[Federal Register Volume 61, Number 173 (Thursday, September 5, 1996)]
[Notices]
[Pages 46891-46892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22581]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37604; File No. SR-PSE-96-24]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange Incorporated Relating to the
Closing Time for Trading of Equity Options and Index Options
August 26, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 11, 1996, the Pacific
Stock Exchange, Inc. (``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Pacific Stock Exchange Incorporated (``PSE'' or ``Exchange'')
is proposing to amend its rules to change its closing time for options
trading from 1:10 p.m. Pacific Time \2\ to 1:05 p.m. for equity
options, and from 1:15 p.m. to 1:10 p.m. for index options. The
Exchange is also proposing to change certain related rules on closing
rotations and the submission of exercise notices for index options. The
text of the proposed rule change is available at the Office of the
Secretary, PSE, and at the Commission.
---------------------------------------------------------------------------
\2\ All times referred to in this filing are Pacific Time unless
otherwise indicated.
---------------------------------------------------------------------------
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
PSE Rule 4.2, Commentary .01 currently provides that the Board of
Governors has resolved that transactions may be effected on the Options
Floor of the Exchange until 1:10 p.m. for equity options \3\ and until
1:15 p.m. for index options \4\ each business day at which time no
further transactions may be made. The Exchange is proposing to change
the 1:10 p.m. closing time for equity options to 1:05 p.m., and to
change the 1:15 p.m. closing time for index options \5\ to 1:10 p.m.
---------------------------------------------------------------------------
\3\ The extension of the trading hours for equity options by ten
minutes until 4:10 p.m. Eastern Standard Time (``E.S.T.'') by the
American Stock Exchange (``Amex''), the Chicago Board Options
Exchange, Incorporated (``CBOE''), the Midwest Stock Exchange,
Incorporated (``MSE'') (now known as the Chicago Stock Exchange,
Inc. (``CHX'')), Pacific Stock Exchange Incorporated (``PSE''), and
the Philadelphia Stock Exchange, Inc. (``PHLX'') (collectively
referred to as the ``options exchanges'') was initially approved by
the Commission on a trial basis for a four month period beginning in
Oct. 23, 1978 and extending through Feb. 28, 1979. Securities
Exchange Release No. 15241 (Oct. 18, 1978), 43 FR 49867 (Oct. 25,
1978) (order approving File Nos. SR-Amex-78-22, SR-CBOE-78-30, SR-
MSE-78-26, SR-PSE-78-17, and SR-PHLX-78-18). The Commission approved
the continued use by the options exchanges of the existing 4:10 p.m.
(E.S.T.) closing time for standardized equity options trading
through Apr. 28, 1979. Securities Exchange Act Release No. 15593
(Feb. 28, 1979), 44 FR 12525 (Mar. 7, 1979) (order approving File
Nos. SR-Amex-79-3, SR-CBOE-79-1, SR-MSE-79-7, SR-PSE-79-1, and SR-
PHLX-79-1). The Commission has since then approved on a permanent
basis the closing of equity options trading on the options exchanges
at 4:10 p.m. (E.S.T.). Securities Exchange Act Release No. 15765
(Apr. 27, 1979), 44 FR 26819 (May 7, 1979) (order approving File
Nos. SR-Amex-79-6, SR-CBOE-79-4, SR-MSE-79-11, SRPSE-79-3, and SR-
PHLX-79-4).
\4\ Securities Exchange Act Release No. 23795 (Nov. 12, 1986),
51 FR 41884 (Nov. 19, 1986).
\5\ The PSE currently trades options on two separate broad-based
indexes, the PSE High Technology Index and the Wilshire Small Cap
Index. See Securities Exchange Release Nos. 20423 (Nov. 29, 1996),
48 FR 54557 (Dec. 5, 1983) (order approving File No. SR-PSE-83-10)
and 31043 (Aug. 14, 1992), 57 FR 38078 (Aug. 21, 1992) (order
approving File No. SR-PSE-92-12).
---------------------------------------------------------------------------
The Exchange is proposing this modification so that the closing
time for options trading will be closer to the closing time in the
securities underlying those options.\6\ The extended trading session
for options initially was intended to ensure that options traders would
be able to respond to the tape ``runoff'' in the equity markets (i.e.,
prints of stock trades that occurred just before the closing bell, but
that were not reported over the tape until several minutes after the
close of trading.\7\ If such a trade resulted in a closing price that
was materially different from the price at which the stock had been
trading previously, the extended trading session allowed options
traders the opportunity to bring their options quotes into line with
the closing price in the underlying security.\8\ However, because of
improvements to the processing of transactions at the equity markets,
there is no longer any significant tape runoff.\9\
---------------------------------------------------------------------------
\6\ Letter from Michael D. Pierson, Senior Attorney, Regulatory
Policy, PSE, to George A. Villasana, Attorney, SEC dated August 20,
1996.
\7\ Id.
\8\ Id.
\9\ Id.
---------------------------------------------------------------------------
With regard to closing rotations,\10\ PSE Rule 6.64, Commentary
.01(b) currently provides that transactions may be effected in a class
of options after 1:10 p.m. if they occur during a trading rotation. It
states that such a trading rotation may be employed in connection with
the opening or reopening of trading in the underlying security after
12:30 p.m. or due to the declaration of a ``fast market'' pursuant to
Options Floor Procedure Advice G-9. It further provides that the
decision to employ a trading rotation after 12:30 p.m. shall be
publicly announced on the trading floor prior to the commencement of
such rotation, and that no more than one trading rotation may be
commenced after 1:10 p.m. Further, it states that if a trading rotation
is in progress and Floor Officials determine that a final trading
rotation is needed to assure a fair and orderly close, the rotation in
progress shall be halted and a final rotation begun as promptly as
possible after 1:10 p.m. Finally, it states that any
[[Page 46892]]
trading rotation conducted after 1:10 p.m. may not begin until ten
minutes after news of such rotation is disseminated. The Exchange is
proposing to change all references to 1:10 p.m. in this Commentary to
1:05 p.m.
---------------------------------------------------------------------------
\10\ A closing rotation is a trading procedure used to determine
appropriate closing prices or quotes for each series of options on
an underlying stock.
---------------------------------------------------------------------------
With regard to the exercise of index option contracts, PSE Rule
7.15 currently specifies a cut-off time of 1:20 p.m. or a time
designated to be five minutes after the close, for preparing or
submitting either a memorandum to exercise or an ``exercise advice.''
The Exchange is proposing to eliminate the references to 1:20 p.m. in
this rule, so that, under the amended rule, such memoranda and advices
will have to be submitted no later than five minutes after the close of
trading.\11\
---------------------------------------------------------------------------
\11\ The Exchange is not proposing to change the related rule on
equity options, Rule 6.24, which provides for an exercise cut-off
time of 2:30 p.m.
---------------------------------------------------------------------------
Finally, the Exchange is proposing to change two references to
``San Francisco time'' in Rule 6.64, Commentary .01(b), to ``Pacific
Time'' in order to make that rule consistent with other Exchange rules.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act, in general, and Section 6(b)(5), in particular, in
that it is designed to promote just and equitable principles of trade.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
No written comments were either solicited or 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-96-24 and should be
submitted by [insert date 21 days from date of publication].
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22581 Filed 9-4-96; 8:45 am]
BILLING CODE 8010-01-M
