[Federal Register Volume 62, Number 189 (Tuesday, September 30, 1997)]
[Notices]
[Pages 51172-51173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25795]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39106; File No. SR-PCX-97-32]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to an Extension of its LMM Book Pilot Program 
for One Year

September 22, 1997.
    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 August 5, 1997, the Pacific Exchange, Inc. (``PCX'' 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. 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. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 extend its LMM Book Pilot Program for 
one year. The text of the proposed rule change is available at the 
Office of the Secretary, PCX and at the Commission.

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

    On October 11, 1996, the Commission approved an Exchange proposal 
to establish its LMM Book Pilot Program, under which a limited number 
of Lead Market Makers (``LMMs''.) are able to assume operational 
responsibility for the options limit order book (``Book'') in certain 
options issues.\3\ Subsequently, on October 28, 1996, the Commission 
approved an Exchange proposal to adopt a new change applicable to LMMs 
who participate in the program.\4\ In addition on April 1, 1997, the 
Commission approved an Exchange proposal to expand the scope of the 
pilot program to allow up to nine LMMs to participate and up to 150 
symbols to be used.\5\ The Exchange is now proposing to extend the 
pilot program for one year, to October 12, 1998.
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    \3\ See Exchange Act Release No. 37810 (October 10, 1997), 61 FR 
54481 (October 18, 1996) (``Pilot Program Approval Order'').
    \4\ See Exchange Act Release No. 37874 (October 28, 1996), 61 FR 
213 (November 1, 1996).
    \5\ See Exchange Act Release No. 38462 (April 1, 1997), 62 FR 
16886 (April 8, 1997). Each option issue typically has only one 
symbol associated with it, unless LEAPs are traded on that issue, in 
which case there would usually be two additional symbols related to 
the issue, or unless a contract adjustment is necessary due, for 
example, to a merger or stock split, in which case one additional 
symbol would usually be added. Previously, the pilot program was 
limited to allow up to 3 LMMs to participate and up to 40 option 
symbols to be used.
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    Under the pilot program, the approved LMMs manage the Book 
function, take responsibility for trading disputes and errors, set 
rates for Book execution, and pay the Exchange a fee for systems and 
services. The program allows LMMs to have greater control over their 
operations on the Exchange floor by allowing them, among other things, 
to set their own rates for execution services provided to customers. 
The LMMs who participate during the pilot program are selected by the 
Options Floor Trading Committee based on certain designated factors. 
Approved LMMs must maintain ``minimum net capital,'' as provided in SEC 
Rule 15c-1,\6\ and must also maintain a cash or liquid asset position 
of at least $500,000, plus $25,000 for each issue over 5 issues for 
which they perform the function of an Order Book Official. Only 
multiply-traded option issues are eligible during the pilot phase.
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    \6\ 17 CFR 240.15c-1.
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    The Exchange is requesting a one-year extension to the pilot 
program so that it

[[Page 51173]]

will have an opportunity to continue reviewing and evaluating the 
program before seeking permanent approval. In that regard, on May 29, 
1997, the Exchange submitted a report to the Commission responding to 
particular questions set forth in the Pilot Approval Order. The 
Exchange believes that the program is operating successfully and 
without any problems, and on that basis, the Exchange believes that a 
one-year extension of the program is warranted. At this time, the 
Exchange is not seeking to modify the pilot program.
Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\7\ in general, and Section 6(b)(5),\8\ in particular, 
in that it is designed to facilitate transactions in securities, to 
promote just and equitable principles of trade, and to protect 
investors and the public interest.
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    \7\ 15 U.S.C. Sec. 78f(b).
    \8\ 15 U.S.C. Sec. 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. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission has closely reviewed the proposed LMM Book Pilot 
program and has concluded that it should be extended for another year. 
The Commission believes that the pilot program, whereby the approved 
LLMs manager the Book function, take responsibility for trading 
disputes and errors, set rates for Book execution, and pay the Exchange 
a fee for systems and services, is consistent with the Act and the 
rules and regulations thereunder. In particular, the Commission 
believes that the proposed rule change is consistent with Section 
6(b)(5) of the Act \9\ in that it is designed to promote just and 
equitable principles of trade, to facilitate transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ Id.
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    As noted above, the LLM Book Pilot Program allows LMMs to have 
greater control over their operations on the Exchange floor, and the 
Commission agrees with the Exchange that a one-year extension of the 
program is warranted to allow the Exchange to continue its evaluation 
of the program.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in order to ensure that PCX officials have a 
continuous period to review and evaluate the program before seeking 
permanent approval. The LLM Book Pilot Program was first established on 
October 11, 1996 and, with a few modest changes, has been operating 
continuously since that date. Based on the representations made by the 
Exchange in its 1997 LLM Book Pilot Program report, the Commission 
concludes that the pilot program has contributed to the Exchange's 
ability to provide fair and orderly markets. Based on these findings, 
the Commission concurs that a one-year extension of the program is 
warranted. Because the pilot program is scheduled to expire October 12, 
1997, the Commission believes it is appropriate to extend the pilot 
program before that date to allow the uninterrupted continuation of the 
program.

IV. Solicitation of Comments

    Interested person 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 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 PCX. All submissions should 
refer to File No. SR-PCX-97-32 and should be submitted by October 21, 
1997.
    It is therefore ordered, pursuant to Section 19(b)(2) \10\ of the 
act, that the proposed rule change is approved and, accordingly, the 
Lead Market Maker Book Pilot Program is extended until October 12, 
1998.
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    \10\ 15 U.S.C. Sec. 78s(b)(2).

    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. 97-25795 Filed 9-29-97; 8:45 am]
BILLING CODE 8010-01-M