[Federal Register Volume 69, Number 120 (Wednesday, June 23, 2004)]
[Notices]
[Pages 35117-35119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14144]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49865; File No. SR-PCX-2004-38]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change by the Pacific 
Exchange, Inc. for the Extension of a Pilot Program Limiting Liability 
for Trade-Throughs at the End of the Trading Day

June 15, 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 April 26, 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 the PCX. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons, and to grant accelerated approval to the proposed rule change.
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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 extend a pilot program for limitations on 
Trade-Through \3\ liability pursuant to the Linkage Plan that occur 
from five minutes before the close of trading of the underlying 
security to the close of trading in the options class. The pilot 
program would be extended to January 31, 2005 and would increase the 
limit on Trade-Through liability during the last seven minutes of the 
trading day from 10 contracts to 25 contracts per Satisfaction Order.
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    \3\ A ``Trade-Through'' is defined as a transaction in an 
options series at a price that is inferior to the national best bid 
or offer in an options series calculated by a Participant. See 
Section 2(29) of the Plan for the Purpose of Creating and Operating 
an Intermarket Option Linkage (``Linkage Plan''). A ``Participant'' 
is defined as an Eligible Exchange whose participation in the 
Linkage Plan has become effective pursuant to Section 4(c) of the 
Linkage Plan. See Section 2(24) of the Linkage Plan. Currently, the 
Participants in the Linkage Plan are the International Securities 
Exchange, Inc., the American Stock Exchange LLC, the Chicago Board 
Options Exchange, Inc., the PCX, the Philadelphia Stock Exchange, 
Inc. and the Boston Stock Exchange, Inc.
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    The text of the proposed rule change is available at the Exchange 
and at 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, 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 III 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 purpose of the proposed rule change is to extend the pilot 
provision in the PCX Rules that limits Trade-Through liability during 
the last seven minutes of the trading day.\4\ Pursuant to the pilot 
currently in effect, an Exchange member's Trade-Through liability is 
limited to 10 contracts per Satisfaction Order \5\ for the period

[[Page 35118]]

between five minutes prior to the close of trading in the underlying 
security and the close of trading in the options class.
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    \4\ The PCX has separately filed Joint Amendment No. 12 to the 
Linkage Plan to implement substantially the same change to the 
Linkage Plan. See Securities Exchange Act Release No. 49692 (May 12, 
2004), 69 FR 29956 (May 19, 2004) (Notice of Joint Amendment No. 
12). The Commission previously approved the pilot to implement a 
limitation on Trade-Through liability during the last seven minutes 
of the trading day on a 120-day temporary basis on January 31, 2003. 
See Securities Exchange Act Release No. 47298, 68 FR 6524 (February 
7, 2003). On June 18, 2003, the Commission approved the pilot until 
January 31, 2004. See Securities Exchange Act Release No. 48055, 68 
FR 37869 (June 25, 2003) (Order approving Joint Amendment No. 4). 
The Commission subsequently extended the pilot until June 30, 2004. 
See Securities Exchange Act Release No. 49146 (January 29, 2004), 69 
FR 5618 (February 5, 2004) (Order approving Joint Amendment No. 8).
    \5\ A ``Satisfaction Order'' is defined as an order sent through 
the Options Intermarket Linkage to notify a member of another 
Participant of a Trade-Through and to seek satisfaction of the 
liability arising from that Trade-Through. See Section 2(16) of the 
Linkage Plan.
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    This proposal would extend the pilot for an additional seven 
months, until January 31, 2005. In addition, the proposal would 
increase the limit on Trade-Through liability during the last seven 
minutes of the day from 10 contracts to 25 contracts per Satisfaction 
Order. This increase in the limit on liability would be effective on 
July 1, 2004, when the current pilot expires. The time period during 
the trading day in which this limit would apply would remain the same, 
from five minutes prior to the close of trading in the underlying 
security until the close of trading in the options class.
    As a condition to granting permanent approval of this limitation, 
the Commission required that the Participants provide the Commission 
with a report regarding data on the use of the exemption no later than 
60 days before seeking permanent approval (the ``Report''). The 
Participants have provided the Commission with certain information 
required in the Report, and continue to discuss with Commission staff 
what additional information the staff may need to evaluate possible 
permanent approval of the Trade-Through limitation. This extension 
would allow the limitation to continue in effect, with the increase in 
liability to 25 contracts per Satisfaction Order, while the Commission 
staff and the Participants continue to discuss permanent approval.
2. Statutory 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) of the Act \7\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
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 to and perfect 
the mechanism of a free and open market and a national market system.
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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 PCX does not believe that the proposed rule change will result 
in 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 were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2004-38 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-2004-38. 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. Copies of such 
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-2004-38 and should be submitted on or before July 
14, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act,\9\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and to protect 
investors and the public interest. The Commission believes that 
extending the pilot will enable Participants to continue to compile the 
data necessary for the Commission to determine whether permanent 
approval of the proposed rule change is appropriate and in the public 
interest. The Commission further believes that raising the limitation 
in liability for Satisfaction Orders during the last seven minutes of 
the trading day from 10 contracts to 25 contracts for this pilot period 
should help to protect investors and promote the public interest.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the PCX Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 12, which 
was published for public comment in the Federal Register on May 19, 
2004.\10\ The Commission received no comments in response to 
publication of Joint Amendment No. 12. The Commission believes that no 
new issues of regulatory concern are being raised by PCX's proposed 
rule change. The Commission believes, therefore, that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\11\
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    \10\ See supra note 4.
    \11\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the

[[Page 35119]]

proposed rule change (SR-PCX-2004-38) is approved on an accelerated 
basis.
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    \12\ 15 U.S.C. 78s(b)(2).

    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. 04-14144 Filed 6-22-04; 8:45 am]
BILLING CODE 8010-01-P