[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36621-36622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15313]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48019; File No. SR-PCX-2003-16]
Self-Regulatory Organizations; Notice of Filing and Order
Accelerating Approval of Proposed Rule Change and Amendment No. 1
Thereto by the Pacific Exchange, Inc. Relating to an Amendment to the
Auto-Ex Incentive Program
June 11, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 21, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'' or
``SEC'') the proposed rule change as described in Items I and II below,
which Items have been prepared by the Exchange. On June 6, 2003, the
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and is approving the
proposal on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Tania J. Cho, Regulatory Policy, PCX, to
Nancy J. Sanow, Assistant Director, Division of Market Regulation,
Commission, dated June 5, 2003 (``Amendment No. 1''). In Amendment
No. 1, PCX amended its proposal to request an extension of its Auto-
Ex Incentive Program pilot until June 30, 2004, rather than June 24,
2004, as stated in the original proposal, so that the pilot's
expiration coincides with the date on which the Exchange's ``PCX
Plus'' system will be completely operative. See supra n. 10 and
accompanying text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
PCX proposes to amend its rules to extend the Automatic Execution
System (``Auto-Ex'') Incentive Pilot Program until June 30, 2004. The
text of the proposed rule change is available at the Office of the
Secretary, PCX and at the Commission.
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 III below. PCX 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
On September 25, 2001, the Commission approved, as a nine-month
pilot program, the Exchange's proposal to amend Rule 6.87, which
governs the operation of Auto-Ex,\4\ to provide an Auto-Ex Incentive
Program for apportioning Auto-Ex trades among Market Makers.\5\ On June
7, 2002, the Commission extended the Auto-Ex Incentive Program pilot
for six months \6\ and on December 24, 2002, the Commission extended
the pilot for an additional six months.\7\ The pilot program is
currently set to expire on June 24, 2003.
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\4\ Auto-Ex is the Exchange's Automated Execution system feature
of POETS for market or marketable limit orders. The Pacific Options
Exchange Trading System (``POETS'') is the Exchange's automated
trading system comprised of an options order routing system, an
automatic execution system (``Auto-Ex''), an on-line limit order
book system and an automatic market quote update system. Option
orders can be sent to POETS via the Exchange's Member Firm Interface
(``MFI''). Market and marketable limit orders sent through the MFI
will be executed by Auto-Ex if they meet the order type and size
requirements of the Exchange.
\5\ See Exchange Act Release No. 44847 (September 25, 2001), 66
FR 50237 (October 2, 2001) (SR-PCX-01-05).
\6\ See Exchange Act Release No. 46115 (June 25, 2002), 67 FR
44494 (July 2, 2002) (SR-PCX-2002-34).
\7\ See Exchange Act Release No. 47088 (December 24, 2002), 68
FR 140 (January 2, 2003) (SR-PCX-2002-78).
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The Auto-Ex Incentive Program allows the Exchange to assign Auto-Ex
orders to logged-on Market Makers according to the percentage of their
in-person agency \8\ contracts traded in an issue (excluding Auto-Ex
contracts) compared to all of the Market Maker in-person agency
contracts traded (excluding Auto-Ex contracts) during the review
period. The review period is determined by the Options Floor Trading
Committee (``OFTC'') and may be for any period of time not in excess of
two weeks.\9\ The percentage distribution determined for a review
period will be effective for the succeeding review period.
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\8\ Agency contracts are those contracts that are represented by
an agent and do not include contracts traded between Markets Makers
in person in the trading crowd.
\9\ The OFTC has set a two-week review period for all options
classes and the OFTC will not vary the term of the review period
except for exigent circumstances.
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The Exchange is requesting an additional extension of the pilot
program from June 24, 2003 through June 30, 2004. The added time
permits the Exchange to phase-in the Exchange's new trading platform
for options, ``PCX Plus'', on an issue-by-issue basis.\10\ As each
issue is phased into PCX Plus, the Exchange will simultaneously phase-
out such issue from the Auto-Ex Incentive Program. PCX Plus will
eventually replace the Auto-Ex Incentive Program in its entirety.
Therefore, the Exchange believes that an extension of the program is
warranted until June 30, 2004, the date on which PCX Plus will be
completely operative.
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\10\ See Exchange Act Release No. 47838 (May 13, 2003), 68 FR
27129 (May 19, 2003) (`` PCX Plus Order'').
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b)\11\ of the Act, in general, and furthers
the objectives of
[[Page 36622]]
section 6(b)(5),\12\ in particular, in that it is designed to
facilitate transactions in securities, to promote just and equitable
principles of trade, to enhance competition and to protect investors
and the public interest.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments on the proposed rule change were neither solicited
nor received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 20549-0609. 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
copying in the Commission's Public Reference Room. Copies of such
filing will also be available for inspection and copying at the
principal office of PCX. All submissions should refer to the File No.
SR-PCX-2003-16 and should be submitted by July 9, 2003.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Exchange has requested that the Commission approve this
proposed rule change on an accelerated basis. After careful
consideration, the Commission finds that the proposed rule change, as
amended, is consistent with the requirements of the Act and the rules
and regulations thereunder applicable to a national securities
exchange, and, in particular, with the requirements of section 6(b)(5)
of the Act.\13\ The Commission notes that this proposal is the latest
in a series of Auto-Ex Incentive Pilot Program extensions previously
approved by the Commission.\14\ Further, the Commission notes that the
Auto-Ex Incentive Pilot Program itself has remained substantively
unchanged since it was originally approved by the Commission as a nine-
month pilot.\15\ The Commission believes that an extension until June
30, 2004 provides an appropriate period of time for the Exchange to
continue its Auto-Ex Incentive Program while it phases-in its new
trading platform for options, ``PCX Plus,'' on an issue-by-issue basis.
Once ``PCX Plus'' is fully implemented, the Exchange no longer will
need to operate its Auto-Ex system.\16\ Accordingly, the Commission
finds good cause for approving the proposed rule change, as amended,
prior to the thirtieth day after the date of publication of notice
thereof in the Federal Register.
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\13\ Id. In approving this rule, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\14\ See Exchange Act Release No. 47088 (December 24, 2002), 68
FR 140 (January 2, 2003) (SR-PCX-2002-78) (six-month extension);
Securities Exchange Act Release No. 46115 (June 25, 2002); 67 FR
44494 (July 2, 2002) (SR-PCX-2002-34) (six-month extension).
\15\ See Exchange Act Release No. 44847 (September 25, 2001), 66
FR 50237 (October 2, 2001) (SR-PCX-01-05).
\16\ See PCX Plus Order, supra n. 10.
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V. Conclusion
Is it therefore ordered, pursuant to section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-PCX-2003-16), as amended, is
hereby approved on an accelerated basis, as a pilot program scheduled
to expire on June 30, 2004.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
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pursuant to delegated authority.\18\
\18\ 17 CFR200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15313 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P