[Federal Register Volume 63, Number 99 (Friday, May 22, 1998)]
[Notices]
[Pages 28432-28433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13727]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39995; File No. SR-PCX-98-17]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. Relating to Expansion of the LMM 
Book Pilot Program

May 15, 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 April 16, 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 self-regulatory 
organization.\3\ The Commission is published this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4 (1991).
    \3\ The Exchange had initially submitted the filing prior to 
April 16, 1998, but that submission did not include a signature 
page. By letter dated April 14, 1998, the Exchange filed Amendment 
No. 1 to the filing, which contained signatures for the filing. See 
Letter from Michael D. Pierson, Senior Attorney, Regulatory Policy, 
PCX, to Marie D'Aguanno Ito, Special Counsel, Division of Market 
Regulation, Commission, dated April 14, 1998.
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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 remove the current cap on the number of 
LMMs who may participate in the program.\4\
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    \4\ On May 1, 1998, PCX submitted Amendment No. 2 to the filing, 
seeking to withdraw the portion of the filing that proposed removing 
the limit on the number of option issues that may be included in the 
LMM program. The PCX represented in the Amendment that such proposal 
would be submitted in a separate filing. See Letter from Michael D. 
Pierson, Senior Attorney, Regulatory Policy, to Marie D'Aguanno Ito, 
Special Counsel, Division of Market Regulation, Commission, dated 
April 30, 1998.
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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

Purpose
    On October 11, 1997, 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 proposal to 
extend the program for one year, so that it is currently set to expire 
on October 12, 1998.\6\
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    \5\ See Exchange Act Release No. 37810 (October 11, 1996), 61 FR 
54481 (October 18, 1997) (approving File No. SR-PSE-96-09).
    \6\ See Exchange Act Release No. 39106 (September 22, 1997), 62 
FR 31172 (September 30, 1997).
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    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\ 
Currently, both multiply-listed and non-multiply-listed option

[[Page 28433]]

issues are 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\
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    \7\ See Exchange Act Release No. 37874 (October 28, 1996), 61 FR 
56597 (November 1, 1996) (approving SR-PSE-96-38, establishing a 
staffing charge for LMMs who participate in the pilot program); see 
also File No. SR-PCX-98-03 (proposal to modify the LMM Book Pilot 
staffing charge).
    \8\ See Exchange Act Release No. 38273 (February 12, 1997), 62 
FR 7489 (February 19, 1997) (approving File No. SR-PSE-96-45); see 
also Exchange Act Release No. 39667 (February 13, 1998), 63 FR 9895 
(February 26, 1998) (order approving proposal to allow non-multiply-
listed option issues to be traded under the program).
    \9\ See Exchange Act Release No. 38462 (April 1, 1997), 62 FR 
16886 (April 8, 1997).
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    The Exchange is now proposing to expand the LMM Book Pilot Program 
to eliminate the cap on the number of LMMs that may participate in the 
program. The Exchange notes that the program has been in operation for 
approximately eighteen months and no significant problems have 
occurred. The program has been viable and effective, and has resulted 
in significant cost savings to customers in Book execution charges. The 
Exchange believes that it has adequate systems and operation capacity 
to expand the scope of the program beyond its current limits.
    The Exchange believes that the proposed change will make the 
Exchange LMM Program more competitive because it will provide LMMs with 
the same flexibility currently held by options specialists at other 
exchanges, and DPMs at the Chicago Board Options Exchange.
Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \10\ of the Act, in general, and furthers the objectives 
of Section 6(b)(5),\11\ 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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    \10\ 15 U.S.c. 78f(b).
    \11\ 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-98-17 and should be submitted by June 12, 
1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-13727 Filed 5-21-98; 8:45 am]
BILLING CODE 8010-01-M