Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to Participation on the Auto-X Wheel

[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 38066-38067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41600; File No. SR-Phlx-99-18]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Participation on the Auto-X Wheel

July 6, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is heregy given that 
on June 21, 1999, 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 
Exchange.\3\ 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.
    \3\ The Exchange provided the Commission with written notice and 
the text of the proposed rule change on June 10, 1999 pursuant to 
Rule 19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to modify Options Floor Procedure Advice 
(``Advice'') F-24, Auto-X, Contra-Party Participation (The Wheel) to 
allow Registered Options Traders (``ROTs'') to only sign-on the Wheel 
in one Wheel assignment area (two contiguous quarter turrets) during an 
expiration month, unless the ROT is replacing another ROT from the same 
firm. The Exchange also proposes to delete references to ``brief 
interval'' in Advice F-24(c)(iii), to begin requiring ROTs to sign-off 
the Wheel if they leave the Wheel assignment area for any period of 
time. 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 Exchange 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 Exchange has prepared summeries, 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 Wheel is an automated mechanism for assigning trade 
participation among specialists and ROTs on a rotating basis, as 
contra-side participants to Auto-X orders. Auto-X is the automatic 
execution feature of the Exchange's Automated Options Market 
(``AUTOM'') system,\4\ which provides customers with automatic 
executions of eligible option orders at displayed markets. The purposes 
of the Wheel is to increase the efficiency of order execution through 
Auto-X by including floor traders in the automated assignment of 
contra-parties to incoming Auto-X orders. Thus, the Wheel is intended 
to make Auto-X more efficient, as contra-side participation is assigned 
automatically, and no longer entered manually.
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    \4\ AUTOM is an electronic order routing and delivery system for 
option orders. See Phlx Rule 1080.
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    Currently, an ROT may sign-on to as many Wheels as that ROT 
maintains an ROT assignment, as long as the ROT is present in Wheel 
assignment area and actively making markets. However, pursuant to 
Advice F-24(c)(i), the ROT may not sign-on in more than one Wheel 
assignment area (two contiguous quarter turrets) at a given time. The 
Exchange proposes that an ROT only sign-on the Wheel in one Wheel 
assignment area per expiration month at any given time. For example, if 
an ROT signs-on following the June expiration in Wheel assignment area 
X, the ROT may sign-on or off the Wheel in Wheel assignment area X 
during that expiration month (i.e., July). The ROT may not sign-on to 
the Wheel in Wheel assignment area Y until after the July expiration. 
The Exchange believes that placing this restriction will encourage ROTs 
to better fulfill their market making obligations in the trading crowd 
as well as receive the benefits of participation on the Wheel. In 
addition, the Exchange recognizes the need for flexibility within 
member firms to replace ROTs in different trading crowds on a temporary 
basis. Thus, the Exchange proposes that an ROT who replaces another ROT 
from the same firm on a temporary basis would be able to sign-on the 
Wheel for the duration of his replacement.\5\
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    \5\ The replacement ROT must maintain an assignment in the issue 
where he is acting as the replacement consistent with his 
obligations as a market maker pursuant to Phlx Rule 1014.
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    Secondly, an ROT must currently sign-off the Wheel if he leaves the 
trading crowd for more than a ``brief interval.'' A brief interval is 
defined as five minutes or less or in matters of dispute, the amount of 
time that it takes to call a Floor Official and inform him/her of the 
issue at hand.\6\ The Exchange proposes to delete the reference to 
``brief interval'' from section (c)(iii) of Advice F-24, thus requiring 
ROTs to sign-off the Wheel if they leave the trading crowd for any 
period of time. The Exchange believes that this proposal will clarify 
the ROTs' responsibilities regarding sing-on/sign-off procedures on the 
Wheel and facilitate the administration of fines by eliminating the 
subjectivity as to the time period.
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    \6\ See Securities Exchange Act Release No. 38881 (July 28, 
1997) 62 FR 41986 (August 4, 1997) (SR-Phlx-97-21).
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    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 promote just and equitable 
principles of trade, prevent fraudulent

[[Page 38067]]

and manipulative practives and to facilitate 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 clarifying the ROTs' 
responsibilities in this area and requiring the ROTs to fulfill their 
market making requirements on the trading floor in order to receive the 
benefits of contra-side Auto-X transactions.

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 proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \7\ and 
Rule 19b-4(f)(6) thereunder.\8\ 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In reviewing this proposal, 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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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-
0609. 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 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 File No. SR-Phlx-99-18, and 
should be submitted by August 4, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17883 Filed 7-13-99; 8:45 am]
BILLING CODE 8010-01-M