[Federal Register Volume 59, Number 190 (Monday, October 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24302]


[[Page Unknown]]

[Federal Register: October 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34710; File No. SR-PSE-94-25]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Stock Exchange, Inc., Relating to the Extension of the Lead Market 
Maker System Pilot Program

September 23, 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 
September 9, 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 and II 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

    Commentary .01 to PSE Rule 6.82, ``Lead Market Maker Pilot 
Program,'' states that the PSE's Lead Market Maker (``LMM'') system 
pilot program will expire on September 30, 1994. The PSE proposes to 
amend Commentary .01 to extend the Exchange's LMM system pilot program 
through September 30, 1995.
    The text of the proposed rule change is available at the 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
    (a) Purpose.
    On January 17, 1990, the Commission approved the PSE's LMM system 
on a pilot basis.\1\ Previously, the Commission has approved Exchange 
requests for extension of the pilot program,\2\ which is set to expire 
on September 30, 1994.\3\ The PSE submitted pilot program reports to 
the Commission on September 18, 1992, and on July 26, 1993. In 
addition, on April 20, 1994, the Exchange withdrew several pending rule 
filings relating to the LMM program and did so with the intention of 
resubmitting a consolidated filing at a later date.\4\ At this time, 
the PSE is considering additional rule changes to be included in the 
consolidated filing. Therefore, the Exchange proposes to amend its 
rules to extend the LMM pilot program through September 30, 1995, in 
order to provide additional time for evaluation of the LMM program in 
light of any changes that may be approved within the next year.
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    \1\See Securities Exchange Act Release No. 27631 (January 17, 
1990), 55 FR 2462 (January 24, 1990).
    \2\See Securities Exchange Act Release Nos. 33854 (April 1, 
1994), 59 FR 16873 (April 8, 1994) (``April 1994 Pilot Approval 
Order''); 31063 (August 21, 1992), 57 FR 39255 (August 28, 1992); 
and 31635 (December 22, 1992), 57 FR 62414 (December 30, 1992).
    \3\See April 1994 Pilot Approval Order, supra note 3.
    \4\See Letter from David P. Semak, Vice President, Regulation, 
PSE, to Sharon M. Lawson, Assistant Director, Division of Market 
Regulation, Commission, dated April 20, 1994 (withdrawing File Nos. 
SR-PSE-91-08, SR-PSE-92-35, SR-PSE-92-36, and SR-PSE-93-16).
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    (b) Basis.
    The PSE believes that the proposed rule change is consistent with 
Section 6(b) of the Act, in general, and furthers the objectives of 
Section 6(b)(5), in particular, in that it will promote just and 
equitable principles of trade and contribute to the protection of 
investors and the public interest.

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

    The Exchange 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 
or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The PSE has requested that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) of the Act.
    The Commission finds that the proposal to extend the LMM pilot 
program through September 30, 1995, is consistent with the requirements 
of the Act and the rules and regulations thereunder, and, in 
particular, the requirements of Section 6.\5\ The Commission concludes, 
as it did in approving the LMM pilot program, that the pilot program 
may enhance the market making mechanism on the PSE, thereby improving 
the markets for listed options on the Exchange. Specifically, the 
Commission believes that the LMM pilot may improve the PSE's market 
making capabilities by creating long-term commitments to options 
classes. Moreover, the pilot program will continue with adequate due 
process safeguards in the LMM selection and termination procedures and 
will retain procedures that prevent the misuse of material non-public 
LMM information by either an LMM or a broker-dealer affiliated with an 
LMM. The Commission notes, however, that before the pilot program can 
be approved on a permanent basis, the PSE must provide the Commission 
with a report on the operation of the pilot program.
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    \5\15 U.S.C. Sec. 78f(b) (1982).
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    Specifically, before requesting permanent approval or further 
extension of the pilot program the PSE must submit a pilot program 
report by June 1995 that addresses: (1) whether there have been any 
complaints regarding the operation of the pilot; (2) whether the PSE 
has taken any disciplinary or performance action against any member due 
to the operation of the pilot; (3) the number of LMMs involved in the 
pilot; (4) the extent to which the pilot has been used on the PSE; (5) 
whether the PSE has terminated or replaced an LMM and the reasons 
therefore; (6) the impact of the pilot on the bid/ask spreads, depth 
and continuity in PSE options markets; and (7) whether the PSE has 
taken any action or there have been any complaints against LMMs or 
associated broker-dealers relating to improper activity as a result of 
LMM affiliations with upstairs firms.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register because the PSE has not 
indicated that there have been any problems associated with the 
operation of the LMM system pilot program and because the Commission 
has not received any adverse comments concerning the pilot program. In 
addition, the Commission believes good cause exists to approve the 
extension of the LMM pilot program on an accelerated basis in order to 
allow the pilot program to continue uninterrupted. The Commission 
believes, therefore, that granting accelerated approval of the proposed 
rule change is appropriate and consistent with Section 6 of the Act.

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, 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 
they 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. 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 October 24, 
1994.
    It is therefore ordered, Pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-PSE-94-25) is approved on an 
accelerated basis, and, accordingly, that the LMM pilot program is 
extended until September 30, 1995.

    \6\15 U.S.C. Sec. 78s(b)(2) (1982).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24302 Filed 9-30-94; 8:45 am]
BILLING CODE 8010-01-M