[Federal Register Volume 68, Number 160 (Tuesday, August 19, 2003)]
[Notices]
[Pages 49831-49833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21177]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48322; File No. SR-PCX-2003-20]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change, and Amendments No. 1 and 2 Thereto, by the Pacific Exchange, 
Inc. Relating to Limitation of Liability of the Options Intermarket 
Linkage

August 12, 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 April 28, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
submitted to the Securities and Exchange Commission (``Commission'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by the PCX. On August 4, 2003, the PCX 
submitted Amendment No. 1 to the proposed rule change.\3\ On August 7, 
2003, the PCX submitted Amendment No. 2 to the proposed rule change.\4\ 
The Commission is publishing

[[Page 49832]]

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\ See letter from Tania J. Cho, Staff Attorney, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated August 1, 2003 
(``Amendment No. 1''). In Amendment No. 1, the Exchange submitted a 
new Form 19b-4, which replaced the original filing in its entirety. 
In Amendment No. 1, the PCX clarified in proposed PCX Rule 13.5(a) 
that Options Intermarket Linkage (``Linkage''), as used to send 
orders and other information to or from the Exchange, is a facility 
or service of the Exchange for the purpose of PCX Rule 13.2. In 
addition, the Exchange amended PCX Rule 13.2(b) to clarify that this 
Rule does not apply to Linkage.
    \4\ See letter from Tania J. Cho, Staff Attorney, Regulatory 
Policy, PCX, to Deborah L. Flynn, Assistant Director, Division, 
Commission, dated August 7, 2003 (``Amendment No. 2''). In Amendment 
No. 2, the Exchange removed a disclaimer provision contained in the 
proposed rule text, PCX Rule 13.5(c).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to add PCX Rule 13.5 in order to establish a 
provision limiting liability for the Options Clearing Corporation 
(``OCC'') with respect to Exchange members'' use of the Linkage.
    The text of the proposed rule change, as amended, is below. 
Proposed additions are in italics.
* * * * *

Rule 13 Liability of Governors and Exchange

* * * * *

Rule 13.2(a), Liability of Exchange

    (a)--(No change.)
    (b) Whenever custody of an unexecuted order is transmitted by a 
member to or through the Exchange's order routing systems, electronic 
book or automatic executions systems or to any other automated facility 
of the Exchange, excluding the Options Intermarket Linkage system, 
whereby the Exchange assumes responsibility for the transmission or 
execution of the order, provided that the Exchange has acknowledged 
receipt of such order, the Exchange's liability for the negligent acts 
or omissions of its employees or for the failure of its systems or 
facilities shall not exceed the limits provided in this paragraph, (b), 
and no assets of the Exchange shall be applied or shall be subject to 
such liability in excess of the following limits:
    (i)-(iii)--(No change.)
    (c)-(No change.)
* * * * *

13.5(a), Liability for Options Intermarket Linkage

    (a) The Exchange operates the Options Intermarket Linkage 
(``Linkage'') for its Members or persons associated therewith pursuant 
to Rules 6.92-6.96. It shall be the responsibility of each Member or 
person associated therewith to verify the accuracy of transactions sent 
and received through the Linkage. The Linkage, as used to send orders 
and other information to or from the Exchange, is a facility or service 
afforded by the Exchange for purposes of Rule 13.2.
    (b) The Options Clearing Corporation, its affiliates, officers, 
directors, shareholders, agents and employees (collectively ``OCC''), 
shall not be liable to Members or persons associated therewith for any 
loss, damage, claim or expense arising out of the use, non-use, or 
inability to use the Linkage, including without limitation the content 
of orders, trades, or other business facilitated through the Linkage, 
the truth or accuracy of the content of messages or other information 
transmitted through the Linkage, the delays in transmission of orders, 
trades, or otherwise.
* * * * *

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 had 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 amend its liability rules by creating PCX 
Rule 13.5 in order to establish a provision limiting liability for the 
OCC with respect to PCX members' use of the Linkage. Pursuant to the 
Linkage Project and Facilities Management Agreement (``Agreement''),\5\ 
the participating Self-Regulatory Organizations (``SROs''), including 
the Exchange, are required to file a proposed rule change with the 
Commission to provide the OCC with limited liability with respect to 
the Members' use of the Linkage. Under the Agreement, the SROs are 
required to file a proposed rule change with the Commission within four 
months following the Linkage's effective date of January 31, 2003. 
Hence, the Exchange filed this proposed rule change to fulfill its 
obligation under the Agreement.
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    \5\ Linkage Project and Facilities Management Agreement (January 
30, 2003).
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    The Exchange also proposes to add clarifying language in proposed 
PCX Rule 13.5(a) stating that the Linkage, as used to send orders and 
other information to or from the Exchange, is a facility or service 
afforded by the Exchange for purposes of PCX Rule 13.2. In addition to 
such clarifying language, the PCX proposes to carve out an exception 
for the Linkage system in existing PCX Rule 13.2(b), as the Exchange 
believes that this rule is not intended to apply to the Linkage system.
2. Statutory Basis
    The PCX believes that its proposal is consistent with Section 6(b) 
of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it should promote just 
and equitable principles of trade; facilitate transactions in 
securities, remove impediments to and perfect the mechanisms of a free 
and open market and a national market system; and protect investors and 
the public interest.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PCX 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

    The PCX neither solicited nor received written comments concerning 
the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the PCX consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

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

[[Page 49833]]

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 filings will also be available for 
inspection and copying at the principal office of the PCX. All 
submissions should refer to File No. SR-PCX-2003-20 and should be 
submitted by September 9, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-21177 Filed 8-18-03; 8:45 am]
BILLING CODE 8010-01-P