[Federal Register Volume 68, Number 75 (Friday, April 18, 2003)]
[Notices]
[Pages 19244-19245]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9594]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47664; File No. SR-PCX-2003-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. and 
Amendment No. 1 Thereto Regarding the Maximum Permissible Number of 
Nasdaq-100 Tracking Stock (``QQQ'') Option Contracts Executable Through 
the Exchange's Automatic Execution System (``Auto-Ex'')

April 10, 2003.
    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 March 27, 2003, the Pacific Exchange, Inc. (``Exchange'' or ``PCX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in items I and II below, which items 
have been prepared by the PCX. The proposed rule change has been filed 
by the PCX as a ``non-controversial'' rule change under rule 19b-
4(f)(6) under the Act.\3\ On April 7, 2003, the PCX filed Amendment No. 
1 to the proposed rule change.\4\ 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\ 17 CFR 240.19b-4(f)(6).
    \4\ See letter from Mai Shiver, Senior Attorney, Regulatory 
Policy, PCX, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated April 4, 2003. In Amendment No. 1, PCX 
amended the proposed rule text of the proposed rule change to 
reflect the current rule language of PCX rule 6.87.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX proposes to amend its rules to increase to 2,000 contracts in 
the first two near term expiration months, and to 1,000 contracts for 
all other expiration months, the maximum permissible number of QQQ 
option contracts in an order that can be executed through Auto-Ex.
    Below is the text of the proposed rule change, as amended. Proposed 
new language is italicized.
* * * * *

Automatic Execution System

    Rule 6.87(a)-(b)(5)--No change.
    (6) The OFTC or its delegate consisting of two Floor Officials 
shall determine the size of orders that are eligible to be executed on 
Auto-Ex. The OFTC or its delegate, two Floor Officials, may approve 
requests of the Lead Market Makers to execute orders on Auto-Ex in 
sizes greater than 20 contracts. Although the order size parameter may 
be changed on an issue-by-issue basis by the OFTC or its delegate, two 
Floor Officials, the maximum order size for execution through Auto-Ex 
is as follows:
    (A) Equity Options: the maximum order size for execution through 
Auto-Ex for equity options is 250 contracts except for options on the 
Nasdaq-100 Tracking Stock (QQQ) in which case, the maximum order size 
will be 2,000 contracts in the first two (2) near term expiration 
months and 1,000 contracts for all other expiration months;
    (B) Index Options: the maximum order size for execution through 
Auto-Ex is 250 contracts.
    (7)--No change.
    (c)-(p)--No change.
    Commentary .01-.08--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, 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
    The Exchange proposes to increase the maximum order size 
eligibility for Auto-Ex in the first two near term expiration months in 
QQQ options to 2,000 contracts and to 1,000 contracts

[[Page 19245]]

for all other expiration months \5\ to match the size of orders in the 
same options eligible for automatic execution on another options 
exchange.\6\ The Exchange notes that the American Stock Exchange LLC 
(``Amex'') and the Philadelphia Stock Exchange, Inc. (``Phlx'') allow 
automatic executions in QQQ options for a size of up to 2,000 contracts 
in series in the two near term expiration months, and up to 1,000 
contracts in all other expiration months.\7\ The Exchange represents 
that Auto-Ex affords prompt and efficient automatic executions at the 
disseminated quotation price on the Exchange. Therefore, the Exchange 
believes that increasing automatic execution levels for eligible orders 
in QQQ options to 2,000 contracts in the first two near term expiration 
months, and to 1,000 contracts for all other expiration months should 
provide the benefits of automatic execution to a larger number of 
customer orders. Further, the Exchange notes that this increase in 
automatic execution levels in QQQ options should enable the Exchange to 
remain competitive for order flow with other exchanges that trade QQQ 
options.
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    \5\ Currently, the maximum option order size eligible for 
automatic execution via Auto-Ex is 250 contracts for all equity 
options including the QQQs.
    \6\ Exchange rule 6.87(b)(7) provides that the Options Floor 
Trading Committee may, in its discretion, increase the size of 
orders in one or more classes of multiply-traded equity options 
eligible for Auto-Ex to the extent necessary to match the size of 
orders in the same options eligible for entry into the automated 
execution system of any other options exchange, provided that the 
effectiveness of any such increase shall be conditioned upon its 
having been filed with the Commission pursuant to section 
19(b)(3)(A) of the Act.
    \7\ See Securities Exchange Act Release No. 45828 (April 25, 
2002), 67 FR 22140 (May 2, 2002) (File No. SR-Amex-2002-30); see 
also Securities Exchange Act Release No. 46531 (September 23, 2002), 
67 FR 61370 (September 30, 2002) (File No. SR-Phlx-2002-47).
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    The Exchange believes that the increase in order size eligibility 
for Auto-Ex orders in QQQ options should provide customers with quicker 
executions for a larger number of orders by providing automatic rather 
than manual executions, thereby reducing the number of orders subject 
to manual processing. The Exchange also believes that increasing the 
Auto-Ex maximum order size in QQQ options should not impose a 
significant burden on the operation or capacity of the Auto-Ex System 
and will give the Exchange better means of competing with other options 
exchanges for order flow.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \8\ in general, and furthers 
the objectives of section 6(b)(5) of the Act \9\ in particular, because 
it is designed to promote just and equitable principles of trade, to 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and to remove impediments and 
perfect the mechanisms of a free and open market and to protect 
investors and the public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 inappropriate burden on competition that is not necessary 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 neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing proposed rule change, as amended, has become 
effective pursuant to section 19(b)(3)(A) \10\ of the Act and rule 19b-
4(f)(6) \11\ thereunder because the proposal: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
Exchange has given the Commission written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date of the proposed rule change.\12\ The PCX seeks to have the 
proposed rule change become operative immediately upon filing because 
it believes that the proposed rule change, as amended, is consistent 
with the protection of investors and the public interest, and in order 
to remain competitive with other exchanges with similar rules in 
effect.\13\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ As required under rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date.
    \13\ See supra note 7.
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    The Commission, consistent with the protection of investors and the 
public interest, has determined to make the proposed rule change, as 
amended, operative immediately upon filing to allow the PCX to compete 
with other options exchanges that currently has a maximum automatic 
execution eligibility limit in QQQ options of 2,000 contracts in the 
first two near term expiration months.\14\ 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.\15\
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    \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).
    \15\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to commence on April 7, 2003, 
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 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-2003-14 and should be submitted by May 9, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9594 Filed 4-17-03; 8:45 am]
BILLING CODE 8010-01-P