[Federal Register Volume 67, Number 168 (Thursday, August 29, 2002)]
[Notices]
[Pages 55446-55448]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22095]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46406; File No. SR-PCX-2002-51]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to Listing Maintenance Standards for Options

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

    PCX is proposing to amend PCX Rule 3.7 to allow the Exchange to add 
new series of options when such series are available for trading on one 
or more other options exchanges and the underlying security met the 
market price per share requirements at the time that a competing 
exchange added such series. The text of the proposed rule change is 
below; new language is italicized.
* * * * *
Withdrawal of Approval of Underlying Securities
    Rule 3.7(a) The approval of an underlying security for exchange 
transactions shall be withdrawn by the Exchange if the underlying 
security fails to meet the then current requirements necessary to 
maintain such approval or for any reason the Exchange deems necessary. 
In the event the Exchange withdraws approval, no additional series of 
option contracts of the class covering that underlying security shall 
be opened; provided, however, that where exceptional circumstances have 
caused the noncompliance of an underlying security with Subsection (B) 
or (C) of Section 1 of Commentary .01 or Section 2 or 3 of Commentary 
.01 hereunder, the Exchange may, in the interest of maintaining a fair 
and orderly market or for the protection of investors, open additional 
series of option contracts of the class covering the subject underlying 
security.
    (b) No change.
    Commentary:
    .01--No change.
    .02--In connection with Rule 3.7(a) and Commentary .01.3 thereto, 
the Exchange shall direct that no additional series of options 
contracts of the class covering an underlying security be opened at any 
time when the market price per share of the subject underlying security 
is less than $3.00. Subject to Paragraph 3 of Commentary .01 above, the 
market price per share of the underlying security will be determined as 
follows:
    1. For intra-day series additions, the last reported trade in the 
primary market in which the security is traded at the time the Exchange 
determines to add these additional series intra-day;
    2. For next-day series additions, the closing price reported in the 
primary market in which the security is traded on the last trading day 
preceding the day on which such series additions are authorized; and
    3. for expiration series additions, the closing price reported in 
the primary market in which the security is traded on the last trading 
day preceding expiration Friday.
    Notwithstanding this Commentary .02, the Exchange may add series of

[[Page 55447]]

options covering an underlying security when such series are available 
for trading on one or more other options exchanges provided that the 
underlying security met the market price per share requirements at the 
time that such series were added by a competing registered national 
securities exchange.
    .03-.11--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, 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 III below. 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
    PCX Rule 3.7 (Withdrawal of Approval of Underlying Securities) 
specifies continued listing requirements for securities underlying 
options traded on the Exchange and restricts the Exchange from adding 
new series of options in the event that the underlying security fails 
to meet certain criteria. The rule currently provides that the Exchange 
may not list additional series if, inter alia: (1) for next day series 
additions, the underlying security closed below $3 on the previous 
trading day in the primary market in which the security is traded; (2) 
for intra-day series additions, the last reported trade in the 
underlying security was below $3 on the primary market in which the 
security is traded at the time the Exchange determines to add the new 
series; and (3) for new series following an options expiration, the 
closing price of the underlying is below $3 on the last trading day 
preceding expiration Friday on the primary market in which the security 
is traded.\3\
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    \3\ The Exchange's other continued listing guidelines require 
that the Exchange take action to withdraw an option from listing 
unless the issuer makes timely reports as required by any applicable 
sections of the Securities Exchange Act of 1934; maintains a minimum 
of 6,300,000 shares of the underlying security held by persons other 
than those who are subject to the requirement of Section 16(a) of 
the Securities Exchange Act of 1934, as amended; maintains a minimum 
of 1,600 holders of the underlying security; and maintains a volume 
of trading in the underlying security of at least 1,800,000 shares 
in the preceding twelve months.
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    Although the continued listing requirements are uniform among the 
five options exchanges, the application of those standards in the 
current market environment has resulted in situations where not all 
exchanges may compete in the same options series. For example, if one 
exchange adds a new options series when the underlying security trades 
above the $3.00 price threshold, it may continue to trade options on 
that series even if the price of the underlying security subsequently 
falls below $3.00. If no other options exchange had added that series 
when it was eligible for listing, then the first exchange to add the 
series would be the only one authorized to trade that series despite 
the fact that members of other exchanges have customer orders to trade 
that series. Due to the extreme volatility of prices in the 
marketplace, the PCX would not be able to list actively-traded options 
series where the price of the underlying security falls below the $3.00 
threshold before the Exchange elects to add the series.
    To address this situation, the Exchange proposes to adopt a new 
rule change that would allow it to list additional series that are 
being quoted by at least one other exchange. The Exchange has narrowly 
drafted this proposed rule change to address the circumstances where an 
option series is already available to the investing public, but cannot 
be added by the Exchange due to timing.\4\ Therefore, the Exchanges 
proposal will not add any new series for trading that are not already 
available to investors on a competing exchange.
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    \4\ The Exchange does not propose to change other requirements 
currently contained in Rule 3.7 (such as the number of shares that 
must be held by non-insiders, number of holders and trading volume).
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    The Exchange believes that this proposal will promote competition 
in the marketplace by assuring that the Exchange may compete in all 
series that are quoted by other options exchanges. This will place the 
Exchange on a level playing field with its competitors.
2. Statutory Basis
    The Exchange believes that this proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed to 
facilitate transactions in securities, to promote just and equitable 
principles of trade, and to protect investors and the public interest.
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    \5\ 15 U.S.C. 78(f)(b).
    \6\ 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

    The Exchange has not received any written comments from members or 
other interested parties.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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-2002-51 and should be 
submitted by September 19, 2002.

IV. Commissions' Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, the requirements of Section 6(b)(5) of the Act.\7\ The 
Commission believes investors benefit from the competition among 
options exchanges that results when options are listed on more than one 
options exchange; and that investors are sufficiently protected, even 
though PCX will be permitted to list a series of option contracts when 
the market price of the underlying security is below $3, because all of 
the other maintenance listing requirements of the

[[Page 55448]]

Exchange must still be complied with, and the market price of the 
underlying security was at or above $3 when it was listed on the first 
options exchange. Therefore, the Commission finds that proposed rule 
change will promote just and equitable principles of trade, and, in 
general, protect investors and the public interest consistent with 
Section 6(b)(5) of the Act.\8\
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(5). In approving this proposed rule change, 
the Commission notes that it has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    PCX has requested that the proposed rule change be given 
accelerated approval pursuant to Section 19(b)(2) of the Act.\9\ The 
Commission believes accelerated approval of the proposal would enhance 
competition among the options exchanges. Accordingly, the Commission 
finds good cause, consistent with Section 6(b)(5) of the Act,\10\ to 
approve the proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing thereof in the Federal 
Register.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 15 U.S.C. 78f(b)(5).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-PCX-2002-51) is hereby 
approved on an accelerated basis.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 240.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22095 Filed 8-28-02; 8:45 am]
BILLING CODE 8010-01-P