[Federal Register Volume 61, Number 189 (Friday, September 27, 1996)]
[Notices]
[Pages 50889-50890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24812]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37711; File No. SR-PSE-96-17]


Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Joint 
Accounts

September 23, 1996.

I. Introduction

    On June 11, 1996 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 eliminate a provision that 
prohibits members who are registered to trade for the same joint 
account from having overlapping primary appointment zones on the 
Options Floor.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 37365 (June 25, 1996), 61 FR 34917 (July 3, 
1996). No comments were received on the proposal.

II. Description of the Proposal

    PSE Rule 6.35 currently provides that each market maker shall be 
assigned a Primary Appointment Zone comprising a minimum of one trading 
post up to a maximum of six contiguous trading posts.\3\ Under 
Commentary .03 to PSE Rule 6.35, at least 75% of the trading activity 
of a market maker (measured in terms of contract volume per quarter) 
shall be in classes of option contracts to which his or her primary 
appointment extends.\4\
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    \3\ Previously, market makers were restricted to Primary 
Appointment Zones comprising one trading post or two contiguous 
trading posts. See Securities Exchange Act Release No. 363370 
(October 13, 1995), 60 FR 54273 (approving increase from two to six 
in the maximum number of trading posts that may be included in each 
market maker's Primary Appointment Zone).
    \4\ PSE Rule 6.35, Commentary .03 provides an exception for 
unusual circumstances.
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    With regard to joint accounts, PSE Rule 6.84, Commentary .05 
currently provides that the primary appointment of a market maker may 
not include trading posts which constitute the primary appointment of 
any market maker with whom he or she has a joint account. The rule 
further provides that, for the purposes of evaluating market maker 
performance in accordance with PSE Rule 6.37, Commentary .04, contract 
volume in the joint account will be assigned to the participants who 
effected the transactions for the joint account, under the same 
guidelines as if they effected the transactions for their own account.
    The Exchange proposes to eliminate the provision in Commentary .05 
to Rule 6.84 that prohibits joint account participants from having 
overlapping primary appointment zones. The Exchange believes that this 
rule places an unnecessary burden on member firms with joint accounts 
that may desire to have overlapping primary zones for their market 
makers in order to allow for continuous coverage when participant 
market makers are temporarily absent from the floor due to illness or 
vacation. The Exchange also believes that the current procedure of 
requiring substitute market makers to seek an exemption from Rule 6.35 
(or alternatively to assure that the volume of their trading outside 
their primary zone does not exceed 25% of their total volume), is not 
efficient. Moreover, the Exchange believes that Rule 6.40, Financial 
Arrangements of Market Makers, which prohibits participants in the same 
joint account from trading in the same trading crowd at the same time, 
will address any concerns that joint account participants may attempt 
to dominate unfairly the market in a particular option issue or option 
series.\5\
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    \5\ See also Securities Exchange Act Release No. 37543 (August 
8, 1996), 61 FR 42458 (August 15, 1996).
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    Finally, the Exchange proposes, for purposes of greater clarity, to 
eliminate the cross-reference to Rule 6.37, Commentary .04 that is 
contained in Rule 6.84, Commentary .05 and to replace it with a cross 
reference to Rule 6.35, Commentary .03.

III. Discussion

    After careful review, 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, with the requirements of Section 6(b).\6\ In 
particular, the Commission believes the proposal is consistent with the 
Section 6(b)(5) of the Act in that the proposal is designed to 
facilitate transactions in securities, to remove impediments to a free 
and open market, and to promote just and equitable principles of trade.
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    \6\ 15 U.S.C. Sec. 78f(b).

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[[Page 50890]]

    The Commission believes that the proposed amendments remove an 
unnecessary burden on member firms with joint accounts who want to have 
overlapping primary appointment zones for their market makers in order 
to allow for continuous coverage when participant market makers are 
temporarily absent from the floor due to circumstances such as illness 
or vacation.
    The Commission believes that adequate safeguards relating to 
dealings by members of joint accounts are assured by the application of 
Rule 6.40, which contains certain trading restrictions on options floor 
members with ``financial arrangements.'' Specifically, Rule 6.40 
prohibits bidding, offering, and/or trading in the same trading crowd 
at the same time by more than one member of a joint account, unless an 
exemption is obtained from the Options Floor Trading Committee. The 
Commission also notes that it has previously approved a PSE proposal to 
eliminate a commentary to Rule 6.40 prohibiting the primary appointment 
of a market maker from including trading posts which constitute the 
primary appointment of any market maker with whom he has an existing 
financial arrangement, on the basis that it was superfluous in light of 
the trading restrictions set forth in Rule 6.40.\7\ The Commission 
believes that the similar restriction is likewise superfluous in 
Commentary .05 to Rule 6.84. Accordingly, the Commission believes Rule 
6.40 will adequately address any concerns that joint account 
participants may attempt to dominate unfairly the market in a 
particular option issue or option series.
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    \7\ See supra note 5.
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    The Commission also believes that it is appropriate, in Rule 6.84, 
Commentary .05 to make the clarifying change to replace the cross-
reference to Rule 6.37, Commentary .04 with a reference to Rule 6.35, 
Commentary .03.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-PSE-96-17) is approved.
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    \8\ 15 U.S.C. Sec. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-24812 Filed 9-26-96; 8:45 am]
BILLING CODE 8010-01-M