[Federal Register Volume 61, Number 85 (Wednesday, May 1, 1996)]
[Notices]
[Pages 19328-19329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10704]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37142; File No. SR-PSE-96-13]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange Incorporated Relating to
Restrictions on Equity Allocations (10% Rule)
April 24, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April
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 Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to codify a policy of the Equity
Allocation Committee (``EAC'') that specialists who rank in the bottom
10%, under the Exchange's specialist evaluation program, shall not be
eligible for allocations of securities, absent mitigating
circumstances, until such ranking rises above the bottom 10%.
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
1. Purpose
The Exchange's specialist evaluation program is governed by PSE
Rule 5.37. Subsection (a) of that Rule provides that the EAC shall
evaluate all registered specialists on a quarterly basis. Those
evaluations result in overall ratings of specialists that are based
upon three separate measures of performance, as specified in the
Rule.\1\ Subsection (b) provides that any registered specialist who is
in the bottom 10% of all registered specialists on that specialist's
trading floor,\2\ as determined by the overall evaluation scores in any
one quarterly evaluation, shall be requested to meet with the EAC (or a
panel appointed by the EAC) on an informal basis.\3\ If a specialist is
in the bottom 10% during any two out of four consecutive quarterly
evaluations, the specialist is requested to appear a second time before
the EAC to explain his or her performance.\4\
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\1\ The three measures of performance utilized by the PSE are:
(1) National Market System Quote Performance, accounting for 45% of
the overall score, measures the percentage of time in a given
quarter that a specialist's bid and/or offer is equal to or greater
than the best bid or offer in the consolidated quote system for each
dually-traded security; (2) the Specialist Evaluation Questionnaire
Survey, also accounting for 45% of the overall score, is composed of
questions designed to evaluate a specialist's market-making
performance and is to be completed only by floor brokers who
regularly trade with a specialist; and (3) SCOREX Limit Order
Acceptance Performance, which accounts for the final 10% of the
overall score, measures the percentage of P/COAST (formerly SCOREX)
limit orders accepted by a specialist. See Securities Exchange Act
Release No. 28843 (February 1, 1991), 56 FR 5040 (February 7, 1991)
(File No. SR-PSE-87-19) for a more complete description of each of
these measures of performance.
\2\ The PSE maintains two equity trading floors, one in Los
Angeles and one in San Francisco. See PSE Rule 4.1(g).
\3\ See PSE Rules 5.37 (b)-(e).
\4\ See PSE Rules 5.37 (g)-(i). The EAC also has the authority
to bypass the second informal proceeding and commence formal
reallocation proceedings after a specialist's second quarter of
substandard performance in a rolling twelve-month period. See PSE
Rule 5.37.
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If the EAC finds in its second informal meeting with a specialist
that there are no mitigating circumstances that would demonstrate
substantial improvement of or reasonable justification for the
specialist's most recent evaluation score, the EAC will make a
determination that the specialist's performance is below acceptable
levels, and notify the specialist of his or her right to a hearing on
such determination.\5\ The EAC may take a number of actions against a
registered specialist found to perform below acceptable levels,
including limitation, suspension or termination of the specialist's
registration as a specialist, or reallocation of his or her stocks.
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\5\ For a description of the procedures followed in such
proceedings, see PSE Rules 5.37 (j)-(s).
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The Exchange is now proposing to adopt a rule providing that any
registered specialist who falls into the bottom 10% of all registered
specialists, as provided in Rule 5.37(b), shall not be eligible for new
allocations until such ranking rises above the bottom 10%. However, the
proposal also provides that the EAC may make exceptions if there are
sufficient mitigating circumstances.
At the PSE, specialist evaluation results and overall rankings are
reported in the quarter following the quarter of the evaluation, e.g.,
the results of the fourth quarter of 1995 are reported in the first
quarter of 1996. Accordingly, a specialist who was in the bottom 10%
for the fourth quarter of 1995 will not be eligible for new allocations
of stocks
[[Page 19329]]
until, at the earliest, the second quarter of 1996, when the results
from the first quarter of 1996 are reported.
The Exchange believes that the restriction on new allocations is an
effective tool in encouraging specialists to improve their performance,
and thereby to improve their evaluation scores.\6\
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\6\ Cf. Securities Exchange Act Release No. 31539 (November 30,
1992), 57 FR 57851 (December 7, 1992) (File No. SR-PSE-92-32). This
order approved, among other things, the addition of Commentary .03
to PSE Rule 5.36(d), which precludes a specialist whose specialist
ranking falls in the bottom 10% of his or her Floor from acting as
an alternate specialist until his or her ranking rises above the
bottom 10%, unless the EAC determines otherwise.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act \7\ in that it is designed to promote just and equitable principles
of trade, and, in general, to protect investors and the public
interest.
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\7\ 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 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 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 the 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 at 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-96-13 and should be
submitted by May 22, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10704 Filed 4-30-96; 8:45 am]
BILLING CODE 8010-01-M
