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Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Pacific Exchange Inc., Relating to Mandatory Decimal Pricing Testing

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Start Preamble June 30, 2000.

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 June 23, 2000, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange has designed this proposal as one concerned solely with the administration of the Exchange under Section 19(b)(3)(A)(iii) of the Act,[3] 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The PCX proposes to adopt new Rule 1.15(b), Mandatory Decimal Pricing Testing, which would require member organizations to participate in industry testing of computer systems designed to prepare for the industry conversion to decimal pricing. The text of the proposed rule change is available at the 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 proposed rule change and discussed any comments it received on the proposed Start Printed Page 42413rule change. The text of these statements may be examined at the places specified in Item IV 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

As the securities industry prepares for the conversion to decimal pricing, testing by and among the various securities industry constituents will be necessary to avoid widespread systems problems. The PCX, in cooperation with the Commission and other self-regulatory organizations has been working toward a successful transition to decimal pricing. The purpose of proposed rule change is to require PCX member firms to participate in testing of computer systems designed to prepare for the industry conversion to decimal pricing.

Proposed Rule 1.15(b) would require PCX members to participate in testing of computer systems, in a manner and frequency prescribed by the Exchange. It is the PCX's understanding that other self-regulatory organizations, including the National Association of Securities Dealers, the New York Stock Exchange, the American Stock Exchange and the Chicago Board Options Exchange, are also proposing rules to require decimal pricing testing by their member organizations.

To ensure that the securities industry is adequately prepared to convert to decimals, the Securities Industry Association has undertaken to coordinate industry-wide testing. Testing will include, among others, exchanges, registered clearing corporations, data processors and broker-dealers. There are multiple industry-wide tests, the first of which occurred in April 2000. New Rule 1.15(b) will be employed to require mandatory testing of PCX member organizations in these tests, and further provides that any firm with an electronic interface with the Exchange will be required to conduct point-to-point testing with the Exchange. Point-to-point testing means testing between two entities, in this case between the member with the electronic interface and the Exchange.[4]

The Exchange will require its members to participate in industry-wide testing to the extent those firms can be accommodated into the testing schedule. The Exchange would exercise its authority under this Rule to the extent it is deemed important for particular member organizations to participate and to the extent those member organizations choose not to participate voluntarily.

The proposed rule would also require member organizations to file reports with the PCX concerning the required tests in the manner and frequency required by the Exchange. A member organization that is subject to the Rule and fails to participate in the tests or fails to file any required reports will be subject to disciplinary action pursuant to Rule 10 of the Exchange's rules.

It should be noted that the Exchange believes that it currently has the authority without the approval of this Rule to require testing and reporting with respect to the implementation of decimal pricing under its broad authority to enforce the provisions of the Act and to ensure the safety of its marketplace. The Exchange believes, however, that its membership is better served by having the specifics of its intentions with respect to this matter defined in a stand-alone rule.

This Rule will expire automatically upon the full completion of decimal pricing implementation.

2. Statutory Basis

The Exchange represents that by adopting a new rule to help ensure the participation of Exchange members in important industry testing to prepare for the conversion to decimal pricing, the proposed rule change is consistent with Section 6(b) of the Act [5] in general and further the objectives of Section 6(b)(5) [6] in particular, in that they are designed to promote just and equitable principles of trade and to protect investors and the public interest.

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

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

The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act [7] and subparagraph (f)(3) of Rule 19b-4 thereunder [8] because it is concerned solely with the administration of the Exchange. At any time within 60 days of the filing of the 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 person are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 in Washington, DC.

Copies of such filing will also be available for inspection and copying at the principal office of the PCX. All submissions should refer to File No. SR-PCX-00-17 and should be submitted by July 31, 2000.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Jonathan G. Katz,


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3.  15 U.S.C. 78s(b)(3)(A)(iii).

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4.  A member organization can be exempted from this requirement if the member organization has its electronic interface through a service provider if the service provider conducts successful tests with the Exchange on behalf of the firms it serves, if the member firm conducts successful point-to-point testing with the service provider by a time designated by the Exchange, and if the Exchange agrees that no further testing is necessary.

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[FR Doc. 00-17334 Filed 7-7-00; 8:45 am]