[Federal Register Volume 68, Number 199 (Wednesday, October 15, 2003)]
[Notices]
[Pages 59437-59439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25976]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48595; File No. SR-PCX-2003-56]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by the Pacific Exchange, Inc.
Relating to an Amendment to the PCX Plus Electronic Book Execution
Feature and Implementation Date
October 6, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 59438]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 3, 2003, the Pacific Exchange, Inc. (``PCX'' 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 PCX. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PCX is proposing to amend PCX Rule 6.76(b)(4)(B)(ii), governing
Electronic Book Executions (``EBEs''), in order to restrict a Floor
Broker from effecting transactions (via the System Alert Message,
``SAMs'') for its own account or the account of associated persons. The
Exchange is also proposing to amend PCX Rule 6.90(b) in order to modify
the implementation date of PCX Plus. The text of the proposed rule
change is set forth below. Additions are in italics; deletions are in
brackets.
* * * * *
Rules of the Board of Governors of the Pacific Exchange, Inc.
Rule 6 Options Trading
PCX Plus Priority and Order Allocation Procedures
Rule 6.76(a)--No change.
(b)(1)-(3)--No change.
(4)(A)--No change.
(B)(i)--No change.
(ii)--the balance of the Consolidated Book at that price will be
displayed for three seconds (via a System Alert Message--SAM) to all
``Crowd Participants'' (as defined in Rule 6.1(b)(38)).
(a) A Floor Broker holding an order for an account in which such
broker has an interest, the account of an associated person, or an
account with respect to which the Floor Broker or an associated person
thereof exercises investment discretion, shall not be eligible for
participation in Electronic Book Executions.
(iii)-(v)--No change.
(5)--No change.
(c)-(d)--No change.
Commentary:
01--No change.
.02 For purposes of Rule 6.76(b)(4)(B)(ii), during the initial
rollout of PCX Plus, the Floor Broker Hand Held terminals will not have
the functionality to support Floor Broker interaction with EBEs via
SAMs. Such functionality will become available to Floor Brokers on or
before June 30, 2004. The PCX will file a proposed rule change with the
Commission when the Floor Broker Hand Held terminals have such
functionality.
* * * * *
Rule 6.90(a)--No Change.
(b) System Phase-In and Applicability of the Rules. The PCX
estimates that the rules applicable to PCX Plus will be implemented
gradually on an issue-by-issue basis beginning October 6, 2003
[December 15, 2003], and will become completely operative and
applicable to all options issues by June 30, 2004. At that time, the
rules relating to PCX Plus will supersede existing rules that are
inapplicable to the new trading environment.
* * * * *
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 PCX 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 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend PCX Rule 6.76(b)(4)(B)(ii),
governing EBEs, in order to restrict Floor Broker from effecting
transactions (via SAMS) for its own account or the account of
associated persons, or an account with respect to which a Floor Broker
exercises investment discretion.
PCX Rule 6.76(b)(4) Governs Market Makers' interaction with orders
in the Consolidated Book. Under this rule, when a Market Maker
initiates a trade with the Consolidated Book, that Market Maker
receives an allocation of the order while the balances of the order in
the Book is allocated on a size pro rata basis to all ``Crowd \3\ who
respond to the SAM within three seconds. Initially, the Floor Broker
Hand Held terminals will not have the functionality to support Floor
Broker interaction with EBEs via SAMS.\4\ This rule change is designed
to ensure Broker compliance with Section 11(a) of Act \5\ for the
anticipated implementation of such functionality.
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\3\ See PCX Rule 6.1(b)(38). Crowd Participants include Market
Makers appointed to an option issue and any Floor Brokers actively
representing orders at the best bid or offer on the Exchange for a
particular options series.
\4\ The PCX will file a proposed rule change with the Commission
when the Floor Broker Hand Held terminals have such functionality.
\5\ 15 U.S.C. 78k(a). Section 11(a) prohibits a member of a
national securities exchange from effecting transactions on the
exchange for its own account, the account of associated person, or
an account in which it or an associated person exercises investment
discretion. However, Section 11(a) also includes a number of
exceptions to its general prohibition on proprietary trading. Most
notably, Section 11(a)(1)(G) allows an exception when a member
follows the conditions set forth in Rule 11a1-1(T) (e.g., yield
priority, parity, and precedence in execution of such orders).
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In adopting this provision Floor Brokers, the Exchange recognizes
that allowing Floor Brokers to represent certain broker dealer orders
could raise issues under the Act. By prohibiting Floor Broker
representation of proprietary or affiliated orders, the PCX believes
that this rule will go beyond the requirements of Section 11(a) of the
Act.
The Exchange also proposes to amend PCX Rule 6.90(b), which governs
PCX Plus' implementation date. The Exchange wishes to amend the phase-
in implementation date to ``October 6, 2003'' from the originally
anticipated implementation date of ``December 15, 2003.'' As stated in
the rule, the Exchange expects that PCX Plus will become completely
operative and applicable to all options issues by June 30, 2004.
2. Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Section 6(b)(5),\7\ 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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\6\ 15 U.S.C. 78f(b).
\7\ 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 will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
[[Page 59439]]
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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate; and the Exchange has
given the Commission written notice of its intention to file the
proposed rule change at least five business days prior to filing, or
such shorter time as designated by the Commission, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) \9\ thereunder. At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19-4(f)(6)
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The Exchange has requested that the Commission accelerate the
operative date and waive the five day pre-filing requirement so that
the proposed rule change may take effect immediately upon filing. The
Commission believes that it is consistent with the protection of
investors and the public interest to accelerate the operative date of
the proposed rule change and to waive the five day pre-filing
requirement. Acceleration of the operative date and waiving the pre-
filing requirement will permit the Exchange to comply with the
provisions of Section 11(a) of the Act and implement PCX Plus on
October 6, 2003, without undue delay. For these reaons, the Commission
designates the proposal to be effective and operative upon filing with
the Commission.\10\
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\10\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal 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 the PCX. All
submissions should refer to File No. SR-PCX-2003-56 and should be
submitted by November 5, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25976 Filed 10-14-03; 8:45 am]
BILLING CODE 8010-01-M