[Federal Register Volume 70, Number 218 (Monday, November 14, 2005)]
[Notices]
[Pages 69181-69182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-6252]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52720; File No. SR-PCX-2005-120]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
Remote Market Makers

November 2, 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 October 21, 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 and 
II below, which Items have been prepared by the Exchange. The Exchange 
filed the proposal 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. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to amend PCX Rule 6.35 by eliminating the 
restriction contained in PCX Rule 6.35(h)(4) that prohibits a Remote 
Market Maker (``RMM'') from concurrently trading and/or quoting the 
same option issue as an RMM who is a Nominee of the same OTP Firm. The 
text of the proposed rule change is set forth below. Additions are in 
italics and deletions are in brackets.

Rules of the Pacific Exchange, Inc., Rule 6 Options Trading--
Appointment of Market Makers

    Rule 6.35 (a) thru 6.35(g)--No Change
    (h) If an OTP Holder or OTP Firm has two or more Nominees that are 
registered as Remote Market Makers, then:
    (1) The number of OTPs held in the name of such Remote Market 
Makers may be aggregated for the purpose of determining the number of 
options issues eligible for primary appointment pursuant to subsection 
(g)(2) above;
    (2) The primary appointment applies to the OTP Holder or OTP Firm, 
subject to the approval of the Exchange; and
    (3) The distribution of the option issues within the primary 
appointments for each Remote Market Maker will be at the discretion of 
the OTP Holder or OTP Firm.[; and
    (4) At no time will a Remote Market Maker concurrently trade or 
quote the same option issue as a Remote Market Maker or Lead Market 
Maker who is a Nominee for the same OTP Holder or OTP Firm.]
    (i)--No Change
    Commentary: .01 thru .05--No Change
* * * * *

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 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
    PCX Rule 6.35 governs the appointment of Market Makers. The rule 
change would eliminate PCX Rule 6.35(h)(4), which prohibits two or more 
RMMs who are Nominees of the same OTP Firm from concurrently trading 
options in the same class.
    The current restriction on RMMs that are from the same OTP Firm 
concurrently trading the same issues was included as part of Amendment 
No. 2 to PCX-2002-36,\5\ (Rules of PCX Plus). This restriction grew out 
of early concerns over trade allocation and the possibility that an OTP 
Firm could unfairly game the ``size pro rata'' allocation method that 
PCX Plus utilizes. It was thought that having multiple RMMs in the same 
issue, quoting smaller individual markets, could somehow cause a 
greater contract allocation than a single RMM quoting the same 
aggregate size market. PCX Rule 6.76, Priority and Order Allocation 
Procedures, governs trade allocations for trades executed on the PCX 
Plus System. Specifically, PCX Rule 6.76(a)(4) outlines the Size Pro 
Rata Allocation. By reviewing this rule, one can see that the PCX 
allocation method is based strictly on the market size that Market 
Makers are quoting at the time of a trade. A single Market Maker 
quoting one size would be entitled to no more or no less than two or 
more Market Makers quoting the same aggregate size. Due to the fact 
that trade allocations are based strictly on quote size, and not the 
number of quoters, the Exchange believes that PCX Rule 6.76(h)(4) is 
obsolete and serves no purpose.
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    \5\ See Securities Exchange Act Release No. 47838 (May 13, 
2003), 68 FR 27129 (May 19, 2003).
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    Some PCX OTP Firms are large businesses that have multiple Nominees 
that pursue separate and distinct trading strategies, and each of these 
Nominees may be interested in serving in an RMM capacity. Under present 
PCX rules, each OTP Firm is limited to allowing only one RMM to trade a 
particular options issue, regardless of the number of Nominees the firm 
may employ. By eliminating the current restriction on affiliated RMMs, 
these individual Nominees will be able to concurrently trade the same 
options issue. The

[[Page 69182]]

Exchange believes that additional market participants will create 
deeper markets, allowing for better executions and better prices for 
all customers. In this regard, the PCX proposes to no longer prohibit 
multiple Nominees of an OTP Firm from concurrently trading as RMMs in 
the same option issue.
2. Statutory Basis
    For the above reasons, the Exchange believes that the proposed rule 
change would enhance competition. 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, in that it is designed to facilitate transactions in 
securities, to promote just and equitable principles of trade and to 
protect investors and the public interest.
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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 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has designated the proposed rule change as one that: 
(i) Does not significantly affect the protection of investors or the 
public interest; (ii) does not impose any significant burden on 
competition; and (iii) 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 pursuant to Section 19(b)(3)(A)(iii) of the Act \8\ and Rule 
19b-4(f)(6) \9\ thereunder. 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. The 
PCX provided the Commission with written notice of its intent to file 
this proposed rule change at least five business days prior to the date 
of filing the proposed rule change.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19-4(f)(6).
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    The Exchange has requested that the Commission accelerate the 
operative date so that the proposed rule change may take effect upon 
filing. The Commission believes that acceleration of the operative date 
will permit more RMMs to trade the same options issue, which should 
increase liquidity in the market thereby allowing for better executions 
and better prices for customers. For these reasons, the Commission 
finds it consistent with the protection of investors and the public 
interest to accelerate the operative date of the proposed rule change 
so that it may become operative immediately upon filing.\10\
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    \10\ For purposes only 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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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-2005-120 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-PCX-2005-120. 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, 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 Exchange. 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-2005-120 and should be 
submitted on or before December 5, 2005.

    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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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6252 Filed 11-10-05; 8:45 am]
BILLING CODE 8010-01-P