[Federal Register Volume 70, Number 143 (Wednesday, July 27, 2005)]
[Notices]
[Pages 43490-43492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3981]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52070; File No. SR-PCX-2005-61]


Self-Regulatory Organizations; The Pacific Exchange, Inc.; Notice 
of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, 
Establishing a De Minimus Exception to the 80/20 Test

July 20, 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 April 26, 2005, the Pacific Exchange, Inc. (``Exchange'' or ``PCX'') 
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 PCX. On June 29, 2005, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\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\ Amendment No.1 added clarifying language to the proposed 
rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify the ``80/20 Test'' in determining 
limitations on Principal Order access under the rules imposed by the 
Plan for the Purpose of Creating and Operating an Intermarket Option 
Linkage (``Linkage Plan'') \4\ and related rules.
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    \4\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by the American Stock 
Exchange, LLC, Chicago Board Options Exchange, Inc. and the 
International Securities Exchange, Inc. See Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). 
Subsequently, the Philadelphia Stock Exchange, Inc., the PCX, and 
the Boston Stock Exchange, Inc. joined the Linkage Plan. See 
Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65 
FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 70850 
(November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 
(February 12, 2004).

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[[Page 43491]]

    The text of the proposed rule change, as amended, is available on 
the PCX's Web site at http://www.pacificex.com, 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 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 proposed rule change, as amended, is to 
implement proposed Joint Amendment No. 17 to the Linkage Plan. Joint 
Amendment No. 17, together with this proposed rule change, will modify 
the so called ``80/20 Test'' set forth in Section 8(b)(iii) of the 
Linkage Plan and PCX Rule 6.96. PCX Rule 6.96 states that Market Makers 
should send Principal Orders through Linkage on a limited basis and not 
as a primary aspect of their business.\5\ The 80/20 Test implements 
this general principle by prohibiting a Market Maker from sending 
Principal Orders in an eligible option class if, in the last calendar 
quarter, the Market Maker's Principal Order contract volume is 
disproportionate to the Market Maker's contract volume executed against 
customer orders in its own market.
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    \5\ The Exchange defines a Principal Order as an order for a 
principal account of an eligible Market Maker that does not relate 
to a customer order the Market Maker is holding. See PCX Rule 
6.92(a)(12)(ii).
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    The Exchange believes that applying the 80/20 Test has resulted in 
anomalies for Market Makers with limited volume in an eligible option 
class. Specifically, if a Market Maker has very little overall trading 
volume in an option, the execution of one or two Principal Orders 
during a calendar quarter could result in the Market Maker failing to 
meet the Test. This would bar the Market Maker from using the Linkage 
to send Principal Orders in that option class for the following 
calendar quarter. It was not the intent of the Exchange to bar Market 
Makers with limited volume from sending Principal Order through the 
Linkage in these circumstances since such trading was not ``a primary 
aspect of their business.'' Thus, the proposed rule would create a de 
minimus exemption from the 80/20 Test for Market Makers that have total 
contract volume of less than 1000 contracts in an option class for a 
calendar quarter.
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) \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 impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 at http://www.sec.gov/rules/sro.shtml or send an e-mail to [email protected]. 
Please include File No. SR-PCX-2005-61 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File No. SR-PCX-2005-61. 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, 100 F Street, NE., 
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 available 
publicly. All submissions should refer to File Number SR-PCX-2005-61 
and should be submitted on or before August 17, 2005.


[[Page 43492]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3981 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P