[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Notices]
[Pages 12852-12854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6660]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39735; File No. SR-PCX-97-39]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Exchange, Inc. Relating to Trading Differentials for Option Contracts
March 9, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on October 21, 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 and II below, which Items have been prepared by the self-
regulatory organization. On December 10, 1997, the Exchange submitted
to the Commission an amendment to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval to the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Michael D. Pierson, PCX, to Christine
Richardson, Division of Market Regulation, Commission (December 10,
1997) (``Amendment No. 1'').
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to amend its rules to allow the Exchange to
establish, upon the filing of a rule change proposal pursuant to
Section 19(b)(3)(A) of the Exchange Act, the trading differentials for
option contracts traded on the Exchange. The Exchange also proposes to
amend its rules to clarify that the Exchange shall file a rule change
proposal with the Commission pursuant to Section 19(b)(3)(A) of the
Exchange Act when it determines to change the trading differentials for
equity securities.\4\ The text of the proposed rule change is available
at the Office of the Secretary, PCX and at the Commission.
---------------------------------------------------------------------------
\4\ The Exchange already has the authority to determine the
trading differentials for equity securities traded on the Exchange.
See Exchange Act Release No. 38780 (June 26, 1997), 62 FR 36087
(July 3, 1997) (order approving SR-PCX-97-15). The approval order
for SR-PCX-97-15 stated that, when the Exchange determined to change
a trading differential for an equity security, the Exchange would
file with the Commission a rule change proposal pursuant to Section
19(b)(3)(A) of the Exchange Act (effective upon filing).
The Exchange is now proposing to add Commentary .01 to Rule
5.3(b) to clarify that, when it determines to change a trading
differential for an equity security, it shall file with the
Commission a rule change proposal pursuant to Section 19(b)(3)(A) of
the Exchange Act. See Amendment No. 1, supra note 3. This new
language will conform the Exchange's Rule 5.3(b) to what is required
by the order that gives the Exchange its authority to change the
trading differentials for equity securities.
---------------------------------------------------------------------------
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,
Statutory Basis for, the Proposed Rule Change
1. Purpose
PCX Rule 6.72 currently provides that bids and offers in option
contracts shall be expressed in eighths of $1, unless a different
fraction of $1 is approved by the Exchange's Options Floor Trading
Committee for an option contract of a particular series. Commentary .01
to Rule 6.72 currently provides that the Options Floor Trading
Committee has determined that bids and offers for all option series
trading below $3 shall be expressed in sixteenths of a dollar.
The Exchange is now proposing to amend Rule 6.72 to provide that
the Exchange shall determine the trading differentials for option
contracts traded on the Exchange. The Exchange is proposing this rule
change in order to provide itself with greater flexibility, so that it
can change the trading differentials for option contracts traded on the
Exchange on an expedited basis. Amendment No. 1 amends Commentary .01
to Rule 6.72 to clarify that when the Exchange determines to change the
trading increments for option contracts, the Exchange will designate
such change as a stated policy, practice, or interpretation with
respect to the administration of Rule 6.72 within the meaning of
subparagraph (3)(A) of subsection 19(b) of the Exchange Act and will
file a rule change for immediate effectiveness upon filing with the
Commission. The Exchange notes that the proposed rule change is
[[Page 12853]]
substantively similar to a recently approved PCX rule change proposal
governing equity securities traded on the Exchange.\5\
---------------------------------------------------------------------------
\5\See Exchange Act Release No. 38780 (June 26, 1997), 62 FR
36087 (July 3, 1997) (order approving File No. SR-PCX-97-15,
modifying PCX Rule 5.3(b) to provide that ``The Exchange shall
determine the trading differentials for equity securities traded on
the Exchange''); see also Exchange Act Release No. 38575 (May 6,
1997), 62 FR 26606 (May 14, 1997) (order granting temporary
accelerated approval, for a ninety-day period, of rule change
relating to trading differentials for equity securities) (File No.
SR-PCX-97-16).
---------------------------------------------------------------------------
The Exchange recognizes that there has been a movement within the
securities industry to reduce the minimum trading and quotation
increments for equity securities imposed by the various self-regulatory
organizations (``SROs''). The NYSE, The Nasdaq Stock Market
(``Nasdaq''), and the Amex have recently reduced their minimum
increments.\6\ Furthermore, several third market makers have begun
quoting equity securities in increments smaller than the primary
markets. As derivative securities, the prices of options are determined
in reference to the prices of the underlying securities. Consequently,
the Exchange believes that the proposed rule change will give it the
flexibility it needs to change the minimum trading and quotation
increments for option contracts traded on the Exchange.
---------------------------------------------------------------------------
\6\ See, e.g., Exchange Act Release No. 38744 (June 18, 1997),
62 FR 34334 (June 25, 1997) (granting temporary accelerated approval
to a NYSE proposal to replace eighths with sixteenths as the minimum
trading increment for NYSE-listed equity securities); Exchange Act
Release No. 38571 (May 5, 1997), 62 FR 25682 (May 9, 1997)
(approving an Amex proposal to reduce the minimum trading increment
from \1/8\ to \1/16\ for Amex-listed equity securities); Exchange
Act Release No. 38678 (May 27, 1997), 62 FR 30363 (June 6, 1997)
(approving a proposed rule change by Nasdaq to reduce the minimum
quotation increment from \1/8\ to \1/16\ for Nasdaq-listed equity
securities).
---------------------------------------------------------------------------
In addition to adding the Section 19(b)(3)(A) filing requirement to
the text of the proposed rule change for option contracts trading
differentials, Amendment No. 1 to the filing also adds the same
requirement to Rule 5.3(b) concerning a change in trading differentials
for equity securities. Amendment No. 1 adds Commentary .01 to Rule
5.3(b) to clarify that, when the Exchange determines to change the
trading increments for equity securities, it will designate such change
as a stated policy, practice, or interpretation with respect to the
administration of Rule 5.3(b) within the meaning of subparagraph (3)(A)
of subsection 19(b) of the Exchange Act and will file a rule change for
immediate effectiveness upon filing with the Commission.
2. Statutory Basis
The Exchange represents that the proposed rule change is consistent
with Section 6(b) of the Act \7\ in general and furthers the objectives
of Section 6(b)(5) \8\ in particular in that it is designed to
facilitate transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market, and to promote just
and equitable principles of trade.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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
No written comments were either solicited or received.
III. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Commission has determined to approve the proposed rule change
on an accelerated basis, thereby permitting the Exchange to establish a
procedure whereby it may determine the trading differentials for option
contracts traded on the Exchange, as well as to permit the Exchange to
clarify in its rules the necessary procedure to be followed by the
Exchange when it determines to change the trading differentials for
equity securities. The Commission finds that the proposed rule change
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange. In
particular, the Commission finds that the proposal comports with the
requirements of Section 6 and Section 11A of the Act.\9\ Specifically,
the Commission believes that permitting the Exchange to establish
trading differentials for option contracts upon the filing of a
proposal under Section 19(b)(3)(A) will help to facilitate securities
transactions, to remove impediments to and perfect the mechanism of a
free and open market, to foster competition and coordination with
persons engaged in regulating securities, and to promote just and
equitable principles of trade. The Commission believes that permitting
the Exchange to establish trading differentials for option contracts
upon the filing of a proposal under Section 19(b)(3)(A) will provide
greater flexibility to the Exchange and thereby enhance the quality of
the market for the affected PCX-listed options. Allowing the PCX to
quote in finer increments will facilitate quote competition. This
should help produce more accurate pricing of options and should result
in tighter quotations. Furthermore, if the quoted markets are improved
by reducing the minimum increment, the change could result in added
benefits to the market such as reduced transaction costs.
---------------------------------------------------------------------------
\9\ See 15 U.S.C. 78f(b) and 78k-1. In approving this rule
change, the Commission notes that it has considered the proposal's
impact on efficiency, competition, and capital formation, consistent
with Section 3 of the Act. Id. at 78c(f).
---------------------------------------------------------------------------
The Commission finds good cause for approving the proposed rule
change, as amended, prior to the thirtieth day after the date of
publication of the notice thereof in the Federal Register. As noted
above, the Commission previously has approved a similar set of
procedures applicable to PCX equity securities.
The Commission also notes that substantively similar rule proposals
submitted by the Chicago Board Options Exchange (``CBOE'') and American
Stock Exchange (``Amex'')\10\ are being approved contemporaneously with
the approval of this PCX filing. Notice of the CBOE and Amex proposals
was published in the Federal Register and no comments were
received.\11\ Accordingly, the Commission believes that it is
consistent with Sections 6(b)(5) and 19(b)(2) of the Act to approve the
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------
\10\ See File Nos. SR-CBOE-97-49 and SR-Amex-97-41.
\11\ See Exchange Act Release No. 39348 (November 21, 1997), 62
FR 63577 (December 1, 1997) (notice for File No. SR-CBOE-97-49);
Exchange Act Release No. 39347 (November 21, 1997), 62 FR 63576
(December 1, 1997) (notice for File No. SR-Amex-97-41).
---------------------------------------------------------------------------
The Commission also finds good cause for approving Amendment No. 1
to the proposed rule change prior to the thirtieth day after the date
of publication of the notice thereof in the Federal Register.
Specifically, the Commission believes that, by adding the Section
19(b)(3)(A) filing requirement to the text of Rule 6.72, the Exchange
clarifies the necessary procedure to be followed upon a determination
to change the trading differentials for option contracts. The
Commission further believes that the clarifying language being added to
the PCX's Rule 5.3(b), concerning the Exchange's authority to establish
trading differentials for equity securities, conforms the rule to what
is required by
[[Page 12854]]
the original approval order.\12\ The Commission recognizes that this
proposed additional language does not raise any new regulatory issues
because the Exchange merely is seeking to clarify the process that it
is already required to follow upon a determination to change trading
differentials for equity securities. Accordingly, the Commission
believes that it is consistent with Sections 6(b)(5) and 19(b)(2) of
the Act to approve Amendment No. 1 to the proposed rule change on an
accelerated basis.
---------------------------------------------------------------------------
\12\ See Exchange Act Release No. 38780 (June 26, 1997), 62 FR
36087 (July 3, 1997) (order approving SR-PCX-97-15).
---------------------------------------------------------------------------
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, NW., 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 Room. 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-97-39 and
should be submitted by April 6, 1998.
V. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change, as amended, (SR-PCX-97-39) is
approved on an accelerated basis.
\13\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
---------------------------------------------------------------------------
\14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-6660 Filed 3-13-98; 8:45 am]
BILLING CODE 8010-01-M