Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc. To Amend Floor Procedure Advice A-1 (Responsibility of Displaying Best Bid and Offer Prices Established on the Equity Floor)

[Federal Register Volume 64, Number 55 (Tuesday, March 23, 1999)]
[Notices]
[Pages 14036-14037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7090]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41173; File No. SR-Phlx-98-24]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Amend Floor 
Procedure Advice A-1 (Responsibility of Displaying Best Bid and Offer 
Prices Established on the Equity Floor)

March 15, 1999.

I. Introduction

    On July 13, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or the ``Exchange'') submitted to the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of 
the Securities Exchanger Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change that would update and amend its 
Equity Floor Procedure Advice A-1 to more closely track the SEC's 
customer limit order display rule.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    On October 22, 1998, the proposed rule change was published for 
comment in the Federal Register.\3\ The Commission received no comment 
letters on the proposal. This order approves the proposed rule change.
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    \3\ Securities Exchange Act Release No. 40554 (October 14, 
1998), 63 FR 56685.
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II. Description of the Proposal

    The Exchange proposes to update and amend its Equity Floor 
Procedure Advice A-1 to more closely track the SEC's customer limit 
order display rules. Currently, Advice A-1 (``Responsibility Best Bid 
and Offer Prices Established on the Equity Floor'') requires specialist 
to use due diligence to ensure proper and timely display of bids and 
offers respecting primary issues. For secondary issues, this 
requirement applies where the bid or offer is equal to or better than 
the national best bid or offer (``NBBO''). Advice A-1 pre-dates 
Exchange Act Rule 11Ac1-4, \1\ which imposed new display requirements 
for ``reported securities'' and any other security for which a 
transaction report, last sale data or quotation information is 
disseminated through an automated quotation system as described in 
Section 3(a)(51)(A)(ii) of the Act. Since primary stock issues assigned 
to specialists on regional exchanges are not subject to this 
requirement, the proposed rule change amends Advice A-1 only with 
respect to secondary issues that are traded pursuant to unlisted 
trading privileges (``UTP''). The proposed change amends Advice A-1 to 
provide that the display requirement for secondary issues is the 
Commission's display rule, which requires specialists, subject to 
certain exceptions, to display not only those orders that are at or 
better than the NBBO, but also those that improve the specialist's 
quote or add 10% or more to the specialist's quote when the quote is 
the NBBO.\5\
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    \4\ The limit order display rule was adopted by the Commission 
as part of its Order Handling Rules. See Securities Exchange Act 
Release No. 37619A (September 6, 1996), 61 FR 48290 (September 12, 
1996) (``Order Handling Rules Adopting Release''); amended in 
Securities Exchange Act Release No. 38139 (January 8, 1997), 62 FR 
1385 (January 10, 1997).
    \5\ In the Order Handling Rules Adopting Release, the Commission 
stated that a customer limit order should be considered de minimis 
if it less than or equal to 10% of the displayed size associated 
with a specialist's bid or offer. If a customer limit order is de 
minimis, the specialist does not need to add that order to his 
quote. See Order Handling Rules Adopting Release, supra note 4, at 
note 177 and accompanying text. For this reason, the Exchange is 
requiring a specialist to display only those customer orders that 
add 10% or more to the size of the specialist's quote.
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    Currently, Advice A-1 contains a fine schedule, which is 
administered pursuant to the Exchange's minor rule violation 
enforcement and reporting plan.\6\ Under the proposed amendment,

[[Page 14037]]

a first violation will be subject to a written warning. Subsequent 
violations will be referred to the Business Conduct Committee.
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    \6\ The Phlx's minor rule violation enforcement and reporting 
plan (``minor rule plan''), codified in Phlx Rule 970, contains 
floor procedure advices with accompanying file schedules. Exchange 
Act Rule 19d-1(c)(2) authorizes national securities exchanges to 
adopt minor rule violation plans for summary discipline and 
abbreviated reporting; Rule 19d-1(c)(1) requires prompt filing with 
the Commission of any final disciplinary action. However, minor rule 
violations not exceeding $2,500 are deemed not final, thereby 
permitting periodic, as opposed to immediate, reporting.
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III. Discussion

    After careful review, the Commission believes that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Commission believes that the proposed rule change is consistent 
with Sections 6(b)(5) and 11A(a)(1)(C)(iii) and (iv) of the Act. 
Section 6(b)(5) requires that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. With respect to Section 11A, Congress found 
that it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities, and to assure 
the practicability of brokers executing investors' orders in the best 
market.\7\ The proposed rule change will assure the availability of 
information with respect to quotations because it requires specialists 
to provide enhanced information regarding orders to the market by 
revising Advice A-1 to correspond to Exchange Act Rule 11Ac1-4.
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    \7\ 15 U.S.C. 78k-1(a)(1)(C)(iii) and (iv).
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    In addition, the Commission believes the proposal is consistent 
with Section 6(b)(5) \8\ because the incorporation of the limit order 
display rule into the Exchange's own rules should enhance compliance 
with the rule, thereby improving member handling of customer limit 
orders.\9\
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving these rules, 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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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (Phlx-98-24) is approved.

    \10\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-7090 Filed 3-22-99; 8:45 am]
BILLING CODE 8010-01-M