[Federal Register Volume 69, Number 123 (Monday, June 28, 2004)]
[Notices]
[Pages 36145-36147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14540]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49890; File No. SR-PCX-2004-33]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to How Members Handle Principal Acting as Agent 
Orders Pursuant to Intermarket Linkage

June 17, 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 15, 2004, 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 and II below, 
which Items have been prepared by the self-regulatory organization. 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 Exchange is proposing to amend the requirements regarding how 
our Members handle Principal Acting as Agent Orders (``P/A Orders'') 
pursuant to the intermarket linkage (``Linkage''). The text of the 
proposed rule change is available at the Office of the Secretary, PCX, 
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 Exchange 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

[[Page 36146]]

self-regulatory organization 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 rule change is to implement Joint Amendment No. 
10 to the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'').\3\ That amendment, together with 
this proposed rule change, will clarify the manner in which a PCX 
Member may send P/A Orders that are larger than the Firm Customer Quote 
Size (``FCQS''). A P/A Order is an order for the account of a PCX Lead 
Market Maker (``LMM'') or a specialist or specialist equivalent account 
on another exchange for its own account reflecting the terms of an 
unexecuted customer order for which the LMM has responsibility. The 
FCQS is the minimum size for which an exchange must provide an 
execution in its automatic execution system for a P/A Order, if the 
exchange's auto-ex system is available.
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    \3\ See Securities Exchange Act Release No. 49689 (May 12, 
2004), 69 FR 28953 (May 19, 2004) (File No. 4-429) (Notice of Filing 
of Joint Amendment No. 10 to the Linkage Plan).
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    Currently, Linkage Plan Section 7(a)(ii)(B) and PCX Rule 6.93 
(``PCX Rule'') provide a LMM with two ways to handle such orders. 
First, the LMM may send a P/A Order larger than the FCQS for manual 
processing at the receiving exchange. Second, the LMM may send an 
initial P/A Order for up to the FCQS. If the LMM then seeks to send 
another P/A Order, it must send an order for the lesser of the entire 
remaining size of the underlying customer order or 100 contracts.
    This proposed rule change addresses the handling of orders if the 
LMM chooses the second alternative, the sending of multiple P/A Orders. 
As currently drafted, the Linkage Plan and the PCX Rule do not 
recognize the possibility that an exchange's disseminated quotation may 
be for less than either the remaining size of the customer order or 100 
contracts. Thus, the proposed rule change specifies that a LMM sending 
a second P/A Order may limit such order to the lesser of: (1) The 
remaining size of the customer order; (2) 100 contracts; or (3) the 
size of the receiving exchange's disseminated quotation.
    In addition, there is a practical issue if multiple exchanges are 
displaying the same bid or offer. In that case, the Linkage Plan is 
unclear as to whether a LMM must send the entire order to one exchange 
or can send orders to multiple exchanges, so long as they are for the 
size of the entire order, or 100 contracts, in the aggregate. This 
proposed rule change clarifies the PCX Rule to specify that a LMM may 
send P/A Orders to multiple exchanges, as long as all such orders, in 
the aggregate, are for the lesser of the entire remaining size or 100 
contracts. However, as is the case when only one exchange is at the 
NBBO, a LMM may limit the size of any single additional order to the 
size of the receiving market's disseminated quotation.
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \4\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \5\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of change, 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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.

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. 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-2004-33 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-2004-33. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal offices 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-
2004-33 and should be submitted on or before July 19, 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.\6\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \7\ 
which requires, among other things, that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the

[[Page 36147]]

mechanism of a free and open market, and to protect investors and the 
public interest. The Commission believes that the proposed rule change 
should clarify the LLM's obligations in handling P/A Orders, which 
should facilitate the efficient handling of P/A Orders through the 
Linkage.
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    \6\ 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).
    \7\ 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. 10, which 
was published for comment on May 19, 2004.\8\ The Commission received 
no comments on the substance of that Amendment. 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.\9\
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    \8\ See note 3, supra.
    \9\ 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,\10\ that the proposed rule change (SR-PCX-2004-33) is approved on 
an accelerated basis.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14540 Filed 6-25-04; 8:45 am]
BILLING CODE 8010-01-P