[Federal Register Volume 67, Number 105 (Friday, May 31, 2002)]
[Notices]
[Pages 38173-38174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13624]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45981; File No. SR-PCX-2002-22]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Bid-Ask Spread Differentials for Options

May 23, 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 22, 2002, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared by the PCX. On May 3, 2002, the PCX filed an 
amendment to the proposed rule change.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, dated May 2, 2002 (``Amendment No. 1''). The 
proposed rule change was originally submitted pursuant to Section 
19(b)(3)(A)(i) of the Act and Rule 19b-4(f)(1) thereunder. The 
Exchange filed Amendment No. 1 to designate the filing as having 
been filed pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder. The Exchange also requested the Commission to 
waive the 5-day pre-filing requirement and the 30-day delayed 
operative period.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX is proposing to amend Exchange Rule 6.37 to increase the 
maximum bid/ask spread differential for options from $.75 to $.80 where 
the bid price of an option is greater than $10 but does not exceed $20. 
The text of the proposed rule change is set forth below. Additions are 
in italics; deletions are in brackets.
* * * * *
Rule 6.37
* * * * *
    (b)(1) Bidding and/or offering so as to create differences of no 
more than
    (A)-(C)--No change.
    (D) no more than .80 [.75] where the bid is more than $10 but does 
not exceed $20, and
    (E) No change.
    (2)-(4)--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.

[[Page 38174]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to the industry-wide conversion of pricing from fractions 
to decimals, the Exchange converted all options prices in its rules to 
decimals, i.e., dollars and cents. Among the rules affected by the 
conversion of prices was PCX Rule 6.37, which relates to obligations of 
market makers. This rule stated that in the course of maintaining fair 
and orderly markets, market makers could set price differentials of \3/
4\ of a point where the bid was more than $10 but does not exceed $20. 
Upon conversion to decimal pricing, the Exchange converted \3/4\ of a 
point price differential to a $.75 price differential.
    A related rule regarding trading differentials provides that the 
maximum price variation (``MPV'') for issues traded at $3.00 or greater 
is $.10. As a consequence of the conversion, the .10 MPV bars market 
makers from setting price differentials of 75 cents as exists under the 
current rules and instead requires them to quote the differentials as 
either $.70 or $.80. Because the $.70 value provides less of a spread 
differential than was permitted before the conversion, and because 
current PCX Rule 6.37 does not permit a spread differential higher than 
$.75, the Exchange proposes to amend Rule 6.37 to increase the price 
differential by $.05 so that it may set the price differential to $.80 
for issues that trade for over $3.00, but less than $10.00.
2. Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\4\ in general, and further the 
objectives of Section 6(b)(5),\5\ in particular, in that it is designed 
to facilitate transactions in securities, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    Because the foregoing proposed rule change, as amended, does not: 
(i) Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate,\6\ it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) \8\ thereunder. At any time within 60 days of the filing of 
Amendment No. 1 to 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.
---------------------------------------------------------------------------

    \6\ The Exchange requested the Commission to waive 5-day pre-
filing notice requirement and the 30-day operative period. See 
Amendment No. 1, supra note 3.
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19-4(f)(6).
---------------------------------------------------------------------------

    The PCX has requested that the Commission accelerate the operative 
date. The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause to 
designate the proposal to become immediately operative upon filing. 
Acceleration of the operative date and waiver of the 5-day pre-filing 
requirement will permit the PCX to amend Rule 6.37 to reflect the PCX's 
$.10 MPV without undue delay. For these reasons, the Commission finds 
good cause to designate that the proposal become operative immediately 
upon filing. \9\
---------------------------------------------------------------------------

    \9\ For purposes only of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 the File 
No. SR-PCX-2002-22 and should be submitted by June 21, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-13624 Filed 5-30-02; 8:45 am]
BILLING CODE 8010-01-P