[Federal Register Volume 63, Number 47 (Wednesday, March 11, 1998)]
[Notices]
[Pages 11945-11946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6174]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39709; File No. SR-PCX-98-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Pacific Exchange, Inc. Relating to an Extension of the Permissible 
Term of FLEX Equity Options

March 3, 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 February 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 and II below, which Items have been prepared by the PCX. On 
February 27, 1998, the PCX filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Michael D. Pierson, Senior Attorney, 
Regulatory Policy, PCX, to Deborah Flynn, Division of Market 
Regulation, Commission, dated February 26, 1998 (``Amendment No. 
1''). In Amendment No. 1, the PCX amended the purpose statement of 
the proposed rule change by replacing the term ``Order Book 
Official'' with the term ``FLEX Post Official.'' The proposal will 
become operative 30 days from the original date of filing because 
Commission staff finds that the proposed amendment is not 
substantive.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX is proposing to amend its rules to permit a FLEX equity 
option to have a term of five years in certain circumstances. The text 
of the proposed rule change is available at the Office of the 
Secretary, the 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 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 PCX 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
    The Exchange is proposing to allow FLEX equity options \4\ traded 
on the Exchange to have a maturity beyond three years and up to five 
years in certain circumstances. Currently, FLEX equity options, by 
operation of Rule 8.102(d)(1), are limited to a maturity of three 
years.
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    \4\ A FLEX equity option is an option contract traded on the 
Exchange whose underlying instrument is an equity security. The 
terms of FLEX equity options are determined by the parties to the 
contract.
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    This extension is being proposed in response to requests of broker-
dealers to extend the maturity of FLEX equity options to five years. 
The Exchange notes that the Commission recently approved a proposal of 
the Chicago Board Options Exchange (``CBOE'') to amend its rules in 
response to such requests. \5\ The Exchange believes that the proposed 
rule change will allow investors to use longer expiration FLEX equity 
options to hedge longer-term issuances of structured products linked to 
returns of an individual stock. The rule, as amended, would permit the 
longer-term FLEX equity options to be listed when requested by the 
submitting member if the Flex Post Official \6\ determines that 
sufficient liquidity exists among Equity FLEX qualified participants.
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    \5\ See Exchange Act Release No. 39524 (January 8, 1998) 63 FR 
3009 (January 20, 1998) (order approving File No. SR-CBOE-97-57).
    \6\ See Amendment No. 1, supra note 3.
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2. Statutory Basis
    By allowing for the extension of the maturity of FLEX equity 
options to five years in situations where there is demand for a longer-
term expiration and where there is sufficient liquidity among Exchange-
qualified market makers to support the request, the Exchange believes 
the proposed rule change will better serve the needs of PCX's customers 
and the Exchange members who make a market for such customers. The PCX 
believes the proposal is consistent with and furthers the objectives of 
Section 6(b)(5) of the Act \7\ in that it is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and to protect investors and the public interest.
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    \7\ 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

    The Commission finds that the proposed rule change, as amended, has 
become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and 
Rule 19b-4(e)(6) \9\ thereunder because it: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) was provided by 
the Exchange to the Commission with written notice of its intent to 
file the proposed rule change at least five days prior to the filing 
date. A proposed rule

[[Page 11946]]

change filed under Rule 19b-4(e) does not become operative prior to 
thirty days after the date of filing or such shorter time as the 
Commission may designate if such action is consistent with the 
protection of investors and the public interest. At any time within 60 
days of the filing of the 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(e)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-98-10 and should 
be submitted by April 1, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-6174 Filed 3-10-98; 8:45 am]
BILLING CODE 8010-01-M