[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51173-51175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24502]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41868; File No. SR-PCX-99-25]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. To Allow Lead Market Makers To 
Perform Certain Floor Broker Functions

September 13, 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 July 13, 1999, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX proposes to modify its Lead Market Maker (``LMM'') rules to 
allow an LMM to perform certain Floor Broker functions. The text of the 
proposed rule change is set forth below. Additions are italicized and 
deletions are bracketed.
Pacific Exchange, Inc.
Rule 6.82
    (a)-(g)--No Change.
    (h) LMM Performance of Order Book Official, [and] Market Maker and 
Floor Broker Functions.
    (1) LMM Performance of Order Book Official Functions.
    (a)-(e)-No Change.
    (2) LMM Performance of Market Maker Function.
    (a)-No Change.
    (3) LMM Performance of Floor Broker Function.
    (a) LMMs may function in designated option issues as both Market 
Maker and Floor Broker, and as such, will be exempt from Rule 6.38. In 
acting as Floor Brokers, LMMs must fulfill their obligation to use due 
diligence and all other obligations of Floor Brokers pursuant to Rules 
6.43 through 6.48.
    (b) LMMs may (but are not obligated to) accept non-discretionary 
orders that are not eligible to be placed in the Public Order Book, and 
LMMs may represent such orders as Floor Brokers. An LMM may not 
represent discretionary orders, whether as a Floor

[[Page 51174]]

Broker or otherwise. All orders in the LMM's possession that are 
eligible to be booked must be booked.
    Commentary: .01.-.02.--No Change.
    [.03. the provisions of Rule 6.82(h) are subject to a pilot 
program, which is set to expire on October 12, 1998.]
    .03. [.04.]--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 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
    Background. In October of 1996, the Commission approved a PCX pilot 
program that allowed LMMs to perform all functions of the Order Book 
Official (``OBO'') in designated option issues pursuant to PCX Rules 
6.51 through 6.59.\3\ The Commission approved the PCX pilot program on 
a permanent basis on July 2, 1999.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 37810 (Oct. 11, 
1996), 61 FR 54481 (Oct. 18, 1996). Under the pilot program, LMMs 
were also required to perform all obligations of Market Makers 
provided in PCX Rules 6.35 through 6.40 and 6.82(c).
    \4\ See Securities Exchange Act Release No. 41595 (July 2, 
1999), 64 FR 38064 (July 14, 1999).
---------------------------------------------------------------------------

    Proposal. The Exchange now proposes to modify its LMM rules to 
allow an LMM to perform certain Floor Broker functions in addition to 
OBO and Market Maker functions.\5\ First, the Exchange proposes that, 
in acting as Floor Broker, LMMs must fulfill their obligation to use 
due diligence and perform all other obligations of Floor Brokers 
pursuant to PCX Rules 6.43 through 6.48. Second, the Exchange proposes 
that LMMs may, but are not obligated to, accept non-discretionary 
orders that are not eligible to be placed in the Public Order Book, and 
LMMs may represent such orders as Floor Brokers.\6\ Third, the Exchange 
proposes that an LMM may not represent discretionary orders, whether as 
a Floor Broker or otherwise. Finally, all orders in the LMM's 
possession that are eligible to be booked must be booked.
---------------------------------------------------------------------------

    \5\ The PCX proposed rule change is similar to Chicago Board 
Options Exchange Rule 8.80(c)(8). See infra note 8.
    \6\ As explained by PCX, the eligibility of orders to be placed 
in the Public Order Book is determined by reference to PCX Rule 
6.52(a), which governs the types of orders that Order Book Officials 
may accept. Such orders, as indicated in the Rule, ``shall include 
limit orders * * * and such other orders as may be designated by the 
Options Floor Trading Committee.'' According to PCX, the Committee 
has not designated any additional types of orders that may be 
accepted by Order Book Officials. Orders not eligible for the Public 
Order Book would include, for example, contingency orders, spread 
orders, straddle orders, and combination orders, among others. 
Telephone conversation between Robert P. Pacileo, Attorney, PCX, and 
Ira L. Brandriss, Attorney, Division of Market Regulation, 
Commission, on August 6, 1999.
---------------------------------------------------------------------------

    The Exchange proposes these rule changes for competitive reasons. 
Specifically, the Exchange seeks to provide its LMMs with the 
flexibility needed to compete with Specialists and Designated Primary 
Market Makers (``DPMs'') on other national securities exchanges.\7\ The 
Exchange believes that the proposed rule change will allow LMMs to 
provide customers with a greater level of service than currently 
provided. The Exchange further believes that the proposal will help 
LMMs to better compete with DPMs and Specialists with respect to rates 
charged to customers for the execution of their orders.
---------------------------------------------------------------------------

    \7\ The proposed rule change will generally allow PCX LMMs to 
perform the same functions that DPMs on the Chicago Board Options 
Exchange (``CBOE'') may perform.
---------------------------------------------------------------------------

    Finally, with respect to the restrictions on the types of orders 
that the LMM may represent as a Floor Broker, the Exchange notes that 
the restrictions are consistent with applicable rules of competing 
exchanges.\8\
---------------------------------------------------------------------------

    \8\ See, e.g., CBOE Rule 8.80. CBOE Rule 8.80(c)(8) states that 
DPMs may, but are not obligated to accept non-discretionary orders 
that are not eligible to be placed in the Public Order Book, and 
DPMs may represent such orders as Floor Brokers. A DPM may not 
represent discretionary orders, whether as a Floor Broker or 
otherwise and all orders in the DPM's possession that are eligible 
to be booked must be booked.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that this proposal is consistent with Section 
6(b) \9\ of the Act, in general, and Section 6(b)(5) \10\ of the Act, 
in particular, in that it is designed to promote just and equitable 
principles of trade; to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities; and in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

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

    Within 35 days of the date of 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 PCX consents, the Commission will:
    (A) By order approve such 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, 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 provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of the filing will also be available for inspection 
and copying at the principal offices of the PCX. All submissions should 
refer to File No. SR-PCX-99-25 and should be submitted by October 12, 
1999.


[[Page 51175]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24502 Filed 9-20-99; 8:45 am]
BILLING CODE 8010-01-M