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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. Relating to the Size of Option Orders Eligible for Facilitation Crossing

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Start Preamble August 1, 2002.

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 July 25, 2002, the Pacific Exchange, Inc. (“PCX” or “Exchange”) 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. The Exchange filed the proposed 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

PCX proposes to amend its rules by reducing the minimum number of contracts necessary for member firms to effect facilitation crossing transactions on the Trading Floor pursuant to PCX Rule 6.47(b). Specifically, the Exchange proposes to reduce the minimum contract size parameter under PCX Rule 6.47(b) from 200 contracts to 50 contracts. The text of the proposed rule change is below. New proposed language is italicized; deleted language is in brackets.

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4987 “Crossing” Orders and Stock/Option Orders

Rule 6.47(a)—No change.

(b) Crossing of Facilitation Orders. A Floor Broker who holds an order for a public customer or a broker-dealer (“customer order”) and an order for the proprietary account of a member organization that is representing that customer (the “facilitation order”) may cross those orders only if the following procedures and requirements are followed.

(1) The size of the customer order subject to facilitation must be at least fifty [two hundred (200)] contracts. Orders for less than fifty [200] contracts may be facilitated pursuant to this rule but are not subject to subsection (4) below pertaining to firm guarantees.

(2)-(6)—No change.

(c)-(f)—No change.

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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 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

Under current PCX Rule 6.47(b), a Floor Broker who holds an order for a public customer or broker-dealer (“customer order”) and an order for the proprietary account of a member organization that is representing that customer or broker-dealer (“firm order”) may cross those orders, but only if certain procedures and requirements set forth in PCX Rule 6.47(b) are followed. If the transaction occurs at a price between the trading crowd's quoted market, then up to 40% of the customer order may be crossed with the firm order.[5] If the transaction occurs at a price that is equal to the trading crowd's quoted market, then up to 25% of the customer order may be crossed with the firm order.[6] In addition, current PCX Rule 6.47(b)(1) establishes a minimum order size parameter for facilitation crossing transactions. Specifically, it states that the size of a customer order subject to facilitation must be at least two hundred (200) contracts. It further states that orders for less than 200 contracts may be facilitated pursuant to PCX Rule 6.47(b), but such orders would not be subject to subsection (4) pertaining to firm guarantees. The Exchange is proposing to amend PCX Rule 6.47(b)(1) by replacing two references to “200 contracts” with references to “50 contracts.”

The purpose of the proposal is to assure that member firms may receive guaranteed contracts to be eligible for participation on customer orders for 50 contracts or more. In that regard, the Exchange notes that the facilitation crossing rules of other options exchanges currently permit orders for at least 50 contracts for a guarantee whereby the firm entering the order may participate in the trade to a certain extent not to exceed 40%.[7]

2. Statutory Basis

The Exchange believes that the proposal is consistent with section 6(b) of the Act,[8] in general, and furthers the objectives of Section 6(b)(5),[9] in particular, because it is designed to promote just and equitable principles of trade, prevent fraudulent and manipulative acts and practices, and 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.

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 foregoing proposed 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) by its terms does not become operative for 30 days from the date of filing. In addition, the Exchange provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to the filing date. The proposed rule change has therefore become effective pursuant to section 19(b)(3)(A) of the Act [10] and Rule 19b-4(f)(6) thereunder.[11]

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. 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. 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. Start Printed Page 51314SR-PCX-2002-46 and should be submitted by August 28, 2002.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

4.  17 CFR 240.19b-4(f)(6). PCX provided the Commission with notice of its intention to file this proposal on July 16, 2002.

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5.  See PCX Rule 6.47(b)(4)(A).

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6.  See PCX Rule 6.47(b)(4)(B).

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7.  See Rule 950(d), Commentary .02(d) of the American Stock Exchange; Rule 6.74(d) of the Chicago Board Options Exchange; and Rule 716(d) of the International Securities Exchange.

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[FR Doc. 02-19939 Filed 8-6-02; 8:45 am]

BILLING CODE 8010-01-P