[Federal Register Volume 62, Number 33 (Wednesday, February 19, 1997)]
[Notices]
[Pages 7489-7490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4049]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38273; File No. SR-PSE-96-45]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Thereto by the Pacific Stock Exchange Incorporated
Relating to the Exchange's Lead Market Maker Options Book Pilot Program
February 12, 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 December 10, 1996, the Pacific Stock Exchange Incorporated (``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 self-regulatory
organization. The Exchange filed an amendment to the proposed rule
change on February 4, 1997.\3\ 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).
\2\ 17 CFR 240.19b-4.
\3\ The PSE filed an amendment (``Amendment No. 1'') clarifying
the maximum number of Lead Market Makers and options symbols that
would participate in the expanded Lead Market Maker Book Pilot
Program. See Letter from Michael D. Pierson, Senior Attorney,
Regulatory Policy, PSE, to Janet Russell-Hunter, Special Counsel,
Office of Market Supervision, Division of Market Regulation,
Commission, dated February 3, 1997.
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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 modify its Lead Market Maker (``LMM'') Book
Pilot Program under which PSE LMMs may assume operational
responsibility for the options public limit order book (``Book'') in
certain option issues. The Exchange is proposing to expand the scope of
the program to allow for more LMMs to participate, and to allow a
greater number of option issues to be eligible under the Program.
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 examine 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 October 11, 1996, the Commission approved and Exchange proposal
to adopt a one-year pilot program under which some LMMs are permitted
to manage the Book function in certain designated issues.\4\ Under the
pilot, the approved LMMs manage the Book function, take responsibility
for trading disputes and errors, set rates for Book execution, and pay
the Exchange a fee for systems and services.\5\ The program allows LMMs
to have greater control over their operations on the Exchange floor by
allowing them, among other things, to set their own rates for execution
services provided to customers.
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\4\ See Securities Exchange Act Release No. 37810 (October 11,
1996), 61 FR 54481 (``Pilot Approval Order'').
\5\ More specifically, under the rule changes approved by the
Commission, LMMs may perform all functions of the Order Book
Official (``OBO'') in designated issues pursuant to rules 6.51
through 6.59. In that regard, the Exchange will allow the LMM to
utilize Exchange personnel to assist the LMM in performing the OBO
function, and the Exchange will charge the LMM a reasonable fee for
such use of Exchange personnel, If the program is made permanent,
LMMs would be responsible for hiring and maintaining their own
employees, but the Exchange would provide employees to assist LMMs
when necessary due to market conditions. In all cases, however,
employees working in the Book operation will be subject to all
rules, policies, and procedures established by the Exchange. With
regard to their duties as market makers, LMMs would be required to
perform all obligations provided in Rules 6.35 through 6.40 and
6.82.
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Under the pilot as approved by the Commission, the program is
limited to no more than three LMMs and no more than forty option
symbols in total,\6\
[[Page 7490]]
during a one-year pilot phase. However, the Exchange is now proposing a
modest expansion of the pilot program to allow for up to nine LMMs and
up to 150 options symbols.\7\
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\6\ Each option issue typically has only one symbol associated
with it, unless LEAPs are traded on that issue, in which case there
usually would be two additional symbols related to the issue, or
unless a contract adjustment is necessary due, for example, to a
merger or stock split, in which case one additional symbol usually
would be added.
\7\ Amendment No. 1, supra note 3.
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The LMMs who participate during the pilot phase are selected by the
Options Floor Trading Committee based on certain designated factors.\8\
Approved LMMs must maintain ``minimum net capital,'' as provided in
Rule 15c3-1 under the Act,\9\ and also must maintain a cash or liquid
asset position of at least $500,000, plus $25,000 for each issue over
five issues for which they perform the function of an OBO. Only
multiply-traded option issues are eligible during the pilot phase.
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\8\ See Pilot Approval Order, supra note 4.
\9\ 17 CFR 240.15c3-1.
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The Exchange believes that the proposal is consistent with Section
6(b) of the Act, in general, and Section 6(b)(5), 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.
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. 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. 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 above-mentioned
self-regulatory organization. All submissions should refer to File No.
SR-PSE-96-45 and should be submitted by March 12, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4049 Filed 2-18-97; 8:45 am]
BILLING CODE 8010-01-M
