42616 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

9Telephone conversation with John Rudolph,

Supervisory Trust Analyst, Board of Governors of

the Federal Reserve Board.

10 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2The proposal was filed originally by the Phlx on

July 25, 1997, and clarified on July 29, 1997. The

Phlx clarified the text of the rule and the advice to

state that the purpose of quarterly review by the

foreign Currency Options Committee is to

determine if series receiving designation as update

strikes should continue to receive such designation.

See Letter from Philip H. Becker, Senior Vice

President and Chief Regulatory Officer, Phlx, to

Michael Walinskas, Senior Special Counsel, Office

of Market Supervision, Division of Market

Regulation, SEC (July 28, 1997). See also Securities

Exchange Act Release No. 35123 (Dec. 20, 1994), 59

FR 66692, at 12 (permitting the staff discretion to

accept editorial changes to a proposed rule filing

without triggering a new 30 day comment period).

3 17 CFR 240.19b–4.

4Securities Exchange Act Release No. 33067

(October 19, 1993), 58 FR 57658.

the Commission’s granting of

accelerated approval.9

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, N.W.,

Washington, D.C. 20549. Copies of the

submissions, 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, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filings will also be available for

inspection and copying at the principal

office of Philadep. All submissions

should refer to file number SR–

Philadep–96–17 and should be

submitted by August 28, 1997.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

Philadep–97–03) be, and hereby is,

approved through October 31, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–20749 Filed 8–6–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34—38891; File No. SR–Phlx–

97–34]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Amending the FCO Selective Quoting

Facility

July 31, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 25, 1997, 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 selfregulatory organization.2 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 pursuant to Rule 19b–4 of

the Act,3 proposes to amend the foreign

currency option (‘‘FCO’’) Selective

Quoting Facility (‘‘SQF’’), embodied in

Rule 1012, Commentary .04 and Floor

Procedure Advice (‘‘Advice’’) F–18,

FCO Expiration Months and Strike

Prices—Selective Quoting Facility, to redesignate some series that maintain

open interest, but have not traded

within the previous five trade days, as

update strikes in certain situations.

Currently, these strikes are considered

non-update strikes under the provisions

of Advice F–18 an Rule 1012.04. The

proposal would permit the Foreign

Currency Options Committee to

designate these non-update strikes as

update strikes, after notification to the

trading community and with a quarterly

review by the Committee. The SQF is a

feature of the Exchange’s Auto-Quote

System. The complete text of the

proposed rule change is available at the

places specified in Item IV below.

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

self-regulatory organization 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 self-regulatory organization 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

Implemented in 1994,4 the SQF was

intended to reduce the number of strike

prices being continuously updated and

disseminated, thus resulting in more

timely and accurate FCO quote displays.

The SQF establishes criteria to

determine whether the bid/ask

quotation for each FCO series is eligible

for transmission to the Options Price

Reporting Authority (‘‘OPRA’’) for offfloor dissemination to securities data

vendors. Currently, the SQF, a feature of

the Exchange’s Auto-Quote system,

categories certain FCO strikes as ‘‘non

update’’ or ‘‘inactive’’ strikes, which are

disseminated with the OPRA indicator

‘‘I’’ and zeroes (e.g., 000–000), in lieu of

market. When a series is inactive, those

bids and offers are no longer updated in

the Exchange’s Auto-Quote system for

dissemination. However, if interest is

then voiced in any such series, it can be

activated immediately upon

establishment of a quote in that series.

Inactive strikes with open interest (that

have not traded in the previous five

days) are quoted once at the close of

trading in the previous five days) are

quoted once at the close of trading each

day for purposes of mark-to-market

valuation.

In contrast, ‘‘update’’ or ‘‘active’’

strikes include, at minimum: (1) Two inthe-money and six out-of-the-money,

and (2) strikes with open interest that

have traded within the previous five

days. Because Rule 1012.04 establishes

the minimum strikes to be activated,

active strikes may also be added at the

initiative of the Exchange or in response

to a request by the Specialist or an FCO

Floor Official.

Designating as inactive those series

that are away-from-the money or not

recently traded (meaning have the least

investor interest) eliminates quote

changes in those series, thus reducing

the dissemination delays caused by

thousands of quote changes in volatile

trading periods. Because inactive series

are not continuously updated and

disseminated, quotation processing

times are reduced such that quotes

respecting active strikes are updated

and disseminated to customers much

more quickly.

At this time, the Exchange proposes

that the SQF feature of Auto-Quote
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices 42617

5 In 1995, The Exchange amended the SQF to

reduce the number of strikes considered active by:

(1) eliminating series with open interest that have

not traded within the previous five trading days; (2)

‘‘de-activating’’ strikes intra-day; and (3) redefining

around-the-money active strikes as the five options

with an approximate 10, 20, 30, 40 and 50 delta,

instead of those four above and four below the spot

price. Securities Exchange Act Release No. 36636

(December 26, 1995), 61 FR 209, (File No. SR–Phlx–

95–62). In 1996, the SQF was amended to redefine

around-the-money strikes as two in and six out-ofthe-money strikes. Securities Exchange Act Release

No. 37883 (October 29, 1996), 61 FR 56991, (File

No. SR–Phlx–96–39).

6See supra note 2.

7The Phlx should closely monitor the

Committee’s use of discretion to ensure that series

are not designated as update strikes in an overly

broad manner, materially impacting on the

intended benefit of the SQF—to reduce the number

of strike prices being continuously updated and

disseminated in order to have more time and

accurate FCO quote displays. Use of Committee

discretion to this extent would require a Section

19(b) filing by the Phlx.

8 15 U.S.C. § 78f(b)(5).

9 15 U.S.C. § 78f.

10 15 U.S.C. § 78f(b)(5).

11 15 U.S.C. § 78s(b)(3)(A).

12 17 CFR 240.19b-4(e)(6).

13For the reasons submitted by the Exchange, the

Commission finds that shortening the time period

for effectiveness to seven days is consistent with the

protection of investors and the public interest. See

Securities Exchange Act Release No. 35123, supra

note 2, at 21.

activate certain other strikes as update

strikes. Specifically, the FCO Committee

could re-designate some series that

maintain open interest, but have not

traded within the previous five trade

days, as update strikes. Thus, the

purpose of the proposal is to effect this

systems change to disseminate

additional strikes as active, upon FCO

Committee approval.

The Exchange believes that the

flexibility to activate additional strikes

is necessary to ensure that SQF

dissemination includes truly active

strikes. The Exchange also believes that

allowing the Committee to determine

which strikes are truly active is

appropriate and reasonable. The

definition of active strike has evolved

since the beginning of the SQF.5 The

Rule and Advice, in recognition of the

need for flexibility, currently permit the

Exchange to activate strikes intra-day.

Consistent with this ability, the

proposal would allow the Committee to

activate strikes with open interest that

have not traded within the previous five

days, regardless of a qualifying request,

in order to respond more promptly to

the needs of the FCO investment

community. Any such action by the

Committee would involve notification

to the FCO trading floor by Exchange

memorandum. Any strikes activated by

the Committee would be reviewed by

the Committee quarterly 6 to ensure that

they warrant active status and do not

remain indefinitely activated.7

In addition, in establishing in the

Rule and Advice last year that the

defined active strikes are a minimum,

the Exchange codified the ability to

activate other strikes. In this regard, all

expiration months (Except long-term) as

opposed to the nearest three months, as

well as around-the-money European

style options (as opposed to only

European style options with open

interest and trading) were activated.

Thus, at this time, the Exchange

proposes to correct the text of the Rule

and Advice to reflect two in-the-money

strikes and six out-of-the-money strikes

for both puts and calls around the

underlying price for American and

European style options for all expiration

dates (except long-term). The Exchange

also notes that the aspect of the proposal

granting the FCO Committee discretion

to activate certain strikes is consistent

with the previously-added ‘‘at

minimum’’ language, and, in fact,

bolsters the current provisions to reflect

that certain strikes will be activated

beyond the ‘‘minimum’’ definition.

The Exchange believes the proposal

balances the need to prevent excessive

quote disseminations with preserving

meaningful dissemination of FCO

quotes. The proposal is also designed to

facilitate orderly quote dissemination to

and coordination between the Exchange,

the Options Clearing Corporation

(‘‘OCC’’), OPRA and securities

information vendors. A quote will

always be disseminated when a trade

occurs in a previously-inactive series

and quotes in inactive series can always

be requested from the trading crowd,

consistent with the protection of

investors and the public interest. In

sum, the Phlx believes that the proposed

change to the SQF feature should

facilitate the specialists’ ability to focus

on active series, which should, in turn,

result in tighter, more liquid markets,

consistent with Section 6(b)(5).8

For these reasons, the proposed rule

change is consistent with Section 6 9 of

the Act in general, and in particular,

with Section 6(b)(5),10 in that it is

designed to promote just and equitable

principles of trade, prevent fraudulent

and manipulative acts and practices, 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, as well as

to protect investors and the public

interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Phlx 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

Because the foregoing rule change

does not: (i) Significantly affect the

protection of investors or the public

interest; (ii) impose any significant

burden on competition; and (iii) become

operative for 30 days from July 25, 1997,

the date on which it was filed, or such

shorter time that may be designated, it

has become effective pursuant to

Section 19(b)(3)(A) 11 of the Act and rule

19b-4(e)(6).12 Specifically, the Exchange

believes that the proposal is appropriate

for the procedure applicable to noncontroversial filings, because it deals

with the operational details of an

existing Commission-approved system.

Further, the proposal does not

significantly affect the protection of

investors or the public interest: the

proposed SQF amendments do not

affect the price or time of the FCO

executions, as only quoting is affected;

the proposal is intended to activate

more series, where needed. Third, the

Exchange has requested that the

proposal become effective seven days

after the filing of of proposed rule

change, noting that this shorter time

period for effectiveness is consistent

with the protection of investors and the

public interest.13 The Exchange

provided written notice of its intent to

file the proposed rule change on July 16,

1997.

At any time within 60 days of the

filing of such 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
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