[Federal Register Volume 67, Number 127 (Tuesday, July 2, 2002)]
[Notices]
[Pages 44494-44495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16541]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46115; File No. SR-PCX-2002-34]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Pacific Exchange, Inc. Relating to a Six-Month Extension of the 
Automatic Execution System Incentive Pilot Program

June 25, 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 June 7, 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 Exchange. On June 21, 2002, the PCX 
submitted Amendment No. 1 to the proposed rule change.\3\ The proposed 
rule change has been filed by the Phlx as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) of the Act.\4\ 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\ See letter from Michael Pierson, Vice President, Regulatory 
Policy, PCX, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated June 20, 2002. In Amendment No. 1, the 
PCX explained that is had inadvertently made two virtually identical 
submissions to the Commission, which were received on June 7, 2002 
and June 14, 2002, respectively, and were both titled SR-PCX-2002-
34. The only difference between the two submissions was that the 
latter contained a pilot expiration date of December 24, 2002 
(rather than December 25, 2002 as in the original document). 
Amendment No. 1 stated that the PCX wished to treat the second 
submission as amending the first by replacing it in full. 
Consequently, the operative pilot expiration date is December 24, 
2002.
    \4\ 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 is proposing to extend the Automatic Execution System 
(``Auto-Ex'') Incentive Pilot Program for six months. The text of the 
proposed rule change is available at the Office of the Secretary, 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 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 September 25, 2001, the Commission approved, on a nine-month 
pilot basis, the Exchange's proposal to amend PCX Rule 6.87, which 
governs the operation of Auto-Ex\5\ to provide an Auto-Ex Incentive 
Program for apportioning Auto-Ex trades among Market Makers.\6\ The 
pilot program is currently set to expire on June 25, 2002.\7\
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    \5\ Auto-Ex is the Exchange's Automated Execution system feature 
of the Pacific Options Exchange Trading System (``POETS'') for 
market or marketable limit orders. POETS is the Exchange's automated 
trading system comprised of an options order routing system, Auto-
Ex, an on-line order book system, and an automatic market quote 
update system. Option orders may be sent to POETS via the Exchange's 
Member Firm Interface (``MFI''). Market and marketable limit orders 
sent through the MFI will be executed by Auto-Ex if they meet order 
type and size requirements to the Exchange.
    \6\ See Securities Exchange Act Release No. 44847 (September 25, 
2001), 66 FR 50237 (October 2, 2001).
    \7\ The proposed rule changes were, in part, based on CBOE Rule 
6.8 Interpretations and Policies .06(c) ``100 Spoke RAES Wheel''. 
The 100 Spoke RAES Wheel pilot program has received three 
extensions, the latest being a six month extension issued on January 
3, 2002. See Securities Exchange Act Release No. 45230 (January 3, 
2002), 67 FR 1380 (January 10, 2002).
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    The Auto-Ex Incentive Program allows the Exchange to assign Auto-Ex 
orders to logged-on Market Makers according to their percentage of 
their in-person agency\8\ contracts traded in an issue (excluding Auto-
Ex contracts traded) compared to all of the Market Maker in-person 
agency contracts traded (excluding Auto-Ex contracts) during the review 
period. The review period is determined by the Options Floor Trading 
Committee (``OFTC'') and may be for any period of time not in excess of 
two weeks.\9\ The percentage distribution determined for a review 
period will be effective for the succeeding review period.
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    \8\ Agency contracts are those contracts that are represented by 
an agent and do not include contracts traded between Market Makers 
in person in the trading crowd.
    \9\ The OFTC has set a two-week review period for all options 
classes and the OFTC will not vary the term of the review period 
except for exigent circumstances.
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    The Exchange is requesting an additional extension of the pilot 
program for six months from June 25, 2002 to December 24, 2002. The 
Exchange is in the process of collecting data to determine the effect 
of the Auto-Ex Incentive Program on the apportionment of Auto-Ex trades 
among Market Makers. The added time permits the Exchange an opportunity 
to continue reviewing and evaluating the program. Therefore, the 
Exchange believes that a six-month extension of the program is 
warranted.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\10\ in general, and furthers 
the objectives of Section 6(b)(5),\11\ in particular, in that it is 
designed to facilitate transactions in securities, to promote just and 
equitable principles of trade, enhance competition and to protect 
investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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, 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 were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6) thereunder.\13\ Because the foregoing 
proposed rule change, as amended: (1) Does not significantly affect the 
protection of investors or the public interest, (2) does not impose any 
significant burden on competition, and

[[Page 44495]]

(3) by its terms does not become operative for 30 days after the date 
of this filing, or such shorter time as the Commission may designate, 
if consistent with the protection of investors and the public interest, 
provided that the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \14\ and 
Rule 19b-4(f)(6) \15\ thereunder.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the five-day 
pre-notice requirement and the 30-day operative delay, to permit the 
Exchange to implement the proposal immediately. Under Rule 19b-
4(f)(6)(iii), a proposed ``non-controversial'' rule change does not 
become operative for 30 days after the date of filing, unless the 
Commission designates a shorter time.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Acceleration of the operative date will allow for the continued 
operation of PCX's Auto-Ex Incentive Pilot Program without 
interruption.\16\ For these reasons, the Commission designates the 
proposed rule change, as amended, to be effective and operative upon 
filing with the Commission. The Commission also waives the five-
business day pre-filing requirement. 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.\17\
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    \16\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rules 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \17\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to commence on June 21, 2002, 
the date that the Exchange filed Amendment No. 1.
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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, 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 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 the 
File No. SR-PCX-2002-34 and should be submitted by July 23, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16541 Filed 7-1-02; 8:45 am]
BILLING CODE 8010-01-P