[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6487-6489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-466]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51113; File No. SR-PCX-2005-08]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Thereto 
Relating to a Revision and Extension of a Limitation on Trade Through 
Liability at the End of the Options Trading Day Pilot Program

January 31, 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 26, 2005, the Pacific Exchange (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II

[[Page 6488]]

below, which Items have been prepared by the PCX. The Exchange has 
filed the proposal as a ``non-controversial'' rule change pursuant to 
Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the 
Commission.\5\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The PCX asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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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 a limitation on 
trade-through liability for certain orders submitted pursuant to the 
Plan for the Purpose of Creating and Operating an Intermarket Option 
Linkage (the ``Linkage Plan'') during the period five minutes before 
the close of trading of the underlying security until the close of 
trading in the options class (``Pilot Program''). The Pilot Program 
would be extended to January 31, 2006 and would increase the limit on 
trade-through liability at the end of the day from 25 contracts to 50 
contracts.
    The text of the proposed rule change is available on the PCX's Web 
site at http://www.pacificex.com, at the Exchange'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, 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 Exchange 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 filing is to extend the pilot provision 
limiting trade-through liability at the end of the day. Pursuant to the 
Pilot Program as currently in effect, an OTP Holder's \6\ or OTP Firm's 
\7\ trade-through liability is limited to 25 contracts per Satisfaction 
Order \8\ for the period 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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    \6\ See PCX Rule 1(q).
    \7\ See PCX Rule 1(r).
    \8\ A ``Satisfaction Order'' is an order sent through the 
Linkage to notify a Participant Exchange of a Trade-Through and to 
seek satisfaction of the liability arising from that Trade-Through. 
See Section 2(16)(c) of the Linkage Plan.
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    The proposed rule change would extend the Pilot Program for an 
additional year, until January 31, 2006. In addition, the proposal will 
increase the limit on trade-through liability at the end of the day 
from 25 contracts to 50 contracts. This increase in the limit on 
liability would be effective on February 1, 2005, when the current 
pilot expires. The period during which this limit will apply will 
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.
    The participants in the Linkage Plan (``Participants'') are 
currently considering Linkage Plan amendments that, if proposed and 
approved, could obviate the need for this limitation of liability. 
Specifically, the amendments would increase the ability to receive 
automatic execution of P/A Orders \9\ and would provide tools to avoid 
trade-through liability generally, including at the end of the day. The 
Participants, including the Exchange, anticipate that these amendments 
could be in effect within a year. At that time, the Participants would 
either allow the pilot to lapse, or, if they believed that a 
continuation of the limitation was appropriate, would discuss the 
matter further with Commission staff.
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    \9\ A Principal Acting as Agent (``P/A'') Order is an order for 
the principal account of a Market Maker that is authorized to 
represent Customer orders, reflecting the terms of a related 
unexecuted Customer order for which the Market Maker is acting as 
agent. See Section 2(16)(a) of the Linkage Plan.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(5),\11\ 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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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A)
    \13\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \14\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the five-day pre-filing requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change immediately operative.
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    \14\ Id.
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\15\ By waiving the 
pre-filing requirement and accelerating the operative date, the Pilot 
Program can continue without interruption. The Commission believes that 
allowing the pilot to continue will

[[Page 6489]]

allow Participants to either gather sufficient information to justify 
the need for the pilot program or determine that the exemption from 
trade-through liability is no longer necessary. Increasing the maximum 
number of contracts to be satisfied with respect to Satisfaction Orders 
in the last seven minutes of trading in options to 50 contracts will 
enhance customer order protection.
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    \15\ For purposes of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    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.

IV. 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-2005-08 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-2005-08. 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 the 
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-2005-08 and should be submitted on or before 
February 28, 2005.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-466 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P