[Federal Register Volume 63, Number 61 (Tuesday, March 31, 1998)]
[Notices]
[Pages 15472-15474]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8360]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39787; File No. SR-PCX-98-14]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval, of Proposed Rule Change by the Pacific
Exchange, Inc. and Amendment No. 1 Thereto, Relating to a Supervisory
Specialist Pilot Program
March 24, 1998.
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 March 3, 1998, 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. On March 12, 1998, the PCX filed an amendment to the
proposal.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Michael D. Pierson, Senior Attorney,
Regulatory Policy, PCX, to Marc McKayle, Attorney, Division of
Market Regulation, Commission (March 12, 1998) (``Amendment No.
1''). In Amendment No. 1 PCX provides a basis for accelerated
effectiveness of the proposal pursuant to Section 19(b)(2) of the
Act. PCX explains that seats are trading at record prices making it
increasingly difficult to operate a specialist post on the equities
floor. PCX maintains that accelerated effectiveness of the proposed
rule will permit specialist firms greater control over the impact of
seat prices, and preserve the quality of the Exchange's markets and
services provided to the public and its members.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
PCX is proposing to adopt a temporary program, effective ninety
days, under which PCX specialist firms may operate two specialist posts
based upon one Exchange membership.\4\ The text of the proposed rule
change is available at the Office of the Secretary, PCX and at the
Commission.
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\4\ The Commission notes that the Exchange also has filed a
proposed rule change to implement a one year Supervisory Specialist
Pilot Program to become effective upon the termination of the
instant ninety day program (``Companion Filing''). See SR-PCX-98-13.
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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 III 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
1. Purpose
In an effort to streamline the way business is conducted on the
Exchange's Equities Floors, and to provide Exchange Specialist Firms
with greater control over the management and costs of their operations,
the Exchange is proposing to adopt the Supervisory Specialist Pilot
Program (``Program''). Under the Program, the Exchange's Executive
Committee will permit qualified specialist Firms to participate in the
Program during a limited, ninety day period. Throughout the course of
the Program, the Executive Committee will seek to assure an orderly
transition of Specialist Firms into the Program. The Program will apply
to trading on the Equities Floors only and will not apply to trading on
the Options Floor.
Under the Program, a Specialist Firm may operate two specialist
posts based upon one Exchange membership, provided that both posts will
be staffed by Specials who have been qualified by the Exchange as
Register Specialists
[[Page 15473]]
under the rules of the Exchange.\5\ The Program will permit one
specialist post to be staffed by a Member who is registered as the
supervising specialist (the ``Supervisory Specialist''), while the
other post is staffed by an Associated Person of the Specialist Firm
who is otherwise qualified to act as a Registered Specialist (the
``Associate Specialist''). Under the Program, the Supervisory
Specialist will act as supervising specialist over the Associate
Specialist.
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\5\ See e.g., PCX Rule 5.27.
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Under the Program, both the Supervisory Specialist and the
Associate Specialist will be obligated to pay the dues, fees and
charges as specified in the Exchange's Schedule of Fees and Charges for
Exchange Services.
Specialist Firms may apply to participate in the Program by
submitting an application to the Executive Committee. The Executive
Committee will take into account certain relevant factors including
those specified below. The Executive Committee may, at its discretion,
approve a Specialist Firm to participate in the Program based on the
following primary factors: the applicant Specialist Firm's current cost
of operating its specialist posts, including the rental cost (if any)
of each seat; whether the value and revenue stream from existing
specialist posts will be retained if the application is approved; and
whether the long-term viability of the business and trading volume of a
specialist post will be retained if the application is approved. The
Executive Committee will also take into account the following secondary
factors in reviewing an application: the past experience of individuals
who are proposed to serve as Specialists under the Program; recent
specialist performance ratings of individuals who are proposed to serve
as Specialists under the Program (these ratings should include
evaluation scores for the last eight quarters, if they are available);
\6\ the disciplinary history of the Specialist Firm and the individuals
who are proposed to serve as Specialists under the Program; and other
relevant factors that the applicant wishes the Executive Committee to
consider.
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\6\ Supervisory and Associate Specialists will be evaluated
pursuant to the criteria set forth in PCX Rule 5.37(a). The five
separate measures of performance are (1) Executions, (2) Specialist
Evaluation Questionnaire Survey, (3) Book Display Time, (4) Post 1
P.M. Parameters and (5) Quote Performance.
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The Executive Committee will oversee the implementation of the
Program and will study the impact of the Program on the quality of
markets at specialist posts operating under the Program. Based on this
study, the Executive Committee may adopt more specific standards and
procedures for operating the Program. The Executive Committee is not
required to approve any number of applicants, and there are no limits
on the number of applicants who may be approved under the Program.
Applicants, however, are restricted to Exchange Members with seats on
the Equity floor, and no more than two specialist posts may be operated
per membership.\7\
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\7\ Telephone conversation between Michael D. Pierson, Senior
Attorney, Regulatory Policy, PCX, and Marc McKayle, Attorney,
Division of Market Regulation, Commission (March 23, 1998).
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Under the Program, a Specialist Firm may operate two trading posts
based upon one membership, provided that the following conditions are
met:
a. The two trading posts must be contiguous.
b. Each post must be operated by a person who meets all of the
qualifications of a Registered Specialist. Specifically, each Associate
Specialist must achieve a passing grade of at least 80% on a written
examination for Registered Specialists prepared by the Exchange. This
is the same examination and the same passing score required for all
Registered Specialists, as provided in PCX Rule 5.27(c)(ii).
c. The Associate Specialist must be an ``Associated Person'' of the
Specialist Firm as defined PCX Rule 1.1(d). Associate Specialists may
consummate transactions on the Equity Floors of the Exchange, provided
that they do so under the supervision of a Supervisory Specialist.
d. The Supervisory Specialist must be registered with the Exchange
as a ``Member'' as defined in PCX Rule 1.1(i). The Supervisory
Specialist will act as supervising specialist over the Associate
Specialist. A Supervisory Specialist is a member who has been qualified
by the Exchange to act as a specialist and who is responsible for
supervising the trading activities of an Associate Specialist.
e. The performance of the Supervising Specialist and the Associate
Specialist will be evaluated individually pursuant to PCX Rule 5.37
(``Evaluation of Specialist Performance'').
Under the Program, an Associate Specialist will be deemed to be a
Registered Specialist for all purposes under the rules of the Exchange,
unless otherwise specified herein.\8\
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\8\ In addition to the Exchange requirements as discussed above,
the Associate Specialist (as well as the Supervisory Specialist)
must comply with all applicable federal securities law requirements.
See e.g., Exchange Act Section 14 (requiring broker-dealers to
register with the Commission).
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) \9\ of the Act, in general, and Section 6(b)(5),\10\ in
particular, in that it is designed to facilitate transactions in
securities and to promote just and equitable principles of trade.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 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 the 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. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing including whether the proposed rule
change is consistent with the Act. 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 amendment, 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-98-14 and should be submitted by April 21,
1998.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful review, 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. In
particular, the
[[Page 15474]]
Commission believes the proposal is consistent with the Exchange Act
Section 6(b)(5) \11\ requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public. The proposal is designed to reduce the cost of
operations for PCX Specialist firms, while ensuring that the Specialist
firms maintain managerial control over the posts they supervise. The
Program could enhance liquidity in equity securities traded on the
Exchange and reduce costs to Exchange members by giving Specialist
firms the opportunity to become specialists in more stocks without
incurring additional membership costs.
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\11\ Id.
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In addition, the Commission finds good cause for approving the
proposed rule change prior to the thirtieth day after the date of
publication of notice thereof in the Federal Register. The PCX has
represented that seat prices on the Exchange are trading at record
prices, thus making it increasingly difficult for equity specialists to
operate at a profit.\12\ Accordingly, the Commission believes it is
appropriate for the PCX to implement the Supervisory Specialist Pilot
Program without delay. Moreover, the Commission notes that the Program
is effective only for ninety days, and that the companion filing will
be published for the full twenty-one day comment period.
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\12\ See Amendment No. 1, supra, note 3.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-PCX-98-14) is hereby
approved on an accelerated basis through June 22, 1998. For the
Commission, by the Division of Market Regulation, pursuant to delegated
authority.\14\
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\13\ 15 U.S.C. 78s(b)(2).
\14\ 17 CFR 200.30-3 (a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8360 Filed 3-30-98; 8:45 am]
BILLING CODE 8010-01-M
