[Federal Register Volume 62, Number 112 (Wednesday, June 11, 1997)]
[Notices]
[Pages 31857-31858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15255]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38712; File No. SR-PCX-97-19]
June 3, 1997.
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Exchange, Inc., Relating to Its Specialist
Evaluation Program
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 May 29,
1997, the Pacific Exchange, Inc. (``PCX'' 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 Propose Rule Change
The PCX is proposing to extend its pilot program regarding the
evaluation of its equity specialists until January 1, 1998. In
addition, the Exchange is proposing to implement certain changes to the
pilot program.
Self-Regulatory Organizations 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 receive don 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
On October 1, 1996, the Commission approved a nine-month pilot
program for the evaluation of PCX equity specialists.\1\ The Exchange
is now proposing to extend the pilot program for an additional six
month period, until January 1, 1998. The reason for the extension is
that the Exchange needs more time to evaluate the impact of the SEC's
new order handling rules \2\ on the performance criteria. During the
extension of the pilot, the Exchange will determine an organization
overall passing score and individual passing scores for each criterion
used in the pilot program. In addition, the Exchange proposes to
implement for use in the evaluation program, beginning with the third
quarter review period of 1997 (i.e., July 1, 1997 to September 30,
1997), certain programming changes requested by the Commission in its
October 1, 1996 order approving the pilot program. Specifically, the
Commission requested that the Exchange reprogram its systems so that
the following criteria are calculated using the NBBO instead of the
primary market quote: Trading Between the Quote, Book Display Time, and
Quote Performance (Equal or Better Quote Performance and Better Quote
Performance). The description of these performance criteria will be
modified as follows:
---------------------------------------------------------------------------
\1\ Prior to the adoption of the pilot program, PCX Rule 5.37(a)
provided that the Exchange's Equity Allocation Committee (``EAC'')
evaluate all registered specialists on a quarterly basis and that
each specialist receive an overall evaluation rating based on three
criteria of specialist performance: (1) Specialist Evaluation
Questionnaire Survey (``Questionnaire''); (2) SCOREX Limit Order
Acceptance Performance; and (3) National Market System Quote
Performance. The pilot program modifies Rule 5.37(a) by adding three
new criteria of performance and eliminating one performance
criterion. The new criteria are: (1) Executions (itself consisting
of four criteria; (a) Turnaround Time; (b) Holding Orders Without
Action; (c) Trading Between the Quote; and (d) Executions in Size
Greater Than BBO); (2) Book Display Time; and (3) Post-1 p.m.
Parameters. The SCOREX Limit Order Acceptance Performance criterion
has been eliminated. The pilot also adds more questions to the
Questionnaire and expands the National Market System Quote
Performance criterion (renamed Quote Performance under the pilot) to
include within it a submeasure for bettering the quote. For a more
detailed description of the performance criteria utilized in the
PCX's pilot program, see Securities Exchange Act Release No. 37770
(October 1, 1996), 61 FR 52820 (October 8, 1996) (File No. SR-PSE-
96-28). See generally PCX Rule 5.37 (description of the standards
and procedures applicable to the EAC's evaluation of specialists).
\2\ See Securities Exchange Act Release No. 37619A (September 6,
1996), 61 FR 48290 (September 12, 1996) (File No. S7-30-95).
---------------------------------------------------------------------------
a. Trading Between the Quote \3\
---------------------------------------------------------------------------
\3\ ``Trading Between the Quote'' is one of the four criteria
which together constitute ``Executions'' criterion. See supra note
1.
---------------------------------------------------------------------------
``Trading Between the Quote'' currently measures the number of
market and marketable limit orders that are executed between the best
primary market bid and offer. For this criterion
[[Page 31858]]
to count toward the overall evaluation score, ten orders or more must
have been executed during the quarter in which the specialist is being
evaluated. If less than ten orders are executed, this criterion will
not be counted and the rest of the evaluation criteria will be given
more weight.
When a market or marketable limit order is executed, the execution
price is compared to the primary market bid and offer. The specialist
will be awarded points based on the percentage of orders the specialist
receives that are executed between the primary market bid and offer. If
the execution price falls between the primary market bid and offer, the
trade is counted as one that traded between the quote at the time of
execution. Each time a trade is executed, the primary market quote will
be noted. If the spread of that quote is two or more trading fractions
apart, that trade will count as one eligible for the comparison of the
execution price to the quote.
The Exchange is now proposing to continue using this criterion, but
to replace references to the ``primary market bid and offer'' with
references to the ``NBBO.''
b. Book Display Time
This criterion calculates the percentage of book shares at the best
price in the book that is displayed in the specialist's quote, by
symbol, and the duration of time that each percentage is in effect.
This criterion rates the P/COAST book displayed 100% of the time. The
sizes of all open buy limit orders at the best price for the symbol in
the specialist's book are totaled and compared to the bid size quote.
The sizes of all open sell limit orders at the best price for the
symbol in the book are totaled and compared to the offer size quote.
This will be done for each symbol traded by the specialist, but only
for those orders within the primary market quote. Limit orders in the
book that were priced beyond the primary market quote will not be
included; they will not be executed until they reach the price in the
primary market quote, so the specialist should not be required to cover
them in his (her) quote sizes.
The Exchange is now proposing to continue using this criterion, but
to replace references to the ``primary market bid and offer'' to
references to the ``NBBO.''
c. Quote Performance
This criterion, on which 10% of each specialist evaluation is
based, consists of two submeasures: (a) Equal or Better Quote
Performance; and (b) Better Quote Performance.
Equal or Better Quote Performance calculates for each issue traded,
the percentage of time in which a specialist's bid or offer is equal to
or better than the primary market quote with a 500 share market size or
the primary market size, whichever is less, with a 200 share minimum.
Better Quote Performance calculates for each issue traded, the
percentage of time in which a specialist's bid or offer is better than
the primary market quote with a 500 share market size or the primary
market size, whichever is less, with a 200 share minimum.
The Exchange is proposing to continue using this criterion, but to
replace references to the ``primary market bid and offer'' with
references to the ``NBBO.''
Further, the Commission has requested that the Exchange file a
report regarding the Exchange's experience with the pilot.
This report has been filed with the Commission under separate
cover. In addition, the Exchange will submit a proposed rule change
with the Commission pursuant to Rule 19b-4 under the Act \4\ by
November 15, 1997, that will specify an overall passing score for the
performance evaluation and individual passing scores for each
criterion, as well as a request to further extend the pilot beyond
January 1, 1998.
---------------------------------------------------------------------------
\4\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act \5\ in that it is designed to prevent fraudulent and manipulative
acts and practices and to perfect the mechanism of a free and open
market.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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-PCX-97-19 and should be
submitted by July 2, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15255 Filed 6-10-97; 8:45 am]
BILLING CODE 8010-01-M
