[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31674-31675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14872]
[[Page 31674]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41481; File No. SR-PCX-99-14]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc.
Relating to 50-Up During High Volume, and/or High Volatility Situations
June 4, 1999.
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 May 20, 1999,\3\ the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ On May 28, 1999 the PCX filed Amendment No. 1. See letter to
John Roeser, Attorney, Division of Market Regulation, Commission,
from Robert P. Pacelio, Staff Attorney, PCX, dated May 27, 1999. In
amendment No. 1, the Exchange made a technical modification to the
proposed rule filing.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to increase the maximum permissible number of
option contracts for orders that are executable through PCX's automatic
execution system (``Auto-Ex'') to fifty contracts. Proposed new
language is italicized.
para. 4889 Unusual Market Circumstances
Rule 6.28(a)-(b)(8)--No change.
(9) The Exchange may increase the permissible size of orders that
may be automatically executed over the Auto-Ex system to up 50
contracts, to be effected on a case-by-case basis in a particular
option issue, or for all option issues, when two Floor Officials and
one Floor Governor deem such an increase to be appropriate. Pursuant to
this Rule, the ability to execute orders of up to 50 contracts will
only occur during high volume or high volatility emergency situations.
At all other times, the order size for Auto-Ex will remain to be the
number of contracts permitted under Rule 6.87.
(c) and (d)--No change.
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
Purpose
In 1990, the Exchange implemented its Auto-Ex system through which
public customer market and marketable limit orders may be executed
automatically at the best bid or offer displayed at the time the order
is entered into the Pacific Options Exchange Trading System
(``POETS'').\4\ Initially, Auto-Ex was limited to implementation in all
equity options classes, for the number or contracts approved by the
Options Floor Trading Committee (``OFTC''), at two trading posts and
any option that became multiply traded.\5\ In 1993, the Commission
approved a proposal by the PCX to designate option orders of ten
contracts or less in all options series, including Long-term Equity
AnticiPation Securities (``LEAPS''), to be eligible for automatic
execution through Auto-Ex.\6\ In 1994, the Commission approved a
proposal by the PCX to designate options orders of twenty contracts or
less to be eligible for execution through Auto-Ex.\7\ Currently,
because Auto-Ex is only permitted to automatically execute option
orders of twenty contracts or less, market and marketable limit orders
of more than twenty contracts are routed by POETS to members on the
trading floor for manual representation.
---------------------------------------------------------------------------
\4\ The Commission approved the POETS and its Auto-Ex feature as
a pilot program in January 1990. See Securities Exchange Act Release
No. 27633 (January 18, 1990), 55 FR 2466 (January 24, 1990) (order
approving File No. SR-PSE-89-26). On July 30, 1993, the Commission
approved the program on a permanent basis. See Securities Exchange
Act Release No. 32703 (July 30, 1993), 58 FR 42117 (August 6, 1993)
(``Release No. 34-32703'').
\5\ See Securities Exchange Act Release No. 28264 (July 26,
1990), 55 FR 31272 (August 1, 1990) at note 2.
\6\ See Release No. 34-32703.
\7\ See Securities Exchange Act Release No. 34946 (November 6,
1994), 59 FR 59265 (November 16, 1994).
---------------------------------------------------------------------------
The PCX is now proposing to increase the maximum permissible number
of option contracts for order that may be executed through the Auto-Ex
system to fifty contracts. The PCX proposes that this increase in
permissible order size to fifty contracts for Auto-Ex be done on a
case-by-case basis for an individual option issue, or for all option
issues when two Floor Officials and one Floor Governor deem such an
increase appropriate. The PCX currently anticipates that the ability to
execute orders of up to fifty contracts through Auto-Ex will only occur
during high volume, and/or high volatility emergency situations. At all
other times, the order size for Auto-Ex will remain at twenty
contracts, unless the Commission approves an Exchange proposal to
increase that number to greater than twenty contracts.\8\
---------------------------------------------------------------------------
\8\ On February 10, 1999, the PCX filed a proposal (SR-PCX-99-
04) with the Commission to increase the number of option orders that
may be executed automatically to fifty contracts without regard to
whether a high volume or high volatility emergency situation exists.
---------------------------------------------------------------------------
The PCX believes that Auto-Ex has been extremely successful in
enhancing execution and operational efficiencies during emergency
situations and during other non-emergency situations for certain option
issues. Automatic executions of orders for up to fifty contracts during
such high volume situations will help alleviate a backlog of orders in
the systems that may occur and allow for the quick, efficient execution
of public customer orders. The Exchange represents that the existing
system has sufficient capacity to implement the increase in order size.
The Exchange's proposed rule change specifically states that the
Exchange may increase the permissible size of orders that may be
automatically executed over the Auto-Ex system to up to fifty
contracts, to be effected on a case-by-case basis in a particular
option issue, or for all option issues, when two Floor Officials and
one Floor Governor deem such an increase to be appropriate. It further
states that, pursuant to this rule, the ability to execute orders of up
to fifty contracts will only occur during high volume or high
volatility emergency situations, and at all other times, the order size
for Auto-Ex will remain the number of contracts permitted under Rule
6.87.
Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) \9\ of the Act in general and
[[Page 31675]]
furthers the objectives of section 6(b)(5) \10\ in particular in that
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to improve impediments to and perfect
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
PCX does not believe that the proposed rule change will impose any
burden on competition.
B. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change:
(i) Does not significantly affect the protection of investors or
the public interest;
(ii) Does not impose any significant burden on competition; and
(iii) Does not become operative for 30 days from the date on which
it was filed, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public
interest,\11\ it has become effective pursuant to section
19(b)(3)(A)\12\ of the Act and Rule 19b-4(f)(6).\13\
---------------------------------------------------------------------------
\11\ The Commission has waived the requirement that the Exchange
provide written notice of its intent to file the proposed rule
change at least five business days prior to the date of filing of
the proposed rule change.
\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). In reviewing this rule, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission believes that increasing to fifty the number of
option contracts executable through the Exchange's Auto-Ex order
execution system should enable the Exchange to more effectively and
efficiently manage increased order flow in actively traded option
classes consistent with its obligations under the Act. The Commission
finds good cause to allow the proposed rule change to become
operational on June 4, 1999. This accelerated operative date should
facilitate the enhancement of execution and operational efficiencies
through Auto-Ex during high volume or high volatility emergency
situations. The Commission has previously approved a substantially
similar proposal by the American Stock Exchange LLC.\14\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 41098 (February 24,
1999), 64 FR 10511 (March 4, 1999).
---------------------------------------------------------------------------
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.
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 submission
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 provision
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-99-14 and should
be submitted by July 2, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14872 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M