[Federal Register Volume 69, Number 114 (Tuesday, June 15, 2004)]
[Notices]
[Pages 33440-33442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13354]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49818; File No. SR-PCX-2004-39]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Pacific Exchange, Inc. To Extend a Pilot Program Under Which It 
Lists Options on Selected Stocks Trading Below $20 at One-Point 
Intervals Until August 4, 2004

June 4, 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 June 3, 2004, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by PCX. PCX filed Amendment No. 1 to the proposal on 
June 4, 2004.\3\ 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 Steven B. Matlin, Senior Attorney, 
Regulatory Policy, PCX, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated June 3, 2004 (``Amendment 
No. 1''). In Amendment No. 1, PCX replaced in its entirety the 
proposed rule text it attached as Exhibit A to its initial Form 19b-
4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX proposes to extend its pilot program under which it lists 
options on selected stocks trading below $20 at $1 strike price 
intervals (``$1 Pilot Program'') until August 4, 2004. The text of the 
proposed rule change is available at the Office of the Secretary, PCX, 
and the Commission.

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

    In its filing with the Commission, 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. 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 purpose of this proposal is to extend PCX's $1 Pilot Program 
until August 4, 2004. The current $1 Pilot Program expires on June 5, 
2004. PCX states that its member firms have expressed a continued 
interest in listing additional strike prices on low priced stocks so 
that they can provide their customers with greater flexibility in their 
investment choices. For this reason, PCX proposes to extend the $1 
Pilot Program. PCX notes that all of the issues eligible to be included 
in the $1 Pilot Program, the procedures for adding $1 strike intervals, 
the procedures for phasing out $2.50 strike price intervals, the 
prohibition against listing long-term options (also known as ``LEAPS'') 
in equity option classes at $1 strike price intervals, the procedures 
for adding expiration months and the procedures for deleting $1 strike 
intervals will all remain the same.\4\
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    \4\ The Commission approved the $1 Pilot Program on June 17, 
2003. See Securities Exchange Act Release No. 48045 (June 17, 2003); 
68 FR 37549 (June 24, 2003) (``Pilot Program Approval Order''). 
Consistent with the Pilot Program Approval Order, PCX represents 
that it will file a report with the Commission which shall include: 
(1) Data and written analysis on the open interest and trading 
volume for options (at all strike intervals) selected for the $1 
Pilot Program; (2) delisted option series (for all strike price 
intervals) selected for the $1 Pilot Program; (3) an assessment of 
the appropriateness of the $1 strike price intervals for the options 
the PCX selected for the Pilot Program; (4) an assessment of the 
impact of the Pilot Program on the capacity of the PCX's, OPRA's, 
and vendors' automated systems; (5) any capacity problems or other 
problems that arose during the operation of the Pilot Program and 
how the PCX addressed them; (6) any complaints that the PCX received 
during the operation of the $1 Pilot Program and how the PCX 
addressed them; and (7) any additional information that would help 
assess the operation of the $1 Pilot Program.
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2. Statutory Basis
    PCX believes that the continuation of $1 strike prices will 
stimulate customer

[[Page 33441]]

interest in options overlying lower-priced stocks by creating greater 
trading opportunities and flexibility. The Exchange further believes 
that continuation of $1 strike prices will provide customers with the 
ability to more closely tailor investment strategies to the precise 
movement of the underlying security. For these reasons, PCX believes 
the proposed rule change is consistent with the Act and the rules and 
regulations thereunder and, in particular, the requirements of section 
6(b) of the Act.\5\ Specifically, PCX believes the proposed rule change 
is consistent with the requirements under section 6(b)(5)\6\ that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts, 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.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78(f)(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PCX does not believe that the proposed rule change, as amended, 
will impose any burden on competition 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

    PCX has not solicited, and does not intend to solicit, comments on 
this proposed rule change. PCX has not received any unsolicited written 
comments from its members of other interested persons.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-4 \8\ 
thereunder because it 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 PCX has given the Commission written notice of its 
intention to file the proposed rule change at least five business days 
prior to filing. At any time within 60 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ For purposes of calculating the 60-day abrogation date, the 
Commission considers the 60-day period to have commenced on June 4, 
2004, the date PCX filed Amendment No. 1.
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    Under Rule 19b-4(f)(6)(iii) of the Act,\10\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest and PCX is required to 
give the Commission written notice of its intention to file the 
proposed rule change at least five business days prior to filing. PCX 
has requested that the Commission waive 30-day operative delay so that 
the $1 Pilot Program may continue without interruption after it would 
have otherwise expired on June 5, 2004. For this reason, the 
Commission, consistent with the protection of investors and the public 
interest, has determined to waive the 30-day operative delay,\11\ and, 
therefore, the proposal is effective and operative upon filing with the 
Commission.\12\
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    \10\ 17 CFR 240.19b-4(f)(6)(iii).
    \11\ For purposes only of waiving the 30-day operative delay for 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \12\ In its Pilot Program Approval Order, the Commission stated 
that if PCX proposed to (1) extend the $1 Pilot Program beyond June 
5, 2004; (2) expand the number of options eligible for inclusion in 
the $1 Pilot Program; or (3) seek permanent approval of the $1 Pilot 
Program, the PCX would be required to submit a Pilot Program Report 
to the Commission along with the filing of such proposal. The Pilot 
Program Approval Order required the PCX to submit a proposed rule 
change with the Pilot Program Report at least 60 days prior to the 
expiration of the $1 Pilot Program. Because PCX has failed to 
provide a Pilot Program Report to the Commission containing the 
analysis and assessment required by the Pilot Program Approval 
Order, the Commission is extending PCX $1 Pilot Program only until 
August 4, 2004.
    If PCX proposes to (1) extend the $1 Pilot Program beyond August 
4, 2004; (2) expand the number of options eligible for inclusion in 
the $1 Pilot Program; or (3) seek permanent approval of the $1 Pilot 
Program, it must submit a Pilot Program Report to the Commission 
along with the filing of such proposal by July 6, 2005. The Pilot 
Program Report must cover the entire time the $1 Pilot Program was 
in effect, and must include: (1) Data and written analysis on the 
open interest and trading volume for options (at all strike price 
intervals) selected for the $1 Pilot Program; (2) delisted options 
series (for all strike price intervals) for all options selected for 
the Pilot Program; (3) an assessment of the appropriateness of $1 
strike price intervals for the options the PCX selected for the $1 
Pilot Program; (4) an assessment of the impact of the $1 Pilot 
Program on the capacity of the PCX's, OPRA's, and vendors' automated 
systems; (5) any capacity problems or other problems that arose 
during the operation of the $1 Pilot Program and how the PCX 
addressed them; (6) any complaints that the PCX received during the 
operation of the $1 Pilot Program and how the PCX addressed them; 
and (7) any additional information that would help to assess the 
operation of the $1 Pilot Program. The Commission notes that the 
submission of a satisfactory Pilot Program Report along with a 
proposed rule change to extend, expand, or permanently approve the 
$1 Pilot Program by July 6, 2004 is a condition precedent to the 
future operation of PCX's $1 Pilot Program.
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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 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 an e-mail to [email protected]. Please include 
File Number SR-PCX-2004-39 on the subject line.
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-2004-39. 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 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, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of 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

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available publicly. All submissions should refer to File Number SR-PCX-
2004-39 and should be submitted on or before July 6, 2004.

    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. 04-13354 Filed 6-14-04; 8:45 am]
BILLING CODE 8010-01-P