[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1058-1059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-307]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40852; File No. SR-PCX-98-16]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Order
Granting Approval to Proposed Rule Change Relating to Telephonic and
Electronic Communication Devices on the Trading Floor
December 28, 1998.
I. Introduction
On March 31, 1998, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to require Exchange approval
before any telephonic or electronic communications device may be used
on the floor of the Exchange. The proposed rule change, including
Amendment No. 1 to the proposed rule change was published for comment
in the Federal Register on April 23, 1998.\3\ This order approves the
proposal as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 39881 (April 16, 1998),
63 FR 20236.
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II. Description of the Proposal
The Exchange is proposing to adopt new Rule 4.22, which provides
that no Member or Member Organization may establish or maintain any
telephonic or electronic communication between the floor and any other
location, or between locations on the floor, without the prior approval
of the Exchange.
The Exchange is also proposing to eliminate Options Floor Procedure
Advice (``OFPA'') F-3 relating to communication access to and from the
options trading floor.\4\ The Exchange believes that proposed Rule 4.22
adequately replaces OFPA F-3, which it believes is obsolete. The
Exchange notes that proposed Rule 4.22 is substantially similar to Rule
220 of the American Stock Exchange (``Amex'') and Rule 6.23 of the
Chicago Board Options Exchange (``CBOE'').\5\
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\4\ OFPA F-3, Communication Access To and From the Options
Trading Floor, reads as follows: Pursuant to Rule XVII, prior
approval by the Exchange will be required before the installation of
any form of direct private communication devices, including PT&T and
Western Union voice lines and teletype or similar hard copy wire
connections. Such approval will be granted only if the connection
from the Options Trading Floor terminates in one of the following
manners: (1) At an office of a PSE member organization. (2) At a
floor facility of a PSE member organization on the Options Trading
Floor of another national securities exchange, subject to the
approval of that exchange. (3) At either of the Equity Trading Floor
of PSE. Approval will not be granted for connections terminating at
any facility of a person or organization who or which is not a
member organization of PSE. Standard (non-private, non-direct)
telephones may be installed on the Options Trading Floor in member
organizations assigned floor booths as desired but all requests for
such installation must be directed to the Options Floor Manager for
purposes of coordination. In making use of communications access to
and from the Options Trading Floor members are reminded of the
provisions of section 12(k) of Rule I.
\5\ Amex Rule 220 is discussed below. CBOE Rule 6.23 provides,
in part, that ``No member shall establish or maintain any telephone
or other wire communications between his or its office and the
Exchange without prior approval by the Exchange.'' See CBOE Rule
6.23.
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The Exchange states that it is making this proposed rule change as
a housekeeping measure to assure that the Exchange's rules state
expressly that Members and Member Organizations must obtain prior
approval before establishing or maintaining telephonic or electronic
communications between the floor and other locations, or between
locations on the floor. The Exchange believes that the provision will
improve upon its current rules by providing its Members and Member
Organizations with clear notice of the requirement for Exchange
approval.
III. Discussion
The Commission finds that the proposed rule change is consistent
with Section 6 of the Act \6\ and the rules and regulations thereunder.
In particular, the Commission believes that the proposal is consistent
with the section 6(b)(5) \7\ requirements that the rules of an exchange
be designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.\8\
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\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5).
\8\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78f(b).
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In determining to approve the proposal, the Commission notes that
proposed Rule 4.22 is substantially similar to Amex Rule 220.\9\
Similar to Amex's Rule 220, PCX Rule 4.22 will
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require Exchange approval prior to the installation of any form of
telephonic or electronic communication on both the options and equity
floors of the Exchange. Currently, pursuant to OFPA F-3, Exchange
approval is required before any form of direct private communication
may be installed on the options floor of the Exchange.
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\9\ See Securities Exchange Act Release No. 33735 (March 8,
1994), 59 FR 12015 (March 15, 1994) (order approving SR-Amex-87-33).
The proposed rule differs from Amex Rule 220 in that Amex Rule 220
requires written permission while proposed Rule 4.22 does not
require that permission to install a telephonic or electronic
communication device on the floor of the Exchange be in writing. See
Amex Rule 220.
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The Commission supports the Exchange's efforts to continue to
review the substance of its rules in response to changes in market
structure and technology. In regulating the PCX trading floors and
devising their structure, the Commission recognizes the PCX's need to
be aware of electronic and telephonic communications that are being
installed on its floors. While supporting the Exchange's efforts to
monitor the types of communications that are on its trading floors, the
Commission expects the PCX to ensure that the rule being approved today
is not used to limit access to services offered by the Exchange or
applied in a manner inconsistent with sections 6(b)(5) \10\ and 6(b)(8)
\11\ of the Act.\12\ Specifically, the Commission expects that proposed
Rule 4.22 will not be interpreted in an manner that permits unfair
discrimination between customers, issuers, brokers, or dealers, or
imposes any unnecessary or inappropriate burden on competition, or is
otherwise used to limit member access to Exchange services. Finally,
the Commission notes that the PCX should not rely solely on Rule 4.22
as currently drafted to establish a broad based restriction on member
communications on its trading floors. Rather, the PCX would need to
develop specific rules containing clear and objective criteria on which
to base such a restriction and submit that criteria for Commission
review under section 19(b) of the Act.\13\
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\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78f(b)(8).
\12\ See e.g., William J. Higgins, 48 S.E.C. 713 (1987).
\13\ See e.g., Securities Exchange Act Release No. 40577 (Oct.
20, 1998), 63 FR 57721 (Oct. 28, 1998) (Order approving File No. SR-
PSE-97-02); and Amex Rule 220, Commentaries .01-.04.
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IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-PCX-98-16) is approved.
\14\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-307 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M
