[Federal Register Volume 68, Number 39 (Thursday, February 27, 2003)]
[Notices]
[Pages 9105-9106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4618]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47378; File No. SR-PCX-2002-20]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment No. 1 by the Pacific Exchange, Inc. Relating to a 
Stay of a Committee Action

February 19, 2003.

I. Introduction

    On April 9, 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 adopt an interim stay 
provision in connection with its rules regarding review of committee 
actions. On December 31, 2002, PCX filed Amendment No. 1 to the 
proposed rule change.\3\ The proposed rule change and Amendment No. 1 
were published for comment in the Federal Register on January 15, 
2003.\4\ No comment letters were received on the proposal, as amended. 
This order approves the proposed rule change and Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced the PCX's original 19b-4 filing in 
its entirety.
    \4\ Securities Exchange Act Release No. 47143 (January 8, 2003), 
68 FR 2096.
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II. Description of the Proposal

    The Exchange's Board of Governors delegates certain powers and 
duties to committees that administer the provisions of the Constitution 
and the Rules of the Exchange.\5\ The rules of the Exchange provide 
that persons aggrieved by committee decisions (other than disciplinary 
matters) may seek review of the decisions subject to the procedural 
prerequisite of PCX Rule 11.7 (Hearing and Review of Committee Action). 
PCX represents that, while the rule does not expressly provide a right 
to interim relief from committee decisions, applicants seeking such 
relief routinely request that the Exchange stay further action pending 
review. In the absence of an express policy or procedures relating to 
interim relief, the Exchange has evaluated the merits of stay 
applications on a case-by-case basis relying upon the guidelines that 
are used by the Commission in reviewing stay applications of self-
regulatory organization actions.\6\ As a consequence of the Exchange's 
ad hoc review, the Exchange believes that applicants are either not 
aware that they have a right to interim relief or they are not familiar 
with the criteria that they must satisfy to obtain a stay.
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    \5\ See PCX Rule 11.4.
    \6\ See 17 CFR 201.401(d); see also Order Preliminarily 
Considering Whether to Issue Stay Sua Sponte and Establishing 
Guidelines for Seeking Stay Applications, Securities Exchange Act 
Release No. 33870 (April 7, 1994) (``Commission Order'').
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    The Exchange proposed to set forth the criteria and procedures 
necessary to request a stay of committee action. The proposed new 
Exchange rule will set forth four factors that the Exchange will 
consider when evaluating the merits of a stay application: (1) Whether 
there is a likelihood that the applicant will prevail on the merits of 
the appeal; (2) that without a stay, the applicant is likely to suffer 
irreparable injury; (3) that it is likely there will not be substantial 
harm to other parties if the stay is granted; and (4) that the issuance 
of a stay is likely to serve the interests of the Exchange or an 
identified public interest.\7\ The Exchange represents that the 
applicant must prove each of these factors based solely on the evidence 
and information presented in the application for a stay.
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    \7\ The Exchange represents that it relies on the Commission's 
guidelines in proposing these factors.
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    The proposed new Exchange rule will also clarify the procedures 
that an applicant must satisfy in seeking a stay. The proposed rule 
specifies that an applicant must pay a $500 fee in order to request a 
stay. The fee will be used to cover a portion of Exchange expenses 
including the allocation of staff time in processing a request for a 
stay. The proposal also provides that applicants must request a stay by 
the earlier of ten business days after a committee renders its decision 
or forty-eight hours before the committee implements action. From time 
to time, the Exchange represents that it may be required to implement a 
particular committee decision immediately without leaving sufficient 
time for an aggrieved party to request a stay of action. According to 
the Exchange, this situation occurs, for example, when the Exchange 
must identify a particular Lead Market Maker to trade a new option on 
the following

[[Page 9106]]

business day, or when the Options Floor Trading Committee makes ad hoc 
trading decisions on the trading floor regarding Auto-Ex decisions 
pursuant to PCX Rule 6.87. In those unique situations, the Exchange 
notes that the aggrieved party will not have an opportunity to stay the 
action, but will be able to appeal the committee decision pursuant to 
PCX Rule 11.7. The Exchange also represents that it will not be 
required to consider a request for a stay made within the forty-eight 
hours before a committee implements action.
    The proposed new Exchange rule will also provide that the 
Exchange's Board Appeals Committee may render a decision summarily 
based solely on the documents submitted in support of, and opposition 
to, the request for stay. In the event that the Board Appeals Committee 
denies the request for a stay, the Board Appeals Committee will state 
the reasons for its denial and state facts that support its 
decision.\8\ The Exchange believes that these procedures will guide 
applicants through the stay process and will provide the Exchange's 
Board Appeals Committee with a uniform standard by which to judge the 
merits of an application for interim relief. The proposed new Exchange 
rule will not apply to disciplinary matters and will not affect an 
aggrieved person's underlying right to appeal a committee decision.
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    \8\ The Exchange represents that the Board Appeals Committee 
will notify the applicant of its denial of a request for a stay, as 
well as the reasons for its denial. Telephone conversation between 
Mai S. Shiver, Senior Attorney, Regulatory Policy, PCX, and Sapna C. 
Patel, Attorney, Division of Market Regulation (``Division''), 
Commission, on January 8, 2003.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and the rules and 
regulations promulgated thereunder applicable to a national securities 
exchange and, in particular, with the requirements of Section 6(b).\9\ 
Specifically, the Commission finds that approval of the proposed rule 
change, as amended, is consistent with Section 6(b)(5)\10\ of the Act 
in that it is designed to facilitate transactions in securities; to 
prevent fraudulent and manipulative acts and practices; to promote just 
and equitable principles of trade; to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities; to remove impediments to and perfect the mechanism of a 
free and open market and a national market system; and in general, to 
protect investors and the public interest. In addition, the Commission 
finds that approval of the proposed rule change, as amended, is 
consistent with Section 6(b)(4) of the Act \11\ because it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members, issuers and other persons.
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    \9\ 15 U.S.C. 78f(b). In approving this proposal, the Commission 
has considered the proposed rule's impact on efficiency, competition 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange proposes to amend Exchange Rule 11.7 to explicitly 
codify criteria and procedures necessary to request a stay of committee 
action so that applicants are aware that they have a right to interim 
relief from committee decisions and to provide applicants with clear 
guidelines on how to request a stay. The Commission believes that the 
criteria proposed by the Exchange for evaluating the merits of a stay 
application, as described above, are similar to criteria that the 
Commission uses to access requests for stays in connection with 
petitions seeking review of a Commission order.\12\
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    \12\ See Section 25(c)(2) of the Act, 15 U.S.C. 78y(c)(2), and 
the Commission's Rules of Practice Rule 401, 17 CFR 201.401(d); see 
also Commission Order, supra note 6.
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    The Exchange proposes that applicants must request a stay by the 
earlier of ten business days after a committee renders its decision or 
forty-eight hours before the committee implements action. The 
Commission notes that the Exchange has represented that, at the time of 
the committee's decision, the applicant will be notified of the date 
when the committee will implement its action and will therefore be able 
to assess when he or she would need to file an application to request a 
stay.\13\ In addition, the Exchange represents that it will not be 
required to consider a request for a stay made within the forty-eight 
hours before a committee implements action. The Commission recognizes 
that, under certain circumstances, such as when the Exchange's Options 
Floor Trading Committee need to make ad hoc trading decisions on the 
trading floor regarding the Exchange's Auto-Ex system, it would be 
necessary for the committee to take immediate action following a 
committee decision. In such cases, a request for interim relief from 
the committee's decision would be impractical. The Exchange has 
represented, however, that the applicant would have a right to appeal 
the decision pursuant to Exchange Rule 11.7.
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    \13\ Telephone conversation between Mai S. Shiver, Senior 
Attorney, Regulatory Policy, PCX, and Sapna C. Patel, Attorney, 
Division, Commission, on February 19, 2003.
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    The Exchange's proposal further permits its Board Appeals Committee 
to render its decision summarily based solely on the documents 
submitted in support of, and opposition to, the request for stay, and 
not on the underlying complaint. The Commission notes that the Exchange 
has represented that its Board Appeals Committee will notify the 
applicant if his or her request for a stay is denied and will provide 
the applicant with the grounds for such denial.
    Consequently, the Commission believes that the Exchange's proposed 
criteria to request a stay of a committee action are clear and that 
they provide objective and uniform guidelines for applicants. The 
Commission finds that proposed guidelines for requesting a stay are 
consistent with the Act.
    In addition, the Commission believes that requiring all applicants 
to pay a $500 fee to request a stay of committee action is appropriate 
because it covers the expense for the Exchange to process the 
applicant's application, and because it applies to all applicants 
uniformly regardless of whether the request for a stay is accepted or 
denied.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with sections 6(b)(5) \14\ and 6(b)(4).\15\
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    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(b)(4).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-PCX-2002-20) and Amendment 
No. 1 are approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-4618 Filed 2-26-03; 8:45 am]
BILLING CODE 8010-01-P