[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31603]
[[Page Unknown]]
[Federal Register: December 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35107; File No. SR-PSE-94-24]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange, Inc. Relating to Financial
Arrangements of Options Market Makers
December 16, 1994.
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 September 9, 1994, the Pacific Stock Exchange (``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 Exchange. 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. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PSE is proposing to amend Rule 6.40 regarding financial
arrangements of market makers and the trading restrictions that are
imposed on market markers who have financial arrangements with other
members or member organizations. 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 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
The Exchange is proposing to amend Rule 6.40 regarding financial
arrangements of options market makers. First, the Exchange proposes to
amend its definition of ``financial arrangements'' to focus on the
nature of the market maker's trading account and the financial interest
that a member or member organization may have in the market maker's
trading account.\3\
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\3\Specifically, two Exchange members will be deemed to have a
``financial arrangement'' with each other if: ``One Member directly
finances the other Member's dealings upon the Exchange and has a
beneficial interest in the other Member's trading account such that
the first Member is entitled to at least ten percent of the second
Member's trading profits,'' or where ``[b]oth members are trading
for the same joint account.''
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Second, the Exchange is proposing to modify the trading
restrictions that are imposed on market markers who have financial
arrangements so that two floor officials may grant an exemption from
the rule prohibiting market makers with financial arrangements from
trading in the same option series. Specifically, the amended rule would
allow two financially affiliated market makers to trade in the same
crowd or the same series, but only if they obtain a written exemption
from two floor officials. Such an exemption may only be granted on the
basis of a demonstrated need.
Finally, the Exchange proposes to add several commentaries to Rule
6.40 that are intended to clarify the purpose of the rule, the
application of the rule regarding lead market makers (``LMMs''), and
the process for granting exemptions to the trading restrictions set
forth in the rule. Commentary .04 would state that the purpose of Rule
6.40 is to prevent market makers who have financial arrangements with
each other from unfairly dominating the market in option contracts of a
particular class, as prohibited by Rule 6.37(c)(2). Commentary .04
would further provide that any market makers who are not technically
covered by the terms of Rule 6.40, but who unfairly dominate the market
in any class of options, shall be considered to be in violation of
their obligation to contribute to the maintenance of fair and orderly
markets and to act in accordance with just and equitable principles of
trade.
Proposed Commentary .05 would codify the Exchange's existing policy
that two or more LMMs who are trading on behalf of the same member
organization may not bid, offer, and/or trade in the same option series
at the same time. The proposed Commentary also provides that two or
more LMMs who do not have financial arrangements with each other are
permitted to bid, offer and/or trade in the same option series at the
same time.\4\
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\4\See generally PSE Rule 6.82 (Lead Market Maker System Pilot
Program).
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Proposed Commentary .06 provides that the exemptions to the trading
restrictions in Rule 6.40(b) may ordinarily be granted for the purpose
of providing liquidity in a trading crowd. An exemption may also be
granted if two floor officials determine that the individual situation
warrants such action. Commentary .06 further provides that unless
otherwise specified, any exemption granted pursuant to the rule shall
extend for no longer than the trading day on which it is issued.
Moreover, Commentary .06 provides that the Exchange's Options Floor
Trading Committee (``Committee'') shall review, on a regular basis, the
exemptions granted pursuant to Rule 6.40(b).
Finally, in proposed Commentary .07, the Committee acknowledges
that inadvertent violations of the trading restrictions in Rule 6.40(b)
may occur and that the Committee shall ordinarily treat such violations
as technical violations of the rule.
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act, in particular, in that it is designed 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 Exchange 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
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
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
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. 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 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-94-24 and should be
submitted by January 13, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31603 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M
