[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Notices]
[Pages 61181-61182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24608]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46520; File No. SR-PCX-2002-26]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto, and Notice 
of Filing and Order Granting Accelerated Approval of Amendment No. 2 to 
Proposed Rule Change Relating to Maintenance of Books and Records

September 20, 2002.
    On April 22, 2002, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to codify the existing 
obligations of PCX members to keep and preserve books and records, and 
to maintain daily position statements and error account information. 
PCX submitted Amendment No. 1 to the proposed rule change on June 11, 
2002.\3\ The proposed rule change was published for comment in the 
Federal Register on July 9, 2002.\4\ The Commission received no 
comments on the amended proposal. On September 11, 2002, PCX submitted 
Amendment No. 2 to the proposed rule change.\5\ This order approves the 
proposed rule change, as amended. In addition, the Commission is 
publishing this notice to solicit comments on Amendment No. 2 from 
interested

[[Page 61182]]

persons, and approving Amendment No. 2 on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated June 10, 2002 
(``Amendment No. 1''). In Amendment No. 1, the Exchange: (1) stated 
that the proposed rule change was being filed pursuant to Section 
19(b)(2) of the Act and requested accelerated effectiveness; (2) 
revised typographical errors in the proposed rule text; (3) added 
the parenthetical (including any interpretation relating thereto) to 
proposed PCX Rule 4.20(a); and (4) clarified that the phrase 
``contra organization'' in proposed PCX Rule 4.20(b) is an industry 
term of art that also means counter party.
    \4\ See Securities Exchange Act Release No. 46128 (June 26, 
2002), 67 FR 45577.
    \5\ See letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated September 10, 2002 (``Amendment No. 2''). In 
Amendment No. 2, PCX revised the second sentence of proposed Rule 
4.20(b) to read: ``Each Member or Member Organization must promptly 
report any differences to the contra organization and make every 
effort to promptly resolve the differences.''
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    The proposed rule change would require all Members and Member 
Organizations to make, keep current, and preserve such books and 
records as the Exchange may prescribe and as those that may be 
prescribed by the Act and the rules and regulations thereunder 
(including any interpretation relating thereto). The proposed rule 
further provides that no Member or Member Organization may refuse to 
make available to the Exchange such books, records or other information 
as may be called for under the PCX rules or as may be requested in 
connection with an Exchange investigation.
    With respect to maintaining daily position statements, the proposed 
rule generally provides that each Member and Member Organization must 
receive daily position statements with respect to securities held by 
the Options Clearing Corporation or any member thereof, the Depository 
Trust and Clearing Corporation or any similar clearing organization and 
must reconcile securities and money balances at least once per month by 
comparing those position statements against the Member or Member 
Organization's books and records. As proposed, each Member and Member 
Organization would be required to maintain reports that evidence 
reconciliation for at least six years, the first two years in an easily 
accessible place.
    Finally, regarding error accounts, the proposed rule provides that 
each Member or Member Organization, which conducts business as a floor 
broker must make available to the Exchange, upon request, accurate and 
complete records of all trades cleared in such Member or Member 
Organization's error account. The proposed rule would also require that 
the error account records include certain audit trail data elements 
including, for example, name of the security, quantity, and the nature 
and amount of the error.
    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \6\ 
and, in particular, the requirements of Section 6 of the Act \7\ and 
the rules and regulations thereunder. The Commission finds specifically 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act \8\ because the proposed rule change requires the Exchange's 
members to maintain books and records in a manner that is consistent 
with federal securities laws. The Commission believes such consistency 
should foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest. The 
Commission also believes that the requirements relating to the 
maintenance and reconciliation of daily position statements and error 
accounts should have similar beneficial results.
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    \6\ 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).
    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving proposed Amendment 
No. 2 prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. In Amendment No. 2, 
the Exchange clarified that members must make every effort to resolve 
differences that may occur on position statements. The Commission 
believes that Amendment No. 2 should strengthen PCX's rule by requiring 
members to resolve inaccuracies. Therefore, the Commission believes 
that good cause exists pursuant to Sections 6(b)(5)\9\ and 19(b)\10\ of 
the Act to accelerate approval of Amendment No. 2 to the proposed rule 
change.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78s(b).
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    Interested persons are invited to submit written date, views and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-2002-26 and should be 
submitted by October 18, 2002.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-PCX-2002-26), as amended by 
Amendment No. 1, is approved, and Amendment No. 2 is approved on an 
accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24608 Filed 9-26-02; 8:45 am]
BILLING CODE 8010-01-P