[Federal Register Volume 68, Number 193 (Monday, October 6, 2003)]
[Notices]
[Pages 57722-57723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25260]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48565; File No. SR-PCX-2003-20]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change and Amendments No. 1 and 2 and Notice of 
Filing and Order Granting Accelerated Approval to Amendment No. 3 
Relating to the Limitation of Liability of the Options Clearing 
Corporation to Exchange Members

September 30, 2003.

I. Introduction

    On April 28, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 PCX Rule 13.5. On August 4, 2003, the 
Exchange filed Amendment No. 1 to the proposed rule change.\3\ On 
August 7, 2003, the PCX

[[Page 57723]]

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 19, 2003.\5\ On September 16, 2003 the PCX submitted 
Amendment No. 3 to the proposed rule change.\6\
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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.
    \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).
    \5\ Securities Exchange Act Release No. 48322 (August 12, 2003), 
68 FR 49831.
    \6\ See letter from Tania J. Cho, Staff Attorney, Regulatory 
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated September 2, 2003 (``Amendment No. 3''). In 
Amendment No. 3, the Exchange proposed to change the term ``persons 
associated'' to ``associated persons'' in proposed PCX Rule 13.5(a) 
and (b).
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    The Commission received no comments on the proposed rule change, as 
amended. This order approves the proposed rule change, as amended, and 
issues notice of, and grants accelerated approval to, Amendment No. 3.

II. Description of the Proposed Rule Change

    Pursuant to the Linkage Project and Facilities Management Agreement 
(``Agreement''),\7\ the Linkage Participants, including the Exchange, 
are required to file a proposed rule change with the Commission to 
provide the Options Clearing Corporation (``OCC'') with limited 
liability with respect to the members'' use of the Options Intermarket 
Linkage (``Linkage''). The PCX represents that it filed this proposed 
rule change to fulfill its obligation under the Agreement. The PCX 
proposes to adopt PCX Rule 13.5(b) to limit the liability for the OCC 
with respect to PCX members' use of the Linkage.
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    \7\ Linkage Project and Facilities Management Agreement (January 
30, 2003).
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    The Exchange also proposes to adopt PCX Rule 13.5(a) to provide 
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.\8\ The proposed rule change provides 
that the OCC would have no liability to PCX members, with respect to 
the use, non-use, or inability to use the Linkage.
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    \8\ PCX Rule 13.2, among other things, describes the extent of 
the Exchange's liability to members for use of the facilities and 
services provided by the Exchange.
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    Lastly, the PCX proposed to carve out an exception for the Linkage 
system in existing PCX Rule 13.2(b). The Exchange represents that this 
rule, which addresses the Exchange's liability for the negligent acts 
of its employees or failure of its systems or facilities whenever 
custody of an unexecuted customer order is transmitted by a member 
through the Exchange's automated facilities, is not intended to apply 
to the Linkage system, and that, therefore, the carve-out is 
appropriate.

III. Discussion

    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 \9\ 
and, in particular, the requirements of section 6(b) of the Act \10\ 
and the rules and regulations thereunder. The Commission finds that the 
rule change, as amended, is consistent with section 6(b)(5) of the 
Act,\11\ which requires, among other things, that the rules of the 
Exchange be designed to foster cooperation and coordination with 
persons engaged in regulation, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that this proposed rule change, as amended, 
should foster cooperation and promote a relationship between the PCX 
and the OCC that is conducive to the effective operation of the 
Linkage. Further, the Commission believes that the PCX's proposals to 
characterize the Linkage as a facility or service of the Exchange and 
to except the Linkage system from PCX Rule 13.2(b) are reasonable.
    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act, for approving Amendment No. 3 prior to the thirtieth day after 
the date of publication of notice thereof in the Federal Register. In 
Amendment No. 3, the PCX changed the phrase ``members or persons 
associated therewith,'' which was contained in the portion of the 
proposed rule text pertaining to the OCC's liability to such persons, 
to ``members or associated persons.'' The Commission believes that this 
change will ensure that customers of a member or others who do business 
with a member, but are not under the control of, or employed by, the 
member, are not inadvertently affected by the proposed rule change.

IV. 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 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 also will 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 October 27, 2003.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change, as amended (File No. SR-PCX-
2003-20) is approved, and Amendment No. 3 is approved on an accelerated 
basis.
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    \12\ Id.

    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).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-25260 Filed 10-3-03; 8:45 am]
BILLING CODE 8010-01-P