[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56282-56283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28196]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40551; File No. SR-PCX-98-36]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the Pacific Exchange, Inc., Relating to the 
OptiMark System--Specialists Bids and Offers

October 14, 1998.

I. Introduction

    On July 2, 1998, the Pacific Exchange, Inc. (``PCX'' or the 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change that would require Specialists to 
ensure that their best bids and offers will be represented in the 
OptiMark System.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 U.S.C. 19b-4.
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    On August 27, 1998, the proposed rule change was published for 
comment in the Federal Register.\3\  The Commission received one 
comment letter on the proposal.\4\
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    \3\ Securities Exchange Act Release No. 40348 (August 20, 1998), 
63 FR 45892.
    \4\ Letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Jonathan G. Katz, dated September 16, 1998. In 
the comment letter, the NYSE took no position on whether the 
Commission should approve PCX's proposal. NYSE noted, however, that 
the filing does not address the NYSE's concerns regarding proposed 
amendments to the plan governing the Intermarket Trading System to 
accommodate the OptiMark System and the PCX Application.
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    This order approves the proposed rule change.

II. Description of the Proposal

    The Exchange proposes to adopt new Rule 15.3(b) to require PCX 
Specialists to use the PCX Application of the OptiMark System (``PCX 
Application'') with respect to the bids and offers that they publish. 
The purpose of the rule is to facilitate best execution of customer 
orders by requiring PCX Specialists to include best bids and offers in 
the OptiMark System as Profiles. Specifically, proposed Rule 15.3(b) 
provides that PCX Specialists must ensure that at all relevant times 
during regular trading hours, their best bids and offers (whether 
reflecting limit orders or the Specialist's own interest) will be 
included in the OptiMark System. Once included, such trading interest 
is expected to interact with other trading interest, resulting in 
improved execution opportunities on the PCX. The Exchange believes that 
the rule change will facilitate interaction between the PCX Application 
and existing trading interest on the PCX floors, thereby promoting more 
efficient and effective market operations.
    The Exchange is also proposing to modify PCX Rule 15.2 by adding 
the following provision: ``The Exchange will assure that each 
Specialist is provided with appropriate access to the PCX Application 
for the purpose of submitting Profiles from the Specialist's Post.''

III. Discussion

    After careful review, the Commission believes that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange. In particular, 
the Commission believes that the proposed rule change is consistent 
with Section 11A(a)(1)(C)(iii) and (iv) of the Act. Congress found in 
those provisions that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure that availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities, and to assure

[[Page 56283]]

the practicability of brokers executing investors' orders in the best 
market.\5\ The proposed rule change will assure the availability of 
information with respect to quotations because it requires specialists 
to enter best bids and offers (whether their own or those of customers) 
into the OptiMark System at all relevant times during regular trading 
hours. Similarly, because customer limit orders as well as the 
Specialist's own bids and offers must be entered into the OptiMark 
System, there will be an opportunity for price improvement for 
quotations in the OptiMark System.
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    \5\ 15 U.S.C. 78k-1(a)(1)(C) (iii) and (iv).
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    In addition, the Commission believes the proposal is consistent 
with the Section 6(b)(5) \6\ requirements that the rules of an exchange 
not be designed to discrimination against broker-dealers issuers and 
others using the Exchange because each PCX Specialist must be provided 
with appropriate access to the PCX Application at the Specialist's 
Post.\7\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving these rules, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    In approving the proposal, the Commission is not suggesting that 
PCX Specialists' use of the OptiMark System satisfies those 
specialists' best execution obligations. By enhancing the investment 
choices available to investors over a broad range of trading scenarios, 
however, the proposal should help to ensure that investors that trade 
through PCX have a enhanced opportunity to obtain better prices for 
their securities transactions.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (PCX-98-36) is approved.

    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28196 Filed 10-20-98; 8:45 am]
BILLING CODE 8010-01-M