[Federal Register Volume 61, Number 189 (Friday, September 27, 1996)]
[Notices]
[Pages 50889-50890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24812]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37711; File No. SR-PSE-96-17]
Self-Regulatory Organizations; Pacific Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Joint
Accounts
September 23, 1996.
I. Introduction
On June 11, 1996 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 eliminate a provision that
prohibits members who are registered to trade for the same joint
account from having overlapping primary appointment zones on the
Options Floor.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 37365 (June 25, 1996), 61 FR 34917 (July 3,
1996). No comments were received on the proposal.
II. Description of the Proposal
PSE Rule 6.35 currently provides that each market maker shall be
assigned a Primary Appointment Zone comprising a minimum of one trading
post up to a maximum of six contiguous trading posts.\3\ Under
Commentary .03 to PSE Rule 6.35, at least 75% of the trading activity
of a market maker (measured in terms of contract volume per quarter)
shall be in classes of option contracts to which his or her primary
appointment extends.\4\
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\3\ Previously, market makers were restricted to Primary
Appointment Zones comprising one trading post or two contiguous
trading posts. See Securities Exchange Act Release No. 363370
(October 13, 1995), 60 FR 54273 (approving increase from two to six
in the maximum number of trading posts that may be included in each
market maker's Primary Appointment Zone).
\4\ PSE Rule 6.35, Commentary .03 provides an exception for
unusual circumstances.
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With regard to joint accounts, PSE Rule 6.84, Commentary .05
currently provides that the primary appointment of a market maker may
not include trading posts which constitute the primary appointment of
any market maker with whom he or she has a joint account. The rule
further provides that, for the purposes of evaluating market maker
performance in accordance with PSE Rule 6.37, Commentary .04, contract
volume in the joint account will be assigned to the participants who
effected the transactions for the joint account, under the same
guidelines as if they effected the transactions for their own account.
The Exchange proposes to eliminate the provision in Commentary .05
to Rule 6.84 that prohibits joint account participants from having
overlapping primary appointment zones. The Exchange believes that this
rule places an unnecessary burden on member firms with joint accounts
that may desire to have overlapping primary zones for their market
makers in order to allow for continuous coverage when participant
market makers are temporarily absent from the floor due to illness or
vacation. The Exchange also believes that the current procedure of
requiring substitute market makers to seek an exemption from Rule 6.35
(or alternatively to assure that the volume of their trading outside
their primary zone does not exceed 25% of their total volume), is not
efficient. Moreover, the Exchange believes that Rule 6.40, Financial
Arrangements of Market Makers, which prohibits participants in the same
joint account from trading in the same trading crowd at the same time,
will address any concerns that joint account participants may attempt
to dominate unfairly the market in a particular option issue or option
series.\5\
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\5\ See also Securities Exchange Act Release No. 37543 (August
8, 1996), 61 FR 42458 (August 15, 1996).
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Finally, the Exchange proposes, for purposes of greater clarity, to
eliminate the cross-reference to Rule 6.37, Commentary .04 that is
contained in Rule 6.84, Commentary .05 and to replace it with a cross
reference to Rule 6.35, Commentary .03.
III. Discussion
After careful review, 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, with the requirements of Section 6(b).\6\ In
particular, the Commission believes the proposal is consistent with the
Section 6(b)(5) of the Act in that the proposal is designed to
facilitate transactions in securities, to remove impediments to a free
and open market, and to promote just and equitable principles of trade.
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\6\ 15 U.S.C. Sec. 78f(b).
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[[Page 50890]]
The Commission believes that the proposed amendments remove an
unnecessary burden on member firms with joint accounts who want to have
overlapping primary appointment zones for their market makers in order
to allow for continuous coverage when participant market makers are
temporarily absent from the floor due to circumstances such as illness
or vacation.
The Commission believes that adequate safeguards relating to
dealings by members of joint accounts are assured by the application of
Rule 6.40, which contains certain trading restrictions on options floor
members with ``financial arrangements.'' Specifically, Rule 6.40
prohibits bidding, offering, and/or trading in the same trading crowd
at the same time by more than one member of a joint account, unless an
exemption is obtained from the Options Floor Trading Committee. The
Commission also notes that it has previously approved a PSE proposal to
eliminate a commentary to Rule 6.40 prohibiting the primary appointment
of a market maker from including trading posts which constitute the
primary appointment of any market maker with whom he has an existing
financial arrangement, on the basis that it was superfluous in light of
the trading restrictions set forth in Rule 6.40.\7\ The Commission
believes that the similar restriction is likewise superfluous in
Commentary .05 to Rule 6.84. Accordingly, the Commission believes Rule
6.40 will adequately address any concerns that joint account
participants may attempt to dominate unfairly the market in a
particular option issue or option series.
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\7\ See supra note 5.
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The Commission also believes that it is appropriate, in Rule 6.84,
Commentary .05 to make the clarifying change to replace the cross-
reference to Rule 6.37, Commentary .04 with a reference to Rule 6.35,
Commentary .03.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-PSE-96-17) is approved.
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\8\ 15 U.S.C. Sec. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-24812 Filed 9-26-96; 8:45 am]
BILLING CODE 8010-01-M
