[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51173-51175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24502]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41868; File No. SR-PCX-99-25]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Exchange, Inc. To Allow Lead Market Makers To
Perform Certain Floor Broker Functions
September 13, 1999.
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 July 13, 1999, 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 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 PCX proposes to modify its Lead Market Maker (``LMM'') rules to
allow an LMM to perform certain Floor Broker functions. The text of the
proposed rule change is set forth below. Additions are italicized and
deletions are bracketed.
Pacific Exchange, Inc.
Rule 6.82
(a)-(g)--No Change.
(h) LMM Performance of Order Book Official, [and] Market Maker and
Floor Broker Functions.
(1) LMM Performance of Order Book Official Functions.
(a)-(e)-No Change.
(2) LMM Performance of Market Maker Function.
(a)-No Change.
(3) LMM Performance of Floor Broker Function.
(a) LMMs may function in designated option issues as both Market
Maker and Floor Broker, and as such, will be exempt from Rule 6.38. In
acting as Floor Brokers, LMMs must fulfill their obligation to use due
diligence and all other obligations of Floor Brokers pursuant to Rules
6.43 through 6.48.
(b) LMMs may (but are not obligated to) accept non-discretionary
orders that are not eligible to be placed in the Public Order Book, and
LMMs may represent such orders as Floor Brokers. An LMM may not
represent discretionary orders, whether as a Floor
[[Page 51174]]
Broker or otherwise. All orders in the LMM's possession that are
eligible to be booked must be booked.
Commentary: .01.-.02.--No Change.
[.03. the provisions of Rule 6.82(h) are subject to a pilot
program, which is set to expire on October 12, 1998.]
.03. [.04.]--No Change.
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 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 Exchange 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
Background. In October of 1996, the Commission approved a PCX pilot
program that allowed LMMs to perform all functions of the Order Book
Official (``OBO'') in designated option issues pursuant to PCX Rules
6.51 through 6.59.\3\ The Commission approved the PCX pilot program on
a permanent basis on July 2, 1999.\4\
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\3\ See Securities Exchange Act Release No. 37810 (Oct. 11,
1996), 61 FR 54481 (Oct. 18, 1996). Under the pilot program, LMMs
were also required to perform all obligations of Market Makers
provided in PCX Rules 6.35 through 6.40 and 6.82(c).
\4\ See Securities Exchange Act Release No. 41595 (July 2,
1999), 64 FR 38064 (July 14, 1999).
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Proposal. The Exchange now proposes to modify its LMM rules to
allow an LMM to perform certain Floor Broker functions in addition to
OBO and Market Maker functions.\5\ First, the Exchange proposes that,
in acting as Floor Broker, LMMs must fulfill their obligation to use
due diligence and perform all other obligations of Floor Brokers
pursuant to PCX Rules 6.43 through 6.48. Second, the Exchange proposes
that LMMs may, but are not obligated to, accept non-discretionary
orders that are not eligible to be placed in the Public Order Book, and
LMMs may represent such orders as Floor Brokers.\6\ Third, the Exchange
proposes that an LMM may not represent discretionary orders, whether as
a Floor Broker or otherwise. Finally, all orders in the LMM's
possession that are eligible to be booked must be booked.
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\5\ The PCX proposed rule change is similar to Chicago Board
Options Exchange Rule 8.80(c)(8). See infra note 8.
\6\ As explained by PCX, the eligibility of orders to be placed
in the Public Order Book is determined by reference to PCX Rule
6.52(a), which governs the types of orders that Order Book Officials
may accept. Such orders, as indicated in the Rule, ``shall include
limit orders * * * and such other orders as may be designated by the
Options Floor Trading Committee.'' According to PCX, the Committee
has not designated any additional types of orders that may be
accepted by Order Book Officials. Orders not eligible for the Public
Order Book would include, for example, contingency orders, spread
orders, straddle orders, and combination orders, among others.
Telephone conversation between Robert P. Pacileo, Attorney, PCX, and
Ira L. Brandriss, Attorney, Division of Market Regulation,
Commission, on August 6, 1999.
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The Exchange proposes these rule changes for competitive reasons.
Specifically, the Exchange seeks to provide its LMMs with the
flexibility needed to compete with Specialists and Designated Primary
Market Makers (``DPMs'') on other national securities exchanges.\7\ The
Exchange believes that the proposed rule change will allow LMMs to
provide customers with a greater level of service than currently
provided. The Exchange further believes that the proposal will help
LMMs to better compete with DPMs and Specialists with respect to rates
charged to customers for the execution of their orders.
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\7\ The proposed rule change will generally allow PCX LMMs to
perform the same functions that DPMs on the Chicago Board Options
Exchange (``CBOE'') may perform.
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Finally, with respect to the restrictions on the types of orders
that the LMM may represent as a Floor Broker, the Exchange notes that
the restrictions are consistent with applicable rules of competing
exchanges.\8\
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\8\ See, e.g., CBOE Rule 8.80. CBOE Rule 8.80(c)(8) states that
DPMs may, but are not obligated to accept non-discretionary orders
that are not eligible to be placed in the Public Order Book, and
DPMs may represent such orders as Floor Brokers. A DPM may not
represent discretionary orders, whether as a Floor Broker or
otherwise and all orders in the DPM's possession that are eligible
to be booked must be booked.
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2. Statutory Basis
The Exchange believes that this proposal is consistent with Section
6(b) \9\ of the Act, in general, and Section 6(b)(5) \10\ of the Act,
in particular, in that it is designed to promote just and equitable
principles of trade; to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities; and in general, to protect investors and the public
interest.
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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 PCX 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 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 PCX 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, 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, NW., Washington, DC 20549-0609.
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 Room, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the filing will also be available for inspection
and copying at the principal offices of the PCX. All submissions should
refer to File No. SR-PCX-99-25 and should be submitted by October 12,
1999.
[[Page 51175]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24502 Filed 9-20-99; 8:45 am]
BILLING CODE 8010-01-M
