[Federal Register Volume 70, Number 14 (Monday, January 24, 2005)]
[Notices]
[Pages 3415-3416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-253]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51044; File No. SR-PCX-2005-05]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval to a Proposed Rule 
Change To Increase Position Limits and Exercise Limits for Options on 
Standard and Poor's Depositary Receipts

January 14, 2005.
    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 January 12, 2005, 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. In addition, the 
Commission is granting accelerated approval of 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 proposes to amend PCX Rule 6.8 to increase position 
limits and exercise limits for options on the Standard and Poor's 
Depositary Receipts (``SPY''). The text of the proposed rule change is 
available on the PCX's Web site (http://www.pacificex.com), at the 
PCX's Office of the Secretary, and at the Commission's Public Reference 
Room.

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 had 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 Exchange began trading options on SPY on January 10, 2005 on 
the Exchange's electronic trading platform, PCX Plus. The Exchange 
proposes to amend PCX Rule 6.8, Commentary .06 to increase position 
limits and exercise limits for options on SPY from 75,000 to 300,000 
contracts on the same side of the market.
    Given the expected institutional demand for options on SPY, the PCX 
believes the current equity position limit of 75,000 contracts to be 
too low and a deterrent to the successful trading of the product. 
Options on SPY are \1/10\th the size of options on the Standard and 
Poor's 500 Index (``SPX''). Thus, a position limit of 75,000 contracts 
in SPY options is equivalent to a 7,500 contract position limit in SPX 
options. Traders who trade SPY options to hedge positions in SPX 
options are likely to find a position limit of 75,000 contracts in SPY 
options too restrictive, which may adversely affect the Exchange's 
ability to provide liquidity in this product.
    Comparable products, such as options on the Nasdaq-100 Index 
Tracking Stock (``QQQ''), are subject to a 300,000

[[Page 3416]]

contract limit.\3\ The Exchange proposes that options on SPYs similarly 
be subject to position limits and exercise limits of 300,000 
contracts.\4\ The Exchange believes that increasing position limits and 
exercise limits for SPY options would lead to a more liquid and 
competitive market environment for SPY options that would benefit 
customers interested in this product.
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    \3\ See PCX Rule 6.8, Commentary .06(f).
    \4\ Pursuant to PCX Rule 6.9, Commentary .01, the exercise limit 
for SPY options under PCX Rule 6.9 would be equivalent to the 
position limit established in PCX Rule 6.8, Commentary .06(f).
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    Consistent with the reporting requirement for QQQ options, the 
Exchange would require that each OTP Holder and OTP Firm that maintains 
a position on the same side of the market in excess of 10,000 contracts 
in the SPY option class, for its own account or for the account of a 
customer report certain information.\5\ This data would include, but 
would not be limited to, the option position, whether such position is 
hedged and if so, a description of the hedge and if applicable, the 
collateral used to carry the position. Exchange market-makers would 
continue to be exempt from this reporting requirement as market-maker 
information can be accessed through the Exchange's market surveillance 
systems. In addition, the general reporting requirement for customer 
accounts that maintain a position in excess of 200 contracts would 
remain at this level for SPY options.\6\
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    \5\ See PCX Rule 6.6.
    \6\ See PCX Rule 6.6.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\7\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\8\ in particular, in that it is designed to 
facilitate transactions in securities, to promote just and equitable 
principles of trade, to enhance competition and to protect investors 
and the public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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-2005-05 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-2005-05. 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 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 
publicly available. All submissions should refer to File Number SR-PCX-
2005-05 and should be submitted on or before February 14, 2005.

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

    After careful review, 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,\9\ and, in particular, the requirements of Section 6(b)(5) of 
the Act.\10\ Specifically, the Commission finds that the proposed rule 
change should ensure that the Exchange's position limits and exercise 
limits on SPY options provide its OTP Holders and OTP Firms with 
sufficient flexibility to participate in the market for such options in 
a manner that should provide greater depth and liquidity for all market 
participants.
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    \9\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving this proposed rule 
change prior to the thirtieth day after publication of notice thereof 
in the Federal Register. Specifically, the Commission believes that 
granting accelerated approval to the proposed rule change should permit 
greater depth and liquidity in the SPY options market that should 
benefit all market participants, including retail investors. Because 
the higher position limits and exercise limits mirror those that the 
Commission has previously approved for like products, the Commission 
believes it is consistent with Sections 6(b)(5) \11\ and 19(b)(2) \12\ 
of the Act to approve the PCX's proposed rule change on an accelerated 
basis.
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    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PCX-2005-05) is hereby 
approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-253 Filed 1-21-05; 8:45 am]
BILLING CODE 8010-01-P