[Federal Register Volume 68, Number 191 (Thursday, October 2, 2003)]
[Notices]
[Pages 56858-56859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-24951]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48538; File No. SR-PCX-2002-01]


Self Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 3 to the Proposed Rule Change by the Pacific Exchange, 
Inc., Relating to Procedures for Obvious Errors in Options Transactions

September 25, 2003.

I. Introduction

    On January 3, 2002, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), 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 obvious error rule 
for options transactions. On July 28, 2003, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\3\ On August 8, 2003, the 
Exchange submitted Amendment No. 2 to the proposed rule change.\4\ The 
proposed rule change, as amended, was published for comment in the 
Federal Register on August 22, 2003.\5\ The Commission did not receive 
any comments on the proposed rule change. On September 16, 2003, the 
PCX filed Amendment No. 3 to the proposed rule change.\6\ This order 
approves the proposed rule change, as amended, grants accelerated 
approval to Amendment No. 3, and solicits comments from interested 
persons on that amendment.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated July 25, 2003 
(``Amendment No. 1''). Amendment No. 1 supersedes and replaces the 
proposed rule change in its entirety.
    \4\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated August 7, 2003 (``Amendment No. 2''). Amendment 
No. 2 supersedes and replaces the proposed rule change and Amendment 
No. 1 in their entirety.
    \5\ See Securities Exchange Act Release No. 48342 (August 14, 
2003), 68 FR 50820 (August 22, 2003) (``Notice'').
    \6\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory 
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated September 15, 2003 (``Amendment No. 3''). In 
Amendment No. 3, the Exchange amended proposed PCX Rule 
6.87(g)(2)(E) to clarify a provision relating to the determination 
of an obvious price error and amended proposed PCX Rule 
6.87(g)(2)(G) to clarify the definition of ``parity.''
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II. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change and 
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.\7\ In particular, the Commission finds 
that the proposed rule change is consistent with section 6(b)(5)\8\ of 
the Act, which requires that the rules of an exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism for a free and open market and a national market system, 
and, in general, to protect investors and the public interest.\9\
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    \7\ For a description of the proposed rule change, see Notice, 
supra, n.4.
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
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    The Commission considers that in most circumstances trades that are 
executed between parties should be honored. On rare occasions, the 
price of the executed trade indicates an ``obvious error'' may exist, 
suggesting that it is unrealistic to expect that the parties to the 
trade had come to a meeting of the minds regarding the terms of the 
transaction. In the Commission's view, the determination of whether 
such an ``obvious error'' has occurred should be based on specific and 
objective criteria and subject to specific and objective procedures. 
The Commission believes that the PCX's proposed obvious error rule 
establishes specific and objective criteria for determining when a 
trade is an ``obvious error.'' The Commission also believes that the 
proposal establishes specific and objective procedures governing the 
adjustment or nullification of such trade. In addition, the Commission 
notes that several provisions of the PCX obvious error rule proposal, 
as amended, are substantially similar to proposed rule changes 
submitted by the Chicago Board Options Exchange, Inc. and International 
Securities Exchange, Inc., which the Commission has approved.\10\
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    \10\ See Securities Exchange Act Release No. 47628 (April 3, 
2003), 68 FR 17697 (April 10, 2003) (SR-CBOE-00-55); Securities 
Exchange Act Release No. 48097 (June 26, 2003), 68 FR 39604 (July 2, 
2003) (SR-ISE-2003-10).
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    The Commission finds good cause for approving Amendment No. 3 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Amendment No. 3 
does not make any substantive changes to the proposed rule text. It 
simply clarifies the determination of an obvious price error and the 
definition of a transaction executed below parity. Therefore, the 
Commission believes that granting accelerated approval of Amendment No. 
3 is appropriate and consistent with section 6(b)(5)\11\ and section 
19(b)\12\ of the Act.
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78s(b).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether Amendment No. 3 
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 proposal that are filed with the Commission, and all 
written communications relating to the proposal 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 at the Commission's Public Reference Room. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Exchange. All submissions should refer 
to File No.

[[Page 56859]]

SR-PCX-2002-01 and should be submitted by October 23, 2003.

IV. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal, as amended, is consistent with the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PCX-2002-01), as amended, 
be, and hereby is, approved, and that Amendment No. 3 to the proposed 
rule change be, and hereby is, approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-24951 Filed 10-1-03; 8:45 am]
BILLING CODE 8010-01-P