[Federal Register Volume 66, Number 204 (Monday, October 22, 2001)]
[Notices]
[Pages 53465-53467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26488]


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SECURITIES AND EXCHANGE COMMISSION

[(Release No. 34-44938; File No. SR-PCX-2001-35)]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating To Split Price Executions of Auto-Ex Orders

October 15, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4\2\ thereunder, notice is hereby given that 
on August 31, 2001, 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. 
The proposed rule change has been filed by the PCX as a ``non-
controversial'' rule change under Rule 19b-4(f)(6)\3\ under the Act. 
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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX proposes to adopt Rule 6.87(p) permitting split-price 
executions. Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *
    Rule 6.87(a)-(m)--No change.
    (n)-(o)--Reserved.
    (p) Auto-Ex Split-Price Executions. When the best bid or offer on 
the Exchange's book constitutes the best bid or offer on the Exchange, 
contra-side incoming Auto-Ex orders will be executed as follows:
    (1) When the best bid or offer on the Exchange's book constitutes 
the best bid or offer on the Exchange and is for a size less than the 
Auto-Ex guaranteed size for the issue, that best bid or offer will be 
denoted in the Exchange's disseminated quote by a ``Book Indicator.'' 
An incoming Auto-Ex order will be executed against the order in the 
book. In the event the order in the book is for a smaller number of 
contracts than the Auto-Ex order, the balance of the Auto-Ex order up 
to the firm quote size for the issue will be assigned to Market-Makers 
on the Auto-Ex wheel at the same price at which the initial portion of 
the order was executed. Any remaining balance thereafter will be:
    (A) Assigned to market Makers on the Auto-Ex wheel at the Auto-
Quote price if Auto-Quote constitutes the new prevailing market bid or 
offer that is equal to or better than the NBBO; or
    (B) Executed against any order in the book that constitutes the new 
prevailing market bid or offer with the balance of the Auto-Ex order 
being assigned to Market Makers on the Auto-Ex wheel at that price up 
to the firm quote size. Any additional remaining balance of an Auto-Ex 
order shall be handled in accordance with (A) or (B) of this paragraph.
    (2) Notwithstanding paragraph (1) above, if the bid or offer 
generated by the Exchange's Auto-Quote system (or any Exchange approved 
proprietary quote generation system used in lieu of the Exchange's 
Auto-Quote system) crosses or locks the Exchange's best bid or offer 
established by an order in the Exchange's customer limit order book, or 
is outside the NBBO, then Auto-Ex orders for options of that series 
will not be automatically executed but instead will be rerouted to 
Floor Broker Hand-Held Terminals or to another location in the event of 
system problems or contrary firm routing instructions. These rerouted 
orders will be executed in accordance with Rule 6.86.

[[Page 53466]]

    Commentary:
    .01  For purposes of this rule, the firm quote size is the minimum 
quotation size established by Rule 6.86.
* * * * *

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 proposed rule change will permit split-price executions of 
Auto-Ex orders when the book represents the best PCX market and is for 
a size less than the Auto-Ex guaranteed size for the issue.\4\ In such 
cases, the book's best bid or offer will be denoted by a ``Book 
Indicator'' and the incoming Auto-Ex order will be executed against the 
actual book size. The balance of the Auto-Ex order up to the firm quote 
size\5\ for the issue will be assigned to Market Makers on the Auto-Ex 
wheel at the same price at which the initial portion of the order was 
executed. If any portion of the Auto-Ex order remains unfilled, the 
balance of the order will be executed at the next prevailing bid or 
offer, i.e., the book price and/or the Auto-Quote price. The NBBO will 
be checked after each quote update to ensure that automatic executions 
do not occur at inferior prices.
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    \4\ The Exchange represents that the proposed rule change is, in 
large part, adapted from Chicago Board Options Exchange Rule 
6.8(d)(iv). See Securities Exchange Act Release No. 44244 (May 1, 
2001), 66 FR 23283 (May 8, 2001).
    \5\ The firm quote size is the minimum quotation size 
established by PCX Rule 6.86.
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    If the bid or offer generated by the Exchange's Auto-Quote system 
(or any Exchange approved proprietary quote generation system used in 
lieu of the Exchange's Auto-Quote system) crosses or locks the 
Exchange's best bid or offer established by an order in the Exchange's 
customer limit order book, or is outside the NBBO, then Auto-Ex orders 
for options of that series will not be automatically executed but 
instead will be rerouted to Floor Broker Hand-Held Terminals or to 
another location in the event of system problems or contrary firm 
routing instructions. These rerouted orders will be executed in 
accordance with Rule 6.86.
    Currently, when the book represents the best PCX market and is for 
a size less than the Auto-Ex guaranteed size for the issue, the 
incoming Auto-Ex order will be executed against the actual book size 
and the balance of the order up to the Auto-Ex guarantee size for the 
issue will be assigned to Market Makers on the Auto-Ex wheel at the 
same price that the initial portion of the order was executed. For 
example, assume the Auto-Ex guarantee is 100 and the firm quote size is 
20. If the book contains an order for one contract that represents the 
best bid, an incoming market order to sell 100 contracts will execute 
against the book for one contract and then against Market Makers logged 
onto Auto-Ex for 99 remaining contracts at the book price, regardless 
of the trading crowd's best bid. Under the split-price execution 
proposal, 19 contracts of the sell order will be assigned to Market 
Makers logged onto Auto-Ex for sale at the book price and the balance 
of the order will be executed at the next prevailing bid or offer, 
i.e., the book price and/or the Auto-Quote price. The NBBO will be 
checked after each quote update to ensure that automatic executions do 
not occur at inferior prices.
2. Statutory Basis
    The Exchange believes that this proposal is ocnsistent with Section 
6(b) \6\ of the Act, in general, and furthers the objectives of Section 
6(b)(5),\7\ in particular, in that it is designed to facilitate 
transactions in securities, to prevent fraudulent and manipulative acts 
and practices, and to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitation transactions in securities, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \6\ 15 U.S.C. 78(B).
    \7\ 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.

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

    Because the foregoing proposed rule change: (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 after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\8\ and Rule 19b-4(f)(6) \9\ thereunder.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    The PCX did not request that the Commission waive the 30-day delay 
in the operative date of the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) under the Act. Accordingly, the proposed rule change 
became operative on October 1, 2001.
    At any time within 60 days of the filing of the proposed rule 
change, as amended, 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 purposes of the Act.\10\
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    \10\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78(b)(3)(C).
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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 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

[[Page 53467]]

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-2001-35 and should 
be submitted by November 13, 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. 01-26488 Filed 10-19-01; 8:45 am]
BILLING CODE 8010-01-M