[Federal Register Volume 64, Number 210 (Monday, November 1, 1999)]
[Notices]
[Pages 58876-58877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28455]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42051; File No. SR-PCX-99-35]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. To Increase Lead Market Maker 
Concentration Levels From 10% to 15%

October 22, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''),\1\ notice is hereby given that on 
September 15, 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 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).
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I. Self-Regulatory Organizations's Statement of the Terms of 
Substance of the Proposed Rule Change

    Currently, PCX Rule 6.82(e)(3) states that in the absence of 
extraordinary circumstances, as determined by the PCX's Options 
Allocation Committee, no Lead Market maker (``LMM'') may be allocated 
more than 10% of the number of issues traded on the options floor. The 
PCX proposes to amend PCX Rule 6.82(e)(3) to increase the percentage of 
issues that the Options Allocation Committee may allocate to an LMM 
from 10% to 15% of the number of issues traded on the options floor. 
Below is the text of the proposed rule change. Proposed new language is 
in italics; proposed deletions are brackets.
* * * * *
Rule 6.82
    (a)-(d)--No Change.
    (e)(1)-(2)--No Change.
    (3) Concentration of Issues. In the absence of extraordinary 
circumstances, as determined by the Options Allocation Committee, no 
LMM may be allocated more than [10%] fifteen percent (15%) of the 
number of issues traded on the Options Floor.
    (e)(4)--No Change.
    (f)-(h)--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.

[[Page 58877]]

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

1. Purpose
    Currently, PXC rule 6.82(e)(3) states that in the absence of 
extraordinary circumstances, as determined by the Options Allocation 
Committee, no LMM may be allocated more than 10% of the number of 
issues traded on the options floor. The Exchange proposes to amend PCX 
Rule 6.82(e)(3) to increase the percentage of issues that the Options 
Allocation Committee may allocate to an LMM from 10% to 15% of the 
number of issues traded on the options floor.
    The Exchange proposes this change for several reasons. First, the 
Exchange recently filed with the Commission a proposed rule change 
which the Exchange anticipates will reduce the total number of issues 
traded on the options floor.\2\ The Exchange believes that the 
Continued Listing Fee will cause a significant number of issues to be 
delisted, thus lowering the total number of issues that an LMM may 
hold.\3\
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    \2\ See File No. SR-PCX-99-32. The proposal establishes a 
Continued Listing Fee that is designed to more fairly allocate the 
costs and expenses involved in supporting the trading of all listed 
options and to eliminate unfair burdens on options issues that 
generate revenue above the threshold of $500 per month. Under the 
proposal, the PCX will calculate all volume-based, trading-related 
revenues generated by each option issue over a trailing average of 
three calendar months to determine whether an option issue meets the 
$500 threshold. The PCX will assess a Continued Listing Fee on each 
option issue that fails to produce revenue of more than $500 per 
month through a combined total of transaction, comparison and data 
entry fees over the trailing average of three calendar months. The 
proposal is pending with the Commission.
    \3\ For example, if the Exchange lists 800 issues, then under 
current PCX rule 6.82(e)(3) an LMM may be allocated up to 80 (10% of 
800) of those issues. If the Exchange delists 200 of those issues, 
leaving a total of 600 issues listed on the Exchange, then an LMM 
may be allocated up to 60 issues (10% of 600).
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    Second, the Exchange believes that it is necessary in today's 
competitive environment to provide flexibility to LMMs to allow them to 
be allocated additional issues. The Exchange proposes this change to 
allow its LMMs to be on equal footing with specialists and Designated 
Primary Market Makers (``DPMs'') on other options exchanges with 
respect to the number of issues that may be allocated to them.\4\ The 
Exchange believes that the current 10% cap is unnecessarily low and 
that an increase in concentration levels is consistent with rules and 
guidelines of other options exchanges.
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    \4\ In this regard, the PCX represents that it is not aware of 
any limitations under American Stock Exchange (``Amex'') rules in 
the number of issues in which an Amex specialist may be registered. 
In addition, the PCX notes that Chicago Board Options Exchange 
(``CBOE'') Regulatory Circular RG99-135 states that CBOE's Modified 
Trading System Appointment Committee will review the number of 
options classes allocated to a DPM if the DPM meets two of the 
following three criteria: (1) the number of classes allocated to the 
DPM is 25% or more of the total number of classes traded on the CBOE 
(excluding DJX, NDX, OEX, and SPX); (2) the volume in the classes 
allocated to the DPM is 25% or more of the total volume of CBOE 
(excluding DJX, NDX, OEX, and SPX); and (3) the number of 
appointments held by the DPM is 25% or more of the total number of 
DPM appointments effective on CBOE.
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2. Statutory Basis
    The PCX believes that proposed rule change is consistent with 
Section 6(b) \5\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5),\6\ in particular, because it is designed to facilitate 
transactions in securities, perfect the mechanism of a free and open 
market and a national market system, and to protect investors and the 
public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 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 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 reason 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-
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 
PCX. All submissions should refer to File No. SR-PCX-99-35 and should 
be submitted by November 22, 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. 99-28455 Filed 10-29-99; 8:45 am]
BILLING CODE 8010-01-M