[Federal Register Volume 68, Number 231 (Tuesday, December 2, 2003)]
[Notices]
[Pages 67500-67501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29883]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48828; File No. SR-PCX-2003-65]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change, and Amendment No. 1 Thereto, by 
the Pacific Exchange, Inc. Relating to Exchange Rules for the Automatic 
Executions of Intermarket Linkage Orders in Locked Markets

November 24, 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 November 21, 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 Exchange. On 
November 24, 2003, the PCX filed Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change has been filed by PCX as a ``non-
controversial'' rule change under Rule 19b-4(f)(6) under the Act.\4\ 
The Commission is publishing 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 Mai Shiver, Acting Director, Regulatory 
Policy, PCX to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated November 21, 2003 (``Amendment 
No. 1''). Amendment No. 1 replaced and superceded the original 
filing in its entirety.
    \4\ 17 CFR 240.19b-4(f)(6). For purposes of determining the 
effective date and calculating the sixty-day period within which the 
Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on November 24, 2003, the date PCX filed Amendment No. 
1. See 15 U.S.C. 78s(b)(3)(C).
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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 its rules to eliminate a Lead Market 
Maker's (``LMM'') ability to have Linkage Orders in a locked market 
default for manual representation when those orders would otherwise be 
automatically executed via the Exchange's automatic execution (``Auto-
Ex'') system.
    The text of the proposed rule change, as amended, is below. 
Proposed additions are in italics; deletions are in [brackets].
* * * * *

Rule 6

Options Trading

Rule 6.87 Automatic Execution System
    (a)-(i)--(No change.)
    (j) Crossed or Locked Markets. Except as provided herein, [T]two 
Floor Officials may approve an LMM's request to designate, for an 
option issue, that an order will default for manual representation in 
the trading crowd if the NBBO is crossed or locked. Notwithstanding the 
forgoing, Linkage Orders subject to PCX Rule 6.93(e) will not default 
for manual representation if the NBBO is locked.
    (k)-(p)--(No change.)
Commentary
    .01-.08--(No change.)
* * * * *

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 Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 67501]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    PCX Rule 6.87 (relating to Auto-Ex) permits eligible orders to be 
automatically executed in the event of a locked and crossed market. 
However, PCX Rule 6.87(j) provides that an LMM may seek the approval of 
two Floor Officials to allow an order to default to manual 
representation in the trading crowd if the National Best Bid or Offer 
(``NBBO'') is crossed or locked. The rule allows this exception in 
order to protect against potential misuse of the Auto-Ex system by 
arbitrage firms who may lock or cross the market in order to game the 
Auto-Ex system.
    The Exchange proposes to amend PCX Rule 6.87(j) to state that 
Linkage Orders subject to Exchange Rule 6.93(e) will not default for 
manual handling if the NBBO is locked. Thus, as proposed, when the 
market is locked, Linkage Orders will be automatically executed in 
accordance with PCX Rule 6.93(e) and the Exchange will not permit such 
orders to default for manual representation in the trading crowd.
    The PCX represents that treating Linkage Orders as proposed in this 
filing is consistent with the practice of the other options exchanges. 
The Exchange further represents that the proposed rule will improve the 
national market system by improving Linkage execution rates for the 
PCX.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ in particular, in that it is designed to promote 
just and equitable principles of trade, prevent fraudulent and 
manipulative acts and practices, and protect investors and the public 
interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 
not impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

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

    The foregoing rule change has been filed by the Exchange as a 
``non-controversial'' rule pursuant to Section 19(b)(3)(A) of the Act 
\7\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\8\ Consequently, 
because the foregoing rule change: (1) Does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for thirty days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4 
thereunder.\10\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4.
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    The PCX has requested that the Commission waive the five-day pre-
filing notice requirement and the thirty-day operative waiting period. 
The Commission has decided, consistent with the protection of investors 
and the public interest, to waive the five-day pre-filing requirement 
and the thirty-day operative waiting period since the proposed rule 
change, as amended, is consistent with the practice of the other 
options exchanges.\11\ For these reasons, the Commission designates the 
proposal to be effective and operative upon filing with the 
Commission.\12\
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    \11\ For purposes only of accelerating the operative date of the 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ See supra note 4.
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    At any time within sixty days of the filing of such 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.

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 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-2003-65 and should be submitted by December 23, 2003.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29883 Filed 12-1-03; 8:45 am]
BILLING CODE 8010-01-P