[Federal Register Volume 65, Number 241 (Thursday, December 14, 2000)]
[Notices]
[Pages 78234-78235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-31803]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43678; File No. SR-PCX-00-08]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Granting Approval to Proposed Rule Change Relating to the Dissolution 
of the Appointments Committee

December 5, 2000.

I. Introduction

    On March 20, 2000, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'' or ``SEC'') pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to eliminate the Options 
Appointment Committee and to transfer all of its powers to the Options 
Allocation Committee. On September 21, 2000, the Exchange submitted 
Amendment No. 1 to the proposal.\3\ The proposed rule change was 
published for comment in the Federal Register on October 4, 2000.\4\ No 
comments were received on the proposal. This order approves the 
proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Cindy L. Sink, Senior Attorney, Regulatory 
Policy, PCX to Jennifer L. Colihan, Division of Market Regulation, 
Commission, dated September 20, 2000.
    \4\ See Securities Exchange Release No. 43342 (September 26, 
2000), 65 FR 59242.
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II. Description of Proposal

    Currently, the PCX rules provide that it is the duty of the Options 
Appointment Committee to make recommendations to the Board of Governors 
regarding the appointment, assignment, retention, reassignment, 
transfer, and taking leave of the privileges to deal in and trade 
options to, by, and among members on the Options Trading Floor.\5\ The 
Options Appointment Committee is also responsible for appointing Market 
Makers and appointing and approving Lead Market Makers (``LMMs'').\6\ 
The Options Appointment Committee has the authority to relieve LMMs of 
their appointments, designate interim LMMs, and make determinations 
pertaining to LMM-related issues not within the jurisdiction of any 
other standing committee. Currently, the Options Allocation Committee 
allocates and reallocates issues and evaluates and monitors Market 
Makers, LMMs, and trading crowds. In the proposed rule change, the 
Exchange seeks to eliminate the Options Appointment Committee and to 
transfer all of its authority and duties to the Options Allocation 
Committee.
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    \5\ See PCX Rules 6.35, 6.37, 6.82, and 11.10(c).
    \6\ See PCX Rules 6.35 and 6.82.
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    In this regard, the Exchange proposes to change all references to 
the ``Options Appointment Committee'' in PCX Rule 11.10(a) to the 
``Options Allocation Committee'' and to transfer the language of PCX 
Rule 11.10(a), relating to the current duties of the Options 
Appointment Committee, to the Options Allocation Committee under new 
proposed PCX Rule 11.10(b)(2). The Exchange also proposes to renumber 
PCX Rule 11.10(b) as 11.10(a) and PCX Rule 11.10(c) as 11.10(b)(1). The 
Exchange proposes to change the references to the ``Options Appointment 
Committee'' in PCX Rules 6.35; 6.37; Commentary .08; 6.82(a)(1) and 
(3); 6.82(b)(1) and (2); 6.82(f)(3); 6.82(g)(1); and 6.82(h)(1) to the 
``Options Allocation Committee.''

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange,\7\ 
and in particular with the requirements of section 6(b) of the Act.\8\ 
Specifically, the Commission believes that the proposed rule is 
consistent with the requirements of section 6(b)(5) of the Act \9\ 
because it is designed to help perfect the mechanism of a free and open 
market and is not designed to permit unfair discrimination between 
customer and brokers or dealers.
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    \7\ In approving this rule proposal, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change centralizes all rules relating to the 
approval,

[[Page 78235]]

evaluation, allocation to, and appointment of LLMs in one committee. 
The Commission finds that by doing so, it is likely that more 
consistent decisions regarding LLMs, and their role on the Exchange 
will be made. The Commission believes that this consistency will 
benefit customers and broker-dealers conducting business on the 
Exchange.
    The Commission recognizes that currently, Market Makers and LLMs 
are not permitted to serve on the PCX Options Appointment Committee; 
however, they are permitted to serve on the PCX Options Allocation 
Committee. The Commission further recognizes that Market Makers and 
LLMs will continue to be permitted to serve on the Options Allocation 
Committee after it assumes the responsibilities of the Options 
Appointment Committee, and that this represents a change in the 
composition of persons who will make decisions regarding the 
appointments of Market Makers and LLMs.
    The Commission does not believe it is contrary to the public 
interest, or the interests of PCX members, to allow Market Makers and 
LLMs to participate on the committee that appoints Market Makers and 
LLMs, make decisions to relieve LMMS of their appointments, designate 
interim LMMS, and make determinations pertaining to LMM-related issues 
not within the jurisdiction of any other standing committee.\10\ The 
Commission expects that members of the Options Allocation Committee, 
including Market Makers and LLMs, will act fairly and in a non-
discriminatory manner, and will recuse themselves from particular 
decisions, as appropriate. The Commission also expects that the Options 
Allocation Committee will continue to appoint only those members 
qualified for market maker positions, and will relieve Market Makers 
and LLMs of their positions only for appropriate reasons.
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    \10\ The Commission notes that four of the nine members of the 
Chicago Board Options Exchange's (``CBOE'') Modified Trading System 
Appointments Committee, which is responsible for the selection and 
removal of CBOE Designated Primary Market Makers (``DPM''), are 
Exchange members whose primary business is as a Market Maker, and 
two of the nine members are Exchange members whose primary business 
is as a Market Maker or as a DPM Designee. See CBOE Rule 8.80. In 
addition, the Philadelphia Stock Exchange's (``Phlx'') Allocation, 
Evaluation and Securities Committee, which is the committee that 
appoints and evaluates specialists on the Phlx, and makes 
allocations, allows specialists and floor brokers to serve on the 
committee. See Phlx By-law Article X, Section 10-7.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-31803 Filed 12-13-00; 8:45 am]
BILLING CODE 8010-01-M