[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Notices]
[Pages 52483-52485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25622]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37767; File No. SR-PSE-96-29]
Self-Regulatory Organizations; Pacific Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change and Amendment No. 1 Thereto Relating to a One-Year
Extension of the Lead Market Maker System Pilot Program
September 30, 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 August 22, 1996, the Pacific Stock Exchange, Inc. (``PSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'') the proposed rule change described in Items I and II
below, which items have been prepared by the PSE. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to grant accelerated approval of the
proposed rule change and an amendment thereto.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Commentary .01 to PSE Rule 6.82, ``Lead Market Maker Pilot
Program,'' states that the PSE's Lead Market Maker (``LMM'') system
pilot program will expire on September 30, 1996. The PSE proposes to
amend Commentary .01 to extend the pilot program, so that it will be
set to expire on September 30, 1997.\3\
---------------------------------------------------------------------------
\3\ The PSE originally submitted a request for permanent
approval of its Lead Market Maker (``LMM'') System Pilot Program. On
September 30, 1996, the PSE submitted Amendment No. 1 to the
proposed rule change. See Letter from Michael Pierson, Senior
Attorney, Regulatory Policy, Pacific Stock Exchange, to Janet
Russell-Hunter, Special Counsel, Division of Market Regulation, SEC,
dated September 30, 1996. In Amendment No. 1, the PSE withdrew the
provision requesting permanent approval of the LMM pilot program and
requested a one-year extension of the pilot program. The PSE also
requested accelerated approval of the proposed rule change.
---------------------------------------------------------------------------
[[Page 52484]]
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
On January 17, 1990, the Commission approved the Exchange's LMM
System on a pilot program basis.\4\ Since that time, the Commission has
approved extensions to the pilot program.\5\ The pilot program is
currently set to expire on September 30, 1996.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 27631 (January 17,
1990), 55 FR 2462.
\5\ See Securities Exchange Act Release Nos. 31063 (August 21,
1992), 57 FR 39255; 31635 (December 22, 1992), 57 FR 62414; 33854
(April 1, 1994), 59 FR 16873; 34710 (September 23, 1994), 59 FR
50306; and 36293 (September 28, 1995), 60 FR 52243. See also File
No. SR-PSE-93-16 (requesting permanent approval of the pilot
program) and Amendment Nos. 1-3 thereto (requesting pilot program
extensions while the request for permanent approval was pending). On
April 20, 1994, the Exchange withdrew File No. SR-PSE-93-16 pursuant
to the Commission's request. See letter from David P. Semak, Vice
President, Regulation, PSE, to Sharon M. Lawson, Assistant Director,
Division of Market Regulation, Commission, dated April 20, 1994.
---------------------------------------------------------------------------
In connection with its filing with the Commission, the Exchange
included a pilot program report for the period August 18, 1995 to July
18, 1996.\6\ In its report, the Exchange indicated that it believes,
based on the pilot's performance, that the LMM System is viable and
effective and that continuation of the pilot program is warranted based
on the importance of maintaining the quality, efficiency, and
competitiveness of the Exchange's markets in a multiple trading
environment.
---------------------------------------------------------------------------
\6\ The Exchange has previously submitted pilot program reports
to the Commission dated September 18, 1992, July 26, 1993, and
August 23, 1995. See File Nos. SR-PSE-92-36, SR-PSE-93-16, and SR-
PSE-95-20.
---------------------------------------------------------------------------
The Exchange believes that its 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 and to
protect investors and the public interest.
B. Self-Regulatory Organization's Statement on 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
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) of the Act \7\ that the
rules of an exchange be designed to promote just and equitable
principles of trade, to prevent fraudulent and manipulative acts, and,
in general, to protect investors and the public. The Commission
concludes, as it did in approving the LMM pilot program, that the pilot
program may enhance the market making mechanism on the PSE, thereby
improving the markets for listed options on the Exchange. Specifically,
the Commission believes that the LMM pilot may improve the PSE's market
making capabilities by creating long-term commitments to options
classes. Moreover, the pilot program will continue with adequate due
process safeguards in the LMM selection and termination procedures and
will retain procedures that prevent the misuse of material non-public
LMM information by either an LMM or a broker-dealer affiliated with an
LMM. The Commission notes, however, that before the pilot program can
be approved on a permanent basis, or further extended, the PSE must
provide the Commission with an updated report on the operation of the
pilot program.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------
Specifically, before requesting permanent approval, or further
extension, of the pilot program, the PSE must submit an updated pilot
program report by June 1997 that addresses: (1) whether there have been
any complaints regarding the operation of the pilot; (2) whether the
PSE has taken any disciplinary or performance action against any member
due to the operation of the pilot; (3) the number of LMMs involved in
the pilot; (4) the extent to which the pilot has been used on the PSE;
(5) whether the PSE has terminated or replaced an LMM and the reasons
thereof; (6) the impact of the pilot on the bid/ask spreads, depth and
continuity in PSE options markets; and (7) whether the PSE has taken
any actions or there have been any complaints against LMMs or
associated broker-dealers relating to improper activity as a result of
LMM affiliations with upstairs firms.
The Commission finds good cause for approving the Exchange's
proposed rule change, including Amendment No. 1, prior to the thirtieth
day after the date of publication of notice of filing thereof in the
Federal Register because the PSE has not indicated that there have been
any problems associated with the operation of the LMM system pilot
program and because the Commission has not received any adverse
comments concerning the pilot program. In addition, the Commission
believes good cause exists to approve the extension of the LMM pilot
program on an accelerated basis to allow the pilot program to continue
uninterrupted.
Based on the above, the Commission believes that the proposal is
consistent with Section 6(b)(5) of the Act and that good cause exists
to approve the PSE's proposal on an accelerated basis.
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 PSE. All
submissions should refer to File No. SR-PSE-96-29 and should be
submitted by October 28, 1996.
[[Page 52485]]
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-PSE-96-29), as amended, is
approved on an accelerated basis, and accordingly, that the LMM pilot
program is extended until September 30, 1997.
\8\ 15 U.S.C. 78s(b)(2) (1988).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-25622 Filed 10-4-96; 8:45 am]
BILLING CODE 8010-01-M