[Federal Register Volume 66, Number 14 (Monday, January 22, 2001)]
[Notices]
[Pages 6727-6729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1802]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43836; File No. SR-PCX-00-33]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to Use of Telephones on the Options Trading 
Floor

January 11, 2001.
    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 September 1,2000, 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 and II 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.
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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 PCX proposes to amend and codify its policy governing the use 
of member-owned or Exchange-owned telephones on the trading floor with 
respect to communications at option trading posts. The text of the 
proposed rule change is available at the PCX and at the Commission.

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 III 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
    According to the PCX, the purpose of the proposed rule change is to 
expand the existing PCX policy governing the use of telephones at 
option trading posts to allow the receipt of orders over outside 
telephone lines at option trading posts. The proposed rule would 
generally allow for the receipt of orders directly at the post over 
outside telephone lines only when the order(s) is placed during 
outgoing telephone calls. Registered Exchange Market Makers, however, 
may transmit orders directly to the trading post.
    Under the proposed rule change, the use of telephones at the option 
posts must comply with the requirements and conditions set forth in 
proposed Rule 6.2(h)(3). This proposed rule would provide that: (A) 
only those quotations that have been publicly disseminated pursuant to 
PCX Rule 6.73 may be provided over telephones at the post; (B) orders 
transmitted by registered Exchange Market Makers may be entered 
directly to the trading posts; all other orders may be entered directly 
to

[[Page 6728]]

the trading posts only during outgoing telephone calls that are 
initiated at the option posts; and (C) the Exchange may provide for the 
taping of any telephone line into the trading posts or may require 
Members to provide for the tape recording of a dedicated line at the 
posts at any time. Members and their clerks using the telephone consent 
to the Exchange tape recording any telephone or line. In addition, in 
proposed Rule 6.2(h)(5)(A), the PCX proposes to remove the current 
prohibition against Floor Brokers' use of cellular or cordless phones 
to make calls to persons located off the trading floor. Under the 
proposed revision, Floor Brokers will have the same ability to use 
cellular and cordless phones that PCX Market Makers and Lead Market 
Makers now have, except that Floor Brokers can accept orders only in 
outgoing calls initiated at the option post.
    The Exchange believes that this proposed expansion of the 
Exchange's telephone policy at option posts is consistent with the 
recommendation of the Options Floor Trading Committee (OFTC), which 
oversees trading at the option posts. According to PCX, easing the 
current policy would enable the Exchange to provide more efficient 
access to its trading crowds and customers, increase the speed of the 
transmittal of orders and the execution of trades, and satisfy 
customers in an increasingly competitive environment.\3\
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    \3\ See Securities Exchange Act Release No. 43194 (August 22, 
2000), 65 FR 52457 (SR-CBOE-00-04).
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    The Exchange intends to police compliance with the conditions 
applicable to the use of telephones at the option trading posts through 
oversight by and review of complaints from Exchange members at the 
trading post, as well as observations of Floor Officials and Exchange 
staff. Further, the Exchange represents that any individual member or 
associated person receiving orders over outside telephone lines must be 
properly qualified under Exchange rules.
    The Exchange further indicates that the OFTC will be responsible 
for implementing this policy in conformity with Exchange rules and the 
Act. The OFTC will approve access, approve the phone technology, and 
decide any other issues relating to this policy.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with and furthers the objectives of Section 6(b)(5) \4\ of the Act in 
that it is designed to improve communications to and from the 
Exchange's trading floor in a manner that promotes just and equitable 
principles of trade, prevents fraudulent and manipulative acts and 
practices, and maintains fair and orderly markets.
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    \4\ 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 inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-PCX-00-33 and 
should be submitted by February 12, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed the PCX's proposed rule change and 
finds, for the reasons set forth below, that the proposal is consistent 
with the requirements of Section 6 of the Act \5\ and the rules and 
regulations thereunder applicable to a national securities exchange. 
Specifically, the Commission believes the proposal is consistent with 
Sections 6(b)(5) and 6(b)(8) of the Act.\6\ Section 6(b)(5) requires, 
among other things, that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to facilitate transactions in 
securities, to remove impediments to and perfect the mechanisms of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.\7\ Section 6(b)(5) also 
requires that those rules not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers. Section 
6(b)(8) of the Act requires that the rules of an exchange not impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5) and (b)(8).
    \7\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission finds that the proposed rule, which would expand the 
PCX's policy regarding the use of telephones on its options trading 
floor by permitting the receipt of off-floor orders over outside 
telephone lines directly at the equity trading posts during outgoing 
telephone calls, is consistent with Section 6(b)(5) \8\ of the Act in 
that it is designed to improve communication to and from the Exchange's 
trading floor in a manner that is consistent with Section 6(b)(5)'s 
objectives of promotion of just and equitable principles of trade, 
prevention of fraudulent and manipulative acts and practices, and 
maintenance of fair and orderly markets. The Commission believes that 
it is reasonable for PCX to permit PCX Market Makers to send orders to 
the trading floor via incoming calls, a policy which allows these 
market makers to transmit their orders more efficiently at those times 
when they are required to be off the floor. In the Commission's view, 
it is also reasonable for the Exchange to now allow orders from any 
other source to go directly to the post as long as those orders are 
placed in outgoing calls only.
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    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission further finds that the proposed rule change modifies 
the PCX's communication system in a way that provides for equitable 
access to the Exchange floor among members, broker-dealers, non-broker-
dealers, and public customers alike.\9\ Accordingly, the

[[Page 6729]]

Commission finds that the proposal is consistent with the requirement 
of Section 6(b)(8) \10\ that the proposed rule change not impose a 
burden on competition that is not necessary or appropriate in 
furtherance of the Act's purpose.
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    \9\ The PCX represents, and the Commission notes, that Floor 
Brokers at the PCX can only receive orders from other broker-dealer 
member firms, unless they have registered their individual 
memberships with a member organization approved to transact business 
with the public, in which case these Floor Brokers would have to be 
Series 7 qualified, among other requirements. See PCX Rule 6.43. 
Telephone conversation among Michael Pierson, Director, Regulatory 
Policy, PCX, Cindy Sink, Senior Attorney, PCX, and Geoffrey Pemble, 
Attorney, Division of Market Regulation, SEC (December 1, 2000).
    \10\ 15 U.S.C. 78f(b)(8).
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    The Exchange has indicated that it intends to police compliance 
with the conditions applicable to the use of telephones at the equity 
trading posts through complaints from Exchange members at the post, as 
well as observations of Floor Officials and Exchange staff. The 
Exchange has further indicated that the OFTC will be responsible for 
implementing this policy in conformity with Exchange Rules and the Act, 
including approving access and the phone technology, and will decide 
any other issues relating to this policy.\11\ The Commission finds that 
these proposed means of surveillance are consistent with prevention of 
fraudulent and manipulative acts and practices, as required by Section 
6(b)(5).
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    \11\ Under this proposal, PCX Floor Brokers now will be able to 
receive telephone orders via personal or Exchange-owned cellular or 
cordless telephones (pursuant to proposed Rule 6.2(h)(5)(A)). The 
PCX represents, and the Commission notes, that surveillance of such 
telephone usage will be accomplished through the record-maintenance 
requirements in PCX Rule 6.2(h)(9), which would require members to 
maintain cellular or cordless phone records for at least one year 
and give the Exchange the authority to inspect such records. 
Telephone conversation between Cindy Sink, Senior Attorney, PCX, and 
Geoffrey Pemble, Attorney, Division of Market Regulation, SEC 
(November 30, 2000).
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    For these reasons, the Commission finds good cause for approving 
the proposed rule change (SR-PCX-00-33) prior to the thirtieth day 
after the date of publication of notice thereof in the Federal 
Register. The Commission notes that PCX's proposal is virtually 
identical to a proposed rule change by CBOE (SR-CBOE-00-04) that was 
recently approved by the Commission.\12\
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    \12\ See Securities Exchange Act Release No. 43493 (October 30, 
2000).
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    The Commission believes that proper surveillance is an essential 
component of any policy governing telephone access to an exchange's 
trading floor. Especially important in this case is ensuring that the 
PCX's surveillance efforts prevent individuals who are not properly 
qualified to take public orders for securities (i.e., non-Series 7 
registered Exchange employees) from interacting with the public. The 
Commission finds that the safeguards proposed above by the PCX are 
consistent with the prevention of fraudulent and manipulative acts and 
practices, as required under Section 6(b)(5).
    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PCX-00-33) is hereby 
approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-1802 Filed 1-19-01; 8:45 am]
BILLING CODE 8010-01-M