[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Notices]
[Pages 2932-2934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1087]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40893; File No. SR-PCX-98-64]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to Mandatory Year 2000 Testing

January 7, 1999.
    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 December 31, 1998, the Pacific Exchange, Inc. (``PCX'' OR 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to approve the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes that members and member organizations that 
have either direct electronic order flow or electronic clearing 
connections with the Exchange participate in testing of computer 
systems designed to prepare for year 2000.
    The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *

Year 2000 Testing Requirements

    Rule 1.15.(a) Each member not associated with a member organization 
and each member organization that has either direct electronic order 
flow or electronic clearing connections with the Exchange must 
participate in testing of computer systems designed to provide reports 
related to such testing as requested by the Exchange.
    (b) The Exchange may exempt a member or member organization from 
this requirement if that member or member organization cannot be 
accommodated in the testing schedule by the organization conducting the 
test or if the member of member organization does not have or use 
computer systems in the conduct of their business (other than those 
supplied by the Exchange), or for other good reasons.
    (c) A member of member organization that is subject to this rule 
and fails to participate or provide requested reports may be subject to 
disciplinary action pursuant to PCX Rule 10.
    (d) Every member or member organization that clears securities 
transactions on behalf of other broker-dealers must take reasonable 
measures to ensure that each broker-dealer for which it clears 
securities transactions conducts testing with such member.

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 and 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 2933]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Background. The ``Year 2000'' problem could have disastrous 
consequences for a number of businesses, including those in the 
securities industry, if the necessary changes are not made and tested 
in advance of the beginning of year 2000. On January 1, 2000, the 
internal data in computers will change from ``12/31/99'' to ``01/01/
00.'' At that moment, if necessary changes have not been made to the 
computers' codes then a number of errors could occur in even the most 
routine processing. The computers may read the two digit ``00'' year 
code as 1900, or another incorrect date, instead of as 2000. Testing by 
and among a broad range of securities industry participants, including 
exchanges, registered clearing corporations and depositories, data 
processors and broker-dealers, will be of critical importance to ensure 
that the markets continue to operate efficiently after January 1, 2000.
    Proposal. The proposed rule change establishes mandatory 
requirements for members and member organizations with regard to Year 
2000 computer testing. Specifically, the Exchange proposes to require 
that members and member organizations that have either direct 
electronic order flow or electronic clearing connections with the 
Exchange participate in testing of computer systems designed to prepare 
for year 2000 in a manner and frequency as prescribed by the Exchange. 
Such testing may include PCX point-to-point testing and either 
Securities Industry Association (``SIA'') extended point-to-point 
testing, SIA industry-wide testing or any other testing the Exchange 
deems warranted. The Exchange also proposes that such members or member 
organizations be required to provide reports related to such testing as 
requested by the Exchange, including, but not limited to, reports on 
test preparation, prerequisite testing, and success or failure of such 
tests.
    In addition, the Exchange proposes that members and member 
organizations that do not use computers in the conduct of their 
business, other than those provided by the Exchange for order entry and 
similar purposes, may be excluded from the requirements of testing. The 
Exchange also proposes that members of member organizations that cannot 
be accommodated in the testing schedule by the organization conducting 
the testing, or for other good reasons, may be excluded from the 
requirements of testing.
    The Exchange further proposes that a member or member organization 
that is subject to this rule and fails to participate in the tests or 
fails to file any requested reports, may be subject to disciplinary 
action pursuant to PCX rule 10.
    Finally, the Exchange proposes that every member or member 
organization that clears securities transactions on behalf of other 
broker-dealers must take reasonable measures to ensure that each 
broker-dealer for which it clears securities transactions conducts 
testing with such member.
2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \3\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5),\4\ in particular, because it fosters cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities. In addition, the proposed rule change is designed to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system, and to protect investors and the 
public interest.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 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. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    After careful consideration, the Commission has concluded, for the 
reasons set forth below, that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder. Mandating Year 2000 testing and reporting is consistent 
with Section 6(b)(5) of the Act, which, among other aspects, requires 
that the rules of an exchange promote just and equitable principles of 
trade, fosters cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, and remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system. The Commission believes that the proposed rule change 
will facilitate the PCX's and member firms' efforts to ensure the 
securities markets' continued smooth operation during the period 
leading up to and beyond January 1, 2000.
    The Exchange has requested that the Commission approved the 
proposed rule change prior to the 30th day after the date of 
publication of notice of the filing in the Federal Register because, in 
light of the industry wide tests that will soon begin and the tests 
that the Exchange is conducting, the Exchange wants to ensure that it 
can promptly deal with any problems that arise. The Commission finds 
good cause for approving the proposed rule change prior to the 30th day 
after the date of publication of notice of the filing in the Federal 
Register. It is vital that self-regulatory organizations (``SROs'') 
such as the PCX have the authority to mandate that their member firms 
participate in Year 2000 testing and that they report test results (and 
other Year 2000 information) to the SROs. The proposed rule change will 
help the PCX participate in coordinating Year 2000 testing, including 
industry-wide testing, and in remediating any potential Year 2000 
problems. This, in turn, will help ensure that the industry-wide tests 
and the PCX's Year 2000 efforts are successful. The proposed rule 
change will also help the PCX work with its member firms, the SIA, and 
other SROs to minimize any possible disruptions the Year 2000 may 
cause.

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

[[Page 2934]]

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-98-60 and should 
be submitted by February 9, 1999.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\5\ that the proposed rule change (SR-PCX-98-64) is hereby approved on 
an accelerated basis.\6\

    \5\ 15 U.S.C. 78s(b)(2).
    \6\ In approving the proposal, the Commission has considered the 
rule's 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.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1087 Filed 1-15-99; 8:45 am]
BILLING CODE 8010-01-M