[Federal Register Volume 62, Number 29 (Wednesday, February 12, 1997)]
[Notices]
[Pages 6594-6595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3429]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38241; File No. SR-PSE-96-36]


Self--Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 Relating to 
a Requirement That all Non-Self-Clearing PSE Floor Brokers Maintain 
Error Accounts

February 5, 1997.

I. Introduction

    On October 17, 1996, the Pacific Stock Exchange, Incorporated 
(``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 amend its rules to provide 
that each non-self clearing floor broker on the Exchange must establish 
and maintain an error account for carrying positions resulting from 
errors.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change, together with the substance of the 
proposal, was published for comment in Securities Exchange Act Release 
No. 37903 (October 31, 1996), 61 FR 57507 (November 6, 1996). No 
comments were received on the proposal. The Exchange filed Amendment 
No. 1 with the Commission on February 4, 1997.\3\ This

[[Page 6595]]

order approves the proposed rule change, as amended.
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    \3\ Amendment No. 1 was filed with the Commission on February 4, 
1997. The amendment changed the numbering of the proposed rule 
change from 4.10(c) to 4.21, further explained the Exchange's 
purpose for the rule change, and explained why the rule change 
distinguishes between non-self-clearing floor brokers and self-
clearing floor brokers. See letter from Michael D. Pierson, PSE, to 
Heather Seidel, Attorney, Market Regulation, Commission, dated 
February 4, 1997.
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II. Description

    The rule change adopts new Rule 4.21 to provide that each member 
organization whose principal business is as a floor broker on the 
Exchange and who is not self-clearing must establish and maintain an 
account with a clearing member of the Exchange, for the sole purpose of 
carrying positions resulting from bona fide errors made in the course 
of its floor brokerage business. The new rule further provides that 
with respect to options floor brokers only, such an account for options 
transactions must be maintained with an entity that is also a member of 
the Options Clearing Corporation.
    The purpose of the proposed rule change is to strengthen the 
Exchange's ability to detect and deter rule violations that may occur 
in connection with floor brokers' trading errors. The proposed rule 
change would assist routine examinations of the floor brokers' trading 
by the PSE's Department of Member Examinations. The Exchange notes that 
the proposed rule change is consistent with Rule 703(c)(vi) of the 
Philadelphia Stock Exchange, Inc. (``PHLX''). The Exchange believes 
that the proposed rule change is consistent with Section 6(b) of the 
Act in general and furthers the objectives of Section 6(b)(5)\4\ in 
particular in that it is designed to promote just and equitable 
principles of trade and to protect investors and public interest.
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    \4\ 15 U.S.C. 78f(b)(5).
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III. Discussion

    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).\5\ More 
specifically, the Commission believes the proposal is consistent with 
the Section 6(b)(5) requirements 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, because the proposed rule change facilitates the 
enhanced surveillance of floor brokers' error trades.
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    \5\ 15 U.S.C. 78f(b).
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    The Commission believes that the proposed rule change may enhance 
the Exchange's ability to detect and prevent rule violations committed 
by floor brokers that may arise in connection with trading errors, by 
facilitating routine surveillance examinations of floor brokers with 
regard to error trades. This enhanced surveillance capability results 
from the Exchange's ability to more easily review trades designated by 
floor brokers as errors by reviewing the required error account for 
each floor broker. The Commission notes that the proposed rule change 
will conform the treatment of error trades by non-self-clearing floor 
brokers with that conducted by self-clearing floor brokers, whose 
practice is to have one or more trading accounts in which to segregate 
errors.\6\
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    \6\ See Amendment No. 1.
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    The Commission also notes that the proposed rule change is similar 
to rule 703(c)(vi) of the PHLX, previously approved by the Commission, 
which requires all non-self-clearing floor brokers to have error 
accounts. Accordingly, the Commission believes that the proposed rule 
change does not raise any new significant regulatory issues.
    The Commission finds good cause for approving Amendment No. 1 on an 
accelerated basis prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Specifically, 
the Commission believes that accelerated approval of Amendment No. 1 is 
appropriate because the amendment does not change the substance of the 
proposal. Rather, it simply clarifies and explains certain aspects of 
the proposed rule change.\7\
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    \7\ See supra note 3.
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    Accordingly, the Commission believes that it is consistent with 
Section 6(b)(5) of the Act to approve Amendment No. 1 on an accelerated 
basis.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1 to the proposed rule change. 
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 rules 
change that are filed with the Commission, and all written 
communications relating to Amendment No. 1 between the Commission and 
any persons, 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. 
Copies of such filing will also be available at the principal office of 
the Exchange. All submissions should refer to File No. SR-PSE-96-36 and 
should be submitted by [insert date 21 days from date of publication].

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-PSE-96-36), as amended, is 
approved.

    \8\ 15 U.S.C. 78s(b)(2).
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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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3429 Filed 2-11-97; 8:45 am]
BILLING CODE 8010-01-M