[Federal Register Volume 61, Number 82 (Friday, April 26, 1996)]
[Notices]
[Pages 18636-18637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10315]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37133; File No. SR-PSE-96-11]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange Incorporated, Relating to the FLEX 
Equity Options

April 19, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 5, 1996, the (``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 Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to reduce from five to three the minimum 
number of market makers who must be qualified to trade flexible 
exchange options (``FLEX Options'') on an underlying equity security 
(``FLEX Equity Option'') before such options may be traded on that 
security. The text of the proposed rule change is available at the 
Office of the Secretary, the Exchange, 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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Section (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

    On February 14, 1996, the Commission approved an Exchange proposal 
to list and trade FLEX Equity Options.\3\ Pursuant to that rule change, 
if the Exchange trades FLEX Equity

[[Page 18637]]

Options on a security, then market participants would be able to 
designate certain contract terms for options of such securities, 
including: exercise price; exercise style (i.e., American, European or 
capped); expiration date; and option type (i.e., put, call or spread).
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    \3\ See Securities Exchange Act Release No. 36841 (February 14, 
1996), 61 FR 6666 (February 21, 1996).
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    PSE Rule 8.109(a) currently provides for the selection of ``FLEX 
Qualified Market Makers,'' i.e., market makers whom the Exchange deems 
to be qualified to trade Exchange Equity Options based on the following 
factors: (1) The preference of the registrants; (2) the maintenance and 
enhancement of competition among market makers; and (3) the assurance 
that the market maker will have adequate financial resources.\4\ In 
addition, pursuant to Rule 8.115(a), FLEX Qualified Market Makers may 
not effect any transactions in FLEX Equity Options unless one of more 
letter(s) of guarantee has been issued by a clearing member and filed 
with the Exchange pursuant to Rule 6.36(a). In connection with these 
letters of guarantee, a clearing member must accept financial 
responsibility for all FLEX transactions made by such market makers.
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    \4\ By contrast, under Rules 8.100 et seq., ``FLEX Appointed 
Market Makers'' are those individuals who have been designated by 
the Exchange to trade FLEX options on a specific underlying index 
(``FLEX Index Option'') that has been approved by the Commission for 
FLEX Options trading. See PSE Rules 8.100(a)(1) and 8.109(a).
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    PSE Rule 8.109(a) currently provides that the Exchange shall 
appoint five or more FLEX Qualified Market Makers to each FLEX Equity 
Option prior to its listing.\5\ The Exchange proposes to reduce the 
minimum number of FLEX Qualified Market Makers required under Rule 
8.109(a) from five to three. The Exchange is proposing this change in 
order to enhance its ability to trade FLEX Equity Options on the 
Exchange. The Exchange believes that no undue financial risk to the 
Exchange would result from this change because each transaction of FLEX 
Qualified Market Makers will be backed by a clearing member, which will 
accept financial responsibility for all FLEX transactions made by such 
market makers pursuant to a letter of guarantee.\6\ The Exchange also 
believes that three FLEX Qualified Market Makers will be a sufficient 
number of traders to provide quotations in response to requests for 
quotes because the Exchange expects that FLEX Equity Options will be 
traded in the same trading crowd as Non-FLEX Options on the same 
underlying securities. In this regard, the Exchange notes that under 
the current rules, two FLEX Appointed Market Makers may be designated 
in lieu of five FLEX Qualified Market Makers to trade FLEX Equity 
Options.\7\
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    \5\ With respect to FLEX Index Options, two FLEX Appointed 
Market Makers must be approved to trade FLEX Options on a given 
index before the Exchange may list FLEX Options on that index. FLEX 
Appointed Market Makers must also meet the capital requirements of 
Rule 8.114 (i.e., they must maintain $1 million net liquidating 
equity and/or $1 million net capital (as defined by SEC Rule 15c3-1 
under the Act)), and they must also meet the account equity 
requirements of Rule 8.113(a) (i.e., the net liquidating equity 
maintained in their individual or joint accounts must be least 
$100,000).
    \6\ See PSE Rule 8.115(a).
    \7\ See PSE Rule 8.109(a).
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    The Exchange 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 is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination among customers, issuers, brokers or dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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 reasons for so finding or (ii) as to 
which the Exchange 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. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-PSE-96-11 in the caption above 
and should be submitted by May 17, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a0912).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-10315 Filed 4-25-96; 8:45 am]
BILLING CODE 8010-01-M