[Federal Register Volume 62, Number 112 (Wednesday, June 11, 1997)]
[Notices]
[Pages 31857-31858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15255]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38712; File No. SR-PCX-97-19]
June 3, 1997.


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc., Relating to Its Specialist 
Evaluation Program

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on May 29, 
1997, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Propose Rule Change

    The PCX is proposing to extend its pilot program regarding the 
evaluation of its equity specialists until January 1, 1998. In 
addition, the Exchange is proposing to implement certain changes to the 
pilot program.

Self-Regulatory Organizations 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 receive don 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
    On October 1, 1996, the Commission approved a nine-month pilot 
program for the evaluation of PCX equity specialists.\1\ The Exchange 
is now proposing to extend the pilot program for an additional six 
month period, until January 1, 1998. The reason for the extension is 
that the Exchange needs more time to evaluate the impact of the SEC's 
new order handling rules \2\ on the performance criteria. During the 
extension of the pilot, the Exchange will determine an organization 
overall passing score and individual passing scores for each criterion 
used in the pilot program. In addition, the Exchange proposes to 
implement for use in the evaluation program, beginning with the third 
quarter review period of 1997 (i.e., July 1, 1997 to September 30, 
1997), certain programming changes requested by the Commission in its 
October 1, 1996 order approving the pilot program. Specifically, the 
Commission requested that the Exchange reprogram its systems so that 
the following criteria are calculated using the NBBO instead of the 
primary market quote: Trading Between the Quote, Book Display Time, and 
Quote Performance (Equal or Better Quote Performance and Better Quote 
Performance). The description of these performance criteria will be 
modified as follows:
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    \1\ Prior to the adoption of the pilot program, PCX Rule 5.37(a) 
provided that the Exchange's Equity Allocation Committee (``EAC'') 
evaluate all registered specialists on a quarterly basis and that 
each specialist receive an overall evaluation rating based on three 
criteria of specialist performance: (1) Specialist Evaluation 
Questionnaire Survey (``Questionnaire''); (2) SCOREX Limit Order 
Acceptance Performance; and (3) National Market System Quote 
Performance. The pilot program modifies Rule 5.37(a) by adding three 
new criteria of performance and eliminating one performance 
criterion. The new criteria are: (1) Executions (itself consisting 
of four criteria; (a) Turnaround Time; (b) Holding Orders Without 
Action; (c) Trading Between the Quote; and (d) Executions in Size 
Greater Than BBO); (2) Book Display Time; and (3) Post-1 p.m. 
Parameters. The SCOREX Limit Order Acceptance Performance criterion 
has been eliminated. The pilot also adds more questions to the 
Questionnaire and expands the National Market System Quote 
Performance criterion (renamed Quote Performance under the pilot) to 
include within it a submeasure for bettering the quote. For a more 
detailed description of the performance criteria utilized in the 
PCX's pilot program, see Securities Exchange Act Release No. 37770 
(October 1, 1996), 61 FR 52820 (October 8, 1996) (File No. SR-PSE-
96-28). See generally PCX Rule 5.37 (description of the standards 
and procedures applicable to the EAC's evaluation of specialists).
    \2\ See Securities Exchange Act Release No. 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996) (File No. S7-30-95).
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a. Trading Between the Quote \3\
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    \3\ ``Trading Between the Quote'' is one of the four criteria 
which together constitute ``Executions'' criterion. See supra note 
1.
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    ``Trading Between the Quote'' currently measures the number of 
market and marketable limit orders that are executed between the best 
primary market bid and offer. For this criterion

[[Page 31858]]

to count toward the overall evaluation score, ten orders or more must 
have been executed during the quarter in which the specialist is being 
evaluated. If less than ten orders are executed, this criterion will 
not be counted and the rest of the evaluation criteria will be given 
more weight.
    When a market or marketable limit order is executed, the execution 
price is compared to the primary market bid and offer. The specialist 
will be awarded points based on the percentage of orders the specialist 
receives that are executed between the primary market bid and offer. If 
the execution price falls between the primary market bid and offer, the 
trade is counted as one that traded between the quote at the time of 
execution. Each time a trade is executed, the primary market quote will 
be noted. If the spread of that quote is two or more trading fractions 
apart, that trade will count as one eligible for the comparison of the 
execution price to the quote.
    The Exchange is now proposing to continue using this criterion, but 
to replace references to the ``primary market bid and offer'' with 
references to the ``NBBO.''
b. Book Display Time
    This criterion calculates the percentage of book shares at the best 
price in the book that is displayed in the specialist's quote, by 
symbol, and the duration of time that each percentage is in effect. 
This criterion rates the P/COAST book displayed 100% of the time. The 
sizes of all open buy limit orders at the best price for the symbol in 
the specialist's book are totaled and compared to the bid size quote. 
The sizes of all open sell limit orders at the best price for the 
symbol in the book are totaled and compared to the offer size quote. 
This will be done for each symbol traded by the specialist, but only 
for those orders within the primary market quote. Limit orders in the 
book that were priced beyond the primary market quote will not be 
included; they will not be executed until they reach the price in the 
primary market quote, so the specialist should not be required to cover 
them in his (her) quote sizes.
    The Exchange is now proposing to continue using this criterion, but 
to replace references to the ``primary market bid and offer'' to 
references to the ``NBBO.''
c. Quote Performance
    This criterion, on which 10% of each specialist evaluation is 
based, consists of two submeasures: (a) Equal or Better Quote 
Performance; and (b) Better Quote Performance.
    Equal or Better Quote Performance calculates for each issue traded, 
the percentage of time in which a specialist's bid or offer is equal to 
or better than the primary market quote with a 500 share market size or 
the primary market size, whichever is less, with a 200 share minimum.
    Better Quote Performance calculates for each issue traded, the 
percentage of time in which a specialist's bid or offer is better than 
the primary market quote with a 500 share market size or the primary 
market size, whichever is less, with a 200 share minimum.
    The Exchange is proposing to continue using this criterion, but to 
replace references to the ``primary market bid and offer'' with 
references to the ``NBBO.''
    Further, the Commission has requested that the Exchange file a 
report regarding the Exchange's experience with the pilot.
    This report has been filed with the Commission under separate 
cover. In addition, the Exchange will submit a proposed rule change 
with the Commission pursuant to Rule 19b-4 under the Act \4\ by 
November 15, 1997, that will specify an overall passing score for the 
performance evaluation and individual passing scores for each 
criterion, as well as a request to further extend the pilot beyond 
January 1, 1998.
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    \4\ 17 CFR 240.19b-4.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \5\ in that it is designed to prevent fraudulent and manipulative 
acts and practices and to perfect the mechanism of a free and open 
market.
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    \5\ 15 U.S.C. 78f(b)(5).
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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 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 the proposed 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 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 at the 
Commission's Public Reference Section, 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 Exchange. All 
submissions should refer to File No. SR-PCX-97-19 and should be 
submitted by July 2, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15255 Filed 6-10-97; 8:45 am]
BILLING CODE 8010-01-M