[Federal Register Volume 64, Number 235 (Wednesday, December 8, 1999)]
[Notices]
[Pages 68714-68715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31782]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42188; File No. SR-PCX-99-17]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the Pacific
Exchange, Inc. Relating to a Ticket-to-Follow Amendment to the PCX
Rules on Telephones on the Options Floor
December 1, 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 June 1, 1999, 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. On November
12, 1999, the Exchange submitted Amendment No. 1 to the proposed rule
change.\3\ 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\ 17 CFR 240.19b-4.
\3\ See Letter from Michael Pierson, Director, Regulatory
Policy, PCX, to John Roeser, Attorney, Division of Market
Regulation, Commission, dated November 10, 1999 (``Amendment No.
1''). The text of Amendment No. 1 is incorporated into this notice.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange is proposing to modify its rules on options trading to
permit Floor Brokers to immediately represent intra-floor telephonic
orders in the trading crowd, with a written order ticket immediately to
follow.
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 modify its rules to reduce the amount
of time required before intra-floor telephonic orders can be
represented in the trading crowd. Currently, Options Floor Brokers are
not permitted to represent orders they receive over the telephone
unless and until they have prepared, from outside the trading crowd, a
written, time-stamped order ticket.\4\
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\4\ See, e.g., proposed PCX Rule 6.2(h)(4)(B), published for
public comment in Filing No. SR-PCX-98-30, Exchange Act Release No.
41018 (February 3, 1999), 64 FR 7681 (February 16, 1999) (``Floor
Brokers who receive telephonic orders while in the trading crowd
must step outside of the crowd, write up an order ticket and time
stamp it before representing the order in the crowd''); See also PCX
rule 6.85, Com. .03 (``when a Floor Broker receives a verbal order
from a Market Maker, or when a Floor Broker is requested by a Market
Maker to alter an order in his possession in any way, the Floor
Broker shall immediately prepare an order ticket from outside the
trading crowd and time stamp it'').
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The Exchange is now proposing to adopt new PCX Rule 6.2(h)(4)(C),
which will provide that a Floor Broker in a trading crowd who receives
an order from a Member of Member Firm representative located on the
Trading Floor may represent that order immediately in the trading
crowd, provided that a written, time-stamped order ticket for that
order must be taken immediately to the Floor Broker in the trading
crowd.\5\ The Exchange is also proposing to remove the following text
from proposed PCX Rule 6.2(h)(4)(B): ``Floor Brokers who receive
telephonic orders while in the trading crowd must step outside of the
trading crowd, write up an order ticket and time-stamp it before
representing the order in the crowd.'' In addition, the Exchange is
proposing to modify PCX Rule 6.67 (``Orders Required to Be in Written
Form'') by adding new subsection (d), which will provide that a Floor
Broker may represent a telephonic order, with the ticket to follow, as
provided in PCX Rule 6.2(h)(4)(C). The Exchange is also proposing to
modify PCX Rule 6.85 (``Market Maker Orders Executed by Floor
Brokers'') by providing that PCX Rule 6.2(h)(4)(C) is an exception to
the general rule that when a Floor Broker receives a verbal order from
a Market Maker, or when a Floor Broker is
[[Page 68715]]
requested by a Market Maker to alter an order in his possession in any
way, the Floor Broker shall immediately prepare an order ticket from
outside the trading crowd and time-stamp it. Accordingly, Floor Brokers
who receive intra-floor telephonic orders from Market Makers will be
permitted to represent those orders immediately, with the ticket
immediately to follow.\6\
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\5\ In Amendment No. 1, the Exchange modified the proposed text
of PCX Rule 6.2(h)(4)(C) to provide that an order ticket for the
order must be prepared and time stamped in the member firm booth
before the order is transmitted telephonically to the Floor Broker
in the trading crowd. See Amendment No. 1, supra note 3.
\6\ Under Proposed PCX Rule 6.2(h)(4), Floor Brokers are not
permitted to communicate directly with persons located off the
Trading Floor. See File No. SR-PCX-98-30.
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The Exchange notes that pursuant to Options Floor Procedure Advice
(``OFPA'') F-5, hand signals may be used to increase or decrease the
size of an order, to change the order's limit. to cancel an order or to
activate a market order, as long as the cancellation or change to the
order is ``relayed to the Floor Broker in a time-stamped, written form
immediately thereafter,'' Although OFPA F-5 is rarely used on the PCX,
the Exchange is proposing, as a matter of consistency, to eliminate the
following text from OFPA F-5: ``Any changes to an order must be
documented in writing outside of the crowd and the ticket time-stamped,
before the revised order may be represented.''
The Exchange believes that the rule change is necessary to assure
that, as more and more option orders are transmitted and represented
electronically on the PCX, manual orders represented by Floor Brokers
are not placed at a competitive disadvantage. In that regard, the
Exchange notes that pursuant to PCX Rule 6.88 (Exchange-sponsored Hand-
Held Terminals for Floor Brokers) \7\ and 6.89 (Proprietary Brokerage
Order Routing Terminals),\8\ PCX member firms currently may send orders
electronically from off the Trading Floor directly to a Floor Broker's
hand-held terminal located in the trading crowd on the Options Floor.
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\7\ See Securities Exchange Act Release No. 39970 (May 7, 1998),
63 FR 26662 (May 13, 1998).
\8\ See Securities Exchange Act Release No. 40577 (October 20,
1998), 63 FR 57721 (October 28, 1998).
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The Exchange believes that implementation of the proposed rule
change will not diminish the ability of the Exchange to conduct
adequate surveillance for rule violations. The Exchange believes that
the continuing requirement for floor members to prepare a written,
time-stamped order ticket, which will document the time of order entry,
will satisfy the Exchange's audit trail requirements in that regard.
Further, the execution time of the order will otherwise be documented
by the contra party or parties to the trade \9\ as well as by the price
Report Terminal Operator (a PCX employee).
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\9\ See PCX Rule 6.69 and OFPA G-12.
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2. Basis
The Exchange believes that this proposal is consistent with Section
6(b) 10 of the Act, in general, and furthers the objectives
of Section 6(b)(5),11 in that it is designed to promote just
and equitable principles of trade, to facilitate transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and to protect
investors and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
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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 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
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
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, 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, N.W., Washington, D.C. 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-99-17 and should
be submitted by December 29, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.12
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\12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-31782 Filed 12-7-99; 8:45 am]
BILLING CODE 8010-01-M