[Federal Register Volume 68, Number 117 (Wednesday, June 18, 2003)]
[Notices]
[Pages 36621-36622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15313]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48019; File No. SR-PCX-2003-16]


Self-Regulatory Organizations; Notice of Filing and Order 
Accelerating Approval of Proposed Rule Change and Amendment No. 1 
Thereto by the Pacific Exchange, Inc. Relating to an Amendment to the 
Auto-Ex Incentive Program

June 11, 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 May 21, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I and II below, 
which Items have been prepared by the Exchange. On June 6, 2003, the 
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and is approving the 
proposal 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 Tania J. Cho, Regulatory Policy, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated June 5, 2003 (``Amendment No. 1''). In Amendment 
No. 1, PCX amended its proposal to request an extension of its Auto-
Ex Incentive Program pilot until June 30, 2004, rather than June 24, 
2004, as stated in the original proposal, so that the pilot's 
expiration coincides with the date on which the Exchange's ``PCX 
Plus'' system will be completely operative. See supra n. 10 and 
accompanying text.
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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 extend the Automatic Execution 
System (``Auto-Ex'') Incentive Pilot Program until June 30, 2004. The 
text of the proposed rule change is available at the Office of the 
Secretary, PCX and at the Commission.

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 self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On September 25, 2001, the Commission approved, as a nine-month 
pilot program, the Exchange's proposal to amend Rule 6.87, which 
governs the operation of Auto-Ex,\4\ to provide an Auto-Ex Incentive 
Program for apportioning Auto-Ex trades among Market Makers.\5\ On June 
7, 2002, the Commission extended the Auto-Ex Incentive Program pilot 
for six months \6\ and on December 24, 2002, the Commission extended 
the pilot for an additional six months.\7\ The pilot program is 
currently set to expire on June 24, 2003.
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    \4\ Auto-Ex is the Exchange's Automated Execution system feature 
of POETS for market or marketable limit orders. The Pacific Options 
Exchange Trading System (``POETS'') is the Exchange's automated 
trading system comprised of an options order routing system, an 
automatic execution system (``Auto-Ex''), an on-line limit order 
book system and an automatic market quote update system. Option 
orders can be sent to POETS via the Exchange's Member Firm Interface 
(``MFI''). Market and marketable limit orders sent through the MFI 
will be executed by Auto-Ex if they meet the order type and size 
requirements of the Exchange.
    \5\ See Exchange Act Release No. 44847 (September 25, 2001), 66 
FR 50237 (October 2, 2001) (SR-PCX-01-05).
    \6\ See Exchange Act Release No. 46115 (June 25, 2002), 67 FR 
44494 (July 2, 2002) (SR-PCX-2002-34).
    \7\ See Exchange Act Release No. 47088 (December 24, 2002), 68 
FR 140 (January 2, 2003) (SR-PCX-2002-78).
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    The Auto-Ex Incentive Program allows the Exchange to assign Auto-Ex 
orders to logged-on Market Makers according to the percentage of their 
in-person agency \8\ contracts traded in an issue (excluding Auto-Ex 
contracts) compared to all of the Market Maker in-person agency 
contracts traded (excluding Auto-Ex contracts) during the review 
period. The review period is determined by the Options Floor Trading 
Committee (``OFTC'') and may be for any period of time not in excess of 
two weeks.\9\ The percentage distribution determined for a review 
period will be effective for the succeeding review period.
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    \8\ Agency contracts are those contracts that are represented by 
an agent and do not include contracts traded between Markets Makers 
in person in the trading crowd.
    \9\ The OFTC has set a two-week review period for all options 
classes and the OFTC will not vary the term of the review period 
except for exigent circumstances.
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    The Exchange is requesting an additional extension of the pilot 
program from June 24, 2003 through June 30, 2004. The added time 
permits the Exchange to phase-in the Exchange's new trading platform 
for options, ``PCX Plus'', on an issue-by-issue basis.\10\ As each 
issue is phased into PCX Plus, the Exchange will simultaneously phase-
out such issue from the Auto-Ex Incentive Program. PCX Plus will 
eventually replace the Auto-Ex Incentive Program in its entirety. 
Therefore, the Exchange believes that an extension of the program is 
warranted until June 30, 2004, the date on which PCX Plus will be 
completely operative.
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    \10\ See Exchange Act Release No. 47838 (May 13, 2003), 68 FR 
27129 (May 19, 2003) (`` PCX Plus Order'').
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b)\11\ of the Act, in general, and furthers 
the objectives of

[[Page 36622]]

section 6(b)(5),\12\ in particular, in that it is designed to 
facilitate transactions in securities, to promote just and equitable 
principles of trade, to enhance competition and to protect investors 
and the public interest.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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, as 
amended, 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. 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 PCX. All submissions should refer to the File No. 
SR-PCX-2003-16 and should be submitted by July 9, 2003.

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

    The Exchange has requested that the Commission approve this 
proposed rule change on an accelerated basis. After careful 
consideration, 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, and, in particular, with the requirements of section 6(b)(5) 
of the Act.\13\ The Commission notes that this proposal is the latest 
in a series of Auto-Ex Incentive Pilot Program extensions previously 
approved by the Commission.\14\ Further, the Commission notes that the 
Auto-Ex Incentive Pilot Program itself has remained substantively 
unchanged since it was originally approved by the Commission as a nine-
month pilot.\15\ The Commission believes that an extension until June 
30, 2004 provides an appropriate period of time for the Exchange to 
continue its Auto-Ex Incentive Program while it phases-in its new 
trading platform for options, ``PCX Plus,'' on an issue-by-issue basis. 
Once ``PCX Plus'' is fully implemented, the Exchange no longer will 
need to operate its Auto-Ex system.\16\ Accordingly, the Commission 
finds good cause for approving the proposed rule change, as amended, 
prior to the thirtieth day after the date of publication of notice 
thereof in the Federal Register.
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    \13\ Id. In approving this rule, the Commission notes that it 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \14\ See Exchange Act Release No. 47088 (December 24, 2002), 68 
FR 140 (January 2, 2003) (SR-PCX-2002-78) (six-month extension); 
Securities Exchange Act Release No. 46115 (June 25, 2002); 67 FR 
44494 (July 2, 2002) (SR-PCX-2002-34) (six-month extension).
    \15\ See Exchange Act Release No. 44847 (September 25, 2001), 66 
FR 50237 (October 2, 2001) (SR-PCX-01-05).
    \16\ See PCX Plus Order, supra n. 10.
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V. Conclusion

    Is it therefore ordered, pursuant to section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-PCX-2003-16), as amended, is 
hereby approved on an accelerated basis, as a pilot program scheduled 
to expire on June 30, 2004.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
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pursuant to delegated authority.\18\

    \18\ 17 CFR200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15313 Filed 6-17-03; 8:45 am]
BILLING CODE 8010-01-P