Philly's pilot program for broker dealer orders

Discussion in 'Options' started by freehouse, May 1, 2002.

  1. The Philadelphia Stock Exchange (PHLX) has implemented a six-month pilot program that provides off-floor Broker-Dealer ("BD") access to the PHLX AUTOM System on the options floor. This new initiative permits member firms to route BD orders over AUTOM for delivery directly to the specialist's X-Station.

    Under the program, approved by the Securities and Exchange Commission (SEC), specialists may determine, on an option-by-option basis, to AUTO-X BD orders automatically. The following are the features of the program:

    · Delivery size of 200: generally, BD orders up to 200 contracts, depending on the option, are eligible for AUTOM order delivery, subject to Options Committee approval. The Options Committee may determine to increase the eligible order delivery size to an amount greater than 200 contracts floor-wide (not by option).

    · Minimum size: BD orders delivered via AUTOM shall be for a minimum size of one (1) contract.

    · Order types: day, GTC, simple cancel, simple cancel to reduce size (cancel leaves), cancel to change price, cancel with replacement order.

    · AUTO-X: BD marketable limit orders may be eligible for automatic execution via AUTO-X on an issue-by-issue basis, subject to the approval of the Options Committee. The AUTO-X guarantee for BD limit orders may be for a different number of contracts, on an issue-by-issue basis, than the AUTO-X guarantee for public customer orders.

    - Step-up: For options in which AUTO-X is engaged for BD orders, orders for the account(s) of BDs may be eligible for automatic execution via the Exchange's National Best Bid or Offer ("NBBO") Step-Up Feature on an issue-by-issue basis, subject to the approval of the Options Committee, provided that the option is an "NBBO Step-Up Option" as described in Exchange Rule 1080(c)(i), and provided that the NBBO does not differ from the Exchange's best bid or offer by more than the "step-up parameter."

    - Crowd market: For options in which AUTO-X is engaged for BD orders when a BD marketable limit order is delivered via AUTOM, such an order would be eligible for automatic execution via AUTO-X if the Exchange's disseminated market represents the "crowd" quote, as determined by Auto-Quote or Specialized Quote Feed.

    - Manual execution: When the Exchange's disseminated bid or offer is a limit order on the limit order book, contra-side inbound BD limit orders that are eligible for execution would be executed manually by the specialist.

    · Who is eligible: Initially, a broker-dealer that delivers orders from "upstairs" (i.e., from off the trading floor) for the proprietary account(s) of such broker-dealer, AND a market maker located on an exchange or trading floor other than the Exchange's trading floor who elects to deliver orders via AUTOM for the proprietary account(s) of such broker-dealer, are eligible to deliver proprietary orders via AUTOM. Phlx Registered Options Traders ("ROTs") are not currently subject to this BD access proposal. Instead, Phlx ROTs may have access to AUTOM in order to submit or match price-improving orders when they are present in a trading crowd; this is a separate proposal, subject to SEC approval.

    · Priority: If BD limit order entered via AUTOM establishes priority, and thereafter a customer order is entered onto the limit order book at the same price, the BD order would be required to yield priority to the customer order. The specialist and crowd may match a BD bid or offer and be on parity.

    · Display: Specialists will continue to be required to use due diligence to display the highest bid/offer, including BD orders. The Auto-Quote has been programmed to display BD orders for dissemination as the Exchange's best bid or offer. Users of the specialized quote feed (SQF)/specialized order feed (SOF) should make the requisite changes to their own quoting systems to accommodate BD orders and Exchange rules.

    · Other requirements:

    - There must be a floor representative for non-member BD orders delivered via AUTOM.

    - BD limit orders are subject to the restrictions and prohibitions concerning electronically generated orders and off-floor market makers set forth in Rules 1080(i) and (j), which provide that members may not permit, nor facilitate the entry of, orders into AUTOM if those orders are created and communicated electronically without manual input. The rules further prohibit orders delivered from off-floor accounts in such a manner that the beneficial owner of such accounts is effectively operating as a market maker, i.e., making two-sided markets from off the floor of the Exchange.
  2. Now if only the PHLX wouldn't hold your cancel for two minutes ...