[Federal Register: February 1, 1999 (Volume 64, Number 20)] [Notices] [Page 4922] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr01fe99-119] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40970; File No. SR-Phlx-98-44] Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc. to Amend Exchange Rule 1080 To Permit Automatic Execution of U.S. Top 100 Index Options Orders for the Accounts of Broker-Dealers January 25, 1999. I. Introduction On October 20, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ In its proposal, the Phlx seeks to allow automatic execution of broker-dealer orders in U.S. Top 100 Index (``TPX'') options through the Phlx's AUTO-X system. Notice of the proposal was published in the Federal Register on November 23, 1998.\3\ The Commission received no comments on the proposal. This order approves the proposal. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 40681 (Nov. 16, 1998), 63 FR 64751 (File No. SR-Phlx-98-44). --------------------------------------------------------------------------- II. Description of the Proposal AUTOM is Phlx's electronic order routing system for options orders. Until 1995, only public customer orders were eligible for routing through AUTOM.\4\ For purposes of AUTOM eligibility, public customer orders do not include any order entered for the account of a broker- dealer or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest. In 1995, however, the Commission approved the Exchange's proposal to route Phlx member and non-member broker-dealer orders for TPX options through AUTOM.\5\ The Phlx limits AUTOM routed public customer and broker- dealer TPX orders to 500 contracts.\6\ Currently, when a broker-dealer TPX order is entered into AUTOM, the order is executed manually by the specialist. --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 36429 (Oct. 27, 1995), 60 FR 55874 (Nov. 3, 1995) (File No. SR-Phlx-95-35) (order approving the Phlx's proposal seeking to route broker-dealer TPX options orders through AUTOM). \5\ Pursuant to Phlx Rule 1080(b)(i), with the exception of orders for TPX options contracts, broker-dealer orders are not eligible for AUTOM. \6\ Phlx Rule 1080(b)(ii). --------------------------------------------------------------------------- AUTO-X is a feature of AUTOM that automatically executes public customer orders. AUTO-X currently is limited to public customer orders. AUTO-X orders are executed automatically at the disseminated quotation price on the Exchange and reported to the originating firm. Presently, public customer orders for up to 50 contracts can be automatically executed through AUTO-X.\7\ --------------------------------------------------------------------------- \7\ Phlx Rule 1080(c). --------------------------------------------------------------------------- The Phlx seeks to amend Rule 1080 to allow broker-dealer orders for TPX options contracts to be automatically executed through AUTO-X. In making this change, the Phlx will still limit the size of orders that can be automatically executed through AUTO-X to 50 contracts. The Phlx believes that the change will help attract more broker-dealer orders in TPX options. According to the Phlx, TPX options appeal more to broker- dealers because these options are high-priced.\8\ Further, the Phlx believes that permitting broker-dealer TPX orders to be executed via AUTO-X will allow broker-dealers to benefit from prompt and efficient automatic execution and reporting. --------------------------------------------------------------------------- \8\ See letter from Richard Rudolph, Counsel, Phlx, to Joe Corcoran, Attorney, Division of Market Regulation, Commission, dated December 22, 1998 (``Phlx Letter''). According to the Phlx, the average price for a TPX option contract during the third quarter of 1998 was $4,165.62. --------------------------------------------------------------------------- III. Discussion 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.\9\ Specifically, the Commission believes that the proposal is consistent with section 6(b)(5) of the Act,\10\ which requires that the rules of an Exchange be designed to promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities. Moreover, the Commission believes that the proposal is consistent with section 11A(a)(1)(C)(i) of the Act,\11\ stating Congress's finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure economically efficient execution of securities transactions. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f and 78k-1. \10\ 15 U.S.C. 78f(b)(5). \11\ 15 U.S.C. 78k-1(a)(1)(C)(i). --------------------------------------------------------------------------- The Commission believes that allowing broker-dealers to use AUTO-X for TPX options orders may facilitate the efficient handling and reporting of broker-dealer orders in TPX options, thereby improving TPX order processing and turnaround time. In addition, by providing prompt execution for broker-dealer TPX orders, the proposal may help to attract broker-dealer TPX orders, and thus help to improve the depth and liquidity of the market for TPX options. The Phlx has represented to the Commission that the Exchange anticipates that its systems are capable of processing potential resulting increased order flow through the AUTO-X system and that public customer TPX orders will continue to be executed efficiently through the AUTO-X system.\12\ According to the Exchange, TPX options appeal more to broker-dealers because these options are high-priced relative to other options.\13\ The Commission believes that it is reasonable for the Phlx to allow automatic execution of broker-dealer orders in TPX option contracts as long as retail customers are not adversely affected. The Commission anticipates that the Exchange will monitor its AUTO-X system in light of the addition of broker-dealer TPX orders and will implement necessary systems enhancement should they be necessary to accommodate any increase in volume resulting from this proposal. --------------------------------------------------------------------------- \12\ See Phlx Letter, supra note 8. \13\ Id. --------------------------------------------------------------------------- IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\14\ that the proposed rule change (SR-Phlx-98-44) is approved. \14\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\15\ --------------------------------------------------------------------------- \15\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-2300 Filed 1-29-99; 8:45 am] BILLING CODE 8010-01-M