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Notice

Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to the Dissolution of the Appointments Committee

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Information about this document as published in the Federal Register.

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Start Preamble December 5, 2000.

I. Introduction

On March 20, 2000, the Pacific Exchange, Inc. (“PCX” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission” or “SEC”) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 thereunder,[2] a proposed rule change to eliminate the Options Appointment Committee and to transfer all of its powers to the Options Allocation Committee. On September 21, 2000, the Exchange submitted Amendment No. 1 to the proposal.[3] The proposed rule change was published for comment in the Federal Register on October 4, 2000.[4] No comments were received on the proposal. This order approves the proposal.

II. Description of Proposal

Currently, the PCX rules provide that it is the duty of the Options Appointment Committee to make recommendations to the Board of Governors regarding the appointment, assignment, retention, reassignment, transfer, and taking leave of the privileges to deal in and trade options to, by, and among members on the Options Trading Floor.[5] The Options Appointment Committee is also responsible for appointing Market Makers and appointing and approving Lead Market Makers (“LMMs”).[6] The Options Appointment Committee has the authority to relieve LMMs of their appointments, designate interim LMMs, and make determinations pertaining to LMM-related issues not within the jurisdiction of any other standing committee. Currently, the Options Allocation Committee allocates and reallocates issues and evaluates and monitors Market Makers, LMMs, and trading crowds. In the proposed rule change, the Exchange seeks to eliminate the Options Appointment Committee and to transfer all of its authority and duties to the Options Allocation Committee.

In this regard, the Exchange proposes to change all references to the “Options Appointment Committee” in PCX Rule 11.10(a) to the “Options Allocation Committee” and to transfer the language of PCX Rule 11.10(a), relating to the current duties of the Options Appointment Committee, to the Options Allocation Committee under new proposed PCX Rule 11.10(b)(2). The Exchange also proposes to renumber PCX Rule 11.10(b) as 11.10(a) and PCX Rule 11.10(c) as 11.10(b)(1). The Exchange proposes to change the references to the “Options Appointment Committee” in PCX Rules 6.35; 6.37; Commentary .08; 6.82(a)(1) and (3); 6.82(b)(1) and (2); 6.82(f)(3); 6.82(g)(1); and 6.82(h)(1) to the “Options Allocation Committee.”

III. Discussion

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,[7] and in particular with the requirements of section 6(b) of the Act.[8] Specifically, the Commission believes that the proposed rule is consistent with the requirements of section 6(b)(5) of the Act [9] because it is designed to help perfect the mechanism of a free and open market and is not designed to permit unfair discrimination between customer and brokers or dealers.

The proposed rule change centralizes all rules relating to the approval, Start Printed Page 78235evaluation, allocation to, and appointment of LLMs in one committee. The Commission finds that by doing so, it is likely that more consistent decisions regarding LLMs, and their role on the Exchange will be made. The Commission believes that this consistency will benefit customers and broker-dealers conducting business on the Exchange.

The Commission recognizes that currently, Market Makers and LLMs are not permitted to serve on the PCX Options Appointment Committee; however, they are permitted to serve on the PCX Options Allocation Committee. The Commission further recognizes that Market Makers and LLMs will continue to be permitted to serve on the Options Allocation Committee after it assumes the responsibilities of the Options Appointment Committee, and that this represents a change in the composition of persons who will make decisions regarding the appointments of Market Makers and LLMs.

The Commission does not believe it is contrary to the public interest, or the interests of PCX members, to allow Market Makers and LLMs to participate on the committee that appoints Market Makers and LLMs, make decisions to relieve LMMS of their appointments, designate interim LMMS, and make determinations pertaining to LMM-related issues not within the jurisdiction of any other standing committee.[10] The Commission expects that members of the Options Allocation Committee, including Market Makers and LLMs, will act fairly and in a non-discriminatory manner, and will recuse themselves from particular decisions, as appropriate. The Commission also expects that the Options Allocation Committee will continue to appoint only those members qualified for market maker positions, and will relieve Market Makers and LLMs of their positions only for appropriate reasons.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See letter from Cindy L. Sink, Senior Attorney, Regulatory Policy, PCX to Jennifer L. Colihan, Division of Market Regulation, Commission, dated September 20, 2000.

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4.  See Securities Exchange Release No. 43342 (September 26, 2000), 65 FR 59242.

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5.  See PCX Rules 6.35, 6.37, 6.82, and 11.10(c).

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6.  See PCX Rules 6.35 and 6.82.

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7.  In approving this rule 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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10.  The Commission notes that four of the nine members of the Chicago Board Options Exchange's (“CBOE”) Modified Trading System Appointments Committee, which is responsible for the selection and removal of CBOE Designated Primary Market Makers (“DPM”), are Exchange members whose primary business is as a Market Maker, and two of the nine members are Exchange members whose primary business is as a Market Maker or as a DPM Designee. See CBOE Rule 8.80. In addition, the Philadelphia Stock Exchange's (“Phlx”) Allocation, Evaluation and Securities Committee, which is the committee that appoints and evaluates specialists on the Phlx, and makes allocations, allows specialists and floor brokers to serve on the committee. See Phlx By-law Article X, Section 10-7.

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[FR Doc. 00-31803 Filed 12-13-00; 8:45 am]

BILLING CODE 8010-01-M