[Federal Register Volume 63, Number 135 (Wednesday, July 15, 1998)]
[Notices]
[Pages 38222-38223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18843]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40182; File No. SR-PCX-98-12]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change Relating to the Treatment of PMP Orders 
Generated Through the Matching of Profiles by the PCX Application of 
the OptiMark System

July 9, 1998.

I. Introduction

    On March 2, 1998, the Pacific Exchange (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and 
Rule 19b-4 thereunder,\2\ to amend its interpretation of Rule 5.32(a) 
``PMP-Only'' of its Rules of Board of Governors so that it will clarify 
how PMP orders will be treated when generated from the matching of 
Profiles through the PCX Application of the OptiMark System (``PCX 
Application'').\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1) (1982).
    \2\ 17 CFR 240.19b-4 (1991).
    \3\ For a description of the PCX Application of the OptiMark 
System, see Securities Exchange Act Release No. 39086 (Sept. 17, 
1997), 62 FR 50036 (Sept. 24, 1997) (Commission order granting 
approval for the PCX Application).
---------------------------------------------------------------------------

    Notice of the proposed rule change was published in the Federal 
Register.\4\ The Commission received no comment letters in response to 
the notice of the proposed rule change.
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 39818 (Mar. 30, 1998), 
63 FR 17252 (Apr. 8, 1998).
---------------------------------------------------------------------------

II. Description of the Proposal

    PCX has proposed to amend its interpretation of Rule 5.32(a) ``PMP-
Only'' of its Rules of Board of Governors so that it will clarify how 
PMP orders will be treated when generated from the matching of Profiles 
through the PCX Application. A new commentary has been added to Rule 
5.32(a).
    PCX will modify the interpretation of its Rule 5.32(a) so that 
executions resulting from the operation of the PCX Application would be 
considered as a part of the ``primary market'' for the purposes of 
execution of orders marked ``PMP.'' The purpose of the proposed 
interpretation of the rule is to respond to the SEC staff's request to 
clarify the meaning of Rule 5.32(a) ``PMP Only.'' Through the addition 
of proposed Commentary .01, Rule 5.32(a) would be interpreted as 
meaning that during regular ``primary'' market trading hours, an order 
specifically marked ``PMP'' would receive primary market protection, 
which would include not only the traditional primary markets (e.g., New 
York markets) but also matches resulting from the PCX Application. 
Accordingly, executions resulting from the PCX Application may trigger 
the execution of an order marked ``PMP Only,'' even if the primary 
markets have not traded at that price. Similarly, a PMP order reflected 
into the PCX Application as a Profile, which is matched in the PCX 
Application and results in an execution, would require that such PMP 
limit order be filled, even if the price is out of range from an 
otherwise existing ``primary'' market, however defined. This would then 
be consistent with the overall premise that under no circumstance can a 
specialist accept an execution arising out of orders generated from a 
cycle of the PCX Application, without also executing any eligible 
booked orders that were put in the book before the cycle began.

III. Discussion

    The Commission believes that proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Exchange Act, which 
provides, among other things, that the rules of an exchange be designed 
to promote just and equitable principles of trade and to protect 
investors and the public interest, and not designed to permit unfair 
discrimination between customers, issuers, brokers or dealers. The 
Commission believes that by including PMP orders in the PCX 
Application, and giving those orders not only traditional primary 
market protection, but also the potentially improved pricing that may 
result from inclusion in the PCX Application, the PCX is seeking to 
protect the interests of investors and to promote just and equitable 
principles of trade, while striving to prevent unfair discrimination 
between customers, brokers, and dealers. This effort should also help 
to remove impediments to, and perfect the mechanism of, a free and open 
market, consistent with the purpose of Section 6(b)(5) of the Act.
    In addition, the Commission believes that the proposed rule change 
is consistent with the provisions of Section 11A(a)(1)(B) of the 
Exchange Act, which states that new data processing and communications 
techniques create the opportunity for more efficient and effective 
market operations. By employing the facility of the PCX Application, an 
advanced data processing and communications system, to process PMP 
orders and to give potentially improved pricing to those orders or 
otherwise to fill more

[[Page 38223]]

expeditiously PMP limit orders, the PCX is furthering the purposes of 
Section 11A(a)(1)(B) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\5\ that the proposed rule change (SR-PCX-98-12) is approved.

    \5\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18843 Filed 7-14-98; 8:45 am]
BILLING CODE 8010-01-M