[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1058-1059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-307]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40852; File No. SR-PCX-98-16]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Granting Approval to Proposed Rule Change Relating to Telephonic and 
Electronic Communication Devices on the Trading Floor

December 28, 1998.

I. Introduction

    On March 31, 1998, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with 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 to require Exchange approval 
before any telephonic or electronic communications device may be used 
on the floor of the Exchange. The proposed rule change, including 
Amendment No. 1 to the proposed rule change was published for comment 
in the Federal Register on April 23, 1998.\3\ This order approves the 
proposal as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 39881 (April 16, 1998), 
63 FR 20236.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange is proposing to adopt new Rule 4.22, which provides 
that no Member or Member Organization may establish or maintain any 
telephonic or electronic communication between the floor and any other 
location, or between locations on the floor, without the prior approval 
of the Exchange.
    The Exchange is also proposing to eliminate Options Floor Procedure 
Advice (``OFPA'') F-3 relating to communication access to and from the 
options trading floor.\4\ The Exchange believes that proposed Rule 4.22 
adequately replaces OFPA F-3, which it believes is obsolete. The 
Exchange notes that proposed Rule 4.22 is substantially similar to Rule 
220 of the American Stock Exchange (``Amex'') and Rule 6.23 of the 
Chicago Board Options Exchange (``CBOE'').\5\
---------------------------------------------------------------------------

    \4\ OFPA F-3, Communication Access To and From the Options 
Trading Floor, reads as follows: Pursuant to Rule XVII, prior 
approval by the Exchange will be required before the installation of 
any form of direct private communication devices, including PT&T and 
Western Union voice lines and teletype or similar hard copy wire 
connections. Such approval will be granted only if the connection 
from the Options Trading Floor terminates in one of the following 
manners: (1) At an office of a PSE member organization. (2) At a 
floor facility of a PSE member organization on the Options Trading 
Floor of another national securities exchange, subject to the 
approval of that exchange. (3) At either of the Equity Trading Floor 
of PSE. Approval will not be granted for connections terminating at 
any facility of a person or organization who or which is not a 
member organization of PSE. Standard (non-private, non-direct) 
telephones may be installed on the Options Trading Floor in member 
organizations assigned floor booths as desired but all requests for 
such installation must be directed to the Options Floor Manager for 
purposes of coordination. In making use of communications access to 
and from the Options Trading Floor members are reminded of the 
provisions of section 12(k) of Rule I.
    \5\ Amex Rule 220 is discussed below. CBOE Rule 6.23 provides, 
in part, that ``No member shall establish or maintain any telephone 
or other wire communications between his or its office and the 
Exchange without prior approval by the Exchange.'' See CBOE Rule 
6.23.
---------------------------------------------------------------------------

    The Exchange states that it is making this proposed rule change as 
a housekeeping measure to assure that the Exchange's rules state 
expressly that Members and Member Organizations must obtain prior 
approval before establishing or maintaining telephonic or electronic 
communications between the floor and other locations, or between 
locations on the floor. The Exchange believes that the provision will 
improve upon its current rules by providing its Members and Member 
Organizations with clear notice of the requirement for Exchange 
approval.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with Section 6 of the Act \6\ and the rules and regulations thereunder. 
In particular, the Commission believes that the proposal is consistent 
with the section 6(b)(5) \7\ requirements that the rules of an exchange 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    In determining to approve the proposal, the Commission notes that 
proposed Rule 4.22 is substantially similar to Amex Rule 220.\9\ 
Similar to Amex's Rule 220, PCX Rule 4.22 will

[[Page 1059]]

require Exchange approval prior to the installation of any form of 
telephonic or electronic communication on both the options and equity 
floors of the Exchange. Currently, pursuant to OFPA F-3, Exchange 
approval is required before any form of direct private communication 
may be installed on the options floor of the Exchange.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 33735 (March 8, 
1994), 59 FR 12015 (March 15, 1994) (order approving SR-Amex-87-33). 
The proposed rule differs from Amex Rule 220 in that Amex Rule 220 
requires written permission while proposed Rule 4.22 does not 
require that permission to install a telephonic or electronic 
communication device on the floor of the Exchange be in writing. See 
Amex Rule 220.
---------------------------------------------------------------------------

    The Commission supports the Exchange's efforts to continue to 
review the substance of its rules in response to changes in market 
structure and technology. In regulating the PCX trading floors and 
devising their structure, the Commission recognizes the PCX's need to 
be aware of electronic and telephonic communications that are being 
installed on its floors. While supporting the Exchange's efforts to 
monitor the types of communications that are on its trading floors, the 
Commission expects the PCX to ensure that the rule being approved today 
is not used to limit access to services offered by the Exchange or 
applied in a manner inconsistent with sections 6(b)(5) \10\ and 6(b)(8) 
\11\ of the Act.\12\ Specifically, the Commission expects that proposed 
Rule 4.22 will not be interpreted in an manner that permits unfair 
discrimination between customers, issuers, brokers, or dealers, or 
imposes any unnecessary or inappropriate burden on competition, or is 
otherwise used to limit member access to Exchange services. Finally, 
the Commission notes that the PCX should not rely solely on Rule 4.22 
as currently drafted to establish a broad based restriction on member 
communications on its trading floors. Rather, the PCX would need to 
develop specific rules containing clear and objective criteria on which 
to base such a restriction and submit that criteria for Commission 
review under section 19(b) of the Act.\13\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(8).
    \12\ See e.g., William J. Higgins, 48 S.E.C. 713 (1987).
    \13\ See e.g., Securities Exchange Act Release No. 40577 (Oct. 
20, 1998), 63 FR 57721 (Oct. 28, 1998) (Order approving File No. SR-
PSE-97-02); and Amex Rule 220, Commentaries .01-.04.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-PCX-98-16) is approved.

    \14\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-307 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M