[Federal Register Volume 66, Number 153 (Wednesday, August 8, 2001)]
[Notices]
[Pages 41645-41646]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19859]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44637; File No. SR-PCX-2001-26]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc., Relating to Accepting Orders from 
Professional Customers

August 1, 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 July 6, 2001, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I, II, and III 
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 allow PCX Floor Brokers and qualified Floor 
Clerks of Floor Brokers to accept offers from``Professional 
Customers''(as defined) for execution on the Exchange's trading floor. 
The text of the proposed rule change is below. Additions are in 
italics.
* * * * *
para. 4963  Options Floor Broker Defined
    Rule 6.43(a)--No change.

(b) Conducting a Limited Public Business

    (1) Notwithstanding the provisions of subsection (a) of this Rule, 
qualified Floor Brokers and Floor Clerks of qualified Floor Brokers may 
conduct a public business limited to accepting orders directly from 
Professional Customers, as defined below, for execution on the Floor of 
the Exchange. Any Floor Broker or Floor Clerk of a Floor Broker seeking 
to conduct such a limited public business must first:
    (A) successfully complete the Series 7 Examination or the Series 7A 
Examination; and
    (B) register and receive approval from the Exchange. The form of 
registration will be prescribed by the Exchange.
    (2) For purposes of this rule, a ``Professional Customer'' includes 
a bank; trust company; insurance company; investment trust; a state or 
political subdivision thereof, charitable or nonprofit educational 
institution regulated under the laws of the United States, or any 
state, or pension or profit sharing plan subject to ERISA or of any 
agency of the United States as of a state or political subdivision 
thereof, or any person (other than a natural person) who has, or who 
has under management, net tangible assets of at lease sixteen million 
dollars.
    (3) Members who conduct a limited public business pursuant to the 
provisions of subsection (b) of this Rule 6.43 are strictly prohibited 
from holding customer funds and/or customer securities.
* * * * *

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 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
    The Exchange proposes to adopt the requirement that qualified Floor 
Brokers and Floor Clerks located on the floor of the PCX who wish to 
accept orders directly from professional investors for execution on the 
trading floor must take and pass either the Series 7 or Series

[[Page 41646]]

7A\3\ examinations. Currently, PCX Rule 6.43 states that an Exchange 
Floor Broker may only accept and execute option orders received from 
members and ``shall not accept an order from any source unless he has 
registered his individual membership for a member organization approved 
to transact business with the public in accordance with Rule 9 * * *.'' 
The PCX now seeks to amend this rule to allow qualified Floor Brokers 
and Floor Clerks of qualified Floor Brokers to conduct a public 
business limited to accepting orders directly from professional 
customers without meeting the extensive requirements set forth in PCX 
Rule 9.\4\ The PCX believes that the limited scope of this business, 
combined with the sophistication of such ``Professional Customers,'' 
with respect to option transactions, serves to alleviate some of the 
regulatory concerns addressed in PCX Rule 9.\5\ PCX Rule 9 was 
implemented in order to provide protections for retail public customers 
who undertake to transact business on the Exchange. The regulatory 
concerns related to customer protection are reduced, under the proposed 
rule, due to the fact that members seeking to conduct such a limited 
public business will be strictly prohibited from holding customer funds 
and/or securities. Members will only be allowed to accept orders, 
immediately execute such orders and transmit the orders to a clearing 
member. the rule change, as proposed, would allow a Floor Clerk of a 
qualified Floor Member to accept orders from ``Professional Customers'' 
for execution on the Exchange's trading floor, so long as the Floor 
Clerk has successfully completed either the series 7 Examination or the 
Series 7A Examination. The New York Stock Exchange, Inc.\6\ and the 
Chicago Stock Exchange, Inc.\7\ have adopted similar rules to permit 
execution of ``Professional Customer orders. The proposed rule would 
also require members seeking to conduct such a limited public business 
to register with and receive approval from the Exchange. The 
requirements established under this rule will be phase-in so as to 
minimize the burden placed on Exchange Membership.\8\
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    \3\ The Exchange will use the Series 7A Examination that was 
approved in Securities Exchange Act Release No. 34334 (July 29, 
1993) 58 FR 41539 (SR-NYSE-3-10). These examinations will be 
administered by the National Association of Securities Dealers, Inc. 
(``NASD'').
    \4\ The proposed rule defines the term ``professional customer'' 
to include a bank; trust company; insurance company; investment 
trust; a state or political subdivision thereof; charitable or 
nonprofit educational institution regulated under the laws of the 
United States, or any state, or pension or profit sharing plan 
subject to ERISA or of any agency of the United States as of a state 
or political subdivision thereof; or any person (other than a 
natural person) who has, or who has under management, net tangible 
asset of a least sixteen million dollars. See also Securities 
Exchange Act Release No. 43062 (July 21, 2000), 65 FR 46745 (July 
31, 2000).
    \5\ Some of these concerns include: (a) Maintenance of customer 
records, (b) account supervision, (c) calculation of customer 
reserves as prescribed by the SEC, (d) maintenance of books and 
records as required by the SEC and (e) advertisements and sales 
literature.
    \6\ See Securities Exchange Release Act No. 34334 (July 8, 1994) 
FR 35964 (SR-NYSE-94-13) (Order approving rule change relating to 
interpretation to rule 345 establishing a new category of limited 
registration for floor clerks, and the content outline for the 
examination module for floor clerks of members engaged in public 
business with professional customers). See also Securities Exchange 
Act Release No. 42092 (November 2, 1999) 64 FR 61375 (SR-NYSE-99-36) 
(Order approving proposed rule change to eliminate the Series 7B 
qualification examination and adopt a new interpretation to rule 
345) (Establishing Series 7A as the appropriate examination for 
conducting business with professional customers).
    \7\ See Securities Exchange Release Act No. 37690 (September 17, 
1996) 61 FR 49803 (SR-CHX-96-11) (Order granting approval to 
proposed rule change relating to examinations). See also Securities 
Exchange Release Act No. 43062 (July 21, 2000) 65 FR 46754 (SR-CHX-
00-07) (Order approving proposed rule change by the Chicago Stock 
Exchange, Inc. relating to examination requirements for floor clerks 
who may accept orders from professional customers for execution on 
the exchange's trading floor).
    \8\ The Exchange will phase-in these new requirements over a 
designated period of time after the proposed rule change has been 
approved. This will provide persons subject to the exam with an 
opportunity to study for and take the new examination without 
unnecessary business disruption. Members must successfully complete 
these examination requirements within 180 days of the date that the 
SEC approves the proposed rule.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \9\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5),\10\ in particular, in that it is designed to promote 
just and equitable principles of trade, prevent fraudulent and 
manipulative acts and practices, and protect investors and the public 
interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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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 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 PCX 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 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 those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 52, 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 
Exchange. All submissions should refer to file number SR-PCX-2001-26, 
and should be submitted by August 29, 2001.

    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. 01-19859 Filed 8-7-01; 8:45 am]
BILLING CODE 8010-01-M