[Federal Register Volume 62, Number 3 (Monday, January 6, 1997)]
[Notices]
[Pages 782-783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-151]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38087; File No. SR-PSE-96-35]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Pacific Stock Exchange 
Incorporated Relating to Its Rules on Executions of ``Odd Lot'' Equity 
Orders

December 24, 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 September 25, 1996, the Pacific Stock Exchange Incorporated (``PSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. On December 17, 1996, the PSE submitted an 
amendment (``Amendment No. 1'') to the proposed rule change.\3\ 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.
    \3\ Letter from Michael D. Pierson, Senior Attorney, Regulatory 
Policy, PSE to Janet Russell-Hunter, Special Counsel, Office of 
Market Supervision, Division of Market Regulation, SEC, dated 
December 17, 1996. In Amendment No. 1, the PSE clarified the purpose 
of the rule change and made technical corrections to the text of the 
rule.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PSE is proposing to amend its rules on executions of ``odd 
lot'' equity orders. Under the rule change, odd lot limit orders will 
be placed in the front of the book for priority and book display 
purposes. The rule change will also modify the basis on which limit, 
stop limit and stop orders must be executed. In addition, the rule 
change will prohibit certain practices involving the entry of odd-lot 
orders. Finally, the proposal will modify the Exchange's odd lot rule 
in order to remove certain provisions that no longer apply to 
executions of odd lot orders on the Exchange.

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
    The Exchange is proposing this rule change in order to provide 
better service to customers and to be competitive with other 
exchanges.\4\ The Exchange is proposing to modify Rule 5.34(b) (``Odd 
Lot Executions'') to provide as follows:
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    \4\ See Amendment No. 1, supra note 3.
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    First, with regard to market orders, the proposal states that an 
odd lot market order shall be executed off the price reflected in the 
consolidated quote system's best bid/offer. (The current rule states 
that such orders shall be filled at the price of the first round lot 
transaction which takes place on the primary market, plus if a buy 
order, or minus if a sell order, an odd lot differential, if any.)
    Second, with regards to limit orders, the proposed rule states that 
an odd lot limit order shall be filled at, or better than, the price of 
the first regular way round lot transaction that is at, or better than, 
the limit order's price printed on the consolidated tape from the 
security's primary market.\5\ It further states that such odd lot 
orders shall be allowed to establish precedence without regard to 
priority of existing round-lot bids or offers at that price. (The 
current rule states that such orders shall be filled at the price of 
the first round lot transaction which takes place on the primary 
market, which in the case of a buy order is below the specified limit 
by the amount of the trading differential, or by a greater amount; or 
which in the case of a sell order is above the specified limit by the 
amount of the trading differential, or by a greater amount; plus

[[Page 783]]

if a buy order, or minus if a sell order, an odd lot differential, if 
any).
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    \5\ See amendment No. 1, supra note 3.
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    Third, with regard to stop orders, the proposal states that an odd 
lot stop order to buy shall become a market order when a regular way 
round lot transaction takes place at or above the price of the stop 
order on the primary market.\6\ An odd lot stop order to sell shall 
become a market order when a regular way round lot transaction takes 
place at or below the price of the stop order on the primary market.\7\ 
(The current rule states that an odd lot stop order becomes a market 
order when a round lot transaction takes place on the primary market, 
which in the case of a buy order is at or above the stop price; or 
which in the case of a sell order is at or below the stop price; and it 
further states, that the order shall then be filled at the price of the 
next round lot transaction which takes place on the primary market, 
plus if a buy order, or minus if a sell order, an odd lot differential, 
if any.)
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    \6\ Id.
    \7\ Id.
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    Fourth, the proposed rule states that it shall be inconsistent with 
the purpose and intent of this Rule to engage in the following actions: 
(a) The unbundling of round-lots for the purpose of entering odd-lot 
limit orders in the comparable amounts; (b) the failure to aggregate 
odd-lot orders into round-lots when such orders are for the same 
account or for various accounts in which there is a common monetary 
interest; and (c) the entry of both buy and sell odd-lot limit orders 
in the same stock before one of the orders is executed for the purpose 
of capturing the ``spread'' in the stock. It further states that, in 
general, the Exchange views order entry practices that are intended to 
circumvent the round-lot auction market as abuses of the intent and 
purpose of the odd-lot system and such practices shall be considered 
violations of these rules.
    Finally, the Exchange is proposing to remove several provisions 
from the rules relating to odd lot executions that no longer apply. 
First, the Exchange is proposing to eliminate all provisions in Rule 
5.34(b) on odd lot differentials. Second, the proposal modifies rule 
5.34(b) to eliminate the distinction between ``PMP stocks'' and ``non-
PMP stocks.'' \8\
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    \8\ ``PMP'' stocks are those for which Exchange specialists 
provide primary market protection. Today, such protection applies to 
all stocks that may be executed on P/COAST, the Exchange's automatic 
execution system for equity securities.
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2. Basis
    The Exchange believes that the proposal is consistent with section 
6(b) of the Act, in general, and Section 6(b)(5) of the Act, in 
particular, in that it is designed to facilitate transactions in 
securities and 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 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

    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 self-regulatory organization consents, the Commission will--
    (A) by order approve such 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 submission 
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 Room, 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 PSE. All submissions should 
refer to File No. SR-PSE-96-35 and should by submitted by January 27, 
1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-151 Filed 1-3-97; 8:45 am]
BILLING CODE 8010-01-M