[Federal Register Volume 60, Number 199 (Monday, October 16, 1995)]
[Notices]
[Pages 53653-53655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25552]
-----------------------------------------------------------------------
[[Page 53654]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36350; File No. SR-PSE-95-17]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Stock Exchange, Inc., Relating to Members' Compliance With Position and
Exercise Limits for Non-PSE Listed Options
October 6, 1995.
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 August
15, 1995, the Pacific Stock Exchange, Inc. (``PSE'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
\1\ The PSE requested accelerated approval of the proposed rule
change. See Letter from Michael Pierson, Senior Attorney, Market
Regulation, PSE, to Yvonne Fraticelli, Office of Market Supervision
(``OMS''), Division of Market Regulation (``Division''), Commission,
dated August 21, 1995 (``Amendment No. 1''). On September 12, 1995,
the PSE amended its proposal to clarify that in applying the
position and exercise limit rules of another options exchange, the
PSE will also follow the applicable exemptions, interpretations, and
policies of that exchange. See Letter from Michael D. Pierson,
Senior Attorney, Market Regulation, PSE, to Yvonne Fraticelli, OMS,
Division, Commission, dated September 11, 1995 (``Amendment No.
2'').
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PSE proposes to amend PSE Rules 6.8, ``Position Limits,'' and
6.9, ``Exercise Limits,'' to require PSE members who trade non-PSE-
listed option contracts and who are not members of the exchange where
the options are traded to comply with the option position and exercise
limits set by the exchange where the transactions are effected.\2\
\2\ Position limits impose a ceiling on the number of option
contracts in each class on the same side of the market (i.e.,
aggregating long calls and short puts or long puts and short calls)
that can be held or written by an investor or group of investors
acting in concert. Exercise limits prohibit an investor or group of
investors acting in concert from exercising more than a specified
number of puts or calls in a particular class within five
consecutive business days.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Office of
the Secretary, 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 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 IV below. The self-regulatory organization
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
(a) Purpose
The purpose of the proposed rule change is to eliminate a
jurisdictional loophole whereby a PSE member who exceeds position or
exercise limits on another options exchange in an options issue not
listed on the PSE, and who is not a member of the other exchange, falls
outside of both the PSE's and the other options exchange's jurisdiction
for position and exercise limit purposes.\3\ The PSE notes that PSE
Rules 6.8 and 6.9 prohibit PSE members from establishing or exercising
excessive positions in PSE-listed options contracts; however, they do
not prohibit PSE members from exceeding applicable position and
exercise limits set by other options exchanges for non-PSE-listed
option contracts. If the PSE member is not a member of the other
exchange that lists the option contracts, then the other exchange
cannot enforce its position and exercise requirements against the PSE
member either.\4\
\3\ The Commission notes that, generally, the options exchanges
have adopted uniform options position and exercise limits.
\4\ The proposal applies to transactions in index options as
well as equity options. Telephone conversation between Michael
Pierson, Senior Attorney, Market Regulation, PSE, and Yvonne
Fraticelli, Attorney, OMS, Division, Commission, on September 22,
1995.
---------------------------------------------------------------------------
The proposed amendments will extend the PSE's position and exercise
limit rules to apply to option contracts dealt in on any exchange
(rather than only to option contracts dealt in on the PSE) by requiring
a PSE member who is effecting transactions in non-PSE-listed option
contracts on another exchange, of which he or she is not a member, to
comply with the position and exercise limits set by the exchange on
which the transaction is effected.\5\
\5\ In applying the position and exercise limits of another
options exchange, the PSE will also follow any applicable
exemptions, interpretations, and policies of that exchange. See
Amendment No. 2, supra note 1.
---------------------------------------------------------------------------
(b) Statutory Basis
The PSE believes that the proposal is consistent with Section 6(b)
of the Act, in general, and with Section 6(b)(5), in particular, in
that it is designed to remove impediments to a free and open market, to
promote just and equitable principles of trade, and to protect
investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The PSE 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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The PSE has requested that the proposed rule change be given
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.\6\
\6\ See Amendment No. 1, supra note 1.
---------------------------------------------------------------------------
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of Section 6(b)(5) thereunder \7\ in that
it is designed to prevent fraudulent and manipulative acts and
practices and to protect investors and the public interest.
Specifically, the PSE has noted that Exchange rules do not currently
prohibit PSE members from exceeding the position and exercise limits
set by another exchange for non-PSE listed option contracts. Thus, if
the PSE member is not a member of the exchange which lists the options,
then neither the PSE nor the exchange that lists the options is able to
enforce its position and exercise limits against the PSE member. The
proposal eliminates this loophole and strengthens the Exchange's rules
by requiring a PSE member who trades non-PSE listed
[[Page 53655]]
option contracts on another exchange, and who is not a member of that
exchange, to comply with the options position and exercise limits set
by the exchange where the transactions are effected.\8\
\7\ 15 U.S.C. 78f(b)(5) (1982).
\8\ In applying the position and exercise limits of another
options exchange, the PSE will also follow any applicable
exemptions, interpretations, and policies of that exchange. See
Amendment No. 2, supra note 1.
---------------------------------------------------------------------------
As the Commission has noted in the past,\9\ options position and
exercise limits are intended to prevent the establishment of large
options positions that can be used or might create incentives to
manipulate or disrupt the underlying market so as to benefit the
options position. In particular, position exercise limits are designed
to minimize the potential for mini-manipulations \10\ and for corners
or squeezes of the underlying market. In addition, they serve to reduce
the possibility for disruption of the options market itself, especially
in illiquid option classes. The proposal extends the benefits of the
position and exercise limit rules to include all options transactions
entered into by PSE members.
\9\ See, e.g., Securities and Exchange Act Release No. 33283
(December 3, 1993), 58 FR 65204 (December 13, 1993) (order approving
File No. SR-CBOE-93-43).
\10\ Mini-manipulation is an attempt to influence, over a
relatively small range, the price movement in a stock to benefit a
previously established derivatives position.
---------------------------------------------------------------------------
As noted above, the proposed amendments will extend PSE Rules 6.8
and 6.9 to apply to option contracts dealt in on any exchange (rather
than only to option contracts dealt in on the PSE) by requiring a PSE
member who effects transactions in non-PSE-listed option contracts on
another exchange, of which he or she is not a member, to comply with
the position and exercise limits set by the exchange on which the
transaction is effected. Such violations, consistent with any violation
of the PSE's position and exercise limit rules, will be subject to
fines imposed pursuant to PSE Rule 10.13, ``Minor Rule Plan'' or any
other disciplinary action the PSE deems appropriate.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register because the proposal
is identical to approved proposals submitted by the Chicago Board
Options Exchange, Inc. (``CBOE'') and the Philadelphia Stock Exchange,
Inc.\11\ The CBOE and PHLX proposals were subject to the full notice
and comment period and the Commission received no comments on those
proposals. Therefore, the Commission believes it is consistent with
Sections 6(b)(5) and 19(b)(2) of the Act to approve the PSE's proposal
on an accelerated basis.
\11\ See Securities Exchange Act Release Nos. 3642 (September
18, 1995), 60 FR 49305 (September 22, 1995) (order approving File
No. SR-CBOE-22) and 36257 (September 20, 1995), 60 FR 50228
(September 28, 1995) (order approving File No. SR-PHLX-95-31).
---------------------------------------------------------------------------
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. 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 provisions
of 5 U.S.C. 552, will be available for inspection and copying at 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 above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by November 6,
1995.
It is therefore ordered, pursuant to Section 19( )(2) of the
Act,\12\ that the proposed rule change (File No. SR-PSE-95-17), as
amended, is approved on an accelerated basis.
\12\ 15 U.S.C. 78s(b)(2) (1982).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
\13\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 95-25552 Filed 10-13-95; 8:45 am]
BILLING CODE 8010-01-M
