[Federal Register Volume 61, Number 173 (Thursday, September 5, 1996)]
[Notices]
[Pages 46891-46892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22581]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37604; File No. SR-PSE-96-24]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange Incorporated Relating to the 
Closing Time for Trading of Equity Options and Index Options

August 26, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 11, 1996, the Pacific 
Stock Exchange, Inc. (``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.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
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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'') 
is proposing to amend its rules to change its closing time for options 
trading from 1:10 p.m. Pacific Time \2\ to 1:05 p.m. for equity 
options, and from 1:15 p.m. to 1:10 p.m. for index options. The 
Exchange is also proposing to change certain related rules on closing 
rotations and the submission of exercise notices for index options. The 
text of the proposed rule change is available at the Office of the 
Secretary, PSE, and at the Commission.
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    \2\ All times referred to in this filing are Pacific Time unless 
otherwise indicated.
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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

1. Purpose
    PSE Rule 4.2, Commentary .01 currently provides that the Board of 
Governors has resolved that transactions may be effected on the Options 
Floor of the Exchange until 1:10 p.m. for equity options \3\ and until 
1:15 p.m. for index options \4\ each business day at which time no 
further transactions may be made. The Exchange is proposing to change 
the 1:10 p.m. closing time for equity options to 1:05 p.m., and to 
change the 1:15 p.m. closing time for index options \5\ to 1:10 p.m.
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    \3\ The extension of the trading hours for equity options by ten 
minutes until 4:10 p.m. Eastern Standard Time (``E.S.T.'') by the 
American Stock Exchange (``Amex''), the Chicago Board Options 
Exchange, Incorporated (``CBOE''), the Midwest Stock Exchange, 
Incorporated (``MSE'') (now known as the Chicago Stock Exchange, 
Inc. (``CHX'')), Pacific Stock Exchange Incorporated (``PSE''), and 
the Philadelphia Stock Exchange, Inc. (``PHLX'') (collectively 
referred to as the ``options exchanges'') was initially approved by 
the Commission on a trial basis for a four month period beginning in 
Oct. 23, 1978 and extending through Feb. 28, 1979. Securities 
Exchange Release No. 15241 (Oct. 18, 1978), 43 FR 49867 (Oct. 25, 
1978) (order approving File Nos. SR-Amex-78-22, SR-CBOE-78-30, SR-
MSE-78-26, SR-PSE-78-17, and SR-PHLX-78-18). The Commission approved 
the continued use by the options exchanges of the existing 4:10 p.m. 
(E.S.T.) closing time for standardized equity options trading 
through Apr. 28, 1979. Securities Exchange Act Release No. 15593 
(Feb. 28, 1979), 44 FR 12525 (Mar. 7, 1979) (order approving File 
Nos. SR-Amex-79-3, SR-CBOE-79-1, SR-MSE-79-7, SR-PSE-79-1, and SR-
PHLX-79-1). The Commission has since then approved on a permanent 
basis the closing of equity options trading on the options exchanges 
at 4:10 p.m. (E.S.T.). Securities Exchange Act Release No. 15765 
(Apr. 27, 1979), 44 FR 26819 (May 7, 1979) (order approving File 
Nos. SR-Amex-79-6, SR-CBOE-79-4, SR-MSE-79-11, SRPSE-79-3, and SR-
PHLX-79-4).
    \4\ Securities Exchange Act Release No. 23795 (Nov. 12, 1986), 
51 FR 41884 (Nov. 19, 1986).
    \5\ The PSE currently trades options on two separate broad-based 
indexes, the PSE High Technology Index and the Wilshire Small Cap 
Index. See Securities Exchange Release Nos. 20423 (Nov. 29, 1996), 
48 FR 54557 (Dec. 5, 1983) (order approving File No. SR-PSE-83-10) 
and 31043 (Aug. 14, 1992), 57 FR 38078 (Aug. 21, 1992) (order 
approving File No. SR-PSE-92-12).
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    The Exchange is proposing this modification so that the closing 
time for options trading will be closer to the closing time in the 
securities underlying those options.\6\ The extended trading session 
for options initially was intended to ensure that options traders would 
be able to respond to the tape ``runoff'' in the equity markets (i.e., 
prints of stock trades that occurred just before the closing bell, but 
that were not reported over the tape until several minutes after the 
close of trading.\7\ If such a trade resulted in a closing price that 
was materially different from the price at which the stock had been 
trading previously, the extended trading session allowed options 
traders the opportunity to bring their options quotes into line with 
the closing price in the underlying security.\8\ However, because of 
improvements to the processing of transactions at the equity markets, 
there is no longer any significant tape runoff.\9\
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    \6\ Letter from Michael D. Pierson, Senior Attorney, Regulatory 
Policy, PSE, to George A. Villasana, Attorney, SEC dated August 20, 
1996.
    \7\ Id.
    \8\ Id.
    \9\ Id.
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    With regard to closing rotations,\10\ PSE Rule 6.64, Commentary 
.01(b) currently provides that transactions may be effected in a class 
of options after 1:10 p.m. if they occur during a trading rotation. It 
states that such a trading rotation may be employed in connection with 
the opening or reopening of trading in the underlying security after 
12:30 p.m. or due to the declaration of a ``fast market'' pursuant to 
Options Floor Procedure Advice G-9. It further provides that the 
decision to employ a trading rotation after 12:30 p.m. shall be 
publicly announced on the trading floor prior to the commencement of 
such rotation, and that no more than one trading rotation may be 
commenced after 1:10 p.m. Further, it states that if a trading rotation 
is in progress and Floor Officials determine that a final trading 
rotation is needed to assure a fair and orderly close, the rotation in 
progress shall be halted and a final rotation begun as promptly as 
possible after 1:10 p.m. Finally, it states that any

[[Page 46892]]

trading rotation conducted after 1:10 p.m. may not begin until ten 
minutes after news of such rotation is disseminated. The Exchange is 
proposing to change all references to 1:10 p.m. in this Commentary to 
1:05 p.m.
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    \10\ A closing rotation is a trading procedure used to determine 
appropriate closing prices or quotes for each series of options on 
an underlying stock.
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    With regard to the exercise of index option contracts, PSE Rule 
7.15 currently specifies a cut-off time of 1:20 p.m. or a time 
designated to be five minutes after the close, for preparing or 
submitting either a memorandum to exercise or an ``exercise advice.'' 
The Exchange is proposing to eliminate the references to 1:20 p.m. in 
this rule, so that, under the amended rule, such memoranda and advices 
will have to be submitted no later than five minutes after the close of 
trading.\11\
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    \11\ The Exchange is not proposing to change the related rule on 
equity options, Rule 6.24, which provides for an exercise cut-off 
time of 2:30 p.m.
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    Finally, the Exchange is proposing to change two references to 
``San Francisco time'' in Rule 6.64, Commentary .01(b), to ``Pacific 
Time'' in order to make that rule consistent with other Exchange rules.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act, in general, and Section 6(b)(5), in particular, in 
that it is designed to promote just and equitable principles of trade.

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

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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 either solicited or received.

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

    Within 35 days of the 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 the 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 at 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-96-24 and should be 
submitted by [insert date 21 days from date of publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22581 Filed 9-4-96; 8:45 am]
BILLING CODE 8010-01-M