[Federal Register Volume 59, Number 223 (Monday, November 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28676]
[[Page Unknown]]
[Federal Register: November 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34970; File No. SR-PSE-94-23]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the Pacific Stock Exchange, Inc.
Relating to Short Sales of Nasdaq/NM Securities of Companies Involved
in Mergers or Acquisitions
November 14, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 18, 1994, the
Pacific Stock Exchange (``PSE'' 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 self-regulatory organization. On October 14, 1994,
the Exchange filed Amendment No. 1 to the proposed rule change.\2\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1).
\2\In Amendment No. 1, the PSE adds the requirement that the
merger or acquisition must be ``publicly announced'' to qualify as
an exempt hedge transaction in an ``M&A'' security. See letter from
Michael D. Pierson, Senior Attorney, Market Regulation, PSE, to
Francois Mazur, Attorney, Office of Market Supervision, Commission,
dated October 13, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PSE proposes to amend its Rule 4.19 concerning the designation
of certain short sales of Nasdaq National Market securities (``NM
securities'') by market makers as exempt from the NASD's bid test
rule.\3\
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\3\See NASD Manual, Rules of Fair Practice, Article III, Section
48 (``NASD Rules'').
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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 self-regulatory organization
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 qualified in Item IV below. The self-regulatory organization
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
The purpose of the proposed rule change is to permit PSE options
market makers to designate as bid test exempt under PSE Rule 4.19
certain short sales of the stock of a company that is involved in a
merger or acquisition with the issuer of a stock underlying an option
that has been designated as a ``designated Nasdaq/NM security''
pursuant to PSE Rule 4.19(c)(2)(B)(ii). To qualify as bid test exempt
under this proposal, the short sales of the company stock involved in
the merger or acquisition must serve to hedge a position in an option
overlying the designated NM security, where the option position was or
will be established in the course of bona fide market making activity.
This proposal recognizes that when a designated NM security becomes
involved in a merger or acquisition, PSE market makers may need to
hedge positions in options on the designated NM security by buying or
selling shares of stock of the other company involved in the merger or
acquisition, whether or not the other company's stock has listed
overlying options, Indeed, where there are no options on that stock,
buying or selling the stock itself may at times be the only feasible
way for a market maker to hedge positions in options on the designated
NM security, given the risk arbitrage relationship that is likely to
exist between the two stocks. The proposed rule change will facilitate
hedging by options market makers in this circumstance by allowing them
to sell short shares of the ``other'' company involved in the merger
for hedging purposes, and to designate those short sales as bid test
exempt. The PSE believes that its proposal will enhance the ability of
PSE market makers to perform their market making functions, thereby
contributing to the liquidity of the market for options, as well as the
market for the stocks of both companies. This proposed rule change,
like the current Rule 4.19,\4\ is intended to operate in coordination
with an exemption from the bid test provided for in the NASD Rules.
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\4\See File No. SR-PSE-94-16 (pending).
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The PSE believes that because the proposed rule change will enhance
the ability of market makers to perform their market making activities,
thereby contributing to the depth and liquidity of the options market,
it will serve in furtherance of the objectives of Section 6(b)(5) of
the Act to promote just and equitable principles of trade and to
protect investors and promote 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
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 Section, 450 Fifth Street, N.W,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to File No.
SR-PSE-94-23 and should be submitted by December 12, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28676 Filed 11-18-94; 8:45 am]
BILLING CODE 8010-01-M