[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56283-56284]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28197]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40548; File No. SR-PCX-98-50]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Pacific
Exchange, Inc. to Make the LMM Book Pilot Program Permanent
October 14, 1998.
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 September 30, 1998, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by PCX. The
Commission is publishing this notice and order to solicit comments on
the proposed rule change from interested persons and to grant
accelerated approval to the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
PCX is proposing to modify PCX Rule 6.82 to make the LMM Book Pilot
Program permanent. Proposed new language is in italics; proposed
deletions are in [brackets].
Text of the Proposed Rule Change
Lead Market Makers
para.5181
Rule 6.82(a)-(h), No Change.
Commentary:
.01.--.02., No Change.
[.03. The provisions of Rule 6.82(h) are subject to a pilot
program, which is set to expire on October 12, 1998.]
.03. [.04.], No Change.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In it filing with the Commission, 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 III below. 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
Background. The Commission approved the Lead Market Maker (``LMM'')
Book Pilot Program on October 11, 1996,\3\ Under the program, a limited
number of LMMs are able to assume operational responsibility for the
options limit order book (``Book'') in certain options issues.\4\ The
approved LMMs manage the Book function, take responsibility for trading
disputes and errors, set rates for Book execution, and pay the Exchange
a fee for systems and services. The program allows LMMs to have greater
control over their operations by allowing them to set their own rates
for execution services provided to customers.
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\3\ See Exchange Act Release No. 37810 (October 11, 1996), 61 FR
54481 (October 18, 1996).
\4\ Id.
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In April 1997, the Commission approved an Exchange proposal to
expand the scope of the pilot program to allow up to nine LMMs to
participate and up to 150 symbols to be used.\5\ In September 1997, the
Commission approved PCX's request to extend the pilot program for one
year.\6\ In addition, the Commission approved inclusion of non-
multiply-listed options issues in the program in February 1998;
elimination of the cap on the number of symbols that may be used under
the program in May 1998; and elimination of the cap of the number of
LMMs that may participate in the program in August 1998.\7\ The program
currently has 10 LMM participants that are collectively trading 155
options issues (and 194 option symbols) as part of the pilot program.
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\5\ See Exchange Act Release No. 38462 (April 1, 1997), 62 FR
16886 (April 8, 1997).
\6\ See Exchange Act Release No. 39106 (September 22, 1997), 62
FR 51172 (September 30, 1997).
\7\ See Exchange Act Release Nos. 39667 (February 13, 1998), 63
FR 9895 (February 26, 1998); 40020 (May 21, 1998), 63 FR 29286 (May
28, 1998); and 40328 (August 17, 1998), 63 FR 45276 (August 25,
1998).
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Proposal. PCX is proposing to make the LMM Book Pilot Program
permanent. The Exchange believes the program is operating successfully
and without any problems, and on that basis, the Exchange believes that
making the LMM Book Pilot Program permanent is warranted. The Exchange
submitted a report on September 28, 1998, as requested by the
Commission in Exchange Act Release No. 37810, which related to the one
year extension of the pilot program approved in September
[[Page 56284]]
1997.\8\ The report indicated that the Exchange had received no formal
complaints on the operation of the pilot since the previous report.
Moreover, the Exchange found no significant impact from the pilot on
bid/ask spreads, depth, and continuity in the Exchange's options
markets.
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\8\ See n. 3 above.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \9\ of the Act, in general, and furthers the objectives of
Section 6(b)(5) of the Act, \10\ in particular, because it is designed
to perfect the mechanism of a free and open market, to promote just and
equitable principles of trade, to facilitate transactions in
securities, and in general, to protect investors and the public
interest.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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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. 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. 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 at the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of PCX.
All submissions should refer to File No. SR-PCX-98-50 and should be
submitted by November 12, 1998.
IV. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Commission finds that PCX's proposal to make the LMM Book Pilot
Program permanent is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to a national
securities exchange. Specifically, the Commissions finds that the
proposal is consistent with Section 6(b)(5) \11\ of the Act.
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\11\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(5) requires that the rules of an exchange be designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to protect investors and the
public interest and not be designed to permit unfair discrimination
between customers, issuers, brokers or dealers. The Commission believes
that the proposal is consistent with these provisions of the Act
because it is designed to give LMMs greater control over their
operations on the Exchange floor while maintaining sufficient
safeguards to permit proper Exchange oversight of the LMMs managing the
Book function.\12\
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\12\ See n. 3 above (order approving pilot and noting that,
among other safeguards, the Exchange's Options Allocation Committee
will evaluate LMMs at least semiannually.)
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The Commission notes that the LLM Book Pilot Program has been in
operation two years without significant problems and may have resulted
in cost savings to customers in Book execution charges while improving
the Exchange's competitiveness.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication. The
Commission notes when the LMM Book Pilot Program was initially
proposed, notice was published in the Federal Register for the full 21-
day comment period without any comments being received by the
Commission.\13\ Moreover, amendments to the LMM Book Pilot Program did
not generate public comment.\14\ Finally, the Commission believes it is
important to ensure that the proposal runs without interruption. As a
result, it is approved permanently.
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\13\ See, n. 3 above.
\14\ Id.
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It is therefore ordered, pursuant to Section 19(b)(2) \15\ of the
Act that the proposed rule change (SR-PCX-98-50) is hereby approved on
an accelerated basis.
\15\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200:30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28197 Filed 10-20-98; 8:45 am]
Billing Code 8010-01-M