[Federal Register Volume 63, Number 179 (Wednesday, September 16, 1998)]
[Notices]
[Pages 49624-49626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40418; File No. SR-PCX-98-38]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Equity Trading Halts Due to Extraordinary Market Volatility

September 9, 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 August 4, 1998, as amended on August 31, 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 Exchange.\3\ The Commission is publishing 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) (1982).
    \2\ 17 CFR 240.19b-4 (1991).
    \3\ On August 31, 1998, the PCX an amendment with the 
Commission, requesting that the Commission treat the filing as a 
``non-controversial'' rule filing pursuant to Rule 19b-4(e)(6), 17 
CFR 240.19b-4(e)(6). The amendment also clarified the background to 
the PCX's existing circuit breaker policy and proposed rule change, 
and made technical corrections to the filing. See Letter from 
Michael Pacileo, Staff Attorney, PCX to Joshua Kans, Attorney, 
Division of Market Regulation, Commission, dated August 31, 1998. 
The Commission deems the proposal filed upon receipt of the August 
31, 1998 amendment.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange is proposing to codify its rules relating to trading 
halts in equity securities due to extraordinary market volatility.

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 Exchange 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 Exchange has prepared summaries, set forth in 
sections A, B and C below, of the most significant aspects of such 
statements.

[[Page 49625]]

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 codify its current policy of imposing 
trading halts as quickly as practicable whenever the New York Stock 
Exchange (``NYSE'') and other equity markets have suspended trading due 
to extraordinary market volatility. The Exchange most recently restated 
its market closing policy in April 1998, in conjunction with the NYSE's 
and other exchanges' amendments to their circuit breaker rules.\4\
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    \4\ See Securities Exchange Act Release No. 39846 (April 9, 
1998), 63 FR 18477 (April 15, 1998).
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    Circuit Breakers are coordinated cross-market trading halts that 
are intended to help avoid systematic breakdown when a severe one-day 
market drop of historic proportions prevents the financial markets from 
operating in an orderly manner. The securities and futures market 
introduced circuit breakers to offer investors an opportunity to assess 
information and positions when the markets experience a severe, rapid 
decline.
    In 1988, in response to the October 19, 1987 market drop, the 
Commission approved various exchanges' circuit breaker proposals, along 
with the PCX's and National Association of Securities Dealers' 
(``NASD'') circuit breaker policy statements. The circuit breaker 
proposals were intended to provide market participants with an 
opportunity during a severe market decline to reestablish an 
equilibrium between buying and selling interest in a more orderly 
fashion. In October 1997, the first circuit breakers were triggered due 
to a decline of 554 points on the Dow Jones Industrial Average 
(``Dow''). This triggering of the circuit breakers when the markets 
were operating smoothly prompted the markets to re-evaluate the 
operation and function of circuit breakers. In January 1998, as a 
result of the events of October 1997, several exchanges adopted interim 
changes to the circuit breaker rules.\5\ Subsequently, the markets 
agreed to the current uniform circuit breaker rule, which the PCX 
proposes to codify.\6\
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    \5\ See Securities Exchange Act Release No. 39852 (January 26, 
1998), 63 FR 5408 (February 2, 1998) (order granting accelerated 
approval of proposed rule changes by NYSE, American Stock Exchange 
(``AMEX''), Boston Stock Exchange (``BSE''), Chicago Stock Exchange 
(``CHX'') and Philadelphia Stock Exchange (``PHLX'')). The proposed 
rule changes became effective on February 2, 1998, and were approved 
on a pilot basis until April 30, 1998.
    \6\ See Securities Exchange Act Release No. 39846 (April 9, 
1998), 63 FR 18477 (April 15, 1998) (approving proposed rule changes 
by NYSE, AMEX, BSE, CHX, PHLX and NASD).
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    The PCX proposes to codify its Circuit Breaker trigger levels for a 
one-day decline of 10 percent, 20 percent, and 30 percent of the Dow, 
to be calculated at the beginning of each calendar quarter, using the 
average closing value of the Dow for the previous month to establish 
specific point values for the quarter. Each trigger will be rounded to 
the nearest 50 points.\7\
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    \7\ For example, if the average of the Dow closing values for 
the previous month is 7700, 10% of such average would be 770; this 
number would be rounded to the nearest 50 points to create a circuit 
breaker trigger level of 750 points. In addition, if a trigger level 
is midway between two points, it will be rounded down, e.g., 825 
would be rounded to 800, and 875 would be rounded to 850.
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    Before 11:00 a.m.,\8\ the halt for a 10 percent decline will be one 
hour. At or after 11:00 a.m. but before 11:30 a.m., the halt will be 
for one-half hour. If the 10 percent trigger value is reached at or 
after 11:30 a.m., the market will not halt at the 10 percent level and 
will continue trading.
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    \8\ All time references are to Pacific Time.
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    The halt for a 20 percent decline will be two hours if triggered 
before 10:00 a.m. At or after 10:00 a.m. but before 11:00 a.m., the 
halt will be for one hour. If the 20 percent trigger value is reached 
at or after 11:00 a.m., trading will halt for the remainder of the day. 
If the market declines by 30 percent, at any time, trading will be 
halted for the remainder of the day.
(2) Basis
    The Exchange believes that this proposal is consistent with Section 
6(b) of the Act,\9\ in general, and Section 6(b)(5),\10\ in particular, 
in that it is designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, and in general, to protect 
investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    Because the foregoing proposed rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not imposed any significant burden on competition; 
and (3) does not become operative for 30 days from August 31, 1988, the 
date on which the filing was amended to reflect the noncontroversial 
status of this rule change,\11\ it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \12\ and Rule 19b-4(e)(6) thereunder.
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    \11\ The Commission waived the five-day prefiling requirement 
for ``noncontroversial'' rule changes under Rule 19b-4(e)(6), 17 CFR 
240.19b-4(e)(6), because the Commission had an opportunity to review 
the proposal when the Exchange originally submitted it on August 4, 
1998.
    \12\ 15 U.S.C. 78s(b)(3)(A).
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    At any time within 60 days of the August 31, 1998 amendment 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.

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.\13\ 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.,

[[Page 49626]]

Washington, D.C. 25049. 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-98-38 and should be 
submitted by October 7, 1998.

    \13\ In reviewing the proposal, the Commission has considered 
its impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24817 Filed 9-15-98; 8:45 am]
BILLING CODE 8010-01-M