[Federal Register Volume 64, Number 235 (Wednesday, December 8, 1999)]
[Notices]
[Pages 68714-68715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31782]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42188; File No. SR-PCX-99-17]


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 a Ticket-to-Follow Amendment to the PCX 
Rules on Telephones on the Options Floor

December 1, 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 1, 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 PCX. On November 
12, 1999, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ 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.
    \3\ See Letter from Michael Pierson, Director, Regulatory 
Policy, PCX, to John Roeser, Attorney, Division of Market 
Regulation, Commission, dated November 10, 1999 (``Amendment No. 
1''). The text of Amendment No. 1 is incorporated into this notice.
---------------------------------------------------------------------------

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

    The Exchange is proposing to modify its rules on options trading to 
permit Floor Brokers to immediately represent intra-floor telephonic 
orders in the trading crowd, with a written order ticket immediately to 
follow.

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

1. Purpose
    The Exchange is proposing to modify its rules to reduce the amount 
of time required before intra-floor telephonic orders can be 
represented in the trading crowd. Currently, Options Floor Brokers are 
not permitted to represent orders they receive over the telephone 
unless and until they have prepared, from outside the trading crowd, a 
written, time-stamped order ticket.\4\
---------------------------------------------------------------------------

    \4\ See, e.g., proposed PCX Rule 6.2(h)(4)(B), published for 
public comment in Filing No. SR-PCX-98-30, Exchange Act Release No. 
41018 (February 3, 1999), 64 FR 7681 (February 16, 1999) (``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''); See also PCX 
rule 6.85, Com. .03 (``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'').
---------------------------------------------------------------------------

    The Exchange is now proposing to adopt new PCX Rule 6.2(h)(4)(C), 
which will provide that a Floor Broker in a trading crowd who receives 
an order from a Member of Member Firm representative located on the 
Trading Floor may represent that order immediately in the trading 
crowd, provided that a written, time-stamped order ticket for that 
order must be taken immediately to the Floor Broker in the trading 
crowd.\5\ The Exchange is also proposing to remove the following text 
from proposed PCX Rule 6.2(h)(4)(B): ``Floor Brokers who receive 
telephonic orders while in the trading crowd must step outside of the 
trading crowd, write up an order ticket and time-stamp it before 
representing the order in the crowd.'' In addition, the Exchange is 
proposing to modify PCX Rule 6.67 (``Orders Required to Be in Written 
Form'') by adding new subsection (d), which will provide that a Floor 
Broker may represent a telephonic order, with the ticket to follow, as 
provided in PCX Rule 6.2(h)(4)(C). The Exchange is also proposing to 
modify PCX Rule 6.85 (``Market Maker Orders Executed by Floor 
Brokers'') by providing that PCX Rule 6.2(h)(4)(C) is an exception to 
the general rule that when a Floor Broker receives a verbal order from 
a Market Maker, or when a Floor Broker is

[[Page 68715]]

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. Accordingly, Floor Brokers 
who receive intra-floor telephonic orders from Market Makers will be 
permitted to represent those orders immediately, with the ticket 
immediately to follow.\6\
---------------------------------------------------------------------------

    \5\ In Amendment No. 1, the Exchange modified the proposed text 
of PCX Rule 6.2(h)(4)(C) to provide that an order ticket for the 
order must be prepared and time stamped in the member firm booth 
before the order is transmitted telephonically to the Floor Broker 
in the trading crowd. See Amendment No. 1, supra note 3.
    \6\ Under Proposed PCX Rule 6.2(h)(4), Floor Brokers are not 
permitted to communicate directly with persons located off the 
Trading Floor. See File No. SR-PCX-98-30.
---------------------------------------------------------------------------

    The Exchange notes that pursuant to Options Floor Procedure Advice 
(``OFPA'') F-5, hand signals may be used to increase or decrease the 
size of an order, to change the order's limit. to cancel an order or to 
activate a market order, as long as the cancellation or change to the 
order is ``relayed to the Floor Broker in a time-stamped, written form 
immediately thereafter,'' Although OFPA F-5 is rarely used on the PCX, 
the Exchange is proposing, as a matter of consistency, to eliminate the 
following text from OFPA F-5: ``Any changes to an order must be 
documented in writing outside of the crowd and the ticket time-stamped, 
before the revised order may be represented.''
    The Exchange believes that the rule change is necessary to assure 
that, as more and more option orders are transmitted and represented 
electronically on the PCX, manual orders represented by Floor Brokers 
are not placed at a competitive disadvantage. In that regard, the 
Exchange notes that pursuant to PCX Rule 6.88 (Exchange-sponsored Hand-
Held Terminals for Floor Brokers) \7\ and 6.89 (Proprietary Brokerage 
Order Routing Terminals),\8\ PCX member firms currently may send orders 
electronically from off the Trading Floor directly to a Floor Broker's 
hand-held terminal located in the trading crowd on the Options Floor.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 39970 (May 7, 1998), 
63 FR 26662 (May 13, 1998).
    \8\ See Securities Exchange Act Release No. 40577 (October 20, 
1998), 63 FR 57721 (October 28, 1998).
---------------------------------------------------------------------------

    The Exchange believes that implementation of the proposed rule 
change will not diminish the ability of the Exchange to conduct 
adequate surveillance for rule violations. The Exchange believes that 
the continuing requirement for floor members to prepare a written, 
time-stamped order ticket, which will document the time of order entry, 
will satisfy the Exchange's audit trail requirements in that regard. 
Further, the execution time of the order will otherwise be documented 
by the contra party or parties to the trade \9\ as well as by the price 
Report Terminal Operator (a PCX employee).
---------------------------------------------------------------------------

    \9\ See PCX Rule 6.69 and OFPA G-12.
---------------------------------------------------------------------------

2. Basis
    The Exchange believes that this proposal is consistent with Section 
6(b) 10 of the Act, in general, and furthers the objectives 
of Section 6(b)(5),11 in that it is designed to promote just 
and equitable principles of trade, to facilitate transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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

    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

    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 self-regulatory organization 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, 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 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-99-17 and should 
be submitted by December 29, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.12
---------------------------------------------------------------------------

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

Jonathan G. Katz,
Secretary.
[FR Doc. 99-31782 Filed 12-7-99; 8:45 am]
BILLING CODE 8010-01-M