[Federal Register Volume 63, Number 38 (Thursday, February 26, 1998)]
[Notices]
[Pages 9895-9896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4856]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39667; File No. SR-PCX-98-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Expansion of the LMM Book Pilot Program To Include Non-
Multiply-Listed Option Issues

February 13, 1998.
    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 January 23, 1998, 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 
PCX.\3\ On February 9, 1998, the PCX filed Amendment No. 1 to the rule 
proposed redesignating the proposal as a ``non-controversial'' rule 
filing pursuant to Rule 19b-4(e)(6), which constitutes a substantive 
change in the proposal.\4\ This redesignation renders the rule proposed 
effective upon receipt of Amendment No. 1 by the Commission pursuant to 
Section 19(b)(3)(A) of the Act and provides that the rule change become 
operative 30 days after the date of the filing or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The PCX filed this proposed rule change pursuant to Rule 
19b-4(e)(1), designating the rule change as constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, and thereby 
rendering it effective upon filing pursuant to Section 19(b)(3)(A) 
of the Act.
    \4\ See letter from Michael D. Pierson, Senior Attorney, 
Regulatory Policy, PCX, to Ann L. Vlcek, Office of Market 
Supervision, Division, of Market Regulation, Commission, dated 
February 6, 1998.
---------------------------------------------------------------------------

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

    The PCX is proposing to expand its Lead Market Maker (``LMM'') Book 
Pilot Program by allowing qualified LMMs to trade non-multiply-listed 
option issues under the pilot program.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing the Commission, the PCX 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

Purpose
    On October 11, 1996, the Commission approved an Exchange proposal 
to adopt a one-year pilot program under which a limited number of LMMs 
would be able to assume operational responsibility for the options 
public limit order book (``Book'') in certain option issues.\5\ On 
September 22, 1997, the Commission approved an Exchange proposed to 
extend the program for one year, so that it is currently set to expire 
on October 12, 1998.\6\
---------------------------------------------------------------------------

    \5\ See Exchange Act Release No. 37810 (October 11, 1996), 61 FR 
54481 (October 18, 1996) (approved File NO. SR-PSE-96-09).
    \6\ See Exchange Act Release No. 39106 (September 22, 1997), 62 
FR 51172 (September 30, 1997) (approving File No. SR-PSE-97-32).
---------------------------------------------------------------------------

    Under the pilot program, 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.\7\ Only 
multiply-listed option issues are currently eligible to be traded under 
the pilot program.\8\ Initially, the program was limited by allowing no 
more than three LMMs to participate in the program and no more than 40 
option symbols to be used. But on April 1, 1997, the Commission 
approved an Exchange proposal to expand the program so that up to nine 
LMMs may participate and up to 150 option symbols may be used.\9\
---------------------------------------------------------------------------

    \7\ See Exchange Act Release No. 37874 (October 28, 1996), 61 FR 
56597 (November 1, 1996) (approving File No. SR-PSE-96-38, 
establishing a staffing charge for LMMs who participate in the pilot 
program).
    \8\ See Exchange Act Release No. 38462 (April 1, 1997), 62 FR 
16886 (April 8, 1997) (approving File No. SR-PSE-96-45).
    \9\ See Exchange Act Release No. 38462, supra.
---------------------------------------------------------------------------

    The Exchange is now proposing to expand the program by allowing 
LMMs to include non-multiply-listed options within the scope of the 
program. This change will give program participants greater flexibility 
in setting Book rates for option issues that they trade, and thus will 
make the program a better tool for the Exchange to compete with other 
exchanges for options order flow by lowering transaction costs to the 
customer.
Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act, in general, and Section 6(b)(5), in particular, in 
that it is designed to facilitate transactions in securities, promote 
just and equitable principles of trade, and to protect investors and 
the public interest.

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

    The PCX initially filed the proposed rule change with the 
Commission on January 23, 1998, pursuant to Rule 19b-4(e)(1), 
designating the proposed rule change as constituting a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, and rendering the 
rule change effective upon filing pursuant to Section 19(b)(3)(A)(i) of 
the Act. However, the PCX filed Amendment No. 1 on February 9, 1998 
redesignating the proposal as a ``non-

[[Page 9896]]

 controversial'' rule filing under Rule 19b-4(e)(6). This redesignation 
constituted a substantive change in the proposal, thus rendering the 
rule change effective upon filing of Amendment No. 1 and providing that 
it become operative 30 days after the date of the filing or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest pursuant to Section 
19(b)(3)(A)(iii) of the Act.
    Because the foregoing proposed rule change (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
(3) does not become operative for 30 days from February 9, 1998, the 
date on which Amendment No. 1 was filed; and the Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change at least five business days prior to the filing date,\10\ the 
rule change has become effective pursuant to Section 19(b)(3)(A) of the 
Act and Rule 19b-4(e)(6) thereunder. At any time within 60 days of the 
filing of such proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
---------------------------------------------------------------------------

    \10\ The Commission considers the original January 23, 1998 rule 
filing to be sufficient written notice of PCX's intent to file the 
proposed rule change that was submitted in the form of Amendment No. 
1 on February 9, 1998. The date of the January 23, 1998 rule filing 
also satisfies the requirement of a minimum prefiling time period of 
five business days.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-98-01 and should be submitted by [insert date 
21 days from date of publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4856 Filed 2-25-98; 8:45 am]
BILLING CODE 8010-01-M