[Federal Register Volume 65, Number 164 (Wednesday, August 23, 2000)]
[Notices]
[Pages 51390-51392]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21434]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43150; File No. SR-PCX-00-20)


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Auto-Ex Log-On Requirements

August 14, 2000.
    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 10, 2000, 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 PCX. The Commission is publishing this 
notice to solicit

[[Page 51391]]

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 new rule requiring options 
market makers who log on to the Exchange's automatic execution system 
for options (``Auto-Ex'') during an expiration month to remain on Auto-
Ex, while in the trading crowd, until the close of business on the next 
expiration Friday. The text of the proposed rule change is set forth 
below. Additions are in italics; deletions are in brackets.
5231 Automatic Execution System
Rule 6.87
    (a)-(d) No change
    (e) Market Maker Requirements for Eligibility. Any Exchange Member 
who is registered as a Market Maker and who has obtained written 
authorization from a clearing member is eligible to participate on the 
Auto-Ex system, subject to the following conditions and requirements:
    (1)-(3) No change.
    (4) Log-on Requirement. A Market Maker who has been logged on to 
Auto-Ex in an option issue at any time during an expiration month must 
continue to be logged on to Auto-Ex in that issue whenever present in 
that trading crowd, until the close of business on the next Expiration 
Friday. A Market Maker who is limited to ``closing only'' transactions 
pursuant to PCX Rules or the requirements of that Market Maker's 
clearing firm will be exempt from this provision upon approval of two 
Floor Officials. [A Market Maker who has logged onto Auto-Ex at any 
time during a trading day must participate on the Auto-Ex system in 
that option issue whenever present in that trading crowd during that 
trading day.]
    (f)-(j) 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, 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 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
    Currently, options market makers (other than lead market Makers) at 
the PCX may log on or off of the Auto-Ex System \3\ at their 
discretion, with four exceptions. First, a market maker who has logged 
on to or off of Auto-Ex at any time during a trading day must 
participate on the Auto-Ex System in that option issue whenever present 
in the trading crowd during that trading day.\4\ Second, a market maker 
may be required to log on to Auto-Ex in an issue if two floor officials 
determine that there is inadequate Auto-Ex participation in that 
issue.\5\ Third, market makers may not log off of Auto-Ex during the 
first ten minutes of a fast market that has been declared pursuant to 
PCX Rule 6.28.\6\ Finally, market makers may log on to Auto-Ex only 
when present in person and they must log off of Auto-Ex upon leaving 
the trading crowd (unless their departure is for a brief interval).\7\ 
Lead Market Makers at the PCX are required to remain logged on to Auto-
Ex throughout the trading day.\8\
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    \3\ The Auto-Ex system, a feature of the PCX's Pacific Options 
Exchange Trading System (``POETS''), permits eligible market or 
marketable limit orders sent from member firms to be executed 
automatically at the displayed bid or offering price. Participating 
market makers are designated as the contra side to each Auto-Ex 
order. Participating market makers are assigned by Auto-Ex on a 
rotating basis, with the first market maker selected at random from 
the list of signed-on market makers. Auto-Ex preserves public limit 
order book (``Book'') priority in all options. If Auto-Ex determines 
that the Book price is at or better than the market quote, the Auto-
Ex order is executed against the Book. Automatic executions through 
Auto-Ex are currently available for public customer orders between 
20 and 50 contracts or less in all series of options traded on PCX's 
options floor. See generally Securities Exchange Act Release Nos. 
27633 (January 18, 1990), 55 FR 2466 (January 24, 1990); 32908 
(September 15, 1993), 58 FR 49076 (September 21, 1993); and 40598 
(October 23, 1998), 63 FR 58439 (October 30, 1998).
    \4\ PCX Rule 6.87(e)(4).
    \5\ PCX Rule 6.87(e)(6). The Exchange represents that the 
purpose of proposed rule 6.87 is to prevent circumvention of log-on 
requirements by market makers who voluntarily log on to the Auto-Ex 
System, not those required--under PCX Rule 6.87(e)(6) or otherwise--
to log on to Auto-Ex. Telephone conversation between Hassan Abedi, 
Attorney, PCX, and Steven Johnston, Special Counsel, Division of 
Market Regulation, Commission (July 27, 2000).
    \6\ PCX Rule 6.87(e)(5).
    \7\ PCX Rule 6.87(e)(3).
    \8\ PCX Rule 6.82(c)(7).
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    The Exchange now proposes to amend rule 6.87(e)(4). As indicated 
above, the rule presently requires a market maker who has logged on to 
Auto-Ex for an option issue at any time during a trading day to 
participate in the Auto-Ex System in that option whenever present in 
the trading crowd during that day. The Exchange is now proposing to 
amend Rule 6.87(e)(4) to instead require a market maker who has logged 
on to Auto-Ex in an option issue at any time during an expiration month 
to remain logged on to Auto-Ex in that issue whenever present in that 
trading crowd, until the close of business on the next expiration 
Friday. It further provides that a market maker who is limited to 
``closing only'' transactions pursuant to PCX Rules, or the 
requirements of the market maker's clearing firm, would be exempt from 
this provision upon approval of two floor officials.\9\
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    \9\ The Exchange notes that under the current rule, a market 
maker must obtain written authorization from a clearing member 
before being permitted to participate on Auto-Ex. PCX Rule 6.87(e).
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    The purpose of the proposal is to assure that market makers who 
avail themselves of the benefits of Auto-Ex during favorable market 
conditions will also provide the necessary liquidity for inbound Auto-
Ex orders when market conditions are unfavorable. The Exchange notes 
that the Commission has approved a similar rule on behalf of another 
options exchange.\10\ The Exchange believes that implementation of this 
rule will help to further the important objective of assuring fair and 
orderly markets at the PCX.
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    \10\ This requirement is currently codified in CBOE Rule 
8.16(b). See Securities Exchange Act Release No. 25995 (August 15, 
1988), 53 FR 31781 (August 19, 1988).
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) \11\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\12\ in particular, in that it is 
designed to promote just and equitable principles of trade and to 
protect investors and the public interest, by requiring market makers 
to remain on the floor if logged on to the Auto-Ex System, thereby 
providing adequate liquidity.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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.

[[Page 51392]]

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

    The proposed rule change has been filed by the Exchange as a non-
controversial rule change pursuant to Section 19(b)(3)(A) of the Act 
\13\ and subparagraph (f)(6) of Rule 19b-4 thereunder,\14\ and has 
become effective upon filing because it: (1) does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed; and the 
Exchange provided the Commission written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date of the proposed rule change. At any time within 60 days of 
the filing of such 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 propose of 
the Act.
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    \13\ 15 U.S.C. 78f(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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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 proposal 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 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 
Phlx. All submissions should refer to File No. SR-PCX-00-20 and should 
be submitted by September 13, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 240.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-21434 Filed 8-22-00; 8:45 am]
BILLING CODE 8010-01-M