[Federal Register Volume 66, Number 81 (Thursday, April 26, 2001)]
[Notices]
[Pages 21033-21035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-10390]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44207; File No. SR-Phlx-2001-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to the 
Automatic Display of Customer Limit Orders

April 20, 2001.
    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 February 2, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change 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).
    \2\ 17 CFR 240.19b-4.

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[[Page 21034]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Commentary .01 to Exchange Rule 1080 to 
make modifications to the Exchange's Auto-Quote system that would 
automatically display booked limit orders for those options traded by 
specialists that use Auto-Quote.\3\ The text of the proposed rule 
change is set forth below. New text is in italics.
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    \3\ Auto-Quote is the Exchange's electronic options pricing 
system, which enables specialists to automatically monitor and 
instantly update quotations, based on incremental changes in the 
price of the security underlying the option.
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Philadelphia Stock Exchange Automated Options Market (AUTOM) and 
Automatic Execution System (AUTO-X)

Rule 1080. (a)-(j) No change.

Commentary:

.01  Automatic Quotation (Auto-Quote) is the Exchange's electronic 
options pricing system, which enables specialists to automatically 
monitor and instantly updated quotations.
    Auto-Quote will automatically display booked limit orders for 
those options traded by specialists that use the Exchange's Auto-
Quote feature.
    For Phlx specialist firms using proprietary systems (called 
``Specialized Quote Feeds'' or ``SQFs''), rather than the Exchange's 
Auto-Quote feature, the Exchange, upon the request of SQF users, 
will provide SQF users with real-time order and trade information in 
a manner that would enable SQF users wishing to modify their own 
systems to display limit orders automatically.
* * * * *

II. Self-Regulatory Organization's Statements 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

1. Purpose
    The purpose of the proposed rule change is to enable Exchange 
specialists using Auto-Quote to display limit orders as soon as 
practicable, and under normal market conditions, no later than 30 
seconds after receipt.\4\ The proposed system change would function as 
an automated ``fail-safe'' feature to assist specialists in their 
compliance with the immediate limit order display requirement.\5\
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    \4\ Currently, Option Floor Procedure Advice (``OFPA'') A-1, 
Responsibility of Displaying Best bids and Offers, requires a 
specialist to use due diligence to ensure that the best available 
bid and offer is displayed for those option series in which he is 
assigned. The Exchange has filed proposed rule changes to OFPA A-1 
and Exchange Rule 1020, Registration and Functions of Options 
Specialists, that provide that a specialist shall immediately 
display customer limit orders, i.e., as soon as practicable, and 
under normal market conditions, no later than 30 seconds after 
receipt. The proposed rule change has been published for public 
comment and has not yet been approved by the Commission. See 
Securities Exchange Act Release No. 43126 (August 7, 2000), 65 FR 
49621 (August 14, 2000) (SR-Phlx-00-34).
    \5\ The Exchange acknowledges that the proposed rule changes to 
Rule 1020 and OFPA A-1 would require specialists to display customer 
limit orders immediately. The system change is not intended to 
relieve specialists from the immediate display requirement. Rather, 
the system change is intended to ensure that customer limit orders 
would be displayed within the 30-second time limit set forth in the 
proposed rules. The Exchange's Market Surveillance Department will 
enforce the immediate display requirement, regardless of the 30-
second ``window.''
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    The proposed system change would enable Auto-Quote to automatically 
display limit orders placed on the specialist's book that improve the 
displayed quote.\6\ If the specialist is unable to display a limit 
order immediately, the proposed system change would enable Auto-Quote 
to automatically display a customer limit order within 30 seconds of 
receipt. In addition, the proposed system change would allow 
specialists, on an issue-by-issue basis, to configure the system to 
display limit orders within a shorter time period.
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    \6\ Phone call between Rick Rudolph, Counsel, Phlx, and Sonia 
Patton, Staff Attorney, Division of Market Regulation, Commission 
(April 5, 2001).
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    For Phlx specialist firms using proprietary systems (called 
``Specialized Quote Feeds'' or ``SQFs''), rather than the Exchange's 
Auto-Quote feature, additional systems changes would enable Exchange 
staff, upon the request of SQF users, to provide SQF users with real-
time order receipt and trade information in a manner that would enable 
SQF users to modify their own systems to display limit orders 
automatically should they choose to do so. This information could be 
integrated into the SQF user's system to enable them to build a system 
that would function similarly to the proposed automatic display feature 
of Auto-Quote.
    The Exchange currently anticipates deploying the modifications to 
Auto-Quote in the second quarter of 2001. After the deployment of the 
Auto-Quote modifications, the Exchange will commence assisting SQF 
users (upon request) in receiving required information to upgrade their 
systems.\7\
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    \7\ The Exchange will notify all Phlx options specialists via 
circular when it is ready to begin testing and deploying the new 
Auto-Quote feature.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \8\ in general, and furthers the 
objectives of section 6(b)(5) \9\ in particular, in that it is designed 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest, by enabling specialists to discharge 
their obligation to display customer limit orders.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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

    The Exchange did not solicit or receive written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Phlx consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, NW., Washington, DC 20549-0609. 
Copies of

[[Page 21035]]

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 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-2001-11 and should be 
submitted by May 17, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
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    \10\ 17 CFR 200.30-(9)(12).
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[FR Doc. 01-10390 Filed 4-25-01; 8:45 am]
BILLING CODE 8010-01-M