[Federal Register Volume 67, Number 166 (Tuesday, August 27, 2002)]
[Notices]
[Pages 55054-55056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21773]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46382; File No. SR-PCX-2002-41]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Pacific Exchange, Inc. To Amend the Original Listing Criteria for 
Underlying Securities in PCX Rule 3.6

August 20, 2002.
    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 July 25, 2002, the Pacific Stock 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 
August 6, 2002, the Exchange filed an amendment to the proposed rule 
change.\3\ As amended, the proposed rule change is effective upon 
filing with the Commission, pursuant to Section 19(b)(3)(A) of the 
Act,\4\ and Rule 19b-4(f)(6) thereunder.\5\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, 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 Mai S. Shriver, Senior Attorney, Regulatory 
Policy, PCX, to Florence Harmon, Senior Special Counsel, Division of 
Market Regulation, Commission, faxed August 6, 2002 (``Amendment No. 
1''). Amendment No. 1 corrects a typographical error in the rule 
text by replacing the word ``recorded'' with the word ``reported.''
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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 Exchange proposes to amend PCX Rule 3.6 in order to provide 
alternative original listing criteria for individual equity options 
that, but for the requirement that the underlying security be at least 
$7.50, meet the criteria for listings in PCX Rule 3.6.
    The text of the proposed rule change appears below. New text is in 
italics; deletions are in brackets.
* * * * *

Rule 3.6.  OPTIONS

    Rule 3.6. The underlying securities of option contracts traded on 
the Exchange shall be approved for Exchange transactions by the Board 
of Governors following the recommendation of the Options Listing 
Committee. In approving underlying securities, both the Options Listing 
Committee and the Board shall give due regard to, and the Board shall 
promulgate guidelines relative to, the following factors:
    (a) Underlying securities approved for Exchange transactions shall 
have, in the absence of exceptional circumstances, the following 
characteristics:
    (1) A minimum of 7,000,000 shares shall be owned by persons other 
than those required to report their stock holdings under Section 16(a) 
of the Securities Exchange Act of 1934;
    (2) A minimum of 2,000 shareholders;
    (3) Trading volume (in all markets which the stock is traded) of at 
least 2,400,000 shares in the preceding twelve months;
    (4) Either (i) the [The] market price per share of the underlying 
security will [shall] have been at least $7.50 for the majority of 
business days during the three calendar months preceding the date of 
selection, as measured by the lowest closing price reported \6\ in any 
market in which the underlying security traded on each of the subject 
days; or (ii)(a) the underlying security meets the guidelines for 
continued listing in Rule 3.7; (b) options on such underlying security 
are traded on at least one other registered national securities 
exchange; and (c) the average daily trading volume for such options 
over the last three (3) calendar months preceding the date of selection 
has been at least 5,000 contracts; and
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    \6\ See Amendment No. 1, supra note 3.
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    (5) The issuer is in compliance with any applicable requirements of 
the Securities Exchange Act of 1934.
* * * * *

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

[[Page 55055]]

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
    PCX Rule 3.6 sets forth the criteria that an underlying individual 
equity security must meet before the Exchange may initially list 
options on that security. Specifically, PCX Rule 3.6(a)(4) provides 
that the market price per share of the underlying security must have 
been at least $7.50 for the majority of business days during the three 
calendar months preceding the date of selection for listing. The 
Exchange's other initial listings guidelines provide that: (1) The 
underlying security consists of a large number of outstanding shares 
held by non-affiliates of the issuer; (2) the underlying security is 
actively-traded; (3) there are a large number of holders of the 
underlying security; and (4) the underlying security continues to be 
listed on a national securities exchange or traded through the 
facilities of a national securities association.
    Although these criteria are generally uniform among the options 
exchanges, the Commission has recently approved proposed rule changes 
submitted by the International Securities Exchange LLC (``ISE'') and 
the American Stock Exchange (``Amex'') that eliminate a requirement 
that the market price per share of an underlying security be at least 
$7.50 when such options are otherwise listed and traded on another 
options exchange and have an average daily trading volume (``ADTV'') 
over the last three (3) calendar months of at least 5,000 contracts.\7\ 
Therefore, so long as options meet the maintenance requirement on 
exchanges that already trade them, the ISE and Amex may list new 
options for trading those options despite the fact that the underlying 
security no longer meets the initial listing requirements.\8\
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    \7\ See Securities Exchange Act Release No. 45220 (December 31, 
2002), 67 FR 760 (January 7, 2002) (SR-ISE-2001-33); Securities 
Exchange Act Release No. 45505 (March 5, 2002), 67 FR 10941 (March 
11, 2002) (SR-Amex-2002-13).
    \8\ The Exchange's maintenance requirements are less stringent. 
In particular, additional series may be added pursuant to PCX Rule 
3.7, Commentary .02, if the underlying security is at least $3 in 
the primary market. The Exchange states that this less stringent 
maintenance standard is permitted, in part, because the Exchange's 
other guidelines assure that options would be listed and traded on 
securities of companies that are financially sound and subject to 
adequate minimum standards.
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    Consistent with the rules of the ISE and Amex, the Exchange 
proposes an alternative original listing requirement applicable to the 
underlying security's price during the three calendar months preceding 
an options listing. Specifically, the Exchange proposes to amend its 
rules to provide that, for underlying securities that satisfy all of 
the initial listing requirements of Rule 3.6, other than the $7.50 per 
share price requirement, the Exchange would be permitted to list 
options on the securities so long as: (1) The underlying security meets 
the guidelines for continued approval contained in PCX Rule 3.7; (2) 
options on such underlying security are traded on at least one other 
registered national securities exchange; and (3) the ADTV for such 
options over the last three calendar months preceding the date of 
selection has been at least 5,000 contracts.
    The Exchange believes that this proposal is narrowly drafted to 
address the circumstances where an actively-traded option issue is 
currently ineligible for listing on the PCX while at the same time, it 
is trading on another options exchange. The Exchange also believes the 
proposed alternative original listing criteria's limitation to cover 
only those options that are actively traded (i.e., options with an ADTV 
of at least 5,000 contracts over the least three calendar months) 
should allay any concerns regarding the listing of options that may be 
inappropriate. Because these options are actively traded in other 
markets, the Exchange believes that there would be no investor 
protection concerns with listing such options on the Exchange and that 
listing these options on the Exchange would enhance competition and 
benefit investors.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirement of Section 6(b) of the Act \9\ in general and 
furthers the objectives of Section 6(b)(5) of the Act \10\ in 
particular, in that the Exchange has rules that are designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and paragraph (f)(6) of Rule 19b-4\12\ 
thereunder because it does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate; and the Exchange has given the Commission written notice of 
its intention to file the proposed rule change at least five business 
days prior to filing. At any time within 60 days of the filing of such 
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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    The Commission notes that under Rule 19b-4(f)(6)(iii), the proposal 
does not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative date. The 
Exchange contends that acceleration of the operative date is consistent 
with the protection of investors and the public interest because the 
language of this proposed rule is substantially similar to rule 
language that was put out for notice and comment when ISE and the Amex 
submitted their proposed rule changes. For this reason, consistent with 
Section 19(b)(2) of the Act,\13\ the Commission designates the proposal 
to be effective

[[Page 55056]]

and operative upon filing with the Commission.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 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).
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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 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 PCX. All submissions should refer to 
File No. SR-PCX-2002-41 and should be submitted by September 17, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

Margaret H McFarland,
Deputy Secretary.
[FR Doc. 02-21773 Filed 8-26-02; 8:45 am]
BILLING CODE 8010-01-P