[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21234]


[[Page Unknown]]

[Federal Register: August 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34571; File No. SR-PSE-94-19]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange, Inc., Relating to the Expansion 
of the Exchange's Firm Quote Rule to 20 Contracts

August 22, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 20, 
1994, the Pacific Stock Exchange, Inc. (``PSE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Currently, PSE Rule 6.86, ``Trading Crowd Firm Disseminated Market 
Quotes,'' requires each trading crowd on the PSE to provide a depth of 
10 option contracts for all non-broker/dealer customer orders at the 
bid/offer displayed as the disseminated market quote at the time the 
order is announced or displayed at the option's trading post. The PSE 
proposes to amend PSE Rule 6.86 to increase the minimum size guarantee 
for non-broker/dealer options orders from 10 to 20 contracts.
    The text of the proposed rule change is available at the Office of 
the Secretary, PSE and at the Commission.

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 Purpose

    The Exchange proposes amend Exchange Rule 6.86 to increase--from 10 
contracts to 20 contracts--the minimum size of orders that are 
guaranteed for execution at the disseminated bid or offering price 
being displayed at the time such orders are represented in the 
appropriate trading crowd on the floor of the Exchange. The PSE is 
proposing the rule change as a response to competitive market 
conditions and to enhance the PSE's competitive position in the 
securities industry.
    Currently, PSE Rule 6.86 provides that each trading crowd is 
required to provide a depth of 10 option contracts for all non-broker/
dealer customer orders at the bid or offer which is displayed as the 
disseminated market quote at the time such orders are announced or 
displayed at the trading post designated for trading the subject option 
class. The Exchange proposes to amend this provision by replacing the 
term ``ten'' with ``twenty.''
    PSE Rule 6.86(d) currently provides that, should the response of 
members at a trading post be insufficient to provide a depth of 10 
contracts, the order book official shall allocate among the market 
makers present at the trading post the balance of contracts necessary 
to provide an execution on 10 contracts. The Exchange proposes to amend 
paragraph (d) to replace the term ``ten'' with ``twenty.''
    Similarly, the PSE proposes to amend Commentaries .01, .02, and .03 
to PSE Rule 6.86 to increase the required number of option contracts 
from 10 to 20. Specifically, PSE Rule 6.86, Commentary .01 states that 
if the bid or offer being displayed as a disseminated market quote is 
on behalf of an order represented by a floor broker or the order book 
official, and is for less than 10 contracts, the trading crowd is 
obligated to buy or sell the balance of the contracts necessary to 
provide a depth of ten contracts at the disseminated bid or offering 
price. The PSE proposes to amend Commentary .01 by replacing the term 
``ten'' with ``twenty.''
    PSE Rule 6.86, Commentary .02 provides that a floor broker's 
failure to remove a bid or offer from the screen after the bid or offer 
has been filled or cancelled may result in the floor broker being held 
responsible for providing a depth of 10 contracts upon being present or 
returning to the trading crowd, and/or being subject to disciplinary 
action by the Exchange. Commentary .02 also provides that a market 
maker or floor broker who has caused a bid or offer to be disseminated, 
but who leaves the trading post without removing the bid or offer, may 
be held responsible for providing a depth of 10 contracts upon 
returning to the trading crowd, and/or being subject to disciplinary 
action by the Exchange. The PSE proposes to amend Commentary .02 by 
replacing the term ``ten'' with ``twenty.''
    PSE Rule 6.86, Commentary .03 provides that market maker orders for 
less than 10 contracts that are represented at a trading post by a 
floor broker shall not be disseminated. The PSE proposes to amend 
Commentary .03 to replace the term ``ten'' with ``twenty.''
    The Exchange believes that the proposal will result in improved 
market quality and market maker performance. The PSE believes that the 
proposal will ensure greater depth of markets at the Exchange and will 
result in better executions of customer orders to buy or sell 20 
contracts or less. According to the Exchange, the proposal will also 
encourage Exchange market makers to be more competitive in making 
markets, and thereby will facilitate transactions in securities and 
improve the quality of the PSE's options markets. Moreover, the 
Exchange believes that by attracting greater customer order flow to the 
Exchange, the proposed rule change should enhance market depth and 
liquidity and result in tighter options pricing spreads.
    The Exchange also believes that its market maker system can provide 
sufficient liquidity to meet the needs resulting from this rule change, 
based on the combined capital of the members of each trading crowd. The 
Exchange does not believe that the proposal will require its market 
makers to assume undue risks. The PSE is able currently to provide a 
guarantee for customer orders of 10 contracts or less in all options 
series, including long-term options (``LEAPs'')--and the Exchange 
believes that it has the capacity to expand that guarantee to 20 
contracts in all series, including LEAPS. Previously, the Exchange has 
evaluated the operation of current PSE Rule 6.86 and has concluded, and 
the Commission has agreed, that the program has resulted in better 
executions for customer orders and an improvement in the quality of the 
PSE's options markets and market maker performance.\1\
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    \1\See Securities Exchange Act Release No. 31824 (February 4, 
1993), 58 FR 8078 (February 11, 1993) (order approving File No. SR-
PSE-92-40).
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    Currently, the Exchange has two proposals pending with the 
Commission which would also amend PSE Rule 6.86.\2\ However, the PSE 
does not believes that the current proposal is inconsistent with, or 
would cause any need for amendments to, those two filings.
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    \2\See Securities Exchange Act Release Nos. 32880 (September 14, 
1993), 58 FR 49343 (September 22, 1993) (notice of proposal to 
define the term ``public customer'' for purposes of PSE Rule 6.86) 
(File No. SR-PSE-93-10); and 32299 (May 12, 1993), 58 FR 29246 (May 
19, 1993) (notice of proposal to amend floor trading rules 
applicable to PSE Rule 6.86) (File No. SR-PSE-93-01).
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    Finally, the Exchange believes that it has adequate systems 
capacity that would be necessary if the Commission approves the 
proposed rule change, and, further, that the proposal will have no 
negative impact on the Exchange's Pacific Options Exchange Trading 
System (``POETS'').

Basis

    The PSE believes that the proposal is consistent with section 6(b) 
of the Act, in general, and with section 6(b)(5), in particular, in 
that it is designed to facilitate transactions in securities and to 
promote just and equitable principles of trade.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The PSE does not believe that the proposed rule changes 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 reason for so finding or (ii) as to 
which the self-regulatory organization 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 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 NW., 
Washington, DC. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by September 19, 
1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21234 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M