Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23331

the Commission has approved narrow-based

indexes with similar minimum component

standards. See e.g., Securities Exchange Act Release

Nos. 38143 (Jan. 8, 1997), 62 FR 2411 (Jan. 16, 1997)

(permitted American Stock Exchange’s ‘‘Tobacco

Index’’ to initially consist of nine securities and

thereafter consist of no fewer than nine securities);

37198 (May 10, 1996), 61 FR 25251 (May 20, 1996)

(permitted Chicago Board Options Exchange’s ‘‘PC

Index’’ to initially consist of eight securities and

thereafter consist of no fewer than eight securities);

and 34345 (July 11, 1994), 59 FR 36245 (July 15,

1994) (permitted Exchange’s ‘‘Phone Index’’ to

initially consist of eight securities and thereafter

consist of no fewer than eight securities).

31 15 U.S.C. 78s(b)(2).

32 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39393

(December 3, 1997), 62 FR 65117 (December 10,

1997).

4See Phlx Rule 1063.

5The seller has the responsibility only when

there are two parties to a trade. When there are

multiple participants, the largest participant is

responsible for allocating the trade.

6See e.g., Securities Exchange Act Release No.

33512 (January 24, 1994) 59 FR 4759 (February 1,

1994).

7The Phlx’s minor rule plan, codified in Phlx

Rule 970, contains Advices, such as Advice F–2,

Continued

Commission believes there is no

compelling reason to delay the listing

and trading of options based on the

Index. Accordingly, because the Index

substantially complies with the generic

listing standards, and the investor

protection concerns have been

addressed, the Commission finds good

cause exists for granting accelerated

approval to the proposed rule change

and Amendment Nos. 1 and 2 thereto.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,31 that the

proposed rule change, SR–Phlx–98–07,

and Amendment Nos. 1 and 2 thereto,

are hereby approved on an accelerated

basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.32

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11164 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39889; File No. SR–Phlx97–51]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval to Proposed

Rule Change Relating to the Allocation

of Options Trades

April 20, 1998.

I. Introduction

On October 22, 1997, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’)1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend two Floor Procedure Advices

(‘‘Advices’’): F–2, Allocation, Time

Stamping, Matching and Access to

Matched Trades; and F–12,

Responsibility for Assigning

Participation. The proposed rule change

was published for comment in the

Federal Register on December 10,

1997.3 No comments were received on

the proposal. This order approves the

proposal.

II. Description of the Proposal

The Phlx proposes to amend the two

Advices to provide that the seller or

largest participant to an option

transaction is responsible for allocating

an executed trade.

A. Advice F–2

Currently, Advice F–2 states that it is

the duty of the largest participant in an

options transaction to both match and

time stamp the order tickets involved.

There is currently no specific provision

for who allocates options trades among

trade participants. The Phlx represents

that the practice in most options crowds

is that specialists announce trade splits

by saying to the trading crowd, for

example, ‘‘You did 10, you did 5,’’ etc.

This practice may differ, especially

where a specialist unit is not involved

in a trade, or where a great deal of

trading and quote activity renders

specialists allocating trades impractical.

In these situations, Floor Brokers have

assisted in allocating trades, along with

performing their duty to match and

submit the trade and ensure the best

execution of orders.4 The purpose of the

proposed rule change to paragraph (a) of

Advice F–2 is to assign the

responsibility of properly allocating

option trades to the largest participant

(or seller)5 involved in the trade, which

normally will be the Floor Broker who

represents the original order in the

trading crowd. The Exchange asserts

that the amendment will promote the

original intent of Advice F–2 (i.e., the

facilitation of prompt and accurate trade

reporting).6 Paragraphs (b) concerning

ticket preservation and (c) concerning

member access to matched trades, of

Advice F–2, remain unchanged.

B. Advice F–12

The purpose of the proposed rule

change to Advice F–12 is to extend its

requirements regarding how trades are

allocated to the equity/index options

floor. Currently, Advice F–12 only

applies to foreign currency options

trading. Specifically, Advice F–12

currently requires that foreign currency

option trade participants: (a) must

confirm and immediately inform the

largest participant of their contra-side

participation; (b) should not leave the

crowd absent such confirmation; (c)

should not submit tickets absent

participation; and (d) must handle

disputes properly. The Exchange

additionally proposes that Advice F–12

is proposed to be amended to only

detain in the crowd actual trade

participants and simplify ticket

submission requirements.

The Phlx believes that the proposed

amendments to Advice F–12 will bolster

its effectiveness in controlling the trade

allocation process. Under the proposed

amendments, no one who has

participated in the trade would be

allowed to leave the crowd until the

level of his/her participation in the

trades has been confirmed by the largest

participant. Previously, this obligation

also applied to those who believed they

may have participated in a trade. This

change is intended to require only those

who actually participated in a trade to

remain in the trading crowd to confirm

their participation in the trade. The Phlx

states that the language concerning

belief was difficult to administer and

did not capture violations necessary to

improve the post-trade process.

Further, Advice F–12 currently

provides that no person in the crowd

shall submit a ticket for matching on a

trade when that person has or should

have grounds to believe that he is not

due participation in the trade. Thus, a

violation of Advice F–12 currently may

result from submitting a ticket where no

participation is due, even though the

participant believed he/she participated.

The Phlx asserts that by deleting the

reference to‘‘belief,’’ the proposal is

designed to simplify trade ticket

submission, and as a result, establish

the practice that a person who did not

participate in a trade should not submit

a ticket.

C. Minor Rule Plan

Violation of the new responsibility

under Advice F–2 will be subject to the

existing fine schedule accompanying

Advice F–2. Advice F–12 currently

contains a fine schedule, which is

proposed to apply to the entire options

floor. The proposal thus amends the

Exchange’s minor rule violation

enforcement and reporting plan (‘‘minor

rule plan’’),7 by amending the text of
23332 Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices

with accompanying fine schedules. Rule 19d–

1(c)(2) authorizes national securities exchanges to

adopt minor rule violation plans for summary

discipline and abbreviated reporting; Rule 19d–

1(c)(1) requires prompt filing with the Commission

of any final disciplinary actions. However, minor

rule violations not exceeding $2,500 are deemed not

final, thereby permitting periodic, as opposed to

immediate, reporting.

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78f(b)(6).

11 15 U.S.C. 78f(b)(7).

12 In approving this proposed rule change, the

Commission has considered the proposal’s impact

on efficiency, competition, and capital formation.

15 U.S.C. 78c(f).

13See Phlx Rule 1063.

14See note 3, supra.

15Securities Exchange Act Release No. 29580

(August 16, 1991) 56 FR 41876 (August 23, 1991).

16 Id.

17 Id.

18Phlx Rule 960.2 governs the initiation of

disciplinary proceedings by the Exchange for

violations within the disciplinary jurisdiction of the

Exchange.

19The minor rule plan permits any person to

contest the Exchange’s imposition of a fine through

submission of a written answer, at which time: (1)

the matter will be dismissed, (2) the alleged violator

will pay the original fine or contest the matter

before a hearing panel, (3) the fine will be modified

and the alleged violator will pay the modified fine

or contest the matter before a hearing panel or (4)

the matter will become the subject of a formal

disciplinary action and the issuance of a complaint

will be authorized pursuant to Exchange Rule

960.2.

both Advices, as well as by extending

the application of Advice F–12 to the

equity/index options floor.

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, with the

requirements of Section 6(b).8

Specifically, the Commission believes

that the proposal is consistent with: the

Section 6(b)(5) 9 requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public interest;

the Section 6(b)(6) 10 requirement that

the rules of an exchange provide that its

members be appropriately disciplined

for violations of an exchange’s rules and

the Act; and the Section 6(b)(7) 11

requirement that the rules of an

exchange provide a fair procedure for

the disciplining of members.12

A. Advice F–2

Trade allocation includes the

determination, based on existing rules,

policies and practices, as to who is

considered to be on a bid/offer, who

participates in a trade and for what size.

The Commission believes that

permitting the largest participant, which

normally will be the Floor Broker who

represents the original order in the

trading crowd, to allocate trade

participation should render the process

more efficient and therefore accelerate

execution reporting.

As previously stated, existing

Exchange rules do not clearly address

the process of, or parties responsible for,

ensuring proper options trade

allocation. The Commission

understands that Floor Brokers

historically have assisted in options

trade allocation, along with their duties

to match and time stamp the trade and

ensure the best execution of orders.13

The Commission believes that is

reasonable to assign the responsibility of

trade allocation to the same individual

that currently matches and time stamps

the trade, namely the largest participant

(or seller) to the trade. In this way, one

person is performing all three functions.

The Commission finds that extending

this responsibility to the largest

participant (or seller) 14 is a reasonable

extension of the current requirements of

Advice F–2.

B. Advice F–12

First, the Commission believes that

the extension of Advice F–12 to equity/

index options trading should improve

the certainty of trade allocation and

maintain order during the allocation

process. The Commission also believes

that such an extension is consistent

with the original intent of Advice F–12

to facilitate the orderly separation of the

option floor, especially for trades

involving a number of market

participants.15

Second, under the proposed

amendments, no one who has

participated in the trade would be

allowed to leave the crowd until the

level of his/her participation in the

trade has been confirmed by the largest

participant. Previously, this obligation

also applied to those who believed they

may have participated in a trade. As

cited by the Commission in the original

approval of Advice F–12, it is

reasonable to require each participant to

a large trade to take steps to ensure that

the other parties to the transaction are

aware of his or her participation.16 The

Commission believes the proposed

amendment is consistent with this goal

because it continues to facilitate the

prompt determination of participation

levels by removing confusion as to who

actually participated in a trade.

Third, as previously stated, Advice F–

12 also currently provides that no

person in the crowd shall submit a

ticket for matching on a trade when that

person has or should have grounds to

believe that he is not due participation

in the trade. The Phlx asserts that by

deleting the reference to ‘‘belief,’’ the

proposal is designed to simplify trade

ticket submissions, and as a result,

establish the practice that a person who

did not participate in a trade should not

submit a ticket. As previously stated,

the original approval of Advice F–12

noted that it is reasonable to require

trade participants to notify other parties

of their participation levels and to

resolve those levels at such time.17 The

Commission believes the proposed

amendments are consistent with those

goals because they continue to facilitate

the prompt determination of

participation levels.

C. Minor Rule Plan

The Exchange has represented that

the proposed amendments to Advices

F–2 and F–12 will be enforced under

Phlx Rule 970, the minor rule plan. The

Commission believes that an exchange’s

ability to effectively enforce compliance

by its members and member

organizations with Commission and

Exchange rules is central to its selfregulatory function. The inclusion of a

rule in an exchange’s minor rule

violation plan, therefore, should not be

interpreted to mean that it is not an

important rule. On the contrary, the

Commission recognizes that the

inclusion of minor violations of

particular rules under a minor rule

violation plan may make the exchange’s

disciplinary system more efficient in

prosecuting more egregious or repeated

violations of these rules, thereby

furthering its mandate to protect

investors and the public interest.

The Commission believes that

amending the minor rule plan by

changing the text of both Advices, as

well as extending the application of

Advice F–12 to the equity/index options

floor, is consistent with the Act. The

purpose of the minor rule plan is to

provide a response to a violation of the

Exchange’s rules when a meaningful

sanction is needed but when initiation

of a disciplinary proceeding pursuant to

Phlx Rule 960.2 18 is not suitable

because such a proceeding would be

more costly and time-consuming than

would be warranted given the nature of

the violation. Exchange Rule 970

provides for an appropriate response to

minor violations of certain Exchange

rules while preserving the due process

rights of the party accused through

specified required procedures.19
Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23333

20 15 U.S.C. 78s(b)(2).

21 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by SCCP.

3Telephone conversation between Edith

Hallahan, Counsel, SCCP, and Greg Dumark,

Attorney, Division of Market Regulation,

Commission (April 20, 1998).

4 15 U.S.C. 78q–1(b)(3)(C). 5 15 U.S.C. 78s(b)(2).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,20 that the

proposed rule change (SR–Phlx–97–51)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11166 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39399; File No. SR–SCCP–

98–01]

Self-Regulatory Organizations; Stock

Clearing Corporation of Philadelphia;

Notice of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change Relating to an Increase in

the Number of Directors

April 21, 1998.

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

Securities Exchange Act of 1934

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

March 31, 1998, the Stock Clearing

Corporation of Philadelphia (‘‘SCCP’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’), as

amended on April 16, 1998 and April

21, 1998, the proposed rule change as

described in Items I and II below, which

items have been prepared primarily by

SCCP. The Commission is publishing

this notice and order to solicit

comments from interested persons and

to grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change involves an

amendment to SCCP’s by-laws and to

Section 6 of its articles of incorporation

to increase the number of directors on

its board from between 5 and 9 to

between 5 and 23.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

SCCP 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. SCCP has prepared

summaries, set forth in sections A, B,

and C below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The proposed rule change will amend

SCCP’s by-laws and articles of

incorporation to increase the permitted

size of the board from between 5 and 9

directors to between 5 and 23 directors.

According to SCCP, all other provisions

of the by-laws prescribing the

composition of the board will remain

unchanged. SCCP believes that this rule

change is desirable due to the interest of

the Board of Governors of the

Philadelphia Stock Exchange (‘‘Phlx’’)

to more fully participate in the

operation and control of SCCP.

SCCP also believes that a larger board

will provide greater diversity and add

policy making expertise to the process.

In addition, SCCP believes that an SCCP

board comprised of members from Phlx

will allow greater coordination in

scheduling meetings involving members

from both the boards.3

SCCP believes that the proposed rule

change provides for the fair

representation of shareholders and

participants in the selection of SCCP’s

directors and in the administration of

SCCP’s affairs and therefore that it is

consistent with Section 17A(b)(3)(C) of

the Act and the rules and regulations

thereunder applicable to SCCP.4

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

SCCP 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

SCCP has not solicited and does not

intend to solicit comments on this

proposed rule change SCCP has not

received any unsolicited written

comments from participants or other

interested parties.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(C) provides that the

rules of a clearing agency must provide

for the fair representation of its

shareholders or members and

participants in the selection of directors.

The Commission believes that the

increase in the size of SCCP’s board is

consistent with the Act’s fair

representation requirements because the

resized board should allow the board to

more accurately reflect the controlling

interest of the Phlx and its Board of

Governors while still providing for fair

representation of SCCP’s participants.

SCCP has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing in

order that this increase be implemented

at the meeting of the Phlx’s board of

directors scheduled for April 22, 1998.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of notice because such

approval will allow the Phlx to increase

SCCP’s board size at its April 22, 1998,

meeting.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

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. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of SCCP. All submissions should

refer to File No. SR–SCCP–98–01 and

should be submitted by May 19, 1998.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,5 that the

proposed rule change (File No. SR–

SCCP–98–01) be and hereby is

approved.