[Federal Register Volume 68, Number 120 (Monday, June 23, 2003)]
[Notices]
[Pages 37190-37192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15770]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48043; File No. SR-PCX-2003-15]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to its Auto-Ex Book Function Pilot Program

June 17, 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

[[Page 37191]]

change from interested persons. For the reasons described below, the 
Commission is granting accelerated approval to the proposed rule 
change.
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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, Attorney, 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 
the pilot program discussed herein until June 30, 2004, rather than 
June 24, 2004 as stated in the original proposal, so that the 
pilot's expiration will coincide with the date on which the 
Exchange's ``PCX Plus'' system will be completely operative. See 
infra n. 6, and accompanying text.
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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 its rules to extend the Automatic 
Execution System (``Auto-Ex'') Book Function Pilot Program to June 30, 
2004. The text of the proposed rule change is available at the 
principal office of the 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 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
    On June 17, 2002, the Commission approved, on a one-year basis, the 
Exchange's proposal to amend Rule 6.87, which governs the operation of 
its Auto-Ex \4\ Book Function.\5\ The pilot program is currently set to 
expire on June 22, 2003.
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    \4\ Auto-Ex is the Automated Execution system feature of POETS 
for market or marketable limit orders. The Pacific Options Exchange 
Trading System (``POETS'') is an 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 order type and size requirements of the 
Exchange.
    \5\ See Exchange Act Release No. 46082 (June 17, 2002), 67 FR 
42307 (June 21, 2002).
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    The Auto-Ex Book Function of POETS permits orders in the Limit 
Order Book to be executed via the Auto-Ex system when those orders 
become marketable subject to certain procedures. The function may be 
used when one or more orders in the Limit Order Book become marketable, 
as indicated by a locked or crossed market being displayed on the 
trading floor. When this occurs, the Lead Market Maker may direct the 
Order Book Official to initiate the Auto-Ex Book Function, which will 
cause marketable orders in the Limit Order Book to be automatically 
executed against the accounts of Market Makers who are participating on 
the Auto-Ex system at the time.
    The Exchange is requesting an additional extension of the pilot 
program to June 30, 2004, when the Exchange's new trading platform for 
options, ``PCX Plus'', will become completely operative. The added time 
permits the Exchange to phase in PCX Plus on an issue-by-issue 
basis.\6\ As each issue is phased into PCX Plus, the Exchange will 
simultaneously phase out such issue from the Auto-Ex Book Function. PCX 
Plus will eventually replace the Auto-Ex Book Function in its entirety. 
Currently, the Auto-Ex Book Function is operating as intended and 
provides a service to both customers and members by facilitating the 
execution of orders in the Limit Order Book. Therefore, the Exchange 
believes that a one-year extension of the program is warranted.
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    \6\ See Exchange Act Release No. 47838 (May 13, 2003), 68 FR 
27129 (May 19, 2003) (Order approving PCX Plus) (``PCX Plus 
Order'').
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2. Statutory Basis
    PCX believes that this proposal is consistent with section 6(b) of 
the Act,\7\ in general, and furthers the objectives of section 
6(b)(5),\8\ 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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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PCX 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

    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 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-2003-15 and should be 
submitted by July 14, 2003.

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

    After careful review, 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 of the Act.\9\ 
Specifically, the Commission finds that the proposal is consistent with 
section 6(b)(5) of the Act, which requires that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, as well as to remove impediments to and perfect 
the mechanism of a free and open market, and, in general, to protect 
investors and the public interest.\10\ The Commission believes that 
extension of the pilot program until June 30, 2004, provides an 
appropriate period of time for the Exchange to continue its Auto-Ex 
Book Function while it phases in its new trading platform for options, 
PCX Plus, on an issue-by-issue basis. In this way, the Auto-Ex Book 
Function can continue uninterrupted for each options class until PCX 
Plus is operative for that option class. Once PCX Plus is fully 
operational, the Exchange no longer will need to operate its Auto-Ex 
system.\11\
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    \9\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See PCX Plus Order, supra n. 6.
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    The Commission further finds good cause for approving the proposed 
rule change prior to the 30th day after the date of publication of 
notice thereof in the Federal Register. The Commission notes that this 
proposal would merely extend an existing pilot program to June

[[Page 37192]]

30, 2004, while the Exchange phases in its new trading platform for 
options. The Commission believes that it is appropriate to grant 
accelerated approval to the proposal in order to ensure continuous 
operation of this feature of PCX's current framework for the automatic 
execution of options orders.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-PCX-2003-15) is hereby 
approved on an accelerated basis, as a pilot program scheduled to 
expire on June 30, 2004.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15770 Filed 6-20-03; 8:45 am]
BILLING CODE 8010-01-P