[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Notices]
[Pages 2932-2934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1087]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40893; File No. SR-PCX-98-64]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Exchange, Inc. Relating to Mandatory Year 2000 Testing
January 7, 1999.
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 December 31, 1998, the Pacific Exchange, Inc. (``PCX'' OR
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to approve the
proposal on an accelerated basis.
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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 Exchange proposes that members and member organizations that
have either direct electronic order flow or electronic clearing
connections with the Exchange participate in testing of computer
systems designed to prepare for year 2000.
The text of the proposed rule change is below. Proposed new
language is italicized.
* * * * *
Year 2000 Testing Requirements
Rule 1.15.(a) Each member not associated with a member organization
and each member organization that has either direct electronic order
flow or electronic clearing connections with the Exchange must
participate in testing of computer systems designed to provide reports
related to such testing as requested by the Exchange.
(b) The Exchange may exempt a member or member organization from
this requirement if that member or member organization cannot be
accommodated in the testing schedule by the organization conducting the
test or if the member of member organization does not have or use
computer systems in the conduct of their business (other than those
supplied by the Exchange), or for other good reasons.
(c) A member of member organization that is subject to this rule
and fails to participate or provide requested reports may be subject to
disciplinary action pursuant to PCX Rule 10.
(d) Every member or member organization that clears securities
transactions on behalf of other broker-dealers must take reasonable
measures to ensure that each broker-dealer for which it clears
securities transactions conducts testing with such member.
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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed and 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 Exchange has prepared summaries, set forth in
Sections A, B and C below, of the most significant aspects of such
statements.
[[Page 2933]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background. The ``Year 2000'' problem could have disastrous
consequences for a number of businesses, including those in the
securities industry, if the necessary changes are not made and tested
in advance of the beginning of year 2000. On January 1, 2000, the
internal data in computers will change from ``12/31/99'' to ``01/01/
00.'' At that moment, if necessary changes have not been made to the
computers' codes then a number of errors could occur in even the most
routine processing. The computers may read the two digit ``00'' year
code as 1900, or another incorrect date, instead of as 2000. Testing by
and among a broad range of securities industry participants, including
exchanges, registered clearing corporations and depositories, data
processors and broker-dealers, will be of critical importance to ensure
that the markets continue to operate efficiently after January 1, 2000.
Proposal. The proposed rule change establishes mandatory
requirements for members and member organizations with regard to Year
2000 computer testing. Specifically, the Exchange proposes to require
that members and member organizations that have either direct
electronic order flow or electronic clearing connections with the
Exchange participate in testing of computer systems designed to prepare
for year 2000 in a manner and frequency as prescribed by the Exchange.
Such testing may include PCX point-to-point testing and either
Securities Industry Association (``SIA'') extended point-to-point
testing, SIA industry-wide testing or any other testing the Exchange
deems warranted. The Exchange also proposes that such members or member
organizations be required to provide reports related to such testing as
requested by the Exchange, including, but not limited to, reports on
test preparation, prerequisite testing, and success or failure of such
tests.
In addition, the Exchange proposes that members and member
organizations that do not use computers in the conduct of their
business, other than those provided by the Exchange for order entry and
similar purposes, may be excluded from the requirements of testing. The
Exchange also proposes that members of member organizations that cannot
be accommodated in the testing schedule by the organization conducting
the testing, or for other good reasons, may be excluded from the
requirements of testing.
The Exchange further proposes that a member or member organization
that is subject to this rule and fails to participate in the tests or
fails to file any requested reports, may be subject to disciplinary
action pursuant to PCX rule 10.
Finally, the Exchange proposes that every member or member
organization that clears securities transactions on behalf of other
broker-dealers must take reasonable measures to ensure that each
broker-dealer for which it clears securities transactions conducts
testing with such member.
2. Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \3\ of the Act, in general, and furthers the objectives of
Section 6(b)(5),\4\ in particular, because it fosters cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities. In addition, the proposed rule change is designed to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system, and to protect investors and the
public interest.
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\3\ 15 U.S.C. 78f(b).
\4\ 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.
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. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful consideration, the Commission has concluded, for the
reasons set forth below, that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder. Mandating Year 2000 testing and reporting is consistent
with Section 6(b)(5) of the Act, which, among other aspects, requires
that the rules of an exchange promote just and equitable principles of
trade, fosters cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, and remove impediments to
and perfect the mechanism of a free and open market and a national
market system. The Commission believes that the proposed rule change
will facilitate the PCX's and member firms' efforts to ensure the
securities markets' continued smooth operation during the period
leading up to and beyond January 1, 2000.
The Exchange has requested that the Commission approved the
proposed rule change prior to the 30th day after the date of
publication of notice of the filing in the Federal Register because, in
light of the industry wide tests that will soon begin and the tests
that the Exchange is conducting, the Exchange wants to ensure that it
can promptly deal with any problems that arise. The Commission finds
good cause for approving the proposed rule change prior to the 30th day
after the date of publication of notice of the filing in the Federal
Register. It is vital that self-regulatory organizations (``SROs'')
such as the PCX have the authority to mandate that their member firms
participate in Year 2000 testing and that they report test results (and
other Year 2000 information) to the SROs. The proposed rule change will
help the PCX participate in coordinating Year 2000 testing, including
industry-wide testing, and in remediating any potential Year 2000
problems. This, in turn, will help ensure that the industry-wide tests
and the PCX's Year 2000 efforts are successful. The proposed rule
change will also help the PCX work with its member firms, the SIA, and
other SROs to minimize any possible disruptions the Year 2000 may
cause.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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
[[Page 2934]]
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 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
PCX. All submissions should refer to File No. SR-PCX-98-60 and should
be submitted by February 9, 1999.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\5\ that the proposed rule change (SR-PCX-98-64) is hereby approved on
an accelerated basis.\6\
\5\ 15 U.S.C. 78s(b)(2).
\6\ In approving the proposal, the Commission has considered the
rule's impact on efficiency, competition and capital formation. 15
U.S.C. 78c(f).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1087 Filed 1-15-99; 8:45 am]
BILLING CODE 8010-01-M
