2420 Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices

14The Enhanced Parity Split will have a negative

impact on customer orders for 100 or more

contracts only where the customer is on parity with

the 3D FCO specialist and one or more other crowd

participants. In cases where only a customer and

the 3D FCO specialist are on parity, the Enhanced

Parity Split will have no effect. See Amendment

No. 2, supra note 6.

15See Phlx Rule 1014 (h) (i).

16See supra note 12. The Commission notes that

equity and index options traded at the Exchange are

assigned to specialists by the Exchange’s Allocation

Committee and that the Exchange’s by-laws provide

specific procedures regarding appeals of decisions

by the Allocation Committee. See Phlx By-laws,

Article XI, Section 11–1(c). Under this proposal,

however, the FCO Committee will be making the

determination to deny the Enhanced Parity Split to

the 3D FCO specialist. As a result, the appeals

process pursuant to this proposal will vary,

procedurally, from that available to equity and

index option specialists who are denied the

enhanced parity splits available to those specialists.

See Phlx By-laws, Article XI, Section 11–1(a).

Telephone conversation between Michele

Weisbaum, Associate General Counsel, Phlx, and

Brad Ritter, Senior Counsel, OMS, Division,

Commission, on December 8, 1994. Despite the

procedural differences, the Commission believes

that the appeal rights available to the 3D FCO

specialist, as proposed herein, provide adequate

due process protection to the 3D FCO specialist.

17See Exchange Act Release No. 35028, supra

note 12.

18 15 U.S.C. 78s(b)(2) (1988).

19 17 CFR 200.30–3(a)(12) (1993).

1 In Amendment No. 1, the Exchange requested

accelerated approval of the proposed rule change.

See Letter from Edith Hallahan, Special Counsel,

Phlx, to Michael Walinskas, Branch Chief, Office of

Market Supervision (‘‘OMS’’), Division of Market

Regulation (‘‘Division’’), Commission, dated

December 1, 1994 (‘‘Amendment No. 1’’).

eligible for the Enhanced Parity Split,

the appeals procedures proposed by the

Exchange adequately protect the due

process rights of the specialist. The

Commission believes that these criteria

balance the competing interests of the

Exchange and the 3D FCO specialist by

ensuring regular review of specialist

performance and that the specialist’s

due process rights are protected in cases

where the Committee makes a

determination that the Enhanced Parity

Split should be denied.

Finally, the Commission notes that

even though the Enhanced Parity Split

will have a negative impact, in certain

circumstances,14 on customer orders for

more than 100 contracts, the

Commission believes that this does not

raise significant regulatory concerns in

the context of the 3D FCO market. The

FCO market, in general, is dominated by

institutions and sophisticated corporate

investors who typically trade in large

numbers of FCO contracts, i.e., 100

contracts or more at a time. The

Commission believes that noninstitutional investors who participate

in the FCO market generally enter into

transactions for far fewer contracts. The

Exchange’s rules, as approved by the

Commission, already acknowledge this

distinction by affording time priority for

trades that would otherwise be on parity

only for customer orders for fewer than

100 contracts.15 As a result, because the

negative impact of the rule on customers

will be limited substantially to

institutions and sophisticated corporate

FCO investors trading 3D FCOs, the

Commission believes that the benefits of

the proposal discussed above outweigh

the negative impact of the rule change

on this class of FCO customers.

The Commission finds good cause for

approving Amendment Nos. 1 and 2 to

the proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register in order to allow

the 3D FCO specialist to begin receiving

the benefits of the Enhanced Parity Split

without delay. The Commission notes

that the appeal procedures provided in

Amendment No. 1 are consistent with

those available to equity and index

option specialists who are denied the

enhanced parity participation available

to those specialists pursuant to prior

Commission approval orders.16 Further,

the Commission finds that the proposal

in Amendment No. 1 to Rule 503 merely

makes this rule consistent with Rule

1014 and therefore does not raise any

regulatory issues that were not

addressed when Rule 1014 was

amended.17 Finally, Amendment No. 2

merely clarifies the manner in which

the Enhanced Parity Split will be

applied. Accordingly, the Commission

believes that Amendment No. 2 should

serve to minimize the potential for

confusion regarding the application of

the proposed rule change.

Based on the foregoing, the

Commission believes it is consistent

with Section 6(b)(5) of the Act to

approve Amendment Nos. 1 and 2 to the

Phlx’s proposal on an accelerated basis.

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

1 and 2. Persons making written

submissions should fix six copies

thereof with the Secretary, Securities

and Exchange 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 file 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. 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–94–42 and should

be submitted by January 30, 1995.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,18 that the

proposed rule change (SR–Phlx–94–42),

as amended, is hereby approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.19

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–428 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35183; File No. SR–Phlx–

94–41]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change and Amendment No. 1 to

the Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.,

Relating to an Extension of the

Automated Options Market (‘‘AUTOM’’)

Pilot Program

December 30, 1994.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on November 21,

1994, 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 and II below, which items

have been prepared by the Exchange.

The Exchange subsequently filed

Amendment No. 1 to the proposal on

December 1, 1994.1 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 extend the

Exchange’s Automated Options Market

(‘‘AUTOM’’) pilot program until

December 31, 1995. The text of the

proposal is available at the Office of the

Secretary, the Phlx, and the

Commission.
Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices 2421

2See Securities Exchange Act Release No. 35033

(November 30, 1994), 59 FR 63152 (December 7,

1994) (order approving a ‘‘wheel’’ execution system

to automatically assign the specialist and

participating Registered Options traders, on a

rotating basis, as the contra-side to AUTO–X

trades).

3See Securities Exchange Act Release No. 25540

(March 31, 1988), 53 FR 11390 (April 6, 1988).

4See Securities Exchange Act Release Nos.: 25868

(June 30, 1988), 53 FR 25563 (July 7, 1988) (order

extending the pilot program to include 25

additional equity options and extending the pilot

through December 31, 1988); 26354 (December 13,

1988), 53 FR 51185 (December 20, 1988) (order

extending pilot program through June 30, 1989);

26522 (February 3, 1989), 54 FR 6465 (February 10,

1989) (order extending pilot through December 31,

1989); 27599 (January 9, 1990), 55 FR 1751 (January

18, 1990) (order extending pilot through June 30,

1990); 28265 (July 26, 1990), 55 FR 31274 (August

1, 1990) (order extending pilot through December

31, 1990); 28978 (March 15, 1991), 56 FR 12050

(March 21, 1991) (order extending pilot through

December 31, 1991 and approving the use of

AUTO–X as part of the AUTOM pilot program);

29662 (September 9, 1991), 56 FR 46816 (September

16, 1991) (order permitting AUTO–X orders up to

20 contracts in Duracell operations only); 29782

(October 3, 1991), 56 FR 51247 (October 10, 1991)

(order permitting AUTO–X for all strike prices and

expiration months); 29837 (October 18, 1991), 56

FR 55146 (October 24, 1991) (order extending pilot

through December 31, 1993); 32000 (March 15,

1993), 58 FR 15168 (March 19, 1993) (order

approving the delivery of orders for up to 100

contracts through AUTOM and execution of orders

for up to 25 contracts through AUTO–X); 32906

(September 15, 1993), 58 FR 49345) (September 22,

1993) (order permitting AUTO–X orders up to 25

contracts in all equity options); 33405 (December

30, 1993), 59 FR 790 (January 6, 1994) (order

extending pilot through December 31, 1994)

(‘‘Exchange Act Release No. 33405’’); and 34920

(October 31, 1994), 59 FR 55510 (November 7, 1994)

(order approving use of AUTOM and AUTO–X for

index option orders).

5Separately, the Exchange is proposing to limit

the eligibility of National Over-the-Counter Index

options for execution through AUTO-X. See File

No. SR-Phlx-94-60. Additionally, the Exchange is

proposing to codify the types of orders eligible for

AUTOM and AUTO-X. See File No. SR-Phlx-94-62.

See also, supra note 2.

6See Exchange Act Release No. 33405, Supra

note 4.

7See Amendment No. 1, supra note 1.

8 15 U.S.C. § § 78f and 78k-1 (1988).

9The Commission notes that in the last extension

of the pilot program, the Commission stated that

prior to granting permanent approval or any further

extension of the pilot, the Phlx would be required

to submit a full report: (1) describing certain system

modifications then in progress by the Exchange and

describing the effect those modifications have

subsequently had on AUTOM; and (2) updating a

report submitted by the Phlx dated November 24,

Continued

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

AUTOM is the Exchange’s electronic

order routing, delivery, execution, and

reporting system for equity and index

options. AUTOM is an on-line system

that allows electronic delivery of

options orders from member firms

directly to the appropriate specialists on

the Phlx options trading floor, with

electronic confirmation of order

executions. Certain orders are eligible

for AUTOM’s automatic execution

feature, AUTO–X. AUTO–X orders are

executed automatically at the

disseminated quotation price on the

Exchange and reported to the Options

Price Reporting Authority (‘‘OPRA’’)

and to the originating firm. Generally,

the specialist is the contra-side to

AUTO–X trades.2 Those orders not

eligible for AUTO–X are executed

manually by the specialist, and, upon

execution of the order, are entered into

the Exchange’s systems for reporting to

OPRA and to the firm that placed the

order.

The AUTOM system has operated on

a pilot basis since 1988, when it was

first approved by the Commission for

market orders of up to five contracts for

all exercise prices in the near-month

covering 12 Phlx-traded equity options.3

Since that time, AUTOM has been

extended and amended several times.4

The purpose of the proposed rule

change is to extend the AUTOM pilot

program until December 31, 1995. The

Phlx believes that this extension of the

pilot program should provide the

Exchange, as well as the Commission,

with additional time to study the

effectiveness of AUTOM prior to either

a further extension or permanent

approval of the pilot program. During

this extension, the Exchange intends to

monitor the implementation of certain

enhancements to AUTOm as well as to

codify the entire pilot program as an

Exchange rule.5

Generally, the Exchange believes that

since the last extension of the pilot

program,6 AUTOM has functioned

properly and efficiently, without any

material problems reported by Phlx

members of AUTOM users, and without

significant malfunctions or operational

failures.

The Exchange believes that AUTOM

provides small customer option orders

with the benefits of electronic delivery

and reporting, while AUTO-X provides

automatic executions as well.

Accordingly, the Exchange believes that

AUTOM increases the speed and

efficiency of order delivery, execution

and reporting. This, the Exchange

believes, promotes both liquidity and

fair and orderly markets. For these

reasons, the Phlx believes that

extending the AUTOM pilot program

until December 31, 1995, is consistent

with Section 6 of the Act, in general,

and, Section 6(b)(5), the particular, in

that the proposal is designed to promote

just and equitable principles of trade,

and to protect investors and the public

interest. In addition, the Exchange

believes that the proposed rule change

is consistent with Section 11A(a)(1)(B)

of the Act in the that AUTOM is

intended to improve, through the use of

new data processing and

communications techniques, the

efficiency with which transactions in

Phlx equity and index options are

executive. Further, the Exchange

believes that AUTOM fosters

competition among options exchanges,

which have similar systems in place.

(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 of Comments on the

Proposed Rule Change Change Received

From Members, Participants or Others

No written comments were either

solicited or received by the Exchange.

No written comments were either

solicited or received by the Exchange.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The Exchange has requested that the

proposed rule change be given

accelerated effectiveness pursuant to

Section 19(b)(2) of the Act.7

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, the

requirements of Sections 6 and 11A.8

Specifically, the Commission continues

to believe that the development and

implementation of the AUTOM system

provides for more efficient handling and

reporting of orders in Phlx options

through the use of new data processing

and communications techniques,

thereby improving order processing and

turnaround time.9 The Commission also
2422 Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Notices

1993; in connection with the last extension of the

pilot program. See Exchange Act Release No. 33405,

supra note 4. The Phlx has filed the required

reports in connection with the current request for

an extension of the pilot program. See Letter from

Gerald O’Connell, First Vice President, Market

Regulation and Trading Operations, Phlx, to

Michael Walinskas, Branch Chief, OMS, Division,

Commission, dated December 14, 1994, and letter

from Jack McCarthy, Vice President, Equity Options

Trading Systems, Phlx, to Michael Walinskas,

Branch Chief, OMS, Division, Commission, dated

December 21, 1994 (‘‘December 21 Letter’’).

10See supra note 5.

11Before granting permanent approval of the pilot

program, the Commission expects the Phlx to

submit a full report, on or before November 1, 1995,

describing the operation of AUTOM during this

extension and the effect of any modifications made

to AUTOM system implemented during the

extension. Additionally, the Phlx’s AUTOM pilot

report should include: (1) a description of the

benefits provided by AUTOM; (2) the degree of

AUTOM usage, including the number and size of

the orders routed through AUTOM and the number

and size of the orders executed automatically

through the AUTO–X system; (3) the system

capacity of AUTOM and AUTO–X; and (4) any

problems the Exchange has encountered with the

routing and execution features. The Commission

also requests that the Phlx submit its request for

either an extension or permanent approval of the

pilot program on or before November 1, 1995.

12See Exchange Act Release No. 33405, supra

note 4.

13Telephone conversation between Edith

Hallahan, Special Counsel, Phlx, and Brad Ritter,

Senior Counsel, OMS, Division, Commission, on

December 29, 1994.

14The Commission expects the Phlx to

immediately notify the Commission of any and all

developments during this extension of the pilot

program having a material effect on the capacity of

the Phlx’s automated systems. See also, December

21 Letter, supra note 9.

15 15 U.S.C. § 78s(b)(2) (1982).

16 17 CFR 200.30–3(a)(12) (1993).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1991).

3See letter from Gerald D. O’Connell, Vice

President, Market Surveillance, Phlx, to Glen

Barrentine, Senior Counsel, Commission, dated

November 23, 1994.

4 ‘‘Regular’’ hours of trading excludes the after

hours trading facility for GTX orders permissible

pursuant to Phlx Rule 232(c). This Rule defines a

‘‘GTX’’ order as one that is good until cancelled,

eligible for primary market protection based on

volume that prints on the New York Stock

Exchange (‘‘NYSE’’) or American Stock Exchange

(‘‘Amex’’) after-hours trading session.

believes that the extension of the pilot

program until December 31, 1995, will

provide the Exchange with a better

opportunity to further study the

operation and effectiveness of the pilot

program, and the proposed

modifications to be implemented during

the extension,10 prior to either a further

extension or permanent approval of the

pilot program.11

The Commission further notes that

the Exchange has represented that since

the last extension of the pilot program,12

AUTOM has functioned properly and

efficiently, that no material problems

have been reported by Phlx members or

AUTOM users, and that AUTOM has

not had significant malfunctions or

operational failures.13 Finally, because

the pilot program is being extended

without expansion of the scope of the

pilot, the Commission does not believe

that the capacity of the Exchange’s

automated systems will be adversely

effected by this extension.14

The Commission finds good cause for

approving the proposed rule change and

Amendment No. 1 thereto prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register in order to permit

the Phlx to continue the AUTOM pilot

program on an uninterrupted basis.

Specifically, the Commission believes

that the Phlx’s proposal to extend the

AUTOM pilot program does not raise

any new issues because it merely

extends the pilot program as it is

currently operating. Further, the

Commission continues to believe that

the pilot program is beneficial to

maintaining the quality and efficiency

of the Phlx’s market. Finally, the

Commission notes that there have been

no adverse comments concerning the

pilot program since its implementation.

Accordingly, the Commission believes

that granting accelerated approval of the

proposed rule change is appropriate and

consistent with Sections 6 and 11A 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

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 at

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC. 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–94–41 and should be

submitted by January 30, 1995.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–Phlx–94–41),

as amended, is approved through

December 31, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–384 Filed 1–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35188; File No. SR–Phlx–

94–46]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval to Proposed

Rule Change Regarding a Post Primary

Trading Session

January 3, 1995.

I. Introduction

On October 3, 1994 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

extend the close of trading on the

Exchange’s equity trading floor from

4:00 to 4:15 p.m., creating a new Post

Primary Session (‘‘PPS’’). On November

25, 1994, the Phlx submitted

Amendment No. 1 to the proposed rule

change.3

The proposed rule change, as

amended, was published for comment

in Securities Exchange Act Release No.

35007 (November 25, 1994), 59 FR

61915 (December 2, 1994). No

comments were received on the

proposal.

Pursuant to the current Phlx Rule 101

(Hours of Business), trading in any

equity security on the Exchange’s equity

floor ends at 4:00 p.m. The PPS,

however, will extend these hours for an

additional fifteen minutes. Thus, the

hours of the Phlx’s auction trading

market will be extended from the

current hours of 9:30 a.m. to 4:00 p.m.

to the new hours of 9:30 a.m. to 4:15

p.m.

Under the Phlx’s proposal to extend

its trading hours, all Exchange rules

applicable to floor trading during the

Exchange’s regular hours 4 will continue

to apply to floor trading during the PPS,

except that during the PPS, (1) orders

that are designated ‘‘PPS’’ are eligible

for execution, and (2) GTX orders are

executable after the close of the PPS

(i.e., GTX orders are executable after

4:15 p.m. instead of 4:00 p.m.). In order

to facilitate the extension of trading, the