[Federal Register Volume 64, Number 30 (Tuesday, February 16, 1999)]
[Notices]
[Pages 7681-7683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3670]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41018; File No. SR-PCX-98-30]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the Pacific
Exchange, Inc. Relating to Telephone Use on the Options Floor
February 3, 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 June 26, 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. On
November 12, 1998, the Exchange filed Amendment No. 1 to the proposed
rule change.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change and Amendment No. 1 to the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Robert Pacileo, Staff Attorney, Regulatory
Policy, PCX, to David Sieradzki, Attorney, Division of Market
Regulation, SEC dated November 10, 1998 (``Amendment No. 1''). The
substance of Amendment No. 1 is incorporated into this notice.
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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 adopt a new rule setting forth
procedures and restrictions regarding telephone use on the Options
Trading Floor (``Options Floor''). The text of the proposed rule change
is available at the Office of the Secretary, the 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 purpose of this proposal is to establish rules and procedures
for telephone use on the Options Floor. Proposed Rule 6.2(h) sets
guidelines for the use of telephones by Market Makers, Lead Market
Makers (``LMMs''), Floor Brokers, Clerks, and Floor Managers.
The PCX is proposing to establish a formal rule requiring that
Members and Member Firms must register, prior to use, any new telephone
to be used on the Options Floor. Proposed Rule 6.2(h) states that each
phone registered with the Exchange must be registered by category of
user (Market Maker, LMM, Floor Broker, Clerk or Manager). If there is a
change in the category of any user, the phone must be re-registered
with the Exchange. At the time of registration, Members and Member Firm
representatives must sign a statement indicating that they are aware of
and understand the rules governing the use of telephones on the Options
Floor.
The Rule further states that no Member or Member Firm may employ
any alternative communication device, including but not limited to e-
mail, on the Options Floor without the prior approval of the Options
Floor Trading Committee.
Capacity and Functionality
The proposed Rule specifies the capacity and functionality
permitted for the use of telephones on the Options Floor. The Rule
states specifically that no wireless telephone used on the Options
Floor may have an output greater than one watt and that no person on
the Options Floor may use any device for the purpose of maintaining an
open line of continuous communication whereby a person not located in
the trading crowd may continuously monitor the activities in the
trading crowd. This prohibition covers intercoms, walkie-talkies and
any similar devices. The rule does permit speed-dialing features for
Member phones.
Members and Member Firm Employees
The proposed Rule states specific guidelines for each category of
user on the Options Floor, as follows:
Market Makers and LMMs
The proposed Rule states that Market Makers and LMMs may use their
own cellular and cordless phones to place calls to any person at any
location (whether on or off the Options Floor).
[[Page 7682]]
The Rule also states that Market Makers and LMMs may use the Pit Rep
and LMM telephones located at the trading posts only for the purpose of
marketing option issues, responding to customer inquiries, or otherwise
conducting Exchange business. No person other than a Pit Rep, Market
Maker \4\ or an LMM may use the Pit Rep or LMM phones. This is to
ensure that phones will be accessible for customer inquiries and
marketing.
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\4\ See Amendment No. 1, supra note 3.
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The Rule further states that Market Makers located off the Options
Floor may not place an order by calling a Floor Broker who is present
in a trading crowd. Market Makers located off the Options Floor may not
otherwise place an order by calling the Pit Rep or LMM phone in the
trading crowd. The Rule also states that any telephonic order entered
from the Options Floor must be placed with a person located in a member
firm booth. This will facilitate adequate surveillance of telephonic
orders and ensure that there is a record of the order in the event that
a problem arise in connection with the order. It is also consistent
with Rule 6.85. Commentary .03, which requires verbal orders from
Market Makers to be written up outside of the trading crowd.\5\
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\5\ PCX Rule 6.85, Commentary .03 provides in part: ``When a
Floor Broker receives a verbal order from a Market Maker, or when a
Floor Broker is requested by a Market Maker to alter an order in his
possession in any way, the Floor Broker shall immediately prepare an
order ticket from outside the trading crowd and time-stamp it.''
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Floor Brokers
The Rule states that Floor Brokers may use cellular and cordless
phones, but only to communicate with persons located on the Options
Floor. These phones may not include a call forwarding feature. This
Rule codifies long-standing PCX policies regarding phone use by Floor
Brokers which are designed to ensure that orders are entered in a
manner that allows for routine monitoring and surveillance by the
Exchange. In addition, the Rules states that headset are permitted for
Floor Brokers, but if the Exchange determines that a Floor Broker is
maintaining a continuous open line through the use of a headset, the
Floor Broker will be prohibited from future use of any headset for a
length of time to be determined by the Exchange.
The Rule further states that Floor Brokers may receive orders over
their phones from any persons located on the Options Floor. Floor
Brokers who receive telephonic orders while in the trading crowd must
step outside of the crowd, write up an order ticket and time stamp it
before representing the order in the crowd. This is consistent with
Rule 6.85, Commentary .03, which states that when a Floor Broker
receives a verbal order from a Market Maker, the Floor Broker shall
immediately prepare an order ticket from outside the trading crowd and
time-stamp it.\6\
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\6\ Id.
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Any telephonic order entered from off the Options Floor must be
placed with a person located in a member firm booth. Further, the Rule
prohibits the Floor Brokers from using the Pit Rep or LMM telephones
under any circumstances. This is to ensure that telephones are
available for marketing option issues, responding to customer
inquiries, or othewise conducting Exchange business relating to Market
Makers and Lead Market Makers.
Clerks
The proposed Rule states that Floor Broker Clerks and Stock
Executions Clerks are subject to the same terms and conditions on
telephone use as Floor Brokers and that Market Maker Clerks are subject
to the same terms and conditions on telephone use as Market Makers. The
Rule further states that the Options Floor Trading Committee reserves
the right to prohibit clerks from using cellular or cordless phones on
the floor at any time that it is necessary due to electronic
interference problems \7\ or capacity problems \8\ resulting from the
number of such phones then in use on the Options Floor. In such
circumstances, the Committee will first consider restricting the use of
such phones by Market Maker Clerks, then by Stock Execution Clerks, and
then finally, by Floor Broker Clerks.
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\7\ The term ``electronic interference'' refers to a situation
where, even though there are talk paths available, a user cannot get
a good signal because of interference with monitors, static, or a
bay station not working correcty. Amendent No. 1, supra note 3.
\8\ The Term ``capacity problems'' is used to describe a
situation where a user cannot get a signal because no talk path is
available on a bay station. Currently, there are 96 talk paths
available. If all 96 talk paths are being used, the 97th user will
be unable to get a signal because all talk paths are being used.
Ammendment No. 1 supra note 3.
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Floor Managers
Proposed Rule 6.2(h) states that Member Firm Floor Managers may use
any telephone, including any cellular or cordless phones, for any
business purpose relating to their management responsibilities.
General Access Phones, Telephone Records, and Exchange Liability
Proposed Rule 6.2(h) states that phones located outside the trading
areas may be used by any Member, Clerk, or Member Firm Floor Manager to
communicate with persons on the Options Floor. The rule also states
that Members must maintain their cellular or cordless telephone
records, including logs of calls placed, for a period of not less than
one year and the Exchange reserves the right to inspect such records
pursuant to Rule 10.2.
Finally, proposed Rule 6.2(h) states that the Exchange assumes no
liability to Members or Member Firms due to conflicts between phones in
use on the Options Floor or due to electronic interference problems
resulting from the use of telephones on the Options Floor.
Minor Rule Plan
Currently the PCX Minor Rule Plan includes as a minor rule
violation, the unauthorized use of telephones located in the trading
post areas.\9\ The PCX is proposing to change the language in the rule
to refer to the proposed rule on telephone use on the Option Trading
Floor (Rule 6.2(h)). Specifically, the provision will now state: Floor
Member or Member Firm employee violated rules on telephones on the
Options Floor. In addition, the PCX is proposing to increase the fine
amount for a third violation from $750.00 to $1,000.00 to better
reflect the seriousness of a third violation within two years.
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\9\ See PCX Rule 10.13.
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2. Statutory Basis
The proposal is consistent with Section 6(b) \10\ of the Act, in
general, and Section 6(b)(5) \11\ of the Act, in particular, in that it
is designed to regulate communications to and from the Exchange's
Options Trading Floor in a manner that promote just and equitable
principles of trade and protects investors and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 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 inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
[[Page 7683]]
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 provisions
of 5 U.S.C. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Room. Copies of such filing will also
be available for inspection and copying at the principal office of the
Exchange.
All submissions should refer to File No. SR-PCX-98-30 and should be
submitted by March 9, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3670 Filed 2-12-99; 8:45 am]
BILLING CODE 8010-01-M