[Federal Register Volume 62, Number 191 (Thursday, October 2, 1997)]
[Notices]
[Pages 51710-51711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26147]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39111; File No. SR-PCX-97-33]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Exchange, Inc., Relating to Permanent Approval of its Lead Market Maker
System
September 22, 1997.
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 August 5, 1997, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'' or
``SEC'') the proposed rule change as described in Items I, II and III
below, which Items have been prepared by the self-regulatory
organization. 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. Sec. 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 is proposing to adopt its Lead Market Maker (``LMM'')
Pilot Program on a permanent basis. The text of the proposed rule
change is available at the Office of the Secretary, PCX 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
On January 17, 1990, the Commission approved, on a pilot basis, an
Exchange proposal to establish a Lead Market Maker system. The
Commission initially approved the LMM pilot program to continue for
eighteen months to July 31, 1991.\3\ Thereafter, the Commission granted
a number of extensions to the program.\4\ The program is currently set
to expire on September 30, 1997. In order to make the LMM program
permanent, PCX proposes to amend commentary .01 of Exchange rule 6.82,
deleting the expiration date for the Lead Market Maker system.
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\3\ See Securities Exchange Act Release No. 27631 (January 17,
1990), 55 FR 2462 (January 24, 1990) (approving SR-PSE-89-27 and
Amendment No. 1 thereto) (``Pilot Approval Order'').
\4\ See Exchange Act Release Nos. 31063 (August 21, 1992), 57 FR
39255 (August 28, 1992); 31635 (December 22, 1992), 57 FR 62414
(December 30, 1992); 33854 (April 1, 1994), 59 FR 16873 (April 8,
1994); 34710 (September 23, 1994), 59 FR 50306 (October 3, 1994);
36293 (September 28, 1995), 60 FR 52243 (October 5, 1995); and 37767
(September 30, 1996), 61 FR 52483 (October 7, 1996). See also File
No. SR-PSE-93-16 (requesting permanent approval of the pilot
program) and Amend. Nos. 1-3 thereto (requesting pilot program
extensions while the request for permanent approval was pending). On
April 20, 1994, the Exchange withdrew File No. SR-PSE-93-16 pursuant
to Commission's request. See Letter from David P. Semak, Vice
President, Regulation, PSE, to Sharon M. Lawson, Assistant Director,
Division of Market Regulation, Commission, dated April 20, 1994.
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The program was originally created in order to enhance the ability
of the Exchange to compete in a multiple trading environment. It was
designed primarily for new option issues and option issues with
comparatively low volume. Under the existing pilot program, Members
appointed as LMMs assume responsibilities and acquire rights in their
appointed options classes beyond the obligations and rights of Market
Makers who trade in the same options issue. In addition to the regular
obligations of a Market Maker, an LMM must assume additional
obligations designed to strengthen the market making in his or her
designated options issue. Pursuant to Rule 6.82, the LMM is responsible
for, among other things: ensuring the accurate dissemination of market
quotations; determining the algorithm for the PCX's Auto-Quote System
is designated option classes; assuring that each market quotation is
honored consistent with certain minimum obligations; participating in
the automatic execution system; being present at the designated trading
post throughout each trading day; and actively promoting the Exchange
as a marketplace. LMMs also receive a guaranteed 50% participation in
transactions occurring on their disseminated bids and offers in their
appointed issues.
The LMM pilot program is governed by PCX Rules 6.82 and 8.83.\5\ On
October 3, 1996, the Commission approved an Exchange proposal to modify
Rule 6.82 by adding several new substantive provisions and by
restructuring the rule and clarifying some of its existing
provisions.\6\ The Exchange notes that is has not experienced any
problems or received any formal complaints due to the rule changes that
were approved.
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\5\ Cf. Rules 8.80 and 8.81 of the Chicago Board Options
Exchange.
\6\ See Exchange Act Release No. 37780 (October 3, 1996), 61 FR
53247 (October 10, 1996) (Order approving File No. SR-PSE-96-03).
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The Exchange notes that as of July 28, 1997, 309 or (55.3%) of the
559 standard equity options traded on the Options Floor, and all 3 of
the indexes on which options are traded at the PCX, have been assigned
to LLMs. As of June 30, 1997, those 312 issues accounted for 31.15% of
the total options volume traded on the floor.
The Exchange believes, based on the pilot's performance, that the
LMM system is viable and effective and that permanent approval of the
LMM program is warranted based on the importance of maintaining the
quality, efficiency and competitiveness of the Exchange's markets.
Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\7\ in general, and Section 6(b)(5),\8\ in particular,
in that it is designed to facilitate transactions in securities, to
promote just and equitable principles of trade, and to protect
investors and the public interest.
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\7\ 15 U.S.C. Sec. 78f(b).
\8\ 15 U.S.C. Sec. 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
The Commission has closely reviewed the Lead Market Maker System
and has concluded that it is appropriate to approve the system on a
permanent basis. The Commission finds that the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act \9\ in
that it is designed to
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facilitate transactions in securities, to promote just and equitable
principles of trade, and to protect investors and the public interest.
In addition, the Commission finds that the proposed rule change is
consistent with Section 11A(a)(1)(C)(i) of the Act \10\ in that the LMM
pilot program contributes to the Exchange's maintenance of a fair and
orderly market and assures economic and efficient execution of
securities transactions. The Commission notes that since 1990, when PCX
began operating the LMM pilot program, PCX has made a number of
refinements to the program over this period and has submitted numerous
reports to the SEC covering the operation of the program. During this
period, the use of the LMM program has grown significantly, yet there
have been only several minor complaints and rule infractions
reported.\11\
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\9\ 15 U.S.C. Sec. 78f(b)(5).
\10\ 15 U.S.C. Sec. 78k-1(a)(1)(C)(i).
\11\ Reports were required to be submitted by the Exchange prior
to each extension of the pilot program. In addition, the Exchange
submitted a report prior to its request for permanent approval of
the Lead Market Maker program. The Commission hereby incorporates by
reference the findings and conclusions contained in the original
approval order and subsequent extension orders for the Lead Market
Maker program. Securities Exchange Act Release Nos. 27631 (January
17, 1990), 55 FR 2462; 29475 (July 23, 1991), 56 FR 36183; 31063
(August 21, 1992), 57 FR 39255; 92-36 (December 22, 1992), 57 FR
62414; 33854 (April 1, 1994), 59 FR 16873; 34710 (September 23,
1994), 59 FR 50306; 36293 (September 28, 1995), 60 FR 52242; 37767
(September 30, 1996), 61 FR 52483.
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth after the date of publication of notice
of filing thereof in the Federal Register in order to permit the
uninterrupted continuation of the LMM program. As set forth in its most
recent report to the Commission, the PCX has represented that it has
not received significant complaints regarding the operation of the
pilot program nor have problems arisen in connection with operation of
the pilot program. Moreover, the current pilot program was subject to a
full comment period last year \12\ and no comments were received.
Accordingly, the Commission believes it is consistent with Sections
6(b)(5) and 19(b)(2) of the Act \13\ to approve the proposed rule
change on an accelerated basis.
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\12\ Securities Exchange Act Release No. 37767 (September 30,
1996), 61 FR 52483.
\13\ 15 U.S.C. Sec. 78f(b)(5), 15 U.S.C. Sec. 78s(b)(2).
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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 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-97-33 and should be submitted by October 23,
1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-PCX-97-33) is hereby
approved.
\14\ 15 U.S.C. Sec. 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. 97-26147 Filed 10-1-97; 8:45 am]
BILLING CODE 8010-01-M
