[Federal Register Volume 62, Number 81 (Monday, April 28, 1997)]
[Notices]
[Pages 22988-22989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10881]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38530; File No. SR-PSE-97-01]


Self-Regulatory Organizations; Pacific Stock Exchange 
Incorporated; Order Granting Approval to Proposed Rule Change, and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 1, Relating to the Exchange's Limitation of Liability in Connection 
With Indexes on Which Options Are Listed or Traded on the Exchange

April 21, 1997.
    On January 13, 1997, 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 clarify the scope of the 
Exchange's rule concerning the limitation of liability of the Exchange, 
its affiliates, index licensors, and administrators in connection with 
indexes on which options are listed or traded on the Exchange.
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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 was published for comment in the Federal 
Register on February 13, 1997.\3\ No comments were received concerning 
the proposal. On February 18, 1997, the PSE submitted Amendment No. 1. 
This order approves the proposal as amended.\4\
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    \3\ Securities Exchange Act Release No. 38253 (Feb. 6, 1997), 62 
FR 6825.
    \4\ Letter from Michael D. Pierson, Senior Attorney, Regulatory 
Policy, PSE, to Anthony P. Pecora, Attorney, Division of Market 
Regulation, SEC, dated February 13, 1997 (``Amendment No. 1'').
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    PSE Rule 7.13 currently provides that the Exchange shall have no 
liability for damages, claims, losses, or expenses caused by any 
errors, omissions or delays in calculating or disseminating the index 
value. The proposed rule change deletes this rule and replaces it with 
one that defines the scope of the Exchange's limited liability more 
clearly.\5\ In addition , the proposal extends the limited liability 
provisions to any affiliates of the Exchange as well as any ``Index 
Licensor'' or ``Administrator.'' \6\ However, in order to conform its 
limitation of liability provisions to those of other self-regulatory 
organizations (``SROs''), the PSE represented that it will not rely on 
this rule to limit its liability for intentional misconduct or for any 
violation of the federal securities laws.\7\
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    \5\ Specifically, the proposal provides that neither the 
Exchange, any affiliate, nor any Index Licensor or Administrator 
shall have any liability for any loss, damages, claim, or expense 
arising from or occasioned by any inaccuracy, error, or delay in, or 
omission of or from, (i) Any index and basket information or (ii) 
the collection, calculation, compilation maintenance, reporting or 
dissemination of any index or any index and basket information, 
resulting either from any negligent act or omission by the Exchange, 
any affiliate or any Index Licensor or Administrator or from any 
act, condition or cause beyond the reasonable control of the 
Exchange, any affiliate or any Index Licensor or Administrator, 
including, but not limited to, flood, extraordinary weather 
conditions, earthquake or other act of God, fire, war, insurrection, 
riot, labor dispute, accident, action of government, communications 
or power failure, or equipment or software malfunction. In addition, 
the proposed rule change states that these parties disclaim all 
applicable warranties with respect to any basket or stocks or index 
traded on the Exchange.
    The proposal defines ``Index and basket information'' as (a) 
information relating to the inclusion and relative representation of 
stocks in any index from which a basket is derived, such an index's 
values, a basket's component stocks, the weighted summation of the 
bids or offers of a basket's component stocks, and basket and 
component stock last sale and quotation information and (b) other 
information relating to a basket or its index.
    \6\ The proposal defines an ``Index Licensor'' or 
``Administrator'' as any person who: (a) licenses to the Exchange 
the right to use (i) an index that is the basis for determining the 
inclusion and relative representation of a basket's component stocks 
or (ii) any trademark or service mark associated with such an index; 
(b) collects, calculates, complies, reports and/or maintains such an 
index, or index and basket information relating to such an index; 
(c) provides facilities for the dissemination of index and basket 
information; and/or (d) is responsible for any of the activities 
described above.
    \7\ Amendment No. 1, supra note 4.
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    The Communication 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).\8\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
\9\ requirements that the rules of an exchange be designed to promote 
just and equitable principles of trade, to facilitate transactions in 
securities, to prevent fraudulent and manipulative acts, and, in 
general, to protest investors and the public interest.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ In approving this rule, the Commission notes that it has 
considered the proposal's impact on efficiency, competition, and 
capital formation, consistent with Section 3 of the Act. 15 U.S.C. 
78c(f).
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    The Commission finds that the proposed limitation of liability 
language will provide the PSE with protection that is substantively 
similar to protection already afforded other self-regulatory 
organizations.\11\

[[Page 22989]]

Additionally, because the PSE represents that the proposed rule change 
cannot be used to limit its liability for intentional misconduct or for 
any violations of the federal securities laws, the Commission believes 
the proposal will protect investors and the public interest, while also 
serving to facilitate transactions in securities. For example, by 
defining the scope of potential liability more clearly, entities will 
not be discouraged from creating new products or calculating and 
disseminating settlement values.\12\ Therefore, derivative products, 
which provide hedging or other economic functions, should remain 
available to investors.
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    \11\ See American Stock Exchange Rules 902C and 1003; Chicago 
Board Options Exchange Rule 24.14; New York Stock Exchange Rule 
702(b); and Philadelphia Stock Exchange Rule 1057.
    \12\ See Securities Exchange Act Release No. 34125 (May 27, 
1994), 59 FR 29307 (approving File No. SR-Amex-93-41); Securities 
Exchange Act Release No. 38041 (Dec. 11, 1995), 61 FR 66721 
(approving File No. SR-Phlx-96-11).
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    The Commission finds good cause for approving Amendment No. 1 prior 
to the thirtieth day after the date of publication of notice of filing 
thereof. Amendment No. 1 simply clarifies that the Exchange will 
interpret its limitation of liability provisions in a manner that is 
consistent with other SROs' interpretations of their limited liability 
rules. Furthermore, this interpretation has been published in the 
Federal Register on several occasions for the full comment period, and 
no comments have ever been received. For these reasons, the Commission 
finds that accelerating approval of Amendment No. 1 is consistent with 
Section 6 and Section 19(b)(2) of the Act.\13\
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    \13\ 15 U.S.C. 78f and 78s(b)(2).
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    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule changes 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. Sec. 552, will be available for inspection and 
copying at the Commission's Public Reference Section, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the Pacific Stock 
Exchange. All submissions should refer to File No. SR-PSE-97-01 and 
should be submitted by May 19, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-PSE-97-01), as amended, is 
approved.

    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-10881 Filed 4-25-97; 8:45 am]
BILLING CODE 8010-01-M