[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31674-31675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14872]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41481; File No. SR-PCX-99-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to 50-Up During High Volume, and/or High Volatility Situations

June 4, 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 May 20, 1999,\3\ 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 PCX. 
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.
    \3\ On May 28, 1999 the PCX filed Amendment No. 1. See letter to 
John Roeser, Attorney, Division of Market Regulation, Commission, 
from Robert P. Pacelio, Staff Attorney, PCX, dated May 27, 1999. In 
amendment No. 1, the Exchange made a technical modification to the 
proposed rule filing.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to increase the maximum permissible number of 
option contracts for orders that are executable through PCX's automatic 
execution system (``Auto-Ex'') to fifty contracts. Proposed new 
language is italicized.

para. 4889  Unusual Market Circumstances

    Rule 6.28(a)-(b)(8)--No change.
    (9) The Exchange may increase the permissible size of orders that 
may be automatically executed over the Auto-Ex system to up 50 
contracts, to be effected on a case-by-case basis in a particular 
option issue, or for all option issues, when two Floor Officials and 
one Floor Governor deem such an increase to be appropriate. Pursuant to 
this Rule, the ability to execute orders of up to 50 contracts will 
only occur during high volume or high volatility emergency situations. 
At all other times, the order size for Auto-Ex will remain to be the 
number of contracts permitted under Rule 6.87.
    (c) and (d)--No change.

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 PCX 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 PCX 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

Purpose
    In 1990, the Exchange implemented its Auto-Ex system through which 
public customer market and marketable limit orders may be executed 
automatically at the best bid or offer displayed at the time the order 
is entered into the Pacific Options Exchange Trading System 
(``POETS'').\4\ Initially, Auto-Ex was limited to implementation in all 
equity options classes, for the number or contracts approved by the 
Options Floor Trading Committee (``OFTC''), at two trading posts and 
any option that became multiply traded.\5\ In 1993, the Commission 
approved a proposal by the PCX to designate option orders of ten 
contracts or less in all options series, including Long-term Equity 
AnticiPation Securities (``LEAPS''), to be eligible for automatic 
execution through Auto-Ex.\6\ In 1994, the Commission approved a 
proposal by the PCX to designate options orders of twenty contracts or 
less to be eligible for execution through Auto-Ex.\7\ Currently, 
because Auto-Ex is only permitted to automatically execute option 
orders of twenty contracts or less, market and marketable limit orders 
of more than twenty contracts are routed by POETS to members on the 
trading floor for manual representation.
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    \4\ The Commission approved the POETS and its Auto-Ex feature as 
a pilot program in January 1990. See Securities Exchange Act Release 
No. 27633 (January 18, 1990), 55 FR 2466 (January 24, 1990) (order 
approving File No. SR-PSE-89-26). On July 30, 1993, the Commission 
approved the program on a permanent basis. See Securities Exchange 
Act Release No. 32703 (July 30, 1993), 58 FR 42117 (August 6, 1993) 
(``Release No. 34-32703'').
    \5\ See Securities Exchange Act Release No. 28264 (July 26, 
1990), 55 FR 31272 (August 1, 1990) at note 2.
    \6\ See Release No. 34-32703.
    \7\ See Securities Exchange Act Release No. 34946 (November 6, 
1994), 59 FR 59265 (November 16, 1994).
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    The PCX is now proposing to increase the maximum permissible number 
of option contracts for order that may be executed through the Auto-Ex 
system to fifty contracts. The PCX proposes that this increase in 
permissible order size to fifty contracts for Auto-Ex be done on a 
case-by-case basis for an individual option issue, or for all option 
issues when two Floor Officials and one Floor Governor deem such an 
increase appropriate. The PCX currently anticipates that the ability to 
execute orders of up to fifty contracts through Auto-Ex will only occur 
during high volume, and/or high volatility emergency situations. At all 
other times, the order size for Auto-Ex will remain at twenty 
contracts, unless the Commission approves an Exchange proposal to 
increase that number to greater than twenty contracts.\8\
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    \8\ On February 10, 1999, the PCX filed a proposal (SR-PCX-99-
04) with the Commission to increase the number of option orders that 
may be executed automatically to fifty contracts without regard to 
whether a high volume or high volatility emergency situation exists.
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    The PCX believes that Auto-Ex has been extremely successful in 
enhancing execution and operational efficiencies during emergency 
situations and during other non-emergency situations for certain option 
issues. Automatic executions of orders for up to fifty contracts during 
such high volume situations will help alleviate a backlog of orders in 
the systems that may occur and allow for the quick, efficient execution 
of public customer orders. The Exchange represents that the existing 
system has sufficient capacity to implement the increase in order size.
    The Exchange's proposed rule change specifically states that the 
Exchange may increase the permissible size of orders that may be 
automatically executed over the Auto-Ex system to up to fifty 
contracts, to be effected on a case-by-case basis in a particular 
option issue, or for all option issues, when two Floor Officials and 
one Floor Governor deem such an increase to be appropriate. It further 
states that, pursuant to this rule, the ability to execute orders of up 
to fifty contracts will only occur during high volume or high 
volatility emergency situations, and at all other times, the order size 
for Auto-Ex will remain the number of contracts permitted under Rule 
6.87.
Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) \9\ of the Act in general and

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furthers the objectives of section 6(b)(5) \10\ in particular in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to improve impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PCX does not believe that the proposed rule change will impose any 
burden on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the foregoing proposed rule change:
    (i) Does not significantly affect the protection of investors or 
the public interest;
    (ii) Does not impose any significant burden on competition; and
    (iii) Does not become operative for 30 days from the date on which 
it was filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public 
interest,\11\ it has become effective pursuant to section 
19(b)(3)(A)\12\ of the Act and Rule 19b-4(f)(6).\13\
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    \11\ The Commission has waived the requirement that the Exchange 
provide written notice of its intent to file the proposed rule 
change at least five business days prior to the date of filing of 
the proposed rule change.
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). In reviewing this rule, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    The Commission believes that increasing to fifty the number of 
option contracts executable through the Exchange's Auto-Ex order 
execution system should enable the Exchange to more effectively and 
efficiently manage increased order flow in actively traded option 
classes consistent with its obligations under the Act. The Commission 
finds good cause to allow the proposed rule change to become 
operational on June 4, 1999. This accelerated operative date should 
facilitate the enhancement of execution and operational efficiencies 
through Auto-Ex during high volume or high volatility emergency 
situations. The Commission has previously approved a substantially 
similar proposal by the American Stock Exchange LLC.\14\
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    \14\ See Securities Exchange Act Release No. 41098 (February 24, 
1999), 64 FR 10511 (March 4, 1999).
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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. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 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 provision 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. 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-99-14 and should 
be submitted by July 2, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14872 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M