[Federal Register Volume 60, Number 159 (Thursday, August 17, 1995)]
[Notices]
[Pages 42933-42934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20404]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36083; File No. SR-PSE-95-10]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Pacific Stock Exchange, Inc. Relating to its Procedure 
for Evaluating Options Trading Crowd Performance

August 10, 1995.
    On April 7, 1995, 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 modify its procedure for 
evaluating options trading crowd performance by specifying that floor 
broker questionnaires will be distributed semi-annually rather than 
quarterly. The Exchange subsequently filed Amendment No. 1 to the 
proposed rule change on May 25, 1995.\3\ Notice of the 

[[Page 42934]]
proposed rule change and Amendment No. 1 was published for comment and 
appeared in the Federal Register on June 14, 1995.\4\ No comment 
letters were received on the proposal. This order approves the PSE 
proposal.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposes to amend Rule 
6.82(b)(4)(i) to provide that the Lead Market Maker (``LMM'') 
Appointment Committee shall review LMM appointments at least semi-
annually. The rule currently provides that the LMM Appointment 
Committee must review LMM appointments at least quarterly. See 
Letter from Michael D. Pierson, Senior Attorney, Market Regulation, 
PSE, to James McHale, Attorney, Division of Market Regulation, 
Commission, dated May 23, 1995 (``Amendment No. 1'').
    \4\ See Securities Exchange Act Release No. 35777 (May 30, 
1995), 60 FR 31333.
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I. Description of the Proposal

    The Exchange is proposing to amend Options Floor Procedure Advice 
(``OFPA'') B-13 to provide that trading crowds will be evaluated by 
questionnaire semi-annually rather than quarterly. OFPA B-13 requires 
the Options Allocation Committee (``Committee'') of the Exchange to 
evaluate periodically the options trading crowds \5\ to determine 
whether each has fulfilled performance standards relating to, among 
other things, quality of markets, competition among market makers, 
observance of ethical standards, and administrative factors.\6\ In 
conducting its evaluation, the Committee may consider any relevant 
information, including but not limited to, the results of a trading 
crowd evaluation questionnaire. Currently, the questionnaires are 
distributed to and completed by floor brokers on the Options Trading 
Floor on a ``three-month periodic basis'' pursuant to OFPA B-13. The 
Exchange is proposing to amend OFPA B-13 to require floor brokers to 
complete the questionnaires on a ``six-month periodic basis.''

    \5\ Pursuant to Rule 6.82, the program is also used to conduct 
evaluations of LMMs on the Options Trading Floor. The Exchange, 
through Amendment No. 1, also proposes to amend Rule 6.82(b)(4)(i) 
to require the LMM Appointment Committee to review LMM appointments 
on a semi-annual basis. See Amendment No. 1, supra note 3.
    \6\ The Commission approved the Exchange's Options Trading Crowd 
Performance Evaluation Pilot Program on a permanent basis on 
December 30, 1993. See Securities Exchange Act Release No. 33407, 59 
FR 1043 (January 7, 1994).
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II. Discussion

    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, the requirements of Section 6(b)(5) \7\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to promote just and equitable principles of trade, and to remove 
impediments to and protect the mechanism of a free and open market and 
to protect investors and the public interest. Specifically, the 
Commission believes that, based on the Exchange's representations that 
quarterly evaluations are overly repetitive, reducing the frequency 
with which the evaluations are conducted should encourage floor brokers 
to exercise greater care in preparing their responses, thus resulting 
in a more precise measurement of trading crowd and Lead Market Maker 
performance. A more precise measurement of trading crowd and Lead 
Market Maker performance serves to enhance the Options Trading Crowd 
Evaluation Program, which is designed to help the Exchange maintain the 
quality and integrity of its markets by setting minimum standards of 
market maker performance and providing a means to identify market 
makers and trading crowds which fail to meet performance standards.\8\

    \7\ 15 U.S.C. 78f(b)(5).
    \8\ See Securities Exchange Act Release No. 33407 (December 30, 
1993), 59 FR 1043 (January 7, 1994).
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    Moreover, the Commission believes that the purposes for 
distributing the questionnaire, i.e., enabling the PSE to determine 
whether market makers are making continuous, two-sided markets in all 
option series for each option class located at a trading station and 
whether deep and liquid markets are provided as a result of competition 
among market makers,\9\ will not be compromised by distributing the 
questionnaires semi-annually instead of quarterly. Additionally, the 
Commission notes that the proposed change should result in a more 
efficient allocation of Exchange resources. Further, the Commission 
notes that the Chicago Board Options Exchange (``CBOE'') evaluates its 
trading crowds and market makers on a semi-annual basis, pursuant to 
CBOE Rule 8.60(c). Finally, with respect to Amendment No. 1, the 
Commission believes that it is appropriate for the Exchange to review 
LMMs semi-annually so as to treat the formal review of trading crowds 
and LMMs consistently.

    \9\ Id.

    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-PSE-95-10) is approved.

    \10\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-20404 Filed 8-16-95; 8:45 am]
BILLING CODE 8010-01-M