[Federal Register Volume 67, Number 94 (Wednesday, May 15, 2002)]
[Notices]
[Pages 34745-34746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12116]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45894; File No. SR-PCX-2002-23]


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

May 8, 2002.
    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 April 25, 2002, the Pacific Exchange, Inc. (``Exchange'' or ``PCX'') 
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) under the Act.\3\ 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

    PCX proposes to amend its rules in order to eliminate the current 
requirements for Market Makers, set forth in PCX Rule 6.87(e)(4), to 
log on to PCX's automatic execution system (``Auto-Ex'').\4\
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    \4\ The PCX Auto-Ex system 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 on a rotating 
basis. Automatic executions through Auto-Ex are currently available 
for public customer orders at 250 contracts or less in all series of 
options traded on the PCX's options floor.
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    Below is the text of the proposed rule change. Proposed new 
language is italicized and proposed deletions are in [brackets].
* * * * *

Automatic Execution System

Rule 6.87
    (a)-(d)--No change.
    (e) Market Maker Requirements and 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) Reserved. [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.]
    (5)-(7)--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, 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
    On July 10, 2000, the Exchange effected a new PCX rule establishing 
Auto-Ex log-on requirements for Market Makers.\5\ The current Auto-Ex 
rules outline the requirements with which a Market Maker (other than a 
Lead Market Maker (``LMM'')) must comply in order to be eligible to 
participate on Auto-Ex. Among the requirements, 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. The PCX represents that, by implication, a 
Market Maker who logs off of Auto-Ex may not log back on until the 
beginning of the next expiration cycle. The Exchange voluntarily 
implemented the rule in order to encourage Market Makers to remain on 
Auto-Ex throughout the trading month.
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    \5\ See Securities Exchange Act Release No. 43150 (August 14, 
2000), 65 FR 51390 (August 23, 2000).
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    After assessing the impact of the Auto-Ex log on requirement, the

[[Page 34746]]

Exchange believes that, because the requirement provides so little 
flexibility, it no longer serves the purpose for which it was created, 
i.e., encouraging greater Market Maker participation on Auto-Ex. Thus, 
despite the fact that LMMs would prefer Market Makers to participate on 
Auto-Ex as their risk profiles allow, the Exchange believes that the 
current requirement limits participation in an all-or-none fashion. As 
a consequence, the Exchange proposes to remove the log on requirement 
in its entirety in order to encourage Market Makers to log on to Auto-
Ex to the extent that their business models permit.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \6\ in general, and furthers the 
objectives of section 6(b)(5) of the Act \7\ in particular, because it 
is designed to foster cooperation and coordination with persons engaged 
in regulating, clearing, settling, processing information with respect 
to, and facilitating transactions in securities, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, as well as to protect investors and the public interest.
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    \6\ 15 U.S.C. 78f(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 inappropriate burden on competition that is not necessary 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

    No written comments were either solicited or 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 from 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) \8\ of the 
Act and Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date or such shorter period as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The PCX seeks to have the proposed 
rule change become operative immediately in order to maintain 
competition and efficiency among its market makers.
    The Commission, consistent with the protection of investors and the 
public interest, has determined to make the proposed rule change 
operative immediately upon filing as of April 25, 2002, to allow the 
PCX to maintain competition among its market makers and to encourage 
market makers to participate on Auto-Ex. At any time within 60 days of 
the filing of the 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 purposes of 
the Act.

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 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-2002-23 and should 
be submitted by June 5, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12116 Filed 5-14-02; 8:45 am]
BILLING CODE 8010-01-U