[Federal Register Volume 62, Number 93 (Wednesday, May 14, 1997)]
[Notices]
[Pages 26606-26607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12547]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38575; File No. SR-PCX-97-16]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Temporary Accelerated Approval of a Proposed Rule Change by 
the Pacific Exchange, Inc. Relating to Trading Differentials for Equity 
Securities

May 6, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 5, 1997, the Pacific 
Exchange, Inc. (``PCX'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the self-regulatory organization (``SRO''). The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons and to grant accelerated approval on a 
temporary basis to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to adopt a procedure, effective for 
ninety days, under which the Exchange may establish trading 
differentials for equity securities at its discretion.

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 III 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
    PCX Rule 5.3(b) currently provides that, unless specifically ruled 
otherwise, the trading differentials on stocks shall be as follows: On 
stocks other than those traded on the New York Stock Exchange 
(``NYSE'') or American Stock Exchange (``Amex''): if the selling price 
is below \1/2\ of $1, the trading differential is \1/32\; if the 
selling price is \1/2\ of $1 but under $5, the trading differential is 
\1/16\; and if the selling price is $5 and above, the trading 
differential is \1/8\. The rule further provides that on stocks also 
traded on the NYSE or the Amex, the trading differentials shall be the 
same as those prescribed by such exchanges.
    The Exchange is proposing to establish a procedure, effective for 
ninety days, under which the Exchange may determine the trading 
differentials for equity securities traded on the Exchange. The 
Exchange is proposing this change in order to add flexibility, so that 
it can change the trading differentials on an immediate basis. The 
Exchange notes that some exchanges do not have specific rules on 
trading differentials and are able to change them on an immediate 
basis. The Exchange intends to base any changes to trading 
differentials on competitive considerations and other factors as 
appropriate, but such trading differentials will conform to any 
applicable Intermarket Trading System (``ITS'') rules.\2\
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    \2\ The PCX indicated to the Commission that it intends to take 
into account the manner in which ITS is operating at the time the 
Exchange is considering changes to its trading differentials.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \3\ of the Act in general and furthers the objectives of 
Section 6(b)(5) \4\ in particular in that it is designed to facilitate 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market, and to promote just and equitable 
principles of trade.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 26607]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Exchange has neither solicited nor received written comments.

III. 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, NW., Washington, DC 20545. 
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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Room, 450 Fifth Street, NW., 
Washington, DC 20549. Also copies of such filing will be available for 
inspection and copying at the principal office of the PCX. All 
submissions should refer to File No. SR-PCX-97-16 and should be 
submitted by June 4, 1997.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    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 and Section 11A of the 
Act.\5\
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    \5\ 15 U.S.C. Secs. 78f(b) and 78k-1. In approving this rule 
change, the Commission notes that it has considered the proposal's 
impact on efficiency, competition, and capital formation, consistent 
with Section 3 of the Act. Id. Sec. 78c(f).
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    Recently, there has been a movement within the industry to reduce 
the minimum trading and quotation increments imposed by the various 
SROs. The Amex recently reduced its minimum trading increment, and 
Nasdaq has proposed to reduce its minimum quotation increment.\6\ In 
addition, several third market makers have begun quoting securities in 
increments smaller than the primary markets. The proposed rule change 
will allow the PCX the flexibility it needs to address this development 
and remain competitive with these markets.
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    \6\ Securities Exchange Act Release No. 39571 (May 5, 1997) 
(approving Amex proposal to reduce the minimum trading increment 
from \1/8\ to \1/16\ for Amex-listed equity securities priced at or 
above $10.00); Securities Exchange Act Release No. 38531 (Apr. 21 
1997), 62 FR 20233 (Apr. 25, 1997) (publishing notice of a proposed 
rule change by the Nasdaq Stock Market to reduce the minimum 
quotation increment from \1/8\ to \1/16\ for Nasdaq-listed 
securities priced equal to or greater than $10.00).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof into the Federal Register.\7\ As discussed above, the 
proposal provides the PCX with the ability to quickly modify its 
trading increment to meet changing market conditions. This will enable 
the PCX to quote competitively with other markets. Waiting the full 
statutory review period for the proposed rule change could place the 
PCX at a significant competitive disadvantage to other markets. At the 
same time, the proposal is effective for only ninety days. This will 
provide the Commission with a sufficient period to receive and assess 
comments on the PCX's proposal before it is adopted on a permanent 
basis.\8\ Therefore, the Commission believes it is consistent with 
Section 6(b)(5) and Section 19(b)(2) of the Act to grant accelerated 
approval on a temporary basis to the proposed rule change.\9\
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    \7\ A prior proposal by another exchange to reduce its minimum 
fractional change was published for the full statutory comment 
period without any comments being received by the Commission. 
Securities Exchange Act Release No. 38571 (May 5, 1997) (approving a 
proposed rule change by the Amex to reduce the minimum trading 
differential from \1/8\ to \1/16\ for equity securities priced at or 
above $10.00).
    \8\ The Exchange has submitted a companion filing that requests 
permanent approval of the procedures described herein. See File No. 
SR-PCX-97-15.
    \9\ 15 U.S.C. Secs. 78f(b)(5) and 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-PCX-97-16) is hereby 
approved on an accelerated basis through August 3, 1997.

    \10\ 15 U.S.C. 78s (b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12547 Filed 5-13-97; 8:45 am]
BILLING CODE 8010-01-M