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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by the Pacific Exchange, Inc. Relating to an Amendment to the PCX Plus Electronic Book Execution Feature and Implementation Date

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Start Preamble October 6, 2003.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 Start Printed Page 59438(“Act”) [1] and Rule 19b-4 thereunder,[2] notice is hereby given that on October 3, 2003, 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 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 is proposing to amend PCX Rule 6.76(b)(4)(B)(ii), governing Electronic Book Executions (“EBEs”), in order to restrict a Floor Broker from effecting transactions (via the System Alert Message, “SAMs”) for its own account or the account of associated persons. The Exchange is also proposing to amend PCX Rule 6.90(b) in order to modify the implementation date of PCX Plus. The text of the proposed rule change is set forth below. Additions are in italics; deletions are in brackets.

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Rules of the Board of Governors of the Pacific Exchange, Inc.

Rule 6 Options Trading

PCX Plus Priority and Order Allocation Procedures

Rule 6.76(a)—No change.

(b)(1)-(3)—No change.

(4)(A)—No change.

(B)(i)—No change.

(ii)—the balance of the Consolidated Book at that price will be displayed for three seconds (via a System Alert Message—SAM) to all “Crowd Participants” (as defined in Rule 6.1(b)(38)).

(a) A Floor Broker holding an order for an account in which such broker has an interest, the account of an associated person, or an account with respect to which the Floor Broker or an associated person thereof exercises investment discretion, shall not be eligible for participation in Electronic Book Executions.

(iii)-(v)—No change.

(5)—No change.

(c)-(d)—No change.

Commentary:

01—No change.

.02 For purposes of Rule 6.76(b)(4)(B)(ii), during the initial rollout of PCX Plus, the Floor Broker Hand Held terminals will not have the functionality to support Floor Broker interaction with EBEs via SAMs. Such functionality will become available to Floor Brokers on or before June 30, 2004. The PCX will file a proposed rule change with the Commission when the Floor Broker Hand Held terminals have such functionality.

* * * * *

Rule 6.90(a)—No Change.

(b) System Phase-In and Applicability of the Rules. The PCX estimates that the rules applicable to PCX Plus will be implemented gradually on an issue-by-issue basis beginning October 6, 2003 [December 15, 2003], and will become completely operative and applicable to all options issues by June 30, 2004. At that time, the rules relating to PCX Plus will supersede existing rules that are inapplicable to the new trading environment.

* * * * *

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

The Exchange is proposing to amend PCX Rule 6.76(b)(4)(B)(ii), governing EBEs, in order to restrict Floor Broker from effecting transactions (via SAMS) for its own account or the account of associated persons, or an account with respect to which a Floor Broker exercises investment discretion.

PCX Rule 6.76(b)(4) Governs Market Makers' interaction with orders in the Consolidated Book. Under this rule, when a Market Maker initiates a trade with the Consolidated Book, that Market Maker receives an allocation of the order while the balances of the order in the Book is allocated on a size pro rata basis to all “Crowd [3] who respond to the SAM within three seconds. Initially, the Floor Broker Hand Held terminals will not have the functionality to support Floor Broker interaction with EBEs via SAMS.[4] This rule change is designed to ensure Broker compliance with Section 11(a) of Act [5] for the anticipated implementation of such functionality.

In adopting this provision Floor Brokers, the Exchange recognizes that allowing Floor Brokers to represent certain broker dealer orders could raise issues under the Act. By prohibiting Floor Broker representation of proprietary or affiliated orders, the PCX believes that this rule will go beyond the requirements of Section 11(a) of the Act.

The Exchange also proposes to amend PCX Rule 6.90(b), which governs PCX Plus' implementation date. The Exchange wishes to amend the phase-in implementation date to “October 6, 2003” from the originally anticipated implementation date of “December 15, 2003.” As stated in the rule, the Exchange expects that PCX Plus will become completely operative and applicable to all options issues by June 30, 2004.

2. Basis

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, to enhance competition 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.Start Printed Page 59439

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

Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate; and the Exchange has given the Commission written notice of its intention to file the proposed rule change at least five business days prior to filing, or such shorter time as designated by the Commission, it has become effective pursuant to Section 19(b)(3)(A) of the Act [8] and Rule 19b-4(f)(6) [9] thereunder. 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.

The Exchange has requested that the Commission accelerate the operative date and waive the five day pre-filing requirement so that the proposed rule change may take effect immediately upon filing. The Commission believes that it is consistent with the protection of investors and the public interest to accelerate the operative date of the proposed rule change and to waive the five day pre-filing requirement. Acceleration of the operative date and waiving the pre-filing requirement will permit the Exchange to comply with the provisions of Section 11(a) of the Act and implement PCX Plus on October 6, 2003, without undue delay. For these reaons, the Commission designates the proposal to be effective and operative upon filing with the Commission.[10]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal 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-2003-56 and should be submitted by November 5, 2003.

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See PCX Rule 6.1(b)(38). Crowd Participants include Market Makers appointed to an option issue and any Floor Brokers actively representing orders at the best bid or offer on the Exchange for a particular options series.

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4.  The PCX will file a proposed rule change with the Commission when the Floor Broker Hand Held terminals have such functionality.

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5.  15 U.S.C. 78k(a). Section 11(a) prohibits a member of a national securities exchange from effecting transactions on the exchange for its own account, the account of associated person, or an account in which it or an associated person exercises investment discretion. However, Section 11(a) also includes a number of exceptions to its general prohibition on proprietary trading. Most notably, Section 11(a)(1)(G) allows an exception when a member follows the conditions set forth in Rule 11a1-1(T) (e.g., yield priority, parity, and precedence in execution of such orders).

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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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[FR Doc. 03-25976 Filed 10-14-03; 8:45 am]

BILLING CODE 8010-01-M