Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc., Relating to its Rule 229 Governing Execution of PACE Orders

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35089; File No. SR-Phlx-94-58]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Philadelphia Stock Exchange, Inc., Relating to its Rule

229 Governing Execution of PACE Orders

December 12, 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 December

1, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'') the proposed rule change as described in Items I, II

and III below, which Items have been prepared by the self-regulatory

organization. On December 12, 1994, the Exchange filed with the

Commission Amendment No. 1 to the proposed rule change.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\See letter from William W. Uchimoto, Vice President and

General Counsel, Phlx, to Glen Barrentine, Senior Counsel, SEC,

dated December 12, 1994. Amendment No. 1 made certain clarifying

changes to the proposed rule change.

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The Philadelphia Stock Exchange, Inc., pursuant to Rule 19b-4 of

the Act, proposes to amend the Supplementary Material section to its

Rule 229 respecting the Philadelphia Stock Exchange Automated

Communication and Execution System (``PACE''). The text of the proposed

rule change is as follows [new text is italicized; deleted text is

bracketed]:

Rule 229

* * * Supplementary Material

* * * Execution of Market Orders

.05 Subject to Supplementary Material Section .07, all round-lot

market orders up to 500 shares and PRL market orders up to 599

shares\2\ will be [executed automatically upon entry into the system;

provided, however,] stopped at the PACE Quote\3\ at the time of entry

into the system (``Stop Price'') and be subject to a delay of up to 15

seconds from being executed in order to receive an opportunity for

price improvement. If such market order is not executed within the 15

second window, the order will be automatically executed at the Stop

Price. If the PACE Quote at the time of order entry into the system

reflects a 1/8 point spread between the best bid and offer, that order

will be executed immediately without the 15 second delay. Subject to

these procedures, the specialist may voluntarily agree to execute

round-lot [and PRL] market orders of a size greater than 500 shares and

PRL market orders of a size greater than 599 shares [automatically]

upon entry into the system.

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\2\The term ``PRL'' means a combined round-lot and odd-lot

order. See Phlx Rule 229.

\3\The term ``Pace Quote'' means the best bid/ask quote among

the American, Boston, Cincinnati, Chicago, New York, Pacific, or

Philadelphia stock exchanges, or the Intermarket Trading System/

Computer Assisted Execution System quote, as appropriate. See Phlx

Rule 229.

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* * * * *

.07(a) Member organizations which enter market orders (round-lots

up to 500 shares and PRL's up to 599 shares) after the opening may

elect to have such orders executed (i) [automatically on the PACE

Quote] in accordance with the procedures set forth in Supplementary

Material Section .05 or, (ii) if such execution price would be outside

the New York market high-low range for the day manually at or within

the New York market high-low range of the day.

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

1. Purpose

The purpose of the proposed rule change is to provide for an

enhancement to PACE by providing Phlx specialists the opportunity to

effect price improvement for market orders in securities sent through

PACE when the spread between the PACE Quote, which reflects the

consolidated national best bid and offer, exceeds \1/8\ point in any

PACE eligible security. The proposed rule change provides for an

automatic stop of such orders and a fifteen second execution delay,

allowing a Phlx specialist to manually provide for price improvement

equal to or better than the stock price.\4\ Specifically, all round-lot

market orders of up to 500 shares and all combined round-lot and odd-

lot orders of up to 599 shares will be stopped at the PACE Quote at the

time of entry into PACE (stopped at the best bid for sell orders; at

the best ask for buy orders) and shall be subject to a delay of up to

fifteen seconds from being executed in order to provide an opportunity

for price improvement by the Phlx specialist. If a particular market

order is not executed within fifteen seconds, the order will be

automatically executed by the system at the stop price. If the PACE

Quote at the time of order entry reflects a spread between the best bid

and offer of \1/8\ point, PACE market orders shall be system executed

immediately.

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\4\Accordingly to the Phlx, the proposed rule change does not

apply to limit orders, including marketable limit orders, because

such orders are executed manually and, therefore, already have an

opportunity for price improvement. Telephone conversation between

William W. Uchimoto, Vice President and General Counsel, Phlx, and

Glen Barrentine, Senior Counsel, SEC, on December 9, 1994.

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2. Statutory Basis

The Exchange believes that the proposed rule change is consistent

with Section 6(b) of the Securities Exchange Act of 1934 in general and

Section 6(b)(5) in particular in that it is designed to foster

cooperation and coordination with persons engaged in facilitating

transactions in securities and to protect investors and the public

interest. Additionally, the proposed system enhancement and rule change

are consistent with the mandate of Section 11A(a)(1)(C)(iv) of the Act

respecting ``[t]he practicability of brokers executing investors'

orders in the best market.''

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange 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

The Exchange has neither solicited nor received written comments on

the proposed rule change.

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

Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) By Order approve the proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule

change should be disapproved.

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, N.W., Washington, D.C. 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 copy at the

Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. 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-94-58 and should be

submitted by January 9, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-31103 Filed 12-16-94; 8:45 am]

BILLING CODE 8010-01-M