[Federal Register Volume 69, Number 97 (Wednesday, May 19, 2004)]
[Notices]
[Pages 28970-28972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11256]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49681; File No. SR-PCX-2003-51]


Self-Regulatory Organizations; Notice of Filing and Amendments 
No. 1, 2, and 3 Thereto of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to Conditions of PCX Membership

May 11, 2004.
    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 October 29, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. On December 18, 2003, the Exchange filed 
Amendment No. 1.\3\ On March 15, 2004, the Exchange filed Amendment No. 
2.\4\ On April 23, 2004, the Exchange filed Amendment No. 3.\5\ The 
Commission is publishing this notice to solicit comments, as amended, 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 2 CFR 240.19b-4.
    \3\ See Letter from Steven B. Maitlin, Regulatory Policy, 
Pacific Exchange, Inc., to Nancy Sanow, Assistant Director, Division 
of Market Regulation (``Division''), Commission, dated December 17, 
2003 (``Amendment No. 1''). Amendment No. 1 replaced the originally 
filed proposal in its entirety.
    \4\ See Letter from Steven B. Maitlin, Regulatory Policy, 
Pacific Exchange, Inc., to Nancy Sanow, Assistant Director, 
Division, Commission, dated March 12, 2004 (``Amendment No. 2''). 
Amendment No. 2 replaced Amendment No. 1 in its entirety.
    \5\ See Letter from Steven B. Maitlin, Regulatory Policy, 
Pacific Exchange, Inc., to Nancy Sanow, Assistant Director, 
Division, Commission, dated April 22, 2004 (``Amendment No. 3''). 
Amendment No. 3 replaced Amendment No. 2 in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to amend its rules regarding the Exchange's 
conditions to membership. Specifically the Exchange proposes to (1) 
modify rules relating to PCX administered examinations for Floor 
Brokers and Market Makers; and (2) adopt a rule permitting waiver of 
the examination requirements by the Membership Committee. The text of 
the proposed rule change appears below. New text is italicized, and 
deleted text is in brackets.

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

Rule 1 Memberships

Denial of and Conditions to Membership

    Rule 1.7(b) (1-8)--No change.
    (9) does not successfully complete [such written proficiency] 
examinations as required by the Exchange to [enable it to examine and] 
verify the applicant's qualifications to function in [one or more of 
the] capacities covered by the application [applied for];

Series 7 Requirement for Off-Floor Traders

    (A) All [T] traders of member organizations for which the Exchange 
is the Designated Examining Authority (``DEA'') must successfully 
complete the General Securities Registered Representative Examination 
Test, Series 7, [if the primary business of the member organization 
involves the trading of securities that is unrelated to the performance 
of the functions of a registered specialist, a registered market maker 
or a registered floor broker. The following are exempt from the 
requirement to successfully complete the Series 7 Examination: Exchange 
members who] except for individuals who are performing the function of 
a [registered specialist,] registered market maker (pursuant to Rule 
6.33), [or] registered floor broker (pursuant to Rule[s 5.27(a), 6.33 
or] 6.44[, respectively]) and associated persons of member firms who 
facilitate the execution of stock transactions for the accounts of 
options market makers.
    For purposes of this Rule:
    (i) The term ``trader'' means a person who is directly or 
indirectly compensated by an Exchange member organization and who 
trades, makes trading decisions with respect to, or otherwise engages 
in the proprietary or agency trading of securities.[; and
    (ii) The term ``primary business'' means greater than 50% of the 
member organization's business.
    (B) Each member organization for which the Exchange is the DEA must 
complete, on an annual basis, and on a form prescribed by the Exchange, 
a written attestation as to whether the member organization's primary 
business is conducted in the performance of the function of a 
registered specialist, a registered market maker or a registered floor 
broker (pursuant to Rules 5.27(a), 6.33 or 6.44, respectively).
    (C) The requirement to complete the Series 7 Examination will apply 
to current Traders of member organizations that meet the criteria of 
subsection (A), above, as well as to future Traders of member 
organizations that meet the criteria of subsection (A), above, at a 
later date. Traders of member organizations that meet the criteria of 
subsection (A), above, at the time of SEC approval of this Rule, must 
successfully complete the Series 7 Examination within six months of 
notification by the Exchange.]
    Rule 1.7(b)(10-12)--No change.
    Rule 1.7(c)
    Prior to admission to the trading floor or participation on any 
trading system, all applicants are required to complete an Exchange 
Orientation Program. The Membership Committee may waive [or modify] a 
required examination [for any applicant if,] under the following 
conditions:
    (1) [within two years of the date such applicant applied to the 
Exchange for membership, such] an applicant for registration as a 
Market Maker pursuant to Rule 6.33 [has] must have successfully 
completed the Series 44 Examination within five years of the 
application date for Exchange membership and the applicant must have 
been a member of the Exchange within six months of the application date 
for Exchange membership. [a comparable examination administered by a 
self-regulatory organization or the Securities and Exchange 
Commission.]
    (2) an applicant for registration as a Floor Broker pursuant to 
Rule 6.44 must have successfully completed the Series 45 Examination 
within five years of the application date for Exchange membership and 
the applicant must have been a member of the Exchange within six months 
of the application date for Exchange membership.
    (3) an applicant for Exchange membership must have successfully 
completed an equivalent examination administered by a self-regulatory 
organization within five years of the application date for Exchange 
membership and the applicant must

[[Page 28971]]

have been a member of any self-regulatory organization within six 
months of the application date for Exchange membership.
    (4) in the opinion of the Membership Committee, appropriate basis 
for an exemption from a required examination exists based on the 
following standards of evidence regarding an applicant's 
qualifications:
    (A) length and quality of securities industry experience or 
professional experience in investment related fields;
    (B) specific registration requested by the applicant and type of 
business to be conducted in relation to the applicant's experience;
    (C) previous registration history with the Exchange and nature of 
any pre-existing regulatory matters; and
    (D) other examinations (e.g., Series 7 Examination) taken by the 
applicant that may be acceptable substitutes in conjunction with 
securities industry experience.
    Within fifteen calendar days after the Membership Committee meets 
to review a request for a waiver of the examination requirement, the 
Membership Committee shall provide the applicant with a written 
determination of whether the waiver was granted or denied. If the 
Membership Committee denies the request for a waiver, the notice shall 
include a statement with the reasons for the denial. An applicant whose 
request for a waiver is denied may appeal the decision of the 
Membership Committee in accordance with the terms and conditions of 
Rule 11.7.
    Rule 1.7d-f [c-e]--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 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 Purpose

1. Purpose
    The PCX reviewed its examination requirements for Floor Brokers and 
Market Makers relative to those of other options exchanges. In doing 
so, the PCX believes that its current membership testing requirements 
are more restrictive than the requirements of other exchanges.\6\
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    \6\ According to PCX, the following SROs place no restriction on 
the amount of time within which an applicant must have successfully 
completed an examination to be eligible for membership: the 
Philadelphia Stock Exchange (See Rule 620(a) & (b)), the American 
Stock Exchange (See Rule 353) and the Boston Stock Exchange (See 
Rule Chapter 15, Section (1)(b)(3)). In addition, NASD Rule 1070 
permits the NASD to grant waivers of applicable qualification 
examinations. The PCX proposal requires that an applicant have 
successfully completed an examination within five years and have 
been a member of an SRO within six months of applying for PCX 
membership. The PCX Membership Committee may waive the examination 
requirement for individuals who have not successfully completed an 
examination within five years and/or have not been a member of an 
SRO within six months of applying for PCX membership, but only if 
the applicant is deemed qualified based upon a list of very specific 
criteria.
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    Therefore, the Exchange is proposing to amend its Rule 1.7(b) and 
1.7(c). The proposed rules will extend the time period when a former 
member of the PCX or another self-regulatory organization may have 
taken an examination from two years to five years so long as the 
applicant has been a member of an Self-Regulatory organization within 
six months of the application date for Exchange membership.\7\ In 
addition, the proposal allows the Membership Committee to waive the 
examination requirement if the Committee believes the applicant is 
qualified based upon the applicant's industry experience, the type of 
registration requested, the previous history of the applicant with the 
PCX and any other examinations the applicant has successfully completed 
that may be considered acceptable substitutes. The proposed changes 
will bring the PCX examination requirements up to date and make the 
PCX's requirements similar to those at other SROs.
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    \7\ To determine whether the proposed rule applies to a 
particular applicant, the PCX will first review whether the 
applicant has been a member of an SRO within six months of applying 
for PCX membership. If the applicant has been a member of an SRO 
within six months of applying for PCX membership, then the PCX will 
review whether the applicant has passed an appropriate examination 
within five years of the application date for Exchange membership.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Section 6(b)(5),\9\ in particular, because it is designed 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments and perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78(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.

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

    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 self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change 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. Comments may be 
submitted by any of the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send e-mail to [email protected]. Please include File 
Number SR-PCX-2003-51.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. All submissions should refer to File Number 
SR-PCX-2003-51. This file number should be included on the subject line 
if e-mail is used. To help the Commission process and review your 
comments more efficiently, please use only one method. The Commission 
will post all comments on the

[[Page 28972]]

Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 
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 the filing also will be 
available for inspection and copying at the principal office of the 
PCX. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-PCX-
2003-51 and should be submitted on or before June 9, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(29).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-11256 Filed 5-18-04; 8:45 am]
BILLING CODE 8010-01-P