[Federal Register Volume 64, Number 24 (Friday, February 5, 1999)]
[Notices]
[Pages 5848-5849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2734]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40994; File No. SR-PCX-98-63]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to the OptiMark System and Stop Orders

January 28, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 24, 1998, the 
Pacific Exchange, Inc. (``PCX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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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 amend Rules 5.8(j) and 5.32(a) to 
clarify the responsibilities of PCX members regarding the handling of 
stop orders relative to executions resulting from the PCX Application 
of the OptiMark System.
    The text of the proposed rule change is available at the Office of 
the Secretary, PCX and at the Commission.

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.

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

1. Purpose
    The Exchange proposes to amend Rules 5.8(j) and 5.32(a) to clarify 
the responsibilities of PCX members regarding the handling of stop 
orders relative to executions resulting from the PCX Application of the 
OptiMark System. The proposed amendments clarify that all round-lot 
stop orders in dually-traded securities that are afforded primary 
market protection (``PMP'') will not be elected and executed based on 
transactions that emanate from the OptiMark System. The Exchange 
believes that the proposed rule change will clarify the treatment of 
stop orders under PCX's rules, thereby promoting a more effective and 
orderly market operation.
    The Exchange proposes changes to Rules 5.8(j) and 5.32(a) for the 
following reasons:
    First, stop orders are not eligible for entry as profiles in the 
OptiMark System. Consequently, a specialist or floor broker cannot 
interact with the trade results that are generated from a single call 
cycle in order to comply with the execution requirements for stop 
orders (prints resulting from an OptiMark call cycle occur in an 
uninterrupted batch).
    Second, a stop order is contingent on its election and execution 
occurring in a continuous sequence of trades in an auction market. 
OptiMark is a call market in which executions occur on a periodic basis 
and, as a result, it is not conducive to the election and execution of 
such orders.
    Third, since an OptiMark match cycle generates trades at a range of 
prices, the election of a stop order by including OptiMark prints may 
result in a customer receiving an unfavorable execution, particularly 
if the traditional primary market (New York Stock Exchange (``NYSE'') 
or American Stock Exchange (``AMEX'')) would not reach the election 
price.
    Fourth, given PCX technology in the current trading environment, 
the Specialists are unable to distinguish between OptiMark and non-
OptiMark prints that occur on the PCX.
    Finally, the proposal is consistent with the interpretation of PCX 
Rule 5.8(j) in that stop orders have, in practice, been elected and 
executed based on transactions emanated from the primary markets (NYSE 
and AMEX).
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) \2\ of the Act in general and further objectives of 
Section 6(b)(5) \3\ in particular, because it is designed to promote 
just and equitable principles of trade, to facilitate transactions in 
securities, 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.\4\
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    \2\ 15 U.S.C. 78f(b).
    \3\ 15 U.S.C. 78f(b)(5).
    \4\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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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 inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The foregoing rule change constitutes a stated policy, practice or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the Exchange and therefore, has 
become effective pursuant to Section 19(b)(3)(A)(i) of the Act \5\ and 
subparagraph (e)(1) of Rule 19b-4 thereunder.\6\
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    \5\ 15 U.S.C. 78s(b)(3)(A)(i).
    \6\ 17 CFR 240.19b-4(e)(1).
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    At any time within 60 days of the filing 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.

[[Page 5849]]

Persons making written submissions should file six copies thereof with 
the Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW, Washington, DC 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 at the Commission's Public 
Reference Room. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-PCX-98-63 and should be 
submitted by February 26, 1999.

    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. 99-2734 Filed 2-4-99; 8:45 am]
BILLING CODE 8010-01-M