[Federal Register Volume 59, Number 144 (Thursday, July 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18437]


[Federal Register: July 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34426; File No. SR-PSE-92-14]


Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Approving and Notice of Filing and Order Granting Accelerated 
Approval to Amendment No. 1 to a Proposed Rule Change Relating to the 
Identification of Broker-Dealer Orders

July 21, 1994.
    On April 13, 1992, the Pacific Stock Exchange, Inc. (``PSE'' or 
``Exchange''), pursuant to Section 19(b)(1) of the Securities Exchange 
Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposal to require that broker-dealer orders be identified as such 
before being executed at the disseminated bid or offer price. On May 
19, 1992, the PSE amended the filing to eliminate duplicative language 
from Rule 6.85(c) by substituting a cross reference to proposed Rule 
6.66(b) (``Amendment No. 1'').\3\
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    \1\15 U.S.C. 78S(b)(1) (1982).
    \2\17 CFR 240.19b-4 (1989).
    \3\See Letter from Michael Pierson, Staff Attorney, PSE, to 
Thomas Gira, Branch Chief, Division of Market Regulation, 
Commission, dated May 12, 1992.
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    The proposed rule change was published for comment in the Federal 
Register on May 21, 1992.\4\ No comments were received on the proposed 
rule change. This order approves the PSE's proposal, as amended.
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    \4\See Securities Exchange Act Release No. 30704 (May 14, 1992), 
57 FR 21687 (May 21, 1992).
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    The Exchange states that the purpose of the proposed rule change is 
to facilitate efficient options trading on the PSE floor by requiring 
the identification of broker-dealer orders to the trading crowd so that 
market makers will be aware of whether orders represented in the 
trading crowds are for public customers or broker-dealers. Under PSE 
Rule 6.86, the ``Ten-Up Rule,'' floor brokers are required, prior to 
executing a ten-up order, to ascertain and note on the subject order 
ticket whether any given order is for the account of a broker-dealer. 
Therefore, the PSE believes that no additional burdens would be placed 
on floor brokers in executing orders under the proposed rule. The PSE 
also believes that requiring broker-dealer orders to be identified as 
such will result in an improvement in the quality of the Exchange's 
options markets and help to encourage trading crowds to provide greater 
volume guarantees to public customers than the minimum ten-up amount.
    Existing PSE Rules 6.66 and 6.85, and Options Floor Procedure 
Advice (``OFPA'') D-9 currently require account information to be 
identified for the trading crowd in connection with the execution of 
orders on the floor. Rule 6.66(a) requires members participating in 
transactions to immediately give up the name of the clearing member 
through whom the transaction will be cleared. Rule 6.85(c) requires 
that orders for the account of a market maker be verbally identified as 
such prior to the consummation of a transaction. Finally, OFPA D-9 
provides that, if a floor broker requests a market quotation and also 
requests the size of the market, the floor broker must indicate with 
his request the name of the member organization for whom he is acting.
    Under the proposal, if an order is for the account of a broker-
dealer, a member must indicate by public outcry that such order is for 
a broker-dealer if it is to be executed at the trading crowd's 
disseminated bid or offer price. Proposed PSE Rule 6.66(b) and existing 
Rule 6.85(c) place identical obligations on floor brokers with respect 
to orders executed for market makers. Under Amendment No. 1 to the 
proposal, Rule 6.85(c) would be amended to eliminate duplicative 
language and replaced with a cross reference to 6.66(b). Although OFPA 
D-9 will be deleted, the substance of it is being consolidated into 
Rule 6.66(b).
    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)(5)\5\ in that the 
proposal is designed to promote just and equitable principles of trade 
and to protect investors and the public interest.
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    \5\15 U.S.C. 78f(b)(5) (1982).
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    The Commission concludes that the PSE's proposal requiring members 
to identify broker-dealer orders to the trading crowd will enhance the 
market-making mechanism on the PSE, thereby improving the markets for 
listed options on the Exchange. Specifically, the Commission believes 
unnecessary delays in trading occasioned by the market maker's need to 
inquire as to the account status of orders represented on the floor 
will be reduced or minimized.
    Furthermore, under the PSE's current ``Ten-Up Rule,'' floor brokers 
are required to ascertain whether a given order is for the account of a 
broker-dealer. Requiring a floor broker to verbally identify prior to 
consummation that an order is undertaken on behalf of a broker-dealer 
should improve the quality of the PSE's options markets and enhance 
market depth because trading crowd participants may be more inclined to 
provide greater volume guarantees to public customers than the minimum 
ten-up amount. Finally, as the Commission has not received any negative 
comments from broker-dealers or market makers potentially affected by 
the proposal, the Commission has no reason to believe that the 
identification requirement will be particularly burdensome on them.\6\
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    \6\This proposed rule change does not affect the definition of 
``public customer,'' which is the subject of a separate PSE 
proposal, SR-PSE-93-10.
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    The Commission finds good cause for approving Amendment No. 1 prior 
to the thirtieth day after the date of publication of notice of filing 
thereof in the Federal Register. Accelerating approval will allow the 
Exchange to implement the complete rule change without delay. Further, 
the purpose of the amendment is non-substantive, limited to amending 
Rule 6.85(c) so that it will cross-reference Rule 6.66(b), and, 
moreover, the substance of both Rules was fully described in the 
original filing.

Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1 to the Exchange's proposal. 
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 PSE. All submissions should refer to 
File No. SR-PSE-92-14 and should be submitted by August 18, 1994.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-PSE-92-14), as 
amended, is approved.

    \7\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
(FR Doc. 94-18437 Filed 7-27-94; 8:45 am]
BILLING CODE 8010-01-M