[Federal Register Volume 63, Number 92 (Wednesday, May 13, 1998)]
[Notices]
[Pages 26666-26667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12704]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39972; File No. SR-PHLX-98-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change By the Philadelphia Stock 
Exchange, Inc. To Adopt, on a Pilot Basis, a System Enhancement to the 
X-Station Electronic Book

May 7, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act),\1\ notice is hereby given that on April 24, 1998, the 
Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange, pursuant to Rule 19b-4 under the Act, proposes, as a 
six month pilot, to adopt a system enhancement to the X-Station 
electronic book on the options floor which matches incoming Automatic 
Execution System (``AUTO-X'') orders with orders residing on the 
specialist's book.

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 Phlx 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 Phlx 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

    As described in Phlx Rule 1080, Comment .02, the electronic order 
book is an automated mechanism for specialists to hold and display 
orders based on price/time priority. The Exchange is currently 
preparing floor-wide deployment of the new X-Station electronic book on 
the options floor. The new X-Station provides certain improvements such 
as expedited non-AUTO-X order execution as well as expedited cancel 
replacement processing.
    AUTO-X is the automatic execution feature of the Automated Options 
Market (``AUTOM'') System, the electronic order delivery and routing 
system for options orders. Currently, AUTO-X orders are executed 
against a ``shadow account'' for which the specialist is ultimately 
responsible. The execution is immediately reported back to the sending 
firm, and then, the specialist must manually input the contra-side 
interest representing the booked order that becomes due as a result of 
the AUTO-X trade.
    At this time, the Phlx proposes to adopt, as a six month pilot, a 
system enhancement to the electronic book that matches incoming AUTO-X 
orders with booked orders. The proposed matching ability would allow 
the specialist to match these two participants directly, without the 
specialist participating in the trade, by dropping the order to manual 
status. The match would not be automatic, as the specialist must ensure 
that crowd participation under current parity/priority rules is not due 
before executing the trade; thus, the specialist must ``select'' the 
orders to execute the trade. Since the AUTO-X order has dropped to 
manual, the sending firm will not receive an execution report until the 
specialist selects and executes the trade.
    The proposed enhancement affords specialists relief from the manual 
burden of inserting trade participant and clearing information by 
writing an order ticket for the booked order. Without the X-Station 
itself, the booked order appears on an actual order ticket, which the 
specialist submits for key punch entry. Thus, implementing the X-
Station without the matching feature is more burdensome than the 
process required without the X-Station itself because it requires more 
ticket-writing. The proposed enhancement should reduce the amount of 
paper processed on the options floor. This in turn should reduce 
handling and processing time, including the likelihood of errors, 
thereby facilitating more prompt and accurate trade reporting.
    For these reasons, the proposed rule change is consistent with 
Section 6 of the Act in general, and in particular, with Section 
6(b)(5), in that it is designed 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 by enhancing efficiency 
through automation in the market.

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.

[[Page 26667]]

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SECURITIES AND EXCHANGE COMMISSION
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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \2\ and Rule 19b-4(e)(5) \3\ thereunder. The 
proposal effects a change in an existing order-entry or trading system 
of a self-regulatory organization that: (i) does not significantly 
affect the protection of investors or the public interest; (ii) does 
not impose any significant burden on competition; and (iii) does not 
have the effect of limiting the access to or availability of the 
system.\4\
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    \2\ 15 U.S.C. 78s(b)(3)(A).
    \3\ 17 CFR 240.19b-4(e)(5).
    \4\ In reviewing this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the 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, 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. Sec. 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 
Phlx. All submissions should refer to the File No. SR-PHLX-98-20 and 
should be submitted by June 3, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-12704 Filed 5-12-98; 8:45 am]
BILLING CODE 8010-01-M