[Federal Register Volume 60, Number 159 (Thursday, August 17, 1995)]
[Notices]
[Pages 42933-42934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20404]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36083; File No. SR-PSE-95-10]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Pacific Stock Exchange, Inc. Relating to its Procedure
for Evaluating Options Trading Crowd Performance
August 10, 1995.
On April 7, 1995, the Pacific Stock Exchange, Inc. (``PSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to modify its procedure for
evaluating options trading crowd performance by specifying that floor
broker questionnaires will be distributed semi-annually rather than
quarterly. The Exchange subsequently filed Amendment No. 1 to the
proposed rule change on May 25, 1995.\3\ Notice of the
[[Page 42934]]
proposed rule change and Amendment No. 1 was published for comment and
appeared in the Federal Register on June 14, 1995.\4\ No comment
letters were received on the proposal. This order approves the PSE
proposal.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange proposes to amend Rule
6.82(b)(4)(i) to provide that the Lead Market Maker (``LMM'')
Appointment Committee shall review LMM appointments at least semi-
annually. The rule currently provides that the LMM Appointment
Committee must review LMM appointments at least quarterly. See
Letter from Michael D. Pierson, Senior Attorney, Market Regulation,
PSE, to James McHale, Attorney, Division of Market Regulation,
Commission, dated May 23, 1995 (``Amendment No. 1'').
\4\ See Securities Exchange Act Release No. 35777 (May 30,
1995), 60 FR 31333.
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I. Description of the Proposal
The Exchange is proposing to amend Options Floor Procedure Advice
(``OFPA'') B-13 to provide that trading crowds will be evaluated by
questionnaire semi-annually rather than quarterly. OFPA B-13 requires
the Options Allocation Committee (``Committee'') of the Exchange to
evaluate periodically the options trading crowds \5\ to determine
whether each has fulfilled performance standards relating to, among
other things, quality of markets, competition among market makers,
observance of ethical standards, and administrative factors.\6\ In
conducting its evaluation, the Committee may consider any relevant
information, including but not limited to, the results of a trading
crowd evaluation questionnaire. Currently, the questionnaires are
distributed to and completed by floor brokers on the Options Trading
Floor on a ``three-month periodic basis'' pursuant to OFPA B-13. The
Exchange is proposing to amend OFPA B-13 to require floor brokers to
complete the questionnaires on a ``six-month periodic basis.''
\5\ Pursuant to Rule 6.82, the program is also used to conduct
evaluations of LMMs on the Options Trading Floor. The Exchange,
through Amendment No. 1, also proposes to amend Rule 6.82(b)(4)(i)
to require the LMM Appointment Committee to review LMM appointments
on a semi-annual basis. See Amendment No. 1, supra note 3.
\6\ The Commission approved the Exchange's Options Trading Crowd
Performance Evaluation Pilot Program on a permanent basis on
December 30, 1993. See Securities Exchange Act Release No. 33407, 59
FR 1043 (January 7, 1994).
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II. Discussion
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, and, in
particular, the requirements of Section 6(b)(5) \7\ in that it is
designed to prevent fraudulent and manipulative acts and practices and
to promote just and equitable principles of trade, and to remove
impediments to and protect the mechanism of a free and open market and
to protect investors and the public interest. Specifically, the
Commission believes that, based on the Exchange's representations that
quarterly evaluations are overly repetitive, reducing the frequency
with which the evaluations are conducted should encourage floor brokers
to exercise greater care in preparing their responses, thus resulting
in a more precise measurement of trading crowd and Lead Market Maker
performance. A more precise measurement of trading crowd and Lead
Market Maker performance serves to enhance the Options Trading Crowd
Evaluation Program, which is designed to help the Exchange maintain the
quality and integrity of its markets by setting minimum standards of
market maker performance and providing a means to identify market
makers and trading crowds which fail to meet performance standards.\8\
\7\ 15 U.S.C. 78f(b)(5).
\8\ See Securities Exchange Act Release No. 33407 (December 30,
1993), 59 FR 1043 (January 7, 1994).
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Moreover, the Commission believes that the purposes for
distributing the questionnaire, i.e., enabling the PSE to determine
whether market makers are making continuous, two-sided markets in all
option series for each option class located at a trading station and
whether deep and liquid markets are provided as a result of competition
among market makers,\9\ will not be compromised by distributing the
questionnaires semi-annually instead of quarterly. Additionally, the
Commission notes that the proposed change should result in a more
efficient allocation of Exchange resources. Further, the Commission
notes that the Chicago Board Options Exchange (``CBOE'') evaluates its
trading crowds and market makers on a semi-annual basis, pursuant to
CBOE Rule 8.60(c). Finally, with respect to Amendment No. 1, the
Commission believes that it is appropriate for the Exchange to review
LMMs semi-annually so as to treat the formal review of trading crowds
and LMMs consistently.
\9\ Id.
It therefore is ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-PSE-95-10) is approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-20404 Filed 8-16-95; 8:45 am]
BILLING CODE 8010-01-M
