[Federal Register Volume 64, Number 102 (Thursday, May 27, 1999)]
[Notices]
[Pages 28850-28852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13468]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41430; File No. SR-PCX-99-12]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Amending PCX Rule 15--``PCX Application of the OptiMark System''

May 20, 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 April 22, 1999, 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).
    \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 is proposing to adopt a stated policy and practice 
with respect to the meaning and administration of Rule 15 of the 
Exchange's of Board of Governors--``PCX Application of the OptiMark 
System.'' The Exchange's proposed policy and practice clarifies the 
meaning and administration of the PCX Application of the OptiMark 
System (``PCX Application'') and makes a few technical amendments to 
Rule 15.
    The text of the proposed rule change is available at 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.

[[Page 28851]]

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

1. Purpose
    Background. The PCX Application is a new, computerized, screen-
based trading service intended for use by Exchange members and their 
customers (``Users'').\3\ As described in the Approval Order, it 
provides automatic order formulation, matching, and execution 
capabilities in the equity securities listed or traded on the Exchange 
(``PCX Securities''). The PCX Application is intended to be used in 
addition to the Exchange's traditional floor facilities by allowing 
Users to submit expressions of trading interest known as ``Profiles'' 
anonymously from their computer terminals.
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    \3\ For a detailed description of the PCX Application, see 
Securities Exchange Act Release No. 39086 (Sep. 17, 1997), 62 FR 
50036 (Sep. 24, 1997) (``Approval Order'').
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    Method of Operation. As stated in the Approval Order, the PCX 
Application consists of two distinct system operations: (1) The central 
information processing system and related administrative and 
communications terminal network of the OptiMark System, which includes 
computers that collect and process data, log activities, and switch 
messages from and to other systems and carriers, as well as the 
communications network linking such computers with customer terminals; 
and (2) the computer hardware and software needed (collectively, the 
``PCX Interfaces'') for the OptiMark System to communicate with PCX's 
computerized order system and other facilities to permit execution and 
reporting.
    The Exchange has direct ownership and control over the PCX 
Interfaces. The OptiMark System is operated on a non-exclusive basis by 
OptiMark Services, Inc. (``OSI''), a wholly-owned subsidiary of 
OptiMark Technologies, Inc. (``OTT''). The OptiMark System has been 
developed by OTI and OTI is licensing the OptiMark System to OSI for 
purposes of the PCX Application. OSI is responsible for day-to-day 
operation and maintenance of the OptiMark System. The primary site of 
the OptiMark System, which houses the computer software and hardware 
complex that conducts the central processing of Profiles on a periodic 
basis, is located in Toronto.
    Users located off the Exchange trading floors log onto the OptiMark 
System from their own computer terminals and communicate with the 
OptiMark System over any customary information services and network of 
their choice. OSI, in its capacity as a facility operator for the PCX 
Application, provides telecommunications access support (either 
directly to such Users or to third party network vendors servicing such 
Users), enabling the Users to enter Profiles into the OptiMark system 
and receive the reports of any resulting trades from their own computer 
terminals. The computerized data entry system located at any such User 
site linked to the OptiMark System is not a part of the PCX 
Application.
    Users located on the Exchange trading floors must obtain access to 
the OptiMark System from designated terminal locations approved by the 
Exchange. PCX Specialist are provided with a uniquely designed 
electronic interface through the P/COAST terminals located at their 
posts to facilitate representation of their limit order book interest 
in the OptiMark System. The P/COAST terminal interface is a part of the 
PCX Interfaces and a part of the PCX Application. As for the PCX floor 
brokers, they are expected to use existing proprietary terminals from 
the member firm booths located on the trading floors to communicate 
with the OptiMark System. The proprietary computerized terminal system 
located at any such member firm booth--while maintained with the 
Exchange's consent--is not part of the PCX Interfaces and not a part of 
the PCX Application.
    The Exchange will assure that, at all relevant times, the PCX 
Application complies fully with the applicable rules of the Exchange, 
including adherence to the Exchange's system integrity an capacity 
standards. The system operations of both the PCX Interfaces and the 
OptiMark System will be monitored on an ongoing basis under the 
Exchange's inspection, surveillance and compliance programs. In this 
regard, the PCX notes that both the PCX Interfaces and the OptiMark 
System have been reviewed pursuant to the Commission's automation 
oversight program and the Exchange's internal audit and control 
procedures in accordance with the Automation Review Policy (``ARP'') 
policy statements.\4\
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    \4\See Securities Exchange Act Release No. 29185 (May 9, 1991), 
56 FR 22490 (May 15, 1991) (ARP II); Securities Exchange Act Release 
No. 27445 (Nov. 16, 1989), 54 FR 48703 (Nov. 24, 1989) (ARP I).
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    Exchange members that are Users or Designated Brokers as defined in 
PCX Rule 15.1 will be assessed transaction charges for the use of the 
new trading service, as set forth in the Schedule of Fees and Charges 
for Exchange Services and filed with the Commission. These charges are, 
in part, derive from a processing fee that the Exchange will pay to 
OSI, for OSI's services as an exchange facility manager responsible for 
operating portions of the PCX Application and delivering the trading 
service to Exchange members and their customers.\5\ There are no 
transaction fees payable directly by Users or Designated Brokers to OSI 
related to the PCX Application.
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    \5\ See Securities Exchange Act Release No 40442 (Sep. 16, 
1998), 63 FR 50951 (Sep. 23, 1998).
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    The Exchange also proposed to make a few technical amendments to 
Rule 15 to correct typographical errors and obsolete references.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of 
Section 6(b)(5) \6\ of the Act, in that PCX Application is a facility 
that is designed to promote just and equitable principles of trade and 
protect investors and the public interest, and is not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers. In addition, the PCX believes that the proposed rule change is 
consistent with the provisions of Section 11A(a)(1)(B) \7\ of the Act, 
which states that new data processing and communications techniques 
create the opportunity for more efficient and effective market 
operations.\8\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78K-1(a)(1)(B).
    \8\ 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

    According to the PCX, 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

[[Page 28852]]

19(b)(3)(A)(i) of the Act \9\ and subparagraph (f)(1) of Rule 19b-4 
thereunder.\10\ 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(i).
    \10\ 17 CFR 240.19b-4(f)(1).
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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-
0609. 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-99-12 and 
should be submitted by June 17, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 99-13468 Filed 5-26-99; 8:45 am]
BILLING CODE 8010-01-M