33426 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices

8 In such cases, OCC will instruct the hedge

clearing member that has not been suspended to

terminate the stock loan contract through the

process set forth in revised Rules 2210(b) and 2211,

as described above.

9 15 U.S.C. 78q–1(b)(3)(F).

10 15 U.S.C. 78q–1.

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3On June 12, 1998, the Exchange filed

Amendment No. 1 to the proposed rule filing, the

substance of which is incorporated into the notice.

See letter from Edith Hallahan, Associate General

Counsel, Phlx, to Michael Walinskas, Deputy

Associate Director, Market Regulation, Commission,

dated June 11, 1998.

clearing member of the collateral

amount.

The rule change adds an

interpretation to section 2 of Article XXI

of the By-Laws to address situations in

which the termination of a stock loan is

reported to OCC at a settlement price

(i.e., the amount of collateral that the

lending clearing member must return to

the borrowing clearing member) that is

not consistent with OCC’s records. A

similar interpretation is added to Rule

2209 to address situations in which

OCC receives a report of the termination

either of a purported stock loan that

does not exist on OCC’s records or of a

stock loan on OCC’s records in a

quantity that does not match the

quantity in the termination report. In

each case, the interpretation states that

OCC’s records will be dispositive in

both of these situations and that OCC

will not accept any responsibility for

reconciling the discrepancy between its

record and those of the affected clearing

members.

The rule change also provides for an

alternative termination process if OCC

has suspended a hedge clearing

member. Under the rule change, Rules

2202(c) and 2208(c) are amended to give

OCC the express authority to instruct

each hedge clearing member on the

other side of a suspended clearing

member’s stock loans to terminate the

stock loan in a manner other than the

standard terminated described above.

The rule change amends Rules 2210(b)

and 2211 to allow OCC to direct the

hedge clearing member that has not

been suspended to use the collateral to

buy in the loaned stock (if the

suspended clearing member is the

borrowing clearing member) or to sell

out the loaned stock and apply the

proceeds to the repayment of the

collateral (if the suspended clearing

member is the lending clearing

member).

The rule changes amends Rule

2210(a) to state that if DTC suspends

one of the parties to a stock loan prior

to the time at which OCC would have

otherwise accepted the stock loan into

the hedge program, OCC will not accept

the stock loan. Rule 2210(a) is also

amended to state that OCC will accept

any stock loan that complies with the

completeness and accuracy

requirements of Rule 2202(b) even if

OCC suspends one of the hedge clearing

members which is a party to the stock

loan prior to the time at which OCC

accepts the stock loan.8

II. Discussion

Section 17A(b)(3)(F) of the Act 9

requires that the rules of a clearing

agency by designed to remove

impediments to and perfect the

mechanism of the national system for

the prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that the rule

change is consistent with OCC’s

obligation under Section 17A(b)(3)(F)

because it should increase the use of

OCC’s hedge program which should in

turn help to improve the efficiency and

safety of stock lending transactions.

Specifically, the Commission believes

that increased use of the hedge program

should reduce exposure to counterparty

default, increase payment netting,

reduce collateral requirements, and

apply advanced clearing and risk

management practices to the stock loan

market. Accordingly, the Commission

believes that the rule change should

enable OCC to remove impediments to

and help perfect the mechanism of the

national system for the prompt and

accurate clearance and settlement of

securities transactions.

OCC requested that the Commission

approve the proposed rule change prior

to the thirtieth day after the publication

of notice of the filing. The Commission

finds good cause for approving the

proposed rule change prior to the

thirtieth day after publication of notice

because such approval should allow

OCC to provide needed assurances to

clearing members that the hedge

program will be implemented, should

OCC to institute changes to the hedge

program to make it more attractive to

clearing members and should allow

OCC to train hedge clearing members on

the new system interfaces. These

changes should result in increased

efficiency in the clearance and

settlement process for OCC’s clearing

members that use the hedge program.

The Commission also notes that the use

of the hedge program is not mandated

by OCC.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular with Section 17A of the Act 10

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

OCC–98–03) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 98–16262 Filed 6–17–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40088; File No. SR–Phlx–

98–25]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Regarding the

Temporary Relocation of Phlx Dell

Options to the American Stock

Exchange, Inc. Trading Floor

June 12, 1998.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on June 12,

1998,3 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 and II below, which Items have

been prepared by the self-regulatory

organization. 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

Phlx is proposing to rent facilities

from the American Stock Exchange Inc.

(‘‘Amex’’) for the trading of options on

Dell Computer Inc. (‘‘Dell’’) on the

Amex for up to six months to address

the exigency of extraordinary contract

and trade volume, unique to Phlx-traded

Dell options (‘‘Phlx Dell options’’).

Specifically, Phlx proposes to utilize the

options floor trading space and

facilities, including the quotation, order

entry, processing, execution, trade

reporting and comparison functions, of

Amex for Phlx member trades in Phlx

Dell options. Thus, Amex would rent to

Phlx a facility on Amex’s New York
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices 33427

4 Dell options volume increased 163% in 1997

from the first quarter to the fourth quarter of 1997.

5 69,063 Dell options contracts traded on

February 19, 1998, with 9,952 orders and 8,599

trades processed.

6Many member firms and customers use options

as ‘‘insurance’’ or ‘‘hedges’’ in connection with

trading and investment strategies in underlying

securities. Timely reports of option trade executions

and corrections are critical to the execution of these

strategies and, more generally, meeting customer

expectations and needs.

7The Phlx will continue the implementation of

electronic order book feature upgrades on its own

floor.

8The next most active option has recently traded

89% less than Dell options, on average. In the first

five months of 1998, Dell options accounted for

22.5% of Phlx volume, as compared to 14% in

1997.

9Phlx Dell options are currently registered by The

Options Clearing Corporation (‘‘OCC’’) as securities

listed on Phlx via a Form 8 amendment under the

Act. Trading Phlx Dell options using rented

facilities on the floor of Amex is no way suggests

that these options are listed on the Amex. Indeed,

in October 1989, when options listed on the Pacific

Stock Exchange were physically moved to the

Amex, Chicago Board Options Exchange, New York

Stock Exchange and the Phlx due to an earthquake,

OCC did not register those options at any other

exchanges. See Securities Exchange Act Release No.

27365 (October 19, 1989), 54 FR 43511 (October 25,

1989) (SR–Phlx–89–52).

floor for all Phlx Dell option series, with

related support services. These options

would continue to trade pursuant to

Phlx rules, subject to Phlx supervision.

As part of this arrangement, the Phlx

specialist in Dell options, Phlx

Registered Options Traders (‘‘ROTs’’)

and Phlx floor brokers would trade Phlx

Dell options on the Amex, and Amex

floor brokers would be deputized as

Phlx members to trade Phlx Dell

options, as discussed further below.

The Exchange requests the

Commission to find good cause,

pursuant to Section 19(b)(2) of the Act,

for approving the proposed rule change

prior to the thirtieth day after

publication in the Federal Register. The

Exchange requests accelerated approval

of the proposal to promptly facilitate an

orderly, temporary relocation of Phlx

Dell options to the Amex, in the interest

of fair and orderly markets. As

discussed in detail below, this

arrangement, which is for a six-month

period, addresses the exigency of recent

extraordinary order and contract volume

in Dell options, in light of the critical

needs of order entry firms and their

customers to receive prompt execution

reports.

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 III 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

1. Purpose

The purpose of the proposed rule

change is to establish a temporary

facility in New York to permit the

trading of Phlx Dell options on Amex,

to immediately improve the handling of

Dell options by using Amex’s options

trading floor space and attendant

technology. Recently, Phlx Dell options

have been heavily traded on the Phlx 4,

accounting for daily volumes of roughly

30,000 contracts and as much as 69,000

contracts on a single day.5 This volume

has increased steadily and dramatically

over months, and, most recently, over

the past several weeks, with the

concomitant increase in order traffic,

including cancel-replace orders. At the

same time, trading in the stock of Dell

computer has been active, due to

various industry and corporate events.

In response to these events and

others, the Phlx has been implementing

technological improvements respecting

its Automated Options Market

(‘‘AUTOM’’) System, and, specifically,

upgrading the features available to Phlx

specialists respecting the electronic

limit order book. These improvements

have benefited customers using the

AUTOM System as well as the

specialists and ROTs trading options on

the Exchange. Phlx is committed to

continuing to improve its systems. The

development of AUTOM’s X-Station

reflects this commitment; its continued

roll-out and improvements reflect the

Exchange’s commitment to address the

needs created by active options such as

Dell. The key features include improved

cancellation order processing and

contra-side ‘‘Wheel’’ enhancements. The

X-Station continues to address the

needs of the ever-changing options

marketplace.

While Phlx has made significant

enhancements to address higher

volumes, they have been insufficient to

address the critical needs of the order

entry firms and their customers in the

uniquely active Phlx Dell options. As

Phlx Dell options volume has

skyrocketed, the Exchange has faced

delays in transaction reporting to order

entry firms, due to the time intensity

associated with ticket matching and key

punching, exacerbated by the number of

contra-side participants to Phlx Dell

options trades. Certainty as to an order’s

status is essential in the options

markets, particularly where the stock is

volatile, such as in the computer

industry.6

Accordingly, the Exchange is now

proposing to move Dell options to a

rented facility at Amex to immediately

improve the processing of the increasing

volume of Phlx Dell options trades with

attendant increases in trade reporting.7

Promptly renting and using Amex’s

facilities for Phlx Dell options trading

should help protect investors and the

public interest by providing a

technologically appropriate facility for

Phlx Dell options trading, pending

further enhancements on the Phlx floor.

In short, the extraordinary volume in

Phlx Dell options has given rise to this

arrangement, which is specific to Phlx

Dell options, as no other Phlx option

currently generates this volume of

quotes, orders and trades.8 Thus, the

Exchange believes that the immediate

and critical technological need is

unique to Phlx Dell options and has

arisen with such speed and magnitude

that prompt relocation is necessary to

enable the specialist unit and the

Exchange to provide the most efficient

and effective service to customers and

the investing public with respect to Phlx

Dell options.

Phlx is requesting immediate

accelerated approval of this rule change

for such time as this arrangement to

trade Phlx Dell options through Amex

facilities is in effect, up to six months.

The rules, policies and procedures

associated with this move are discussed

below. Trading of Phlx Dell options

through the Amex facilities will remain

subject to all of Phlx’s rules, except for

certain appropriate exceptions as

enumerated below. Phlx will pay Amex

for its facilities and other services

provided for under the arrangement. As

part of this relocation, the Exchange

notes that operational functions

respecting these options will be handled

by Amex systems, including quotation

processing, booking orders, transactions

processing, trade correction, and

clearing through OCC.9 Accordingly,

trades cleared by OCC may have Amex

identifier codes on certain OCC reports,

although OCC has agreed to advise its

members that Phlx Dell options are

registered, listed and traded under the

rules of Phlx. While Amex systems

rather than the AUTOM system will be

used, Phlx Rule 1080 will continue to
33428 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices

10 In addition, the specialist will not be able to

be assured the first trade of the day on AUTO–EX,

pursuant to Phlx Floor Procedure Advice F–24.

11The AOF also interfaces with the Amex

Options Display Book (‘‘AODB’’), the Amex’s

electronic order book for options, which

accommodates not only small orders sent in

electronically, but also larger orders entered from

the trading floor.

12See supra note 9. As discussed in that note,

there was no required for OCC to re-register Pacific

Stock Exchange options at each temporary facility

after the 1989 earthquake. 13See Amendment No. 1, supra note 3.

apply, except for those parameters in

the rule that are not currently

compatible with Amex system

configurations. Specifically, until such

time as the relevant Amex systems can

be reconfigured to apply Phlx

parameters to the Dell options, Amex

parameters will apply regarding the

maximum order six eligible for

electronic delivery to the trading floor,

and the specific order types that may be

accommodated in the system.10 Phlx

will notify its members of its relocation

of Phlx Dell options and of all necessary

changes in applicable system

parameters. Phlx intend to retain its

authority to apply the parameters

specified in its own rules and

procedures at such time as Amex

systems can be reconfigured to

accommodate them. Members firms will

be timely notified of all such system

changes.

As a result of being traded through the

Amex facility, Phlx Dell options would

become eligible or order delivery and

execution through the Amex Order File

(‘‘AOF’’), a host order processing system

that includes a variety of subsystems,

including the automatic execution

(‘‘AUTO–EX’’) system.11 Thus, the

benefits of quick and efficient order

entry and execution that small order

entry systems provide will continue to

be available to Phlx Dell options

customers.

Phlx will permit, and has made

arrangements with Amex to facilitate,

Phlx members who are floor brokers to

have physical access to the Phlx Dell

post in New York for trading and order

execution of orders in Phlx Dell options

only. Phlx is also proposing to deputize

Amex floor brokers as Phlx members for

purposes of Phlx Dell options order

handling to permit them to execute Phlx

Dell options orders as brokers. Phlx

states that such deputization is

consistent with prior Commissionapproved practices respecting the use of

another exchange facility to trade

options.12 Deputization of Amex floor

brokers will provide an additional

method for the submission and

execution of orders in Phlx Dell options,

which is beneficial to investors.

Deputized Amex floor brokers executing

orders in Phlx Dell options will be

subject to all provisions in Phlx rules

that would apply today to a Phlx

member in the course of his acting as a

floor broker for an order in the Phlx Dell

options on the Phlx trading floor.

However, an exception is that,

deputized Amex floor brokers, as such,

will be deemed to have satisfied, and

the Phlx will waive specific compliance

with, rules governing or applying to the

maintenance of a person’s or a firm’s

status as a Phlx member, including all

dues, fees and charges imposed

generally upon Phlx members based on

their status as such. In that regard,

Amex procedures respecting the

admission and qualification of members

to trade on the Amex will be deemed to

satisfy Phlx Rule 1061 regarding

registration of floor brokers. In addition,

with respect to deputized Amex floor

brokers, the Exchange will waive

application of Phlx Rule 1062, as a letter

of authorization from a clearing member

is not requisite for Amex floor brokers

and is not considered necessary to

protect the interests of either other

members or the public. Phlx believes

that the overall regulatory framework of

the Amex adequately addresses the

subject matter of these rules.13

The Phlx specialist unit would

continue to act as such in Phlx Dell

options in New York, and any Phlx

ROTs choosing to trade Phlx Dell

options would be eligible to do so at the

Amex facility. Recognizing the twosided market-making obligations

associated with good faith market maker

margin treatment, the Exchange notes

that Phlx ROTs would be required to be

physically present executing trades in

person on the Amex floor to receive

favorable margin treatment respecting

Phlx Dell options, unless they were

acting pursuant to Phlx Rule 1014.01

respecting off-floor orders. Otherwise,

such ROTs would be subject to

customer margin treatment respecting

opening transactions.

As discussed above, Phlx Dell options

would continue to trade pursuant to

Phlx rules. Accordingly, the minimum

trading increment, strike price, position

and exercise limits, and other trading

related rules of Phlx would govern,

subject only to system configuration

issues discussed below. As Phlx rules

will apply to Phlx Dell options trading

but such trading will be conducted

through Amex systems, surveillance

reports will be generated by the Amex

systems, but surveillance respecting

Phlx Dell options trading will remain

the responsibility of Phlx. With respect

to trading floor disputes, Phlx rules and

procedures will apply, such that Floor

Officials versed in Phlx rules, policies

and procedures will be appointed to act

at the Phlx’s New York facility. With

respect to FLEX options trading, Phlx

Rule 1079 will govern, although Amex

systems will process such trades,

possibly necessitating immaterial

procedural changes for Phlx FLEX

trades relating to symbols and Requestfor-Quote processing.

With respect to the liability provision

of Phlx By-Law Article XII Section 12–

11, the use of the facilities includes the

Phlx Dell option facility on the Amex.

Thus, non-liability for damages

sustained by a member or member

organization growing out of the use or

enjoyment by such member organization

of the facilities afforded by the

Exchange for the conduct of their

business should be extended to Amex

systems and facilities provided under

this temporary arrangement for Phlx

Dell options trading on Amex as well as

to Amex floor brokers who may trade

Phlx Dell options pursuant to the

deputization discussed above. In

addition, by accepting this arrangement,

Phlx, its members and employees shall

accept the same limitations on the

liability of Amex, as provided in the

Amex Constitution and rules with

respect to the use of Amex facilities for

the conduct of business, as such

limitations apply to any Amex member,

member organization or employee

thereof in the conduct of his or its

business on Amex.

Because Phlx Dell options trading on

Amex will be processed through Amex

systems, such trades will appear in

market data systems as Amex trades and

may be cleared with other Amex trades,

though the appropriate transaction

volume will subsequently be attributed

to the Phlx for various purposes,

including the determination of Options

Price Reporting Authority (‘‘OPRA’’)

revenues. Phlx transaction fees will

continue to apply. Similarly, for

technological reasons, a quotation

through the Amex system will appear as

an ‘‘Amex’’ quote, although in actuality

it is a Phlx quote being processed by

Amex. Notwithstanding the above,

through dissemination of information

memoranda to members and member

organizations, it should be abundantly

clear that Phlx Dell options are listed,

traded and supervised according to Phlx

rules and not the rules of any other

exchange. Phlx has taken steps to advise

member firms of the change in trading

venue, so that member firms can make

all necessary system and order routing

changes that may be required and

thereby reduce the risk of investor

confusion in the trading of Dell options.
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices 33429

14See Amendent No. 1, supra note 3.

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

16 15 U.S.C. 78f(b)(5). 17 15 U.S.C. 78f(b)(5).

18Phlx Rule 1079 will continue to apply to the

trading of Dell FLEX options, although Amex

systems will process such trades, which may

Continued

These steps will include notice to

members and an educational session

with Phlx for deputized Amex members

who will be trading Dell options at the

new facility. Phlx will monitor events

and take additional steps as necessary to

address specific confusion.14

With respect to disciplinary

jurisdiction, the Exchange would

continue to retain such jurisdiction over

its members at the Amex facility for

violations of Phlx rules. Because Phlx

rules apply to trading in Phlx Dell

options on the Amex, Phlx Rules 60,

respecting order and decorum on the

trading floor, and 970, respecting the

minor rule violation enforcement and

reporting plan, apply. Phlx would

assume disciplinary jurisdiction over

Amex floor brokers deputized to trade

Phlx Dell options, pursuant to an

acknowledgment signed by such Amex

floor brokers that participation in the

Phlx Dell option trading crowd triggers

such jurisdiction. Deputized Amex floor

brokers will also be required to attend

a seminar familiarizing them with Phlx

rules before they are permitted to

execute orders as a floor broker in the

Phlx Dell option.

2. Statutory Basis

For the reasons discussed above, the

Exchange believes that the proposed

rule change is consistent with Section 6

of the Act 15 in general, and in

particular, with Section 6(b)(5),16 in that

it is designed to promote just and

equitable principles of trade, 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 providing a Phlx facility on

the Amex for the trading of Phlx Dell

options.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange 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

No written comments were either

solicited or received.

III. 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 at

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 File No.

SR–Phlx–98–25 and should be

submitted by July 9, 1998.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that Phlx’s

proposal to immediately establish a

satellite trading facility on Amex to

trade Phlx Dell options is consistent

with the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. Specifically, the Commission

finds that the proposed rule change is

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

Act 17 in that the arrangement between

Phlx and Amex fosters cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities.

The proposal should also help protect

investors and the public interest by

immediately providing a technologically

appropriate facility to trade the Phlx

Dell options and by permitting the

prompt and effective processing of the

increasing number of Dell options

trades.

The Commission believes that it is

reasonable, given the exigent

circumstances of the recent extremely

heavy trading of Dell options, for Phlx

to move the trading of Dell options to

a leased trading floor located at Amex.

Amex is particularly well-suited to

accommodate the trading of Dell options

in a manner that is consistent with the

promotion of fair and orderly markets

and investor protection. In particular,

Amex is an already established selfregulatory organization (‘‘SRO’’) that is

subject to its own rules and regulations

and the rules and regulations of the

federal securities laws. Moreover, Amex

has the necessary technological systems

in place to ensure that orders for

actively traded options, such as Dell, are

routed, executed and processed in a

prompt and efficient manner. The

Commission notes that the trading

volume in Phlx Dell options has

increased steadily and dramatically over

the past few months, particularly in the

past several weeks, and that trading in

Dell stock has also been active, due to

various industry and corporate events.

This increase in volume in Dell options

trading has been accompanied by an

increase in order traffic. As the volume

has increased, Phlx has faced delays in

transaction reporting to order entry

firms, and this delay has been

heightened by the number of contra-side

participants to Phlx Dell option trades.

The Commission understands that Phlx

is committed to making the necessary

systems improvements to accommodate

very actively traded options such as Dell

in the future. Presently however, the

Commission believes it is essential to

allow Phlx Dell options to trade through

facilities that are technologically

capable of supporting the magnitude of

the trading volume that trading in Dell

options commands. Accordingly, a

temporary transfer of trading in Phlx

Dell options to the Amex floor is an

appropriate means of ensuring that the

investing public has available a reliable

trading venue for Dell options.

The Commission believes that, given

the unique circumstances of the trading

of Phlx Dell options on Phlx, Phlx has

devised a regulatory framework that will

reasonably ensure adequate regulatory

oversight of the trading of Dell options

on the Amex floor. As discussed above,

Phlx is proposing to establish a satellite

trading floor where Phlx floor brokers

can trade Phlx Dell options pursuant to

Phlx rules. The Phlx specialist in Dell

options will continue to act as the

specialist in Dell options on the Amex

satellite floor, and any Phlx ROTs

choosing to trade Phlx Dell options

would be eligible to do so at the Amex

facility. Phlx will continue to be

responsible for surveillance of Phlx

members trading in Dell options on the

Amex floor, retaining jurisdiction over

those members for violations of Phlx

rules. Floor officials familiar with Phlx

rules, policies and procedures will be

assigned to act at the Phlx’s Amex

facility to resolve trading floor

disputes.18 While it is true that, to
33430 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices

necessitate procedural changes for Phlx FLEX

trades relating to symbols and Request-for-Quote

processing.

19See Discussion section, supra.

20See supra note 9. 21 15 U.S.C. 78s(b)(2).

22 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter from Linda S. Christie, Counsel, Phlx,

to Yvonne Fraticelli, Attorney, Division of Market

Regulation (‘‘Division’’), Commission (May 22,

1998) (‘‘Amendment No. 1’’). In Amendment No. 1

Phlx replaces the phase ‘‘principal exchange’’ in

Rule 1047 with the phrase ‘‘primary market’’ to

provide consistency with the language in the

proposed amendments to Phlx Rule 1047A and

Option Floor Procedure Advice G–2. Corresponding

with Amendment No. 1, the word ‘‘exchange’’

should be replaced by the word ‘‘market’’ in the

amended portion of Phlx Rule 1047. Telephone

conversation between Linda S. Christie, Counsel,

Phlx, and Marc McKayle, Attorney, Division,

Commission (May 26, 1998).

obtain the benefit of Amex’s advanced

technology and system, certain Phlx

rules will not apply to the trading of

Dell options on Amex,19 the use of Phlx

of Amex systems (such as AOF) that

have already been approved by the

Commission is an appropriate

regulatory alternative under the

circumstances. In light of the exigent

circumstances, the Commission believes

that the proposed solution is an

appropriate measure that provides

adequate regulatory protections.

The Commission also believes that it

is consistent with the Act for Phlx to

deputize Amex floor brokers as Phlx

members, to trade Dell options, to help

ensure sufficient access by the investing

public to Phlx’s satellite facility at

Amex. The Commission notes that it

has, on a prior occasion, authorized

similar deputization to allow for the use

of another exchange facility to trade

options.20 As noted above, the

deputized Amex floor brokers would be

subject to all provisions in Phlx rules

that would apply today to a Phlx

member in the course of his acting as a

floor broker for an order in the Phlx Dell

options on the Phlx trading floor, with

certain minor appropriate exceptions. In

addition, Phlx will have disciplinary

jurisdiction and oversight over

deputized Amex floor brokers relating to

the trading of Dell options on the Amex

floor. Finally, deputized Amex floor

brokers will be required to attend a

training seminar to familiarize them

with Phlx rules and any relevant

distinctions between Phlx rules and

Amex rules before they will be allowed

to execute orders as a floor broker in the

Phlx Dell options.

Phlx’s proposed view that Phlx ByLaw Article XII, Section 12–11, which

disclaims Phlx’s liability to Phlx

members for damages growing out of the

use and enjoyment of Phlx’s facilities, is

applicable to Phlx business conducted

on the Amex floor, is appropriate given

that Phlx is leasing such space and will

be conducting its business through such

facilities. Likewise, it is appropriate for

those Phlx members that are temporarily

re-located to the Amex facility to accept

the same limitations on liability of the

Amex. These Phlx members will utilize

the applicable Amex systems in a nearly

identical fashion to which they would

have relied on Phlx systems prior to the

move. Therefore, this requirement is a

reasonable component of the agreement

to allow Phlx to create a temporary

trading facility on Amex in Dell options.

Phlx essentially concludes that Phlx

Dell options that will be traded on its

temporary Amex facility should not be

considered Amex-traded options for

securities registration purposes and

notes that in October 1989, when

options listed on PCX were physically

moved to Amex and other options

exchanges, due to an earthquake, ‘‘OCC

did not register those options at any

other exchanges.’’ The Commission

believes that the continued trading of

Phlx Dell options by Phlx using leased

space on the floor of Amex does not

cause such options to cease to be option

traded on Phlx and that, accordingly,

OCC does not need to amend its 1934

Act Registration to re-characterize these

options as options listed or traded on

another exchange.

Finally, the Commission notes that, to

minimize investor confusion in the

trading of Dell options, Phlx has stated

that it will provide adequate notice to

its members to ensure that they and the

investing public are aware that Phlx

Dell options are listed, traded and

supervised according to Phlx rules, but

are to be traded at a facility of Phlx

located on the Amex floor. Phlx states

that it has taken steps to advise member

firms of the change in trading venue, so

that they can make necessary system

and order routing changes. These steps

will include notice to members and an

educational session with Phlx of

deputized Amex members who will be

trading Dell options at the new facility.

Phlx is committed to monitoring events

and will take additional steps as

necessary to address specific confusion.

These additional steps could include

issuing press releases or making needed

information otherwise available to

Phlx’s members and to the public.

For the reasons discussed above, the

Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing in the

Federal Register. The Commission

believes that it is necessary to approve

Phlx’s proposal on an accelerated basis

to protect the trading interests of the

investing public, due to the exigency of

transferring the trading of Phlx Dell

options from the Phlx trading floor,

which is not currently capable of

managing the high trading volume of

Dell options, to another SRO floor

where the Dell options can be

effectively and efficiently traded.

It is therefore ordered, pursuant to

Section 19(b)(2) 21 of the Act that the

proposed rule change (SR–Phlx–98–25)

is hereby approved on an accelerated

basis through December 12, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.22

Jonathan G. Katz,

Secretary.

[FR Doc. 98–16258 Filed 6–17–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Released No. 34–40082; File No. SR–Phlx–

98–19]

Self-Regulatory Organization; Notice of

Filing of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc., and

Amendment No. 1 Thereto Relating to

When a Security is Considered Open

For Trading

June 10, 1998.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 1,

1998, 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 Phlx. On

May 22, 1998, the Phlx filed an

amendment to the proposal.3 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 proposes to amend Phlx

Rules 1047 (Trading Rotations, Halts

and Suspensions), 1047A (Trading

Rotations, Halts or Reopenings), and

Option Floor Procedure Advice G–2

(‘‘Advice G–2’’) (Trading Rotations,

Halts or Reopenings), to clarify when a

security is consider open for trading.

Specifically, and underlying security