[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