 24525 (May 5, 1997).

6Amendment No. 3 provides that specialists may

change their applicable execution guarantee from

the First Guarantee to the Second Guarantee

(defined herein) and vice versa, upon one day’s

notice. In addition Amendment No. 3 revises

Supplementary Materials .05 and .10(a)(i) to Rule

229 to clarify that where the customer order is

greater than the size of the PACE Quote (defined

herein), such order will receive an execution under

the First Guarantee, unless the specialist agrees to

the Second Guarantee. See Letter from Philip H.

Becker, Senior Vice President, Chief Regulatory

Officer, Phlx, to Michael Walinskas, Senior Special

Counsel, OMS, Division, Commission, dated May

23, 1997 (‘‘Amendment No. 3’’).

7See Securities Exchange Act Release Nos. 23630

(September 16, 1986) (SR–Phlx–86–30); and 25716

(May 19, 1988) (SR–Phlx–87–30).

8See Securities Exchange Act Release Nos. 26968

(June 23, 1989) (SR–Phlx–89–13 defining agency

orders); and 36442 (October 31, 1995) (SR–Phlx–

95–32 permitting broker-dealer orders on PACE).

Although approval for the delivery of broker-dealer

orders through PACE was received, this feature is

not currently utilized by broker-dealers. See

Amendment No. 1, supra note 3.

9See Securities Exchange Act Release No. 27596

(January 8, 1990) (SR–Phlx–89–15 at n.6). See also

Chicago Stock Exchange, Incorporated (‘‘CHX’’)

Rules, Article XX, Rule 37(a)(4).

10Market orders are defined as orders to buy or

sell a stated amount of a security at the best price

obtainable after the order is represented on the

Exchange. Marketable limit orders are defined by

the Exchange as orders to buy or sell a stated

amount of a security at a specified price, which is

received at a time when the market is trading at or

better than the specified price. See letter from

Philip H. Becker, Senior Vice President and Chief

Regulatory Officer, Phlx, to Michael Walinskas,

Senior Special Counsel, OMS, Division,

Commission, dated July 25, 1997 (‘‘Second Phlx

Letter’’).

11The Exchange is not amending the automatic

execution guarantee applicable to orders fro 599

shares or less. Therefore, as currently provided in

Supplementary Materials .05 and .10(a) of Rule 229,

if an order is for 599 shares or less, it will continue

to be automatically executable at the PACE Quote,

regardless of the size of the PACE Quote. The PACE

Quote is defined as the best bid/ask quote among

the American, Boston, Cincinnati, Chicago, New

York, Pacific, or Philadelphia Stock Exchanges, or

the Intermarket Trading System/Computer Assisted

Execution System (‘‘ITS/CAES’’) quote, as

appropriate.

12 If the PACE Quote at the time of order entry

into the system reflects a 1⁄8 point spread between

the best bid and offer, that order will be executed

immediately without the 15 second delay. In a

separate rule filing, the Exchange has proposed to

modify POES, increasing the execution delay from

15 to 30 seconds.See Securities Exchange Act

Release No. 38864 (July 23, 1997) (SR–Phlx–97–32).

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

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-97–34

and should be submitted by August 28,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–20751 Filed 8–6–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38898; File No. SR–Phlx–

97–11]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change

and Notice of Filing and Order

Granting Accelerated Approval to

Amendment No. 3: Thereto by the

Philadelphia Stock Exchange, Inc.,

Relating to PACE Execution

Guarantees

August 1, 1997.

On March 3, 1997, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b) of the Securities Exchange Act of

1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend Phlx Rule 229 (‘‘Rule’’),

Philadelphia Stock Exchange

Automated Communication and

Execution System (‘‘PACE’’). On April

4, 1997, the Phlx filed Amendment No.

1 to the proposal.3 On April 22, 1997,

the Exchange filed Amendment No. 2 to

the proposed rule change.4

Notice of the proposal and

Amendment Nos. 1 and 2 was published

for comment and appeared in the

Federal Register on May 5, 1997.5 No

Comment letters were received on the

proposal. On June 16, 1997, the Phlx

filed Amendment No. 3 to the proposed

rule change.6 This order approves the

Phlx’s proposal, as amended.

I. Description of the Proposal

A. History of PACE

The PACE System has served as the

Exchange’s automatic order routing and

execution system for securities on the

equity trading floor, providing certain

execution guarantees. Initially, the

PACE System was created to provide an

efficient mechanism for the delivery of

small customer orders (up to 599 shares)

to the specialist for manual execution.

Thereafter, PACE order size eligibility

increased, automatic execution became

a feature of PACE, and the professional

execution standard for PACE orders

greater than 600 shares was codified.7

Pursuant to Supplementary Material .02

of the Rule, only agency orders are

currently executed through PACE.8

PACE orders are only eligible for

execution after the primary market has

opened.9

B. Proposed Changes

The Phlx proposes to amend Rule 229

to revise the: (1) Execution guarantee

applicable to PACE market and

marketable limit orders 10 over 599

shares; (2) out-of-range protection

provisions; (3) execution price for

partial round lots; and (4) organizational

and miscellaneous provisions.

(i) Execution Guarantees

The Exchange proposes to amend the

execution guarantee applicable to

market and marketable limit orders

greater than 599 shares.11 Currently,

pursuant to the first paragraph of Rule

229.05, market orders up to 599 shares

are stopped at the PACE Quote at the

time of entry of such orders into the

system (‘‘Stop Price’’), regardless of the

size of the PACE Quote, and are subject

to a delay of up to 15 seconds in order

to receive an opportunity for price

improvement. This feature is known as

the ‘‘Public Order Exposure System’’ or

‘‘POES.’’ If such market order is not

executed at an improved price within

the 15 second window, the order will be

automatically executed at the Stop

Price.12 Moreover, the second paragraph

of Rule 229.05 provides that, subject to

these procedures (i.e., the procedures

outlined in the first paragraph of Rule

229.05), the specialist may voluntarily
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices 42619

13See Second Phlx Letter, supra note 10.

14Currently, a professional execution is described

in Rule 229.10(b), listing specific circumstances and

standards that apply. The Exchange is proposing to

add the general standards that all orders subject to

Supplementary Material .10(b) be executed

consistent with prevailing market conditions, fair

and orderly markets and other applicable rules of

the Exchange. For instance, the rules of priority,

parity and precedence apply to PACE orders, as do

many other important trading rules.

15Limit orders greater than 599 shares, where the

specialist has not agreed to automatically execute

orders over 599 shares, also will receive a

professional execution pursuant to Rule 229.10(b).

Telephone Conversation on July 16, 1997, between

Edith Hallahan, Director and Special Counsel,

Regulatory Services, Phlx, and James T. McHale,

Special Counsel, OMS, Division, Commission.

16See also Section I, B, iv, infra.

17The aggregate total size is provided for

purposes of providing a complete example and does

not affect the outcome, because only the size of the

PACE Quote is relevant to the proposed execution

guarantee. See Amendment No. 1, supra note.

18There is no guarantee up to the PACE Quote

size, because the customer order size is greater than

the specialist’s maximum automatic execution

guarantee. See Amendment No. 2, supra note 4.

19 17 CFR 240.11Ac1–4

20See Securities Exchange Act Release No.

37619A (September 6, 1996), 61 FR 48290

(September 12, 1996) (‘‘Rule 11Ac1–4 Adopting

Continued

agree to execute market orders greater

than 599 shares. Thus, market orders

over 599 shares that a specialist

voluntarily agrees to accept for

automatic execution are currently

entitled to the same execution at the

PACE Quote, regardless of the size of

the PACE Quote. These orders are also

subject to POES.

Limit orders are governed by separate

provisions in Rule 229, namely

Supplementary Materials .09 and .10.

Currently, round-lot limit orders up to

599 shares and the round-lot portion of

partial round-lot (‘‘PRL’’) orders up to

599 shares which are entered at the

PACE Quote are executed at the PACE

Quote. This automatic execution

guarantee for marketable limit orders up

to 599 shares is unaffected by this

proposal, apart from being reorganized

into new sub-paragraph (i) of Rule

229.10(a). In addition, like market

orders, currently specialists may

voluntarily agree to automatically

execute marketable limit orders greater

than 599 shares, and such orders are

entitled to the same execution at the

PACE Quote, regardless of the size of

the PACE Quote.13

The Exchange is now proposing to

adopt new standards (reflected in Rules

229.05 and 229.10(a)(i)) governing the

automatic execution of market and

marketable limit orders over 599 shares

by specialists. Specifically, where a

specialist voluntarily agrees to

automatically execute market or

marketable limit orders greater than 599

shares, an order will be automatically

executable at the PACE Quote, if it is:

(a) Greater than 599 shares; (b) less than

or equal to the size of the specialist’s

maximum automatic execution

guarantee; and (c) less than or equal to

the size of the PACE Quote. Orders

greater than the size of the PACE Quote

will be guaranteed a manual execution

at the PACE Quote price up to the size

of the PACE Quote, with the balance of

the order receiving a professional

execution,14 in accordance with Rule

229.10(b) (‘‘the First Guarantee’’). In

addition, for orders greater than the size

of the PACE Quote, the specialist may

guarantee an automatic execution at the

PACE Quote, up to the size of the order

(provided that it is less than or equal to

the specialist’s maximum automatic

execution guarantee size), regardless of

the size of the PACE Quote (‘‘the Second

Guarantee’’). The First and Second

execution guarantees are proposed to be

added to Rule 229.05 for market orders

and Rule 229.10(a)(i) for marketable

limit orders. Both guarantees can

voluntarily be elected by the Phlx

specialist.

Rule 229.07(b) will continue to apply

to market orders greater than 599 shares

where the specialist has not agreed to

provide automatic executions. The

proposal would amend Rule 229.07(b),

however, to provide that where the

specialist has not agreed to

automatically execute market orders

greater than 599 shares, an order greater

than 599 shares is manually executed,

and entitled to a professional execution

pursuant to Rule 229.10(b) and other

applicable rules of the Exchange.15

While these PACE-delivered orders are

not subject to the execution parameters

set forth in Supplementary Material .05

to the Rule, the rule change would make

clear that they are subject to the

professional execution standard set

forth in Rule 229.10(b).16

The following is an example of how

the proposal would operate, assuming

the specialist has voluntarily agreed to

provide an automatic execution

guarantee for orders greater than 599

shares and thus would be required to

provide at least the minimum guarantee

(the First Guarantee). In this example,

the PACE Quote bid is composed of

1,000 shares (Pacific Exchange ‘‘PCX’’),

500 shares (New York Stock Exchange

‘‘NYSE’’), and 500 shares (CHX), for an

aggregate total size 17 of 2,000 shares

and the specialist’s maximum automatic

execution guarantee is 2,500 shares.

(1) The specialist receives a market

order to sell 1,000 shares. This order is

equal to the size of the PACE Quote

(single market PCX) bid (1,000 shares)

and less than the specialist’s maximum

automatic execution guarantee size of

2,500 shares, thus, is automatically

executable.

(2) The specialist receives a market

order to sell 1,100 shares. The order is

greater than the PACE Quote bid size

(PCX for 1,000 shares), and thus would

revert to manual status, with the

specialist obligated to fill 1,000 shares at

the PACE Quote, and the remaining 100

shares entitled to a professional

execution.

(3) The specialist receives a market

order to sell 2,200 shares. Same result:

the entire order would revert to manual

status with the specialist obligated to fill

1,000 shares at the PACE Quote, and the

balance of 1,200 shares receiving a

professional execution.

(4) The specialist receives a market

order to sell 3,000 shares. The order

reverts to manual, because it exceeds

the specialist’s maximum automatic

execution guarantee, and the entire

3,000 share order receives a professional

execution.18 The fact that the aggregate

size of the best bid is for 2,000 shares

does not determine or affect the

execution.

Assuming the specialist has

voluntarily agreed to provide an

automatic execution guarantee for

orders greater than 599 shares, the

specialist may also determine to provide

more than the minimum guarantee by

guaranteeing an automatic execution at

the PACE Quote to all orders within the

specialist’s maximum guarantee size,

regardless of the size of the PACE Quote

(i.e. the Second Guarantee). For

instance, where the specialist’s

maximum automatic execution

guarantee is 2,500 shares and the PACE

Quote bid is composed of 1,000 shares

(PCX), 500 shares (NYSE), and 500

shares (CHX), for an aggregate total size

of 2,000 shares, a market order to sell

2,200 shares is received. This order is

automatically executed at the PACE

Quote, because it is less than the

specialist’s maximum size guarantee for

automatic execution, despite the PACE

Quote size being 1,000 shares.

The Exchange believes that in light of

significant changes to the marketplace

as well as the competitive environment,

one purpose of this proposal is to

update the PACE automatic execution

guarantees. For instance, new SEC Rule

11Ac1–4 (‘‘Display Rule’’) 19 requires

specialists and market makers to, under

normal market conditions, display

within 30 seconds the price and full size

of customer limit orders better than or,

where the specialist’s quote is the PACE

Quote, that enhance the size of the

specialist’s quote.20 Other changes in
42620 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

Release’’). See also Securities Exchange Act Release

Nos. 38110 (January 2, 1997), 62 FR 1279 (January

9, 1997) (revising effective date until January 13,

1997); and 38139 (January 8, 1997), 62 FR 1385

(January 10, 1997) (revising effective date to January

20, 1997).

21See Rule 11Ac1–4 Adopting Release at 8 and

note 12, supra note 20.

22See CHX, Article XX, Rule 37(b)(11), which

states that notwithstanding anything contrary in

Rule 37, no market or marketable limit order is

automatically executed if it is greater than he size

of the ITS/BBO (equivalent to the PACE Quote) or

NBBO (the national best bid or offer disseminated

pursuant to Rule 11Ac1–1 under the Exchange Act),

as the case may be. In addition, much like the First

Guarantee, if a customer order routed through the

MAX system exceeds the size of the ITS/BBO or

NBBO, the specialist will execute the order

manually at the price of the ITS/BBO or NBBO up

to the size of the ITS/BBO or NBBO, with the

balance of the order remaining as an ‘‘open order’’

for execution. Telephone conversation on July 9,

1997, between J. Craig Long, Esq., Foley & Larder,

and James T. McHale, Special Counsel, OMS,

Division, Commission.

23See e.g., Securities Exchange Act Release No.

28629 (November 20, 1990) (SR–Phlx–90–19).

24Limit orders for 600 shares or more are covered

by the out-of-range protection provision in Rule

229.10(b)(4).

25See e.g., CHX, Article XX, Rule 37(a)(6), (b)(11)

and (e)(6), which provide for stopping such orders.

26See Letter from Edith Hallahan, Director and

Special Counsel, Regulatory Services, Phlx, to

Michael Walinskas, Senior Special Counsel, OMS,

Division, Commission, dated June 25, 1997 (‘‘First

Phlx Letter’’).

27The provisions respecting non-marketable limit

orders would be reorganized as sub-paragraph (ii)

but otherwise remain unchanged.

28 15 U.S.C. 78f(b)(5).

29 In approving the proposed rule change, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

the marketplace include the increase in

third market trading, internalization,

payment for order flow practices and

the use of technology, as cited by the

Commission both in the Rule 11Ac1–4

Adopting Release, as well as in the

Market 2000 Study.21

With respect to the current

competitive environment, the Exchange

notes that other regional exchange

automated order delivery and execution

systems provide various types of

execution guarantees. For market orders,

other regional exchange rules permit

conditioning automatic execution at the

PACE Quote on the displayed size of the

PACE Quote. For instance, the Chicago

Stock Exchange MAX System limits

automatic execution to orders less than

or equal to the size of the displayed ITS/

BBO or NBBO, as the case may be.22

Thus, the effect of the Exchange’s

proposal is to similarly consider the

PACE quote size for certain order sizes,

consistent with other systems.

(ii) Out-of-Range Protection

The Exchange also is proposing to

amend the Rule’s provisions respecting

out-of-range executions. Currently,

pursuant to Supplementary Material

.07(a) of the Rule, member organizations

which enter market orders (up to 599

shares) after the opening may elect to

have such orders executed (i) in

accordance with the procedures set

forth in Rule 229.05, or (ii) if such

execution price would be outside the

NYSE high-low range for the day,

manually at or within the NYSE highlow range of the day. Thus, market

orders that would result in an out-ofrange execution may be handled

manually by the specialist, instead of

receiving an automatic execution, if so

elected by the PACE order entry firm.

This is referred to as out-of-range

protection, a long-standing feature of the

PACE System.23

Under the proposal, the limitation to

orders less than 599 shares in

Supplementary Material .07(a)

respecting market orders will be

deleted. In addition, the Exchange is

proposing to adopt an out-of-range

protection provision for limit orders not

currently covered by such a provision,

namely orders less than 600 shares.24 As

discussed above, the Exchange believes

that out-of-range protection is an

important PACE System feature and

should be properly codified into the

Rule as applicable to all order types.

The Exchange notes that out-of-range

protection is common to regional

exchange systems.25

(iii) Execution of Partial Round-Lot

Orders

The Exchange also proposes to amend

the Rule’s provisions respecting the

execution guarantee applicable to PRL

orders. Currently, Supplementary

Material .07(b) of the Rule states that the

odd-lot portion of PRLs of 601 or more

shares shall be executed at the same

price as the round-lot portion. In

addition, Rule 229.07(b) provides that,

in the case of a PRL order, the roundlot portion(s) of which is executed at

more than one price, the odd-lot portion

shall be executed at the same price as

the last round-lot portion is executed. A

similar provision appears in

Supplementary Materials .09 and .10(c)

to Rule 229. These provisions are

proposed to be amended, such that, in

the case of a PRL order, the round-lot

portion(s) of which is executed at more

than one price, the odd-lot portion shall

be executed at the same price as the first

100 shares (round-lot), not the last

round-lot portion, as the provisions

currently state. The Exchange believes

that the proposed execution procedure

should, in most situations, result in a

better execution price for the customer,

because later round-lots are generally

executed at inferior prices, as the market

responds to the prior execution.26

(iv) Organizational and Miscellaneous

Provisions

Lastly, the Exchange is also proposing

to reorganize Rule 229 by separating

marketable limit orders 27 and otherwise

clarifying Supplementary Material

.10(a). Further, Supplementary Material

.07(b) is proposed to be amended to

reflect that orders exceeding a

specialist’s automatic execution

guarantee may nevertheless be delivered

through the PACE System. Currently,

this provision states that market orders

(round-lots of 600 to 1000 shares or

such greater size which the specialist

agrees to accept and partial round-lots

of 601 to 1099 shares or such greater

size which the specialist agrees to

accept) which are entered after the

opening shall not be subject to the

execution parameters set forth in Rule

229 and shall be executed in accordance

with other applicable rules of the

Exchange. The proposal would clarify

that this provision applies to orders

which the specialist has not agreed to

accept for automatic execution and are,

instead, only delivered through the

PACE System. The proposal would also

codify that such orders are executable in

accordance with Supplementary

Material .10(b).

II. 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 Section 6(b)(5) of the

Act.28 Specifically, the Commission

believes that the proposed rule change

is designed to promote just and

equitable principles of trade and to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest, and is not designed to

permit unfair discrimination between

customers, issuers, brokers, or dealers.29

The proposed rule change would

amend Rule 229.05 and Rule

229.10(b)(i), respectively, to provide

that where a specialist voluntarily

agrees to automatically execute market

or marketable limit orders greater than

599 shares, an order is automatically

executable at the PACE Quote, if it is:

(a) Greater than 599 shares; (b) within

the specialist’s maximum automatic

execution guarantee; and (c) less than or
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices 42621

30Consistent with the existing provisions of Rules

229.05 and 229.10(a), if an order is for 599 shares

or less, it will continue to be automatically

executable at the PACE Quote, regardless of the size

of the PACE Quote, as the Exchange is not

amending the automatic execution guarantee

applicable to orders for 599 shares or less.

31For example, the Chicago Stock Exchange MAX

system limits automatic execution to orders less

than the size of the ITS/BBO. See supra note 22.

32See Amendment No. 3, supra note 6.

33Out-of-range protection allows members

organizations entering orders after the opening to

elect to have such orders executed automatically at

the PACE Quote, or if such execution price would

be outside the NYSE high-low range for the day,

manually at or within the NYSE high-low range of

the day.

34This example assumes that the specialist has

not agreed to automatically execute market or

marketable limit orders greater than 599 shares. If

the incoming order is for 599 shares or less, it is

executable in full at the PACE quote, such that

generally it would not be executed at more than one

price and thus would not trigger this provision. See

First Phlx Letter, supra note 26.

35 Id. The Commission notes that intervening

market events could cause the market to move in

the opposite direction (i.e. in the customer’s favor).

In the above example, after the first execution at

201⁄8, the market could become 197⁄8×20, such that

the remainder of the order would be executed at 20,

a better price. Under the new procedure, executing

the odd-lot portion at the first price is less favorable

to the customer. The Commission believes,

however, that basing the odd-lot execution price on

the execution price for the first 100 shares generally

will provide a more favorable execution for

customer orders.

36The Commission also finds that the addition of

general standards (i.e. that all orders subject to Rule

229.10(b) be executed ‘‘consistent with prevailing

market conditions, fair and orderly markets and

other applicable Exchange rules’’) strengthens the

language of the Rule. The additional language

clarifies, for example, that the rules of priority,

parity and precedence apply to PACE orders.

37 15 U.S.C. 78k–1

equal to the size of the PACE Quote.30

Under this First Guarantee, orders

greater than the size of the PACE Quote

would be guaranteed a manual

execution at the PACE Quote price up

to the size of the PACE Quote, with the

balance of the order receiving a

professional execution in accordance

with Rule 229.10(b). In addition, for

orders greater than the size of the PACE

Quote, the specialist may guarantee an

automatic execution at the PACE Quote

price, up to the size of the order

(provided it is less than or equal to the

specialist’s maximum automatic

execution guarantee), regardless of the

size of the PACE Quote (the Second

Guarantee).

The Commission believes that

limiting the automatic execution

guarantee applicable to PACE market

and marketable limit orders over 599

shares to the size of the PACE Quote

(unless the specialist agrees to the

second Guarantee) is reasonable and

consistent with the Act. The

Commission recognizes that to the

extent a customer order exceeds the size

of the PACE Quote, Phlx specialists

must execute the order as principal,

thus taking on additional risk. A

specialist may reasonably determine

that orders that are greater in size than

reflected in the PACE Quote justify

separate pricing. The First Guarantee

will provide the specialist with the

flexibility of electing such a limited

guarantee. This increased flexibility

should help to encourage specialist

participation in providing at least a

limited guarantee for orders over 599

shares. The First Guarantee also serves

to ensure that customers receive the best

price that is available in the intermarket

system in the stock, up to the size of the

PACE Quote. The Second Guarantee

serves to provide the specialist with the

discretion to accept the increased risk

associated with guaranteeing execution

of orders at the PACE Quote when such

orders exceed the size that the PACE

Quote is based upon. The Commission

also notes that conditioning automatic

execution at the PACE Quote price on

the displayed size of the PACE Quote is

consistent with the rules of other

regional markets.31 Finally, the

Commission finds that permitting

specialists to change from the First

Guarantee to the Second Guarantee and

vice versa with one day’s notice to

PACE users is reasonable.32

The Commission believes that the

amendment to the out-of-range

guarantee for market and marketable

limit orders also is consistent with the

Act.33 Specifically, providing that all

market orders are subject to out-of-range

protection, as opposed to only those

market orders up to 599 shares as is

currently the case, provides member

organizations with more flexibility by

allowing them to elect out-of-range

protection for all market orders within

the parameters of the specialists

guarantee. This, in turn, should benefit

investors by providing out-of-range

protection to larger orders and should

help the Exchange compete for order

flow. Moreover, the Commission

believes that adopting an out-of-range

protection provision for limit orders not

currently covered by such a provision

(i.e., orders less than 600 shares) is

reasonable and consistent with the Act.

Finally, the Commission notes that

while neither specialists nor member

organizations are required under the

federal securities laws to provide out-ofrange protection, allowing out-of-range

protection to all orders is consistent

with the Act.

The Commission finds the change in

execution of partial round-lot orders to

be consistent with the Act. Specifically,

the proposal amends Rules 229.07(b),

229.09, and 229.10(c) to provide that in

the case of a PRL order, the round-lot

portion of which is executed at more

than one price, the odd-lot portion shall

be executed at the same price as the first

100 shares, not the last 100 shares, as

the rules currently provide. The

Commission believes that this approach

should generally provide superior PRL

order executions. For example, if the

market for XYZ stock is initially

20×201⁄8, and a PACE market order to

buy 650 shares is received, the specialist

intending to execute the first 300 shares

at 201⁄8, would generally execute 350

shares at that price, including the 50

share odd-lot in the first execution.34

Thereafter, if the market were to become

201⁄8×21⁄4, the specialist would execute

the remaining 300 shares at 201⁄4. The

Rule does not require that the odd-lot

portion be executed with the first

round-lot, but encourages it by requiring

that the odd-lot portion receive the same

price as the first round-lot. Accordingly,

these odd-lots should receive a more

prompt execution, and in most

situations a better price, because later

round lots are generally executed at

inferior prices, as the market responds

to the prior execution.35

Finally, the Commission believes that

the organizational changes made to Rule

229, separating marketable limit orders

and clarifying Supplementary Material

.10(a), should help clarify operation of

the Rule. Moreover, the amendment to

Rule 229.07(b), providing that market

orders which the specialist has not

agreed to accept for automatic execution

may nevertheless be delivered through

the PACE system, clarifies that such

orders are to be executed in accordance

with Rule 229.10(b),36 as well as other

applicable rules of the Exchange. The

Commission believes that this should

further encourage the delivery of

customer orders through the PACE

system, and, as such, is consistent with

Section 11A of the Act,37 and paragraph

(a)(1) thereunder, which encourages the

use of new data processing and

communications techniques that create

the opportunity for more efficient and

effective market operations.

Accordingly, the Commission finds that

this change is appropriate and

consistent with the Act.

The Commission finds good cause for

approving Amendment No. 3 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 3

states that specialists, after their initial

determination to provide a manual or

automatic guarantee (i.e. the First or

Second Guarantee), may change from
42622 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

38 15 U.S.C. 78s(b)(2).

39 17 CFR 200.30–3(a)(12).

one guarantee to the other, effective the

next day. The Commission finds that

this is a reasonable approach and strikes

an appropriate balance between the

needs of specialists to change their

guarantee in a moving market, and the

needs of member organizations to know

which guarantee applies. Amendment

No. 3 also amends the text of Rules

229.05 and 229.10(a)(i), respectively, to

clarify that where the specialist has

voluntarily agreed to automatically

execute market and marketable limit

orders greater than 599 shares and the

order size is greater than the size of the

PACE Quote, the order shall manually

receive an execution at the PACE Quote

up to the size of the PACE Quote, with

the balance of the order receiving a

professional execution (the First

Guarantee), provided that the specialist

may guarantee an automatic execution

at the PACE Quote up to the entire size

of the specialist’s automatic execution

guarantee (the Second Guarantee). The

Commission finds this language

strengthens the proposals by clarifying

that unless the specialist specifically

elects to provide the Second Guarantee,

the First Guarantee will be in effect. The

Commission also notes that no

comments were received on the original

Phlx proposal, which was subject to the

full 21-day comment period. Therefore,

the Commission believes that it is

consistent with Section 6(b)(5) of the

Act to approve Amendment No. 3 to the

proposed rule change on an accelerated

basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

3 to the proposed rule change. Persons

making written submissions should file

six copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 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–97–11 and should be

submitted by August 28, 1997.

For the foregoing reasons, the

Commission finds that the Phlx’s

proposal, as amended, is consistent with

the requirements of the Act and the

rules and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,38 that the

amended proposed rule change (SR–

Phlx–97–11) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.39

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–20838 Filed 8–6–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

[Public Notice No. 2577]

Shipping Coordinating Committee;

Subcommittee for the Prevention of

Marine Pollution; Notice of Meeting

The Subcommittee for the Prevention

of Marine Pollution (SPMP), a

subcommittee of the Shipping

Coordinating Committee, will conduct

an open meeting on Tuesday, September

9, 1997, at 9:30 a.m. in Room 2415, U.S.

Coast Guard Headquarters, 2100 Second

Street, SW, Washington, DC.

The purpose of this meeting will be to

review the agenda items to be

considered at the fortieth session of the

Marine Environment Protection

Committee (MEPC 40) and the agenda

items of the Conference on the

Prevention of air pollution from ships

(the Conference) of the International

Maritime Organization (IMO). MEPO 40

and the Conference will be held in

conjunction with each other from

September 15–26, 1997. Proposed U.S.

positions on the agenda items for MEPC

40 and the Conference will be

discussed.

The major items for discussion for

MEPC 40 will begin at 9:30 a.m. and

include the following:

a. Bulk liquids and gases;

b. Flag State implementation;

c. Identification and protection of

Special Areas and Particularly Sensitive

Sea Areas;

d. Adoption of amendments to the

International Convention for the

Prevention of Pollution from Ships,

1973, as modified by the Protocol of

1978 relating thereto (MARPOL 73/78),

Annex I (regulation 10 to make the

North West European waters a special

area under Annex I and regulation 25A

on intact stability of double hull

tankers);

e. Harmful aquatic organisms in

ballast water;

f. Harmful effects of the use of antifouling paints for ships;

g. Implemenation of the Oil Pollution

Preparedness Response and Cooperation

(OPRC) Convention and resolutions; and

h. Irradiated Nuclear Fuel Code

related matters.

The major items for discussion for the

Conference will begin at 11:00 a.m. and

include the following;

a. Consideration and adoption of the

Protocol of 1997 to amend MARPOL 73/

78 by adding a new Annex VI on

controlling air pollution from ships; and

b. Consideration of adopting

resolutions banning the use of

perflourocarbons on ships and other

related matters.

Members of the public may attend

these meetings up to the seating

capacity of the room. For further

information or documentation

pertaining to the SPMP meeting, contact

Lieutenant Commander Ray Perry, U.S.

Coast Guard Headquarters (G–MSO–4),

2100 Second Street, SW, Washington,

DC 20593–0001; Telephone (202) 267–

2714.

Dated: July 28, 1997.

Russell A. La Mantia,

Chairman, Shipping Coordinating Committee.

[FR Doc. 97–20832 Filed 8–6–97; 8:45 am]

BILLING CODE 4710–07–M

DEPARTMENT OF STATE

[Public Notice 2676]

Director General of the Foreign Service

and Director of Personnel; State

Department Performance Review

Board Members (At Large Board)

In accordance with section 4314(c)(4)

of the Civil Service Reform Act of 1978

(Pub. L. 95–454), the Executive

Resources Board of the Department of

State has appointed the following

individuals to the State Department

Performance Review Board (At Large

Board) register.

Robert B. Dickson, Executive Director,

Bureau of Administration, Department of

State

Linda Jacobson, Assistant Legal Adviser for

Diplomatic Law and Litigation, Office of

the Legal Adviser, Department of State

Katherine Lee, Special Assistant to the

Associate Director for Management, United

States Information Agency

James P. Timbie, Senior Advisor, Office of

the Under Secretary for Arms Control and

International Security Affairs, Department

of State

Ruth A.Whiteside, Deputy Director, Foreign

Service Institute, Department of State