In coherent optical subcarrier multiplexing (SCM) systems, the performance degradation of the system due to the phase noise of lasers restricts the maximum number of stations and channels that the system can serve. However the effects of phase noise on coherent SCM system with distributing Local Oscillator (LO) in local loop have not been analyzed. On the other hand, a limit on both the number of channels and stations can be effectively alleviated by using coding technique. In this paper, the effects of phase noise of lasers on frequency shift keying (FSK) SCM system with distributing LO in local loop are analyzed in terms of carrier-to-noise ratio (CNR) penalty. Second, the effects of Reed-Solomon (RS) coding on FSK SCM system with distributing LO in local loop are analyzed. It is shown that both the number of channels and stations can be greatly increased by using coding technique.