[Federal Register Volume 68, Number 199 (Wednesday, October 15, 2003)]
[Notices]
[Pages 59437-59439]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25976]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48595; File No. SR-PCX-2003-56]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to an Amendment to the PCX Plus Electronic Book Execution 
Feature and Implementation Date

October 6, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 59438]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 3, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX is proposing to amend PCX Rule 6.76(b)(4)(B)(ii), governing 
Electronic Book Executions (``EBEs''), in order to restrict a Floor 
Broker from effecting transactions (via the System Alert Message, 
``SAMs'') for its own account or the account of associated persons. The 
Exchange is also proposing to amend PCX Rule 6.90(b) in order to modify 
the implementation date of PCX Plus. The text of the proposed rule 
change is set forth below. Additions are in italics; deletions are in 
brackets.
* * * * *

Rules of the Board of Governors of the Pacific Exchange, Inc.

Rule 6 Options Trading

PCX Plus Priority and Order Allocation Procedures
    Rule 6.76(a)--No change.
    (b)(1)-(3)--No change.
    (4)(A)--No change.
    (B)(i)--No change.
    (ii)--the balance of the Consolidated Book at that price will be 
displayed for three seconds (via a System Alert Message--SAM) to all 
``Crowd Participants'' (as defined in Rule 6.1(b)(38)).
    (a) A Floor Broker holding an order for an account in which such 
broker has an interest, the account of an associated person, or an 
account with respect to which the Floor Broker or an associated person 
thereof exercises investment discretion, shall not be eligible for 
participation in Electronic Book Executions.
    (iii)-(v)--No change.
    (5)--No change.
    (c)-(d)--No change.
    Commentary:
    01--No change.
    .02 For purposes of Rule 6.76(b)(4)(B)(ii), during the initial 
rollout of PCX Plus, the Floor Broker Hand Held terminals will not have 
the functionality to support Floor Broker interaction with EBEs via 
SAMs. Such functionality will become available to Floor Brokers on or 
before June 30, 2004. The PCX will file a proposed rule change with the 
Commission when the Floor Broker Hand Held terminals have such 
functionality.
* * * * *
    Rule 6.90(a)--No Change.
    (b) System Phase-In and Applicability of the Rules. The PCX 
estimates that the rules applicable to PCX Plus will be implemented 
gradually on an issue-by-issue basis beginning October 6, 2003 
[December 15, 2003], and will become completely operative and 
applicable to all options issues by June 30, 2004. At that time, the 
rules relating to PCX Plus will supersede existing rules that are 
inapplicable to the new trading environment.
* * * * *

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 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 is proposing to amend PCX Rule 6.76(b)(4)(B)(ii), 
governing EBEs, in order to restrict Floor Broker from effecting 
transactions (via SAMS) for its own account or the account of 
associated persons, or an account with respect to which a Floor Broker 
exercises investment discretion.
    PCX Rule 6.76(b)(4) Governs Market Makers' interaction with orders 
in the Consolidated Book. Under this rule, when a Market Maker 
initiates a trade with the Consolidated Book, that Market Maker 
receives an allocation of the order while the balances of the order in 
the Book is allocated on a size pro rata basis to all ``Crowd \3\ who 
respond to the SAM within three seconds. Initially, the Floor Broker 
Hand Held terminals will not have the functionality to support Floor 
Broker interaction with EBEs via SAMS.\4\ This rule change is designed 
to ensure Broker compliance with Section 11(a) of Act \5\ for the 
anticipated implementation of such functionality.
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    \3\ See PCX Rule 6.1(b)(38). Crowd Participants include Market 
Makers appointed to an option issue and any Floor Brokers actively 
representing orders at the best bid or offer on the Exchange for a 
particular options series.
    \4\ The PCX will file a proposed rule change with the Commission 
when the Floor Broker Hand Held terminals have such functionality.
    \5\ 15 U.S.C. 78k(a). Section 11(a) prohibits a member of a 
national securities exchange from effecting transactions on the 
exchange for its own account, the account of associated person, or 
an account in which it or an associated person exercises investment 
discretion. However, Section 11(a) also includes a number of 
exceptions to its general prohibition on proprietary trading. Most 
notably, Section 11(a)(1)(G) allows an exception when a member 
follows the conditions set forth in Rule 11a1-1(T) (e.g., yield 
priority, parity, and precedence in execution of such orders).
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    In adopting this provision Floor Brokers, the Exchange recognizes 
that allowing Floor Brokers to represent certain broker dealer orders 
could raise issues under the Act. By prohibiting Floor Broker 
representation of proprietary or affiliated orders, the PCX believes 
that this rule will go beyond the requirements of Section 11(a) of the 
Act.
    The Exchange also proposes to amend PCX Rule 6.90(b), which governs 
PCX Plus' implementation date. The Exchange wishes to amend the phase-
in implementation date to ``October 6, 2003'' from the originally 
anticipated implementation date of ``December 15, 2003.'' As stated in 
the rule, the Exchange expects that PCX Plus will become completely 
operative and applicable to all options issues by June 30, 2004.
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5),\7\ 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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    \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 Exchange 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.

[[Page 59439]]

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate; and the Exchange has 
given the Commission written notice of its intention to file the 
proposed rule change at least five business days prior to filing, or 
such shorter time as designated by the Commission, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(6) \9\ thereunder. At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19-4(f)(6)
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    The Exchange has requested that the Commission accelerate the 
operative date and waive the five day pre-filing requirement so that 
the proposed rule change may take effect immediately upon filing. The 
Commission believes that it is consistent with the protection of 
investors and the public interest to accelerate the operative date of 
the proposed rule change and to waive the five day pre-filing 
requirement. Acceleration of the operative date and waiving the pre-
filing requirement will permit the Exchange to comply with the 
provisions of Section 11(a) of the Act and implement PCX Plus on 
October 6, 2003, without undue delay. For these reaons, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\10\
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    \10\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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IV. 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-2003-56 and should be 
submitted by November 5, 2003.

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

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25976 Filed 10-14-03; 8:45 am]
BILLING CODE 8010-01-M