[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]


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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.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
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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\
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    \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.

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[[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.
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    \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.
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    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.
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    \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.
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    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.
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    \7\ 15 U.S.C. 78f(b)(5) (1988).
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    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).
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    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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-25622 Filed 10-4-96; 8:45 am]
BILLING CODE 8010-01-M