[Federal Register Volume 60, Number 75 (Wednesday, April 19, 1995)]
[Notices]
[Pages 19616-19618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9668]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35601; File No. SR-PHLX-95-18]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc., Relating to the Automated Options Market System and 
AUTO-X Eligibility of Certain Orders

April 13, 1995.
    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 April 4, 
1995, the Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') 
filed with the Securities 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 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

    The PHLX proposes to codify its practice of accepting stop, stop-
limit, all-or-none, or better, simple cancel, simple cancel to reduce 
size (cancel leaves), cancel to change price, cancel with replacement 
order, market-on-close, opening-only-market, and possible duplicate 
orders for delivery through the PHLX's Automated Options Market 
(``AUTOM'') system. In addition, the PHLX proposes to codify its 
practice of accepting orders designated as ``day'' orders, which are 
executable on the day they are entered or not at all, and good-till-
cancelled (``GTC'') orders for delivery through AUTOM and execution 
through AUTO-X, the automatic execution feature of AUTOM. Currently, 
day orders and GTC orders are accepted on the PHLX's trading floor as 
both manually entered orders on floor tickets and through AUTOM.
    The text of the proposed rule change is available at the Office of 
the Secretary, PHLX, and at the Commission.

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 IV 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

    The purpose of the proposal is to codify (1) the acceptance of 
certain order types and designators for electronic execution through 
AUTOM; and (2) the designation of certain types of orders that are 
executed through AUTO-X. AUTOM, which has operated on a pilot basis 
since 1988 and was most recently extended through December 31, 1995,\1\ 
is the PHLX's electronic order [[Page 19617]] 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 specialist on the 
Exchange's trading floor.

    \1\See Securities Exchange Act Release No. 35183 (December 30, 
1994), 60 FR 2420 (January 9, 1995) (order approving File No. SR-
PHLX-94-41). See also Securities Exchange Act Release Nos. 25540 
(March 31, 1988), 53 FR 11390 (order approving AUTOM on a pilot 
basis); 25868 (June 30, 1988), 53 FR 25563 (order approving File No. 
SR-PHLX-88-22, extending pilot through December 31, 1988); 26354 
(December 13, 1988), 53 FR 51185 (order approving File No. SR-PHLX-
88-33, extending pilot program through June 30, 1989); 26522 
(February 3, 1989), 54 FR 6465 (order approving File No. SR-PHLX-89-
1, extending pilot through December 31, 1989); 27599 (January 9, 
1990), 55 FR 1751 (order approving File No. SR-PHLX-89-03, extending 
pilot through June 30, 1990); 28625 (July 26, 1990), 55 FR 31274 
(order approving File No. SR-PHLX-90-16, extending pilot through 
December 31, 1990); 28978 (March 15, 1991), 56 FR 12050 (order 
approving File No. SR-PHLX-90-34, extending pilot through December 
31, 1991); 29662 (September 9, 1991), 56 FR 46816 (order approving 
File No. SR-PHLX-91-31, permitting AUTO-X orders up to 20 contracts 
in Duracell options only); 29782 (October 3, 1991), 56 FR 55146 
(order approving File No. SR-PHLX-91-33, permitting AUTO-X for all 
strike prices and expiration months); 29837 (October 18, 1991), 56 
FR 36496 (order approving File No. SR-PHLX-90-03, extending pilot 
through December 31, 1993); 32906 (September 15, 1993), 58 FR 15168 
(order approving File No. SR-PHLX-92-38, permitting AUTO-X orders up 
to 25 contracts in all options); and 33405 (December 30, 1993), 59 
FR 790 (order approving File No. SR-PHLX-93-57, extending pilot 
through December 31, 1994).
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    Orders for up to 100 options contracts are eligible for AUTOM and 
public customer orders for up to 25 contracts are eligible for AUTO-X, 
the automatic execution feature of AUTOM.\2\ AUTO-X orders are executed 
automatically at the disseminated quotation price on the Exchange and 
reported to the originating firm. Orders that are not eligible for 
AUTO-X are handled manually by the specialist.

    \2\The Commission recently approved a PHLX proposal to codify 
the use of AUTOM and AUTO-X for index options. See Securities 
Exchange Act Release No. 34920 (October 31, 1994), 59 FR 5510 
(November 7, 1994) (order approving File No. SR-PHLX-94-40).
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    At the inception of the AUTOM pilot program, only customer market 
orders were AUTOM-eligible. Thereafter, the Commission approved 
proposals permitting delivery of marketable limit, GTC, and cabinet 
orders (accommodation transactions) through AUTOM.\3\

    \3\See Securities Exchange Act Release Nos. 27599 (making day 
limit orders eligible for delivery through AUTOM) and 28978 (making 
GTC and cabinet orders eligible from AUTOM), supra note 1.
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    Exchange By-Law Article X, ``Standing Committees,'' Section 10-18, 
``Options Committee,'' grants authority over all connections and 
communications on the options floor, including AUTOM, to the Options 
Committee. Pursuant to this authority, the Options Committee decided in 
1991 to accept certain additional order types for AUTOM and AUTO-X in 
the interest of maintaining fair and orderly markets.
    The PHLX proposes to incorporate the following order types into the 
AUTOM pilot program: stop,\4\ stop-limit,\5\ all-or-none,\6\ market-on-
close,\7\ opening-only-market,\8\ and cancel-replacement orders.\9\ In 
addition, the PHLX proposes to codify the following order conditions 
into the AUTO pilot program: or better,\10\ possible duplicate 
orders,\11\ and several types of cancellation conditions--simple 
cancel, simple cancel to reduce size (cancel leaves) and cancel to 
change price.\12\ Currently, these orders are accepted and these 
designations are utilized for both manual and AUTOM-delivered orders.

    \4\A ``stop'' order is a contingency order to buy or sell when 
the market for a particular option contract reaches a specified 
price. A stop order to buy becomes a market order when the option 
contract trades at or above the stop price. A stop order to sell 
becomes a market order when the option contract trades at or below 
the stop price. See PHLX Rule 1066(c)(2), ``Stop (stop-loss) 
Order.''
    \5\A stop-limit order is a contingency order to buy or sell at a 
limited price when the market for a particular option contract 
reaches a specified price. A stop-limit order to buy becomes a limit 
order when the option contract trades at or above the stop price. A 
stop-limit order to sell becomes a limit order when the option 
contract trades at or below the stop price. See PHLX Rule 
1066(c)(1), ``Stop-Limit Order.''
    \6\An ``all-or-none order'' is a market or limit order to be 
executed in its entirety or not at all. See PHLX Rule 1066(c)(4), 
``All or None Order.''
    \7\A ``market-on-close'' order is a market or limit order to be 
executed as close as possible to the closing bell, or during the 
closing rotation and should be near to or at the closing price for 
the particular series. See PHLX Rule 1066(c)(6), ``Market-on-Close 
Order.''
    \8\An ``opening-only-market'' order is a market order which is 
to be executed in whole or in part during the opening rotation or 
not at all. See  PHLX Rule 1066(c)(5).
    \9\``Cancel-replacement'' is an order which requires the 
immediate cancellation of a previous order prior to the replacement 
of a new order. See PHLX Rule 1066(c)(7), ``Cancel-Replacement 
Order.''
    \10\The designation ``or better'' indicates that the originator 
of the order is aware that the market is currently better than the 
limit price of the order; this order is not filled at a price 
outside of the ``or better'' price. The ``or better'' designation is 
used to verify the validity of the order and confirms that the order 
was entered on the correct side.
    \11\``Possible duplicate'' is a status which indicates that 
before an AUTOM order is executed manually by the specialist, the 
specialist should confirm that the order has not yet been executed.
    \12\Various types of cancellation conditions and procedures are 
defined in Option Floor Procedure Advise A-6, ``Responsibility to 
Cancel Orders on the Book'' as well as PHLX Rule 1066, ``Certain 
Types of Orders Defined.'' The designation ``simple cancel'' 
indicates that an order is to be cancelled, while ``cancel leaves'' 
indicates that the size of a previous order is being reduced and 
``cancel to change price'' cancels the price of a previous order.
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    With respect to automatic executions, market and marketable limit 
orders currently are eligible for AUTO-X. The PHLX proposes to codify 
its practice of designating AUTO-X orders with the conditions ``day'' 
or ``GTC.'' Market or marketable limit orders, like all AUTOM orders, 
are necessarily ``day'' orders expiring at the end of the trading day 
or GTC orders that are good until cancelled. Thus the PHLX explains 
that the proposal to codify the use of ``day'' and ``GTC'' designators 
for AUTO-X merely reveals the life span of AUTO-X orders, without 
adding new order types.
    The Exchange believes that these order types are appropriate for 
AUTOM and AUTO-X because they are commonly utilized in the securities 
industry and have been accepted through AUTOM since 1991 without 
significant problems reported by AUTOM users. In addition, the PHLX 
believes that incorporating such orders into AUTOM extends the benefits 
of these systems to additional order types.
    The PHLX states that all of the additional order types and 
designators are currently accepted on the Exchange as manual orders, 
and are thus defined in PHLX Rule 1066, ``Certain Types of Orders 
Defined.'' The PHLX specialist can accept these orders for placement on 
the limit order book. According to the PHLX, permitting these orders to 
be routed by AUTOM directly to the specialist does not affect the 
handling of the orders by the specialist. For example, an AUTOM order 
can be placed on the book. None of these orders are discretionary 
orders, which may not be placed on the book under Floor Procedure 
Advice (``Advice'') A-2, ``Types of Orders to be Accepted onto the 
Specialist's Book.''\13\ Thus, according to the PHLX, the effect of the 
proposal is to permit orders that can now be held by a specialist to be 
routed electronically through AUTOM, as opposed to be being routed 
manually through trading floor representatives.

    \13\Under Advice A-2, a specialist may not accept option orders 
consisting of two or more option series (e.g., spread, straddle, and 
combination orders).
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    The Exchange notes that the material terms of these orders are 
relayed to the specialist by AUTOM and displayed on the order ticket, 
which is printed at the specialist post. This information is the same 
as if the order were manually delivered. A computer screen displays the 
following information respecting incoming AUTOM orders to the trading 
crowd: numeric designation, buy or sell, call or put, volume, symbol, 
month, strike, price, and time received.
    Accordingly, the PHLX believes that the proposal is consistent with 
Section 6(b) of the Act, in general, and, in particular, with Section 
6(b)(5), in that it is designed to promote just and equitable 
principles of trade and to protect investors and the public interest by 
codifying certain order types and condition designations into the AUTOM 
[[Page 19618]] pilot program. Specifically, the Exchange believes that 
the additional order types benefit from the advantages of AUTOM, 
including efficient and prompt order delivery and execution.

(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

    No written comments were either solicited or received.

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

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days after April 4, 1995, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(e)(6) 
thereunder. In particular, the Commission believes that the proposal 
does not significantly affect the protection of investors or the public 
interest and does not impose any significant burden on competition. At 
any time within 60 days of the filing of such 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. 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 above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by May 10, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\

    \14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-9668 Filed 4-18-95; 8:45 am]
BILLING CODE 8010-01-M