[Federal Register Volume 62, Number 20 (Thursday, January 30, 1997)]
[Notices]
[Pages 4564-4566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2319]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38203; File No. SR-PSE-96-46]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange, Inc. Relating to Foreign Broker-
Dealers
January 24, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
16, 1996, the Pacific Stock Exchange, Inc. (``PSE'' 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 PSE. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange is proposing to amend its rules to specify that the
term ``broker/dealer,'' as used in PSE Rules 6.52(a), 6.86 and 6.87,
includes foreign broker/dealers. The Exchange is also proposing to
adopt a definition of the term ``foreign broker/dealer.''
The text of the proposed rule change is available at the Office of
the Secretary, the PSE, 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 Exchange 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 PSE 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
Purpose
PSE Rules 6.52(a), 6.86 and 6.87, relating to option transactions,
currently distinguish between orders for broker/dealers and orders for
non-broker/dealers. Under these rules, only non-broker/dealer customer
orders are eligible to be placed on the public limit order book,\1\ to
be entered for automatic execution,\2\ or to be eligible for a
[[Page 4565]]
guaranteed minimum execution of twenty contracts on the floor of the
Exchange.\3\
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\1\ Rule 6.52(a) provides in part that ``[o]nly non-broker/
dealer customer orders may be placed with an Order Book Official
pursuant to this Rule.'' Cf. SEC Rule 11Ac1-4(a)(6) (equity
``customer limit orders'' that must be displayed pursuant to Rule
11Ac-1-4 include those that are ``not for the account of either a
broker or dealer'') (effective January 20, 1997).
\2\ Rule 6.87(a) provides: ``Only non-broker/dealer customer
orders are eligible for execution on the Exchange's Automatic
Execution System (''Auto-Ex'').''
\3\ Rule 6.86(a) provides: ``Each trading crowd is required to
provide a depth of twenty (20) option contracts for all non-broker/
dealer customer orders, at the bid/offer that is displayed as the
disseminated market quote at the time such orders are announced or
displayed at the trading post designated for trading the subject
option class.''
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The purpose of the proposed rule change is to clarify the meaning
of the term ``broker/dealer,'' as used in Rules 6.52(a), 6.86 and 6.87,
by specifying that it includes foreign broker/dealers. The Exchange is
also proposing to adopt the following definition of ``foreign broker/
dealers,'' to be applicable to PSE Rules 6.52(a), 6.86 and 6.87:
``Foreign Broker/Dealer. The term `foreign broker/dealer' means
any person or entity that is registered, authorized or licensed by a
foreign governmental agency or foreign regulatory organization to
perform the function of a broker or dealer in securities, or both.
The terms `broker' and `dealer' mean the same as set out in Sections
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, provided
that a `broker' or `dealer' may be a bank.'' \4\
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\4\ Sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act
of 1934 provide:
``(4) The term `broker' means any person engaged in the business
of effecting transactions in securities for the account of others,
but does not include a bank.
``(5) The term `dealer' means any person engaged in the business
of buying and selling securities for his own account, through a
broker or otherwise, but does not include a bank, or any person
insofar as he buys or sells securities for his own account, either
individually or is some fiduciary capacity, but not as a part of a
regular business.''
In light of the current globalization of the securities markets,
the Exchange believes that the subject rules should be applied
consistently. In this regard, an exchange specialist in Canada or
Mexico, for example, should be subject to the same rules applicable to
trading on the PSE as an exchange specialist in the United States, and
should not have a competitive advantage over United States broker/
dealers.
The Exchange believes that the proposed definition is sufficiently
specific to ensure fair enforcement of the affected rules.\5\ The
question of whether a person or entity is registered, authorized or
licensed by a foreign governmental agency or a foreign regulatory
organization to perform the specified functions, is objective in nature
and easily verifiable--as is currently the case with determinations of
whether U.S. brokers or dealers are registered as such with the
Commission. The PSE notes that, as a member of the Intermarket
Surveillance Group (``ISG''),\6\ the Exchange may promptly obtain from
ISG members and affiliates information on the accounts of persons or
entities entering orders for execution on the PSE, including whether
such orders have been entered for the account of a broker or dealer.
The Exchange may also obtain such information from foreign exchanges or
foreign regulatory authorities with whom the Exchange has an effective
surveillance sharing agreement or from a foreign exchange or regulatory
authority that is subject to a memorandum of understanding with the
Commission that would require those entities to provide such
information to the Exchange upon request.
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\5\See Securities Exchange Act Release No. 37695 (September 17,
1996), 61 FR 50366 (September 25, 1996) (order approving SR-PSE-96-
19).
\6\ ISG was created in February 1981 to design, develop and
implement a coordinated intermarket surveillance system among
securities markets in the United States. On July 14, 1983, the
exchanges participating in the ISG entered into an agreement to
coordinate more effectively surveillance and investigative
information sharing agreements in stock and options markets. In
1989, with the active participation of the SEC and Commodity Futures
Trading Commission, the ISG created an ``affiliate'' category for
futures exchanges and non-U.S. SROs. Currently, the ISG is comprised
of nine members and 13 affiliates.
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Based upon its review of the applicable regulatory structures of
various foreign jurisdictions, the Exchange believes that the proposed
definition is sufficiently specific to cover the foreign equivalents of
U.S. brokers and dealers. These foreign jurisdictions include:
Australia, Canada, the Czech Republic, France, Germany, Hong Kong,
Hungary, Japan, Luxembourg, Mexico, the Netherlands, Poland, South
Africa, South Korea, the Slovak Republic, Switzerland, and the United
Kingdom.\7\
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\7\ See generally H. Bloomenthal & S. Wolff, International
Capital Markets and Securities Regulation (1996).
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The Exchange also notes that the proposed definition of ``foreign
broker/dealer'' contains objective criteria for its application and is
narrower in scope than the definition of ``foreign broker or dealer''
specified in SEC Rule 15a-6(b)(3).\8\ In addition, the Exchange
believes the proposed definition is substantially similar in form and
substance to SEC Rule 17a-7(c) (definition of nonresident brokers and
dealers) and Exchange Act Sections 3(a)(50) (definition of foreign
securities authority) and 3(a)(52) (definition of foreign financial
regulatory authority).
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\8\ SEC Rule 15a-6(b)(3) provides:
``The term `foreign broker or dealer' shall mean any non-U.S.
resident person (including any U.S. person engaged in business as a
broker or dealer entirely outside the United States, except as
otherwise permitted by this rule) that is not an office or branch
of, or a natural person associated with, a registered broker or
dealer, whose securities activities, if conducted in the United
States, would be described by the definition of `broker' or `dealer'
in sections 3(a)(4) or 3(a)(5) of the Act.''
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Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act, in general, and furthers the objectives
of Section 6(b)(5) in particular, in that it is designed to promote
just and equitable principles of trade, to protect investors and the
public interest, and to prevent unfair discrimination between
customers, brokers and dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The PSE does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 25049.
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
[[Page 4566]]
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the PSE. All
submissions should refer to File No. SR-PSE-96-46 and should be
submitted by February 20, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2319 Filed 1-29-97; 8:45 am]
BILLING CODE 8010-01-M
