[Federal Register Volume 61, Number 53 (Monday, March 18, 1996)]
[Notices]
[Pages 11072-11073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6321]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36952; File No. SR-PSE-96-03]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange Incorporated Relating to its 
Options Lead Market Maker Program

March 11, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ notice is hereby given that on January 16, 1996, the 
Pacific Stock Exchange Incorporated (``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. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Pacific Stock Exchange Incorporated (``PSE'' or ``Exchange'') 
proposes to amend its rules governing the Options Lead Market Maker 
(``LMM'') Program.

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

    PSE Rule 6.82 (``LMM Rule'') sets forth the basic rules and 
procedures applicable to LMMs and the LMM Program.\2\ The Exchange 
proposes to modify Rule 6.82 by adding several new substantive 
provisions and by restructuring the rule and clarifying some of its 
existing provisions. The purpose of the proposal is to enhance the LMM 
program and to clarify and streamline the LMM Rule. The proposed 
changes include, more specifically, the following:

    \2\ The LMM Rule was adopted in January 1990 as a pilot program. 
See Exchange Act Release No. 27631 (January 17, 1990), 55 FR 2462. 
The pilot program recently was extended to September 30, 1996. See 
Exchange Act Release No. 36293 (September 28, 1995), 60 FR 52242. 
The Exchange intends to seek permanent approval of the LMM Program 
before the expiration of the latest pilot extension.
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    1. Current PSE Rule 6.82(c)(6) provides that LMMs are guaranteed 
50% participation in transactions occurring at their disseminated bids 
and/or offers in their allocated issues. The Exchange proposes to 
modify this provision to give the Options Allocation Committee 
(``OAC'') discretion to reduce such guaranteed participation from 50% 
to 40% for mulitply-traded issues, and from 50% to 25% for exclusively-
traded issues, where the average daily trading volume in an issue 
reaches 3,000 contracts at the Exchange for three consecutive months. 
See proposed Rule 6.82(d)(2)(A)-(B).
    2. Current PSE Rule 6.82(b)(4) sets forth several circumstances 
(e.g., unsatisfactory LMM performance, or material changes in LMM's 
financial or operational condition) under which the OAC may reallocate 
an issue to a new or existing LMM. The Exchange proposes to add two new 
circumstances under which the OAC may reallocate an issue: (a) if the 
Exchange's share of the total multi-exchange customer trading volume in 
a dually-traded issue drops from above 70% to below 70%; or (b) if the 
Exchange's share of the total multi-exchange customer trading volume in 
an issue that is traded by three or more options exchanges drops from 
above 45% to below 45%. See proposed Rule 6.82(f)(1)(D)-(E). The 
Exchange also proposes to provide the OAC with the discretion to 
reallocate such an issue either to an interim LMM or to a market maker 
trading crowd in any situation in which reallocation is authorized by 
Rule 6.82. See proposed Rule 6.82(b)(4).
    3. Under the proposal, if an issue is reallocated from an LMM to a 
market maker trading crowd, the market quality and service provided by 
the crowd must equal or better that previously provided or guaranteed 
by the LMM. Otherwise, the OAC may determine that the issue revert to 
the LMM system. See proposed Rule 6.82(f)(3).
    4. The proposal would allow the OAC to designate a cooperative of 
market makers to act as an LMM in an issue provided that they maintain 
collectively a cash or liquid asset position in the amount required by 
LMM's, set forth in current Rule 6.82(c)(8). This provision further 
states that violations of the Exchange Constitution and Rules committed 
by a market maker cooperative that is not registered as a broker-dealer 
may render each market maker thereof personally liable for disciplinary 
sanctions for such violations. See proposed Rule 6.82(a)(3).
    5. The Exchange proposes that in the absence of extraordinary 
circumstances, as determined by the OAC, no LMM may be located more 
than 10% of the number of option issues traded on the Options Floor. 
See proposed rule 6.82(e)(3).
    6. The Exchange proposes to replace references to the LMM 
Appointment Committee in the current rule with references to either the 
Options Allocation Committee or the Options Appointments Committee. See 
passim.
    7. The proposal specifies that each LMM must designate an approved 
LMM to act as a substitute LMM (in case the designated LM is unable to 
perform its duties), and notify Book Staff of such designation. See 
proposed rule 6.82(c)(5).
    8. Rule 6.82(b)(8) currently provides that if an issue is 
reallocated pursuant to Subsection (b)(7), the LMM shall receive an 
award of compensation based upon time of and performance during LMM 
service, capital commitment and, trading volume in the subject option 
issue. The Exchange proposes to change

[[Page 11073]]
the term ``shall'' in that provision to ``may.'' See proposed Rule 
6.82(f)(4).
    9. The Exchange proposes to simplify the current provisions 
concerning appeals from OAC or Options Appointment Committee decisions 
so that in all cases such appeals are governed by Rule 11, and, during 
such appeals, the OAC shall appoint an interim LMM or trading crowd 
until such appeal has been resolved. See proposed rule 6.82(g).
    10. The proposal would remove a provision requiring that LMM issues 
shall be traded in an area of the trading floor that is separate from 
other issues. See current Rule 6.82(a)(2).
    11. The Exchange also proposes to restructure the rule, eliminate 
superfluous provisions, and make other revisions that would clarify the 
current text of the Rule. See passim.
    The Exchange believes that its proposal is consistent with Section 
(b) of the Act in general, and 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 of 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 
nor received.

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

    Within 35 years 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 reasons 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, 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 in 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 File No. 
SR-PSE-96-03 and should be submitted by [insert date 21 days after the 
date of this publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\

    \3\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-6321 Filed 3-15-96; 8:45 am]
BILLING CODE 8010-01-M