Skip to Content


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto, and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 2 to Proposed Rule Change Relating to Maintenance of Books and Records

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble September 20, 2002.

On April 22, 2002, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with 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 codify the existing obligations of PCX members to keep and preserve books and records, and to maintain daily position statements and error account information. PCX submitted Amendment No. 1 to the proposed rule change on June 11, 2002.[3] The proposed rule change was published for comment in the Federal Register on July 9, 2002.[4] The Commission received no comments on the amended proposal. On September 11, 2002, PCX submitted Amendment No. 2 to the proposed rule change.[5] This order approves the proposed rule change, as amended. In addition, the Commission is publishing this notice to solicit comments on Amendment No. 2 from interested Start Printed Page 61182persons, and approving Amendment No. 2 on an accelerated basis.

The proposed rule change would require all Members and Member Organizations to make, keep current, and preserve such books and records as the Exchange may prescribe and as those that may be prescribed by the Act and the rules and regulations thereunder (including any interpretation relating thereto). The proposed rule further provides that no Member or Member Organization may refuse to make available to the Exchange such books, records or other information as may be called for under the PCX rules or as may be requested in connection with an Exchange investigation.

With respect to maintaining daily position statements, the proposed rule generally provides that each Member and Member Organization must receive daily position statements with respect to securities held by the Options Clearing Corporation or any member thereof, the Depository Trust and Clearing Corporation or any similar clearing organization and must reconcile securities and money balances at least once per month by comparing those position statements against the Member or Member Organization's books and records. As proposed, each Member and Member Organization would be required to maintain reports that evidence reconciliation for at least six years, the first two years in an easily accessible place.

Finally, regarding error accounts, the proposed rule provides that each Member or Member Organization, which conducts business as a floor broker must make available to the Exchange, upon request, accurate and complete records of all trades cleared in such Member or Member Organization's error account. The proposed rule would also require that the error account records include certain audit trail data elements including, for example, name of the security, quantity, and the nature and amount of the error.

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange [6] and, in particular, the requirements of Section 6 of the Act [7] and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change is consistent with Section 6(b)(5) of the Act [8] because the proposed rule change requires the Exchange's members to maintain books and records in a manner that is consistent with federal securities laws. The Commission believes such consistency should foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. The Commission also believes that the requirements relating to the maintenance and reconciliation of daily position statements and error accounts should have similar beneficial results.

The Commission finds good cause for approving proposed Amendment No. 2 prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. In Amendment No. 2, the Exchange clarified that members must make every effort to resolve differences that may occur on position statements. The Commission believes that Amendment No. 2 should strengthen PCX's rule by requiring members to resolve inaccuracies. Therefore, the Commission believes that good cause exists pursuant to Sections 6(b)(5)[9] and 19(b)[10] of the Act to accelerate approval of Amendment No. 2 to the proposed rule change.

Interested persons are invited to submit written date, views and arguments concerning Amendment No. 2, including whether Amendment No. 2 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. SR-PCX-2002-26 and should be submitted by October 18, 2002.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[11] that the proposed rule change (SR-PCX-2002-26), as amended by Amendment No. 1, is approved, and Amendment No. 2 is approved on an accelerated basis.

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See letter from Mai S. Shiver, Senior Attorney, Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated June 10, 2002 (“Amendment No. 1”). In Amendment No. 1, the Exchange: (1) stated that the proposed rule change was being filed pursuant to Section 19(b)(2) of the Act and requested accelerated effectiveness; (2) revised typographical errors in the proposed rule text; (3) added the parenthetical (including any interpretation relating thereto) to proposed PCX Rule 4.20(a); and (4) clarified that the phrase “contra organization” in proposed PCX Rule 4.20(b) is an industry term of art that also means counter party.

Back to Citation

4.  See Securities Exchange Act Release No. 46128 (June 26, 2002), 67 FR 45577.

Back to Citation

5.  See letter from Mai S. Shiver, Senior Attorney, Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, Division, Commission, dated September 10, 2002 (“Amendment No. 2”). In Amendment No. 2, PCX revised the second sentence of proposed Rule 4.20(b) to read: “Each Member or Member Organization must promptly report any differences to the contra organization and make every effort to promptly resolve the differences.”

Back to Citation

6.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Back to Citation

[FR Doc. 02-24608 Filed 9-26-02; 8:45 am]