[Federal Register Volume 61, Number 82 (Friday, April 26, 1996)]
[Notices]
[Pages 18636-18637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10315]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37133; File No. SR-PSE-96-11]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange Incorporated, Relating to the FLEX
Equity Options
April 19, 1996.
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 April 5, 1996, the (``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).
\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 proposes to reduce from five to three the minimum
number of market makers who must be qualified to trade flexible
exchange options (``FLEX Options'') on an underlying equity security
(``FLEX Equity Option'') before such options may be traded on that
security. The text of the proposed rule change is available at the
Office of the Secretary, the Exchange, 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. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Section (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 February 14, 1996, the Commission approved an Exchange proposal
to list and trade FLEX Equity Options.\3\ Pursuant to that rule change,
if the Exchange trades FLEX Equity
[[Page 18637]]
Options on a security, then market participants would be able to
designate certain contract terms for options of such securities,
including: exercise price; exercise style (i.e., American, European or
capped); expiration date; and option type (i.e., put, call or spread).
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\3\ See Securities Exchange Act Release No. 36841 (February 14,
1996), 61 FR 6666 (February 21, 1996).
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PSE Rule 8.109(a) currently provides for the selection of ``FLEX
Qualified Market Makers,'' i.e., market makers whom the Exchange deems
to be qualified to trade Exchange Equity Options based on the following
factors: (1) The preference of the registrants; (2) the maintenance and
enhancement of competition among market makers; and (3) the assurance
that the market maker will have adequate financial resources.\4\ In
addition, pursuant to Rule 8.115(a), FLEX Qualified Market Makers may
not effect any transactions in FLEX Equity Options unless one of more
letter(s) of guarantee has been issued by a clearing member and filed
with the Exchange pursuant to Rule 6.36(a). In connection with these
letters of guarantee, a clearing member must accept financial
responsibility for all FLEX transactions made by such market makers.
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\4\ By contrast, under Rules 8.100 et seq., ``FLEX Appointed
Market Makers'' are those individuals who have been designated by
the Exchange to trade FLEX options on a specific underlying index
(``FLEX Index Option'') that has been approved by the Commission for
FLEX Options trading. See PSE Rules 8.100(a)(1) and 8.109(a).
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PSE Rule 8.109(a) currently provides that the Exchange shall
appoint five or more FLEX Qualified Market Makers to each FLEX Equity
Option prior to its listing.\5\ The Exchange proposes to reduce the
minimum number of FLEX Qualified Market Makers required under Rule
8.109(a) from five to three. The Exchange is proposing this change in
order to enhance its ability to trade FLEX Equity Options on the
Exchange. The Exchange believes that no undue financial risk to the
Exchange would result from this change because each transaction of FLEX
Qualified Market Makers will be backed by a clearing member, which will
accept financial responsibility for all FLEX transactions made by such
market makers pursuant to a letter of guarantee.\6\ The Exchange also
believes that three FLEX Qualified Market Makers will be a sufficient
number of traders to provide quotations in response to requests for
quotes because the Exchange expects that FLEX Equity Options will be
traded in the same trading crowd as Non-FLEX Options on the same
underlying securities. In this regard, the Exchange notes that under
the current rules, two FLEX Appointed Market Makers may be designated
in lieu of five FLEX Qualified Market Makers to trade FLEX Equity
Options.\7\
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\5\ With respect to FLEX Index Options, two FLEX Appointed
Market Makers must be approved to trade FLEX Options on a given
index before the Exchange may list FLEX Options on that index. FLEX
Appointed Market Makers must also meet the capital requirements of
Rule 8.114 (i.e., they must maintain $1 million net liquidating
equity and/or $1 million net capital (as defined by SEC Rule 15c3-1
under the Act)), and they must also meet the account equity
requirements of Rule 8.113(a) (i.e., the net liquidating equity
maintained in their individual or joint accounts must be least
$100,000).
\6\ See PSE Rule 8.115(a).
\7\ See PSE Rule 8.109(a).
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The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act in general and furthers the objectives of
Section 6(b)(5) in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and is not designed to permit unfair
discrimination among customers, issuers, brokers or dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will impose no
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
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 Exchange 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. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-PSE-96-11 in the caption above
and should be submitted by May 17, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a0912).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-10315 Filed 4-25-96; 8:45 am]
BILLING CODE 8010-01-M
