Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5615

1WFCC is a Florida corporation that is licensed 

as a small business investment company (‘‘SBIC’’) 

under the Small Business Investment Act of 1958 

(the ‘‘SBIA’’) and provides long-term loans to 

borrowers whether or not they qualify as 

‘‘disadvantaged.’’ PMCIC is a Florida corporation 

that is licensed as a specialized small business 

investment company (‘‘SSBIC’’) under the SBIA. 

PMCIC provides long-term collateralized loans to 

eligible small businesses owned by 

‘‘disadvantaged’’ persons, as defined under SBA 

regulations. FW is a Florida corporation that is 

licensed as a small business lending company 

(‘‘SBLC’’) and originates variable-rate loans that are 

partially guaranteed by the SBA under its section 

7(a) loan guarantee program.

2PMC Capital is also directly or indirectly the 

sole shareholder or partner of the following noninvestment company subsidiaries: PMC Funding 

Corp., PMC Capital, L.P. 1998–1, and PMC Capital, 

L.P. 1999–1. In addition, PMC Capital and PMC 

Commercial jointly own interests in several special 

purpose entities formed in connection with 

structured loan sale transactions.

The India Growth Fund Inc. [File No. 

811–5571] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 

investment company. On May 30, 2003, 

applicant made a liquidating 

distribution to its shareholders, based 

on net asset value. As of January 21, 

2004, applicant had 68 shareholders 

who have not returned their stock 

certificates. Unclaimed assets have been 

placed with applicant’s transfer agent 

and will be held for the time period 

provided under the laws of each such 

shareholder’s state of residence, after 

which time any unclaimed assets will 

escheat to the shareholder’s state of 

residence. Expenses of $211,000 

incurred in connection with the 

liquidation were paid by applicant. 

Filing Dates: The application was 

filed on November 12, 2003 and 

amended on January 23, 2004. 

Applicant’s Address: c/o UBS Global 

Asset Management (US) Inc., 51 West 

52nd St., New York, NY 10019. 

Ayco Series Trust [File No. 811–10115] 

Summary: Applicant seeks an order 

declaring that it has ceased to be an 

investment company. Shareholders 

approved the merger of applicant’s fund 

on November 25, 2003, and applicant 

distributed its assets on December 19, 

2003. The fund surviving the merger is 

the Goldman Sachs Capital Growth 

Fund, a series of Goldman Sachs 

Variable Insurance Trust. The Ayco 

Company, L.P. and Goldman Sachs 

Asset Management, L.P. paid expenses 

of $131,590.90 incurred in connection 

with the merger. 

Filing Date: The application was filed 

on January 12, 2004. 

Applicant’s Address: One Wall Street, 

Albany, NY 12203–3894.

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2455 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

26344; 812–13059] 

PMC Capital, Inc., et al.; Notice of 

Application 

January 30, 2004

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’).

ACTION: Notice of an application under 

section 57(c) of the Investment 

Company Act of 1940 (the ‘‘Act’’) 

requesting an exemption from section 

57(a)(2) of the Act. 

SUMMARY OF APPLICATION: Applicants 

request an order permitting PMC 

Capital, Inc. (‘‘PMC Capital’’), a business 

development company (‘‘BDC’’), to 

merge into PMC Commercial Trust 

(‘‘PMC Commercial’’).

APPLICANTS: PMC Capital and PMC 

Commercial.

FILING DATES: The application was filed 

on January 7, 2004 and amended on 

January 29, 2004.

HEARING OR NOTIFICATION OF HEARING: An 

order granting the application will be 

issued unless the Commission orders a 

hearing. Interested persons may request 

a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on February 24, 2004, and 

should be accompanied by proof of 

service on the applicants, in the form of 

an affidavit or, for lawyers, a certificate 

of service. Hearing requests should state 

the nature of the writer’s interest, the 

reason for the request, and the issues 

contested. Persons who wish to be 

notified of a hearing may request 

notification by writing to the 

Commission’s Secretary.

ADDRESSES: Secretary, Commission, 450 

5th Street, NW., Washington, DC 20549–

0609. Applicants, 18111 Preston Road, 

Suite 600, Dallas, TX 75252.

FOR FURTHER INFORMATION CONTACT:

Marilyn Mann, Senior Counsel, at (202) 

942–0582, or Mary Kay Frech, Branch 

Chief, at (202) 942–0564 (Division of 

Investment Management, Office of 

Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained for a fee at the 

Commission’s Public Reference Branch, 

450 5th Street, NW., Washington, DC 

20549–0102 (telephone (202) 942–8090). 

Applicants’ Representations 

1. PMC Capital, a Florida corporation, 

is an internally managed closed-end 

diversified management investment 

company that has elected to be 

regulated as a BDC as defined in section 

2(a)(48) of the Act. PMC Capital makes 

loans principally through three 

subsidiaries, each of which is licensed 

and regulated by the Small Business 

Administration (the ‘‘SBA’’) and 

registered under the Act as a closed-end 

diversified management investment 

company (collectively, the ‘‘SBA 

Subsidiaries’’). The SBA Subsidiaries 

are Western Financial Capital 

Corporation (‘‘WFCC’’), PMC Investment 

Corporation (‘‘PMCIC’’), and First 

Western SBLC, Inc. (‘‘FW’’).1 WFCC and 

FW are wholly owned by PMC Capital. 

Because the SBA owns nonvoting 

preferred stock of PMCIC, PMCIC is not 

wholly owned by PMC Capital, although 

it is controlled by PMC Capital. PMC 

Capital, directly or through the SBA 

Subsidiaries, makes loans primarily to 

new and developing companies whose 

securities have no established public 

market. PMC Capital’s common stock 

trades on the American Stock Exchange.

2. In addition to its lending 

operations, PMC Capital earns income 

through its wholly-owned subsidiary, 

PMC Advisers, Ltd. (‘‘Advisers’’) and 

PMC Asset Management, Inc., a whollyowned subsidiary of Advisers. Advisers 

and PMC Asset Management, Inc. 

provide investment advisory and 

administrative services to PMC 

Commercial.2

3. PMC Commercial is a Texas real 

estate investment trust and primarily 

originates loans to small businesses 

collateralized by first liens on the real 

estate of the related business. In 

addition, its investments include the 

ownership of commercial properties in 

the hospitality industry. PMC 

Commercial’s loans receivable are 

primarily to borrowers in the hospitality 

industry. It also originates loans for 

commercial real estate in the service, 

retail, multi-family and manufacturing 

industries. PMC Commercial’s common 

shares trade on the American Stock 

Exchange. 

4. Applicants have proposed a merger 

(the ‘‘Merger’’) and have entered into a 

merger agreement pursuant to which 

PMC Commercial has agreed to acquire 

PMC Capital. If the Merger is completed, 

5616 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

PMC Capital shareholders will receive 

0.37 PMC Commercial common shares 

of beneficial interest for each share of 

PMC Capital common stock they own 

and will hold approximately 40.49% of 

PMC Commercial’s common shares after 

the Merger. PMC Commercial 

shareholders will continue as 

shareholders after the Merger, holding 

approximately 59.51% of the 

outstanding shares of PMC Commercial. 

5. Upon completion of the Merger, 

PMC Capital will be merged with and 

into PMC Commercial, and the 

operations of PMC Commercial will 

include the continuation of the 

businesses of PMC Capital. Each of PMC 

Capital’s wholly-owned subsidiaries 

will remain in existence following the 

Merger, and will be wholly-owned by 

PMC Commercial. Both Advisers and 

PMC Asset Management, Inc. will 

continue in existence after the Merger; 

however, it is currently intended that 

they will have no advisory contracts. It 

is anticipated that they will be taxable 

REIT subsidiaries that will lease 

foreclosed properties and generate the 

income of such properties, if any. 

6. At a meeting of the PMC 

Commercial board of trust managers 

held on June 14, 2002, management of 

Advisers indicated that a merger 

between PMC Capital and PMC 

Commercial might be beneficial and 

should be evaluated by PMC 

Commercial. The PMC Commercial 

board of trust managers determined that 

it would be appropriate to consider such 

a transaction and established a special 

committee of trust managers (the ‘‘PMC 

Commercial Special Committee’’) with 

no relationship to PMC Capital to 

determine whether such a transaction 

would be in the best interests of PMC 

Commercial shareholders and to report 

back to the full board. On November 4, 

2002, the PMC Commercial Special 

Committee submitted an indication of 

interest to the PMC Capital board of 

directors. 

7. On November 8, 2002, having 

received and reviewed PMC 

Commercial’s indication of interest, the 

PMC Capital board held a special 

meeting. At that meeting, the PMC 

Capital board appointed a special 

committee composed of the PMC 

Capital directors who are not 

‘‘interested persons’’ as defined in 

section 2(a)(19) of the Act (the ‘‘PMC 

Capital Special Committee’’). The PMC 

Capital Special Committee was 

empowered to determine whether the 

proposed merger would be in the best 

interests of PMC Capital’s shareholders 

and to make a recommendation to the 

PMC Capital board of directors. The 

PMC Capital Special Committee was 

also authorized to (a) retain legal and 

financial advisors of its own choosing, 

(b) review documents and otherwise 

perform due diligence with respect to 

PMC Commercial, and (c) prepare and 

negotiate the terms of the proposal and 

all documents necessary to effect the 

Merger. 

8. On November 8, 2002, at its first 

meeting, the PMC Capital Special 

Committee engaged Sutherland Asbill & 

Brennan LLP (‘‘Sutherland’’) as its legal 

counsel. On December 6, 2002, the PMC 

Capital Special Committee engaged A.G. 

Edwards, an investment banking firm, 

as its financial advisor in connection 

with the proposed merger. A.G. 

Edwards had no previous relationship 

with PMC Capital or PMC Commercial 

or any of their respective affiliates. From 

December 9, 2002 to January 6, 2003, 

the PMC Capital Special Committee, 

Sutherland and A.G. Edwards 

conducted extensive due diligence 

investigations of PMC Capital and PMC 

Commercial. As part of that process, 

representatives of A.G. Edwards met 

with senior management of both PMC 

Capital and PMC Commercial. 

9. On January 6, 2003, representatives 

of the PMC Capital Special Committee, 

Sutherland and A.G. Edwards met to 

discuss the results of the due diligence 

process and to discuss the terms of the 

indication of interest. At this meeting, 

A.G. Edwards presented to the PMC 

Capital Special Committee a 

comprehensive review of the terms of 

the proposal and several possible 

strategic alternatives thereto, including 

a REIT conversion and recapitalization, 

a partial asset liquidation and share 

repurchase, and an equity financing. 

The PMC Capital Special Committee 

determined at this meeting to pursue the 

indication of interest with an exchange 

ratio range of 0.34 to 0.41. 

Subsequently, the PMC Commercial 

Special Committee and PMC Capital 

Special Committee negotiated an 

exchange ratio of 0.37. 

10. On March 27, 2003, the PMC 

Capital Special Committee met with its 

legal and financial advisors to discuss 

the exchange ratio. A.G. Edwards 

delivered its oral opinion to the PMC 

Capital Special Committee that, based 

on and subject to the various 

assumptions and qualifications to be set 

forth in its written opinion as of March 

27, 2003, the exchange ratio of 0.37 was 

fair to PMC Capital shareholders from a 

financial point of view. The PMC 

Capital Special Committee then 

unanimously voted to recommend to the 

PMC Capital board of directors that (a) 

the Merger and the transactions 

contemplated thereby were fair to and 

in the best interest of PMC Capital 

shareholders from a financial and 

procedural point of view; and (b) the 

Merger, the merger agreement and the 

transactions contemplated thereby be 

approved and recommended to PMC 

Capital shareholders. 

11. On March 27, 2003, the full PMC 

Capital board of directors met to 

consider the proposed merger, the 

merger agreement and the transactions 

contemplated thereby. Sutherland 

reviewed the terms of the merger 

agreement with the board and discussed 

the fiduciary duties to which the board 

members were subject. A.G. Edwards 

delivered its oral opinion that, based on 

and subject to the various assumptions 

and qualifications to be set forth in its 

written opinion as of March 27, 2003, 

the exchange ratio of 0.37 was fair, from 

a financial point of view, to PMC 

Capital shareholders. The Chairman of 

the PMC Capital Special Committee 

presented the unanimous 

recommendation of the PMC Capital 

Special Committee that (a) the Merger 

and the transactions contemplated 

thereby were fair to and in the best 

interest of PMC Capital shareholders 

from a financial and procedural point of 

view; and (b) the Merger, the merger 

agreement and the transactions 

contemplated thereby should be 

approved and recommended to PMC 

Capital shareholders. 

12. Based on the information and 

factors considered by the PMC Capital 

Special Committee and the unanimous 

recommendation of the PMC Capital 

Special Committee, the PMC Capital 

board of directors (a) determined that 

the Merger and the transactions 

contemplated thereby were fair to and 

in the best interest of the PMC Capital 

shareholders from a financial and 

procedural point of view; and (b) 

approved the Merger, the merger 

agreement and the transactions 

contemplated thereby and 

recommended such matters to PMC 

Capital’s shareholders.

13. The exchange ratio was based on 

(a) The financial terms and conditions 

of the merger agreement; (b) historical 

business and financial information 

relating to the two companies; (c) 

financial forecasts and other data 

relating to the two companies’ business; 

(d) discussions with members of senior 

management with respect to the 

business and prospects of the two 

companies, including the benefits and 

costs related to the Merger; (e) the 

historical stock prices and trading 

volumes of the two companies’ common 

stock; and (f) public information with 

respect to other companies believed to 

be generally comparable to the two 

companies. 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5617

3File No. 333–108180.

14. In reaching its decision to approve 

the Merger, the terms of the merger 

agreement and the transactions 

contemplated thereby and to 

recommend that the PMC Capital board 

of directors approve and recommend 

such matters to PMC Capital’s 

shareholders, the PMC Capital Special 

Committee consulted with PMC Capital 

management as well as its legal counsel 

and financial advisor and carefully 

considered the following material 

factors: (a) Its review and knowledge of 

the business, financial condition, results 

of operations and prospects of PMC 

Capital, and its general familiarity with 

and knowledge about PMC Capital’s 

affairs; (b) the present and possible 

future economic and competitive 

environment of the small business 

lending industry in which PMC Capital 

operates; (c) the written opinion of A.G. 

Edwards as of March 27, 2003 that the 

exchange ratio of 0.37 of a common 

share of PMC Commercial for each share 

of PMC Capital common stock was fair, 

from a financial point of view, to PMC 

Capital’s shareholders, and the analyses 

presented to the PMC Capital Special 

Committee by A.G. Edwards; (d) the 

need to increase the capital base of PMC 

Capital at a reduced cost to achieve 

operating efficiencies, which the Merger 

of PMC Capital with PMC Commercial 

could offer; (e) the need to diversify 

PMC Capital’s investment assets in an 

effort to provide PMC Capital 

shareholders with greater earnings 

performance and operating and 

dividend stability; (f) its belief that any 

transaction with PMC Commercial 

should result in maximizing 

shareholder value; (g) after conducting a 

review of strategic alternatives, its belief 

that the proposed merger provided the 

best method of maximizing shareholder 

value; (h) the negotiations it and its 

financial and legal advisors conducted 

with the PMC Commercial Special 

Committee and its financial and legal 

advisors; (i) the nature of the parties’

representations and warranties 

contained in the merger agreement; (j) 

the other terms and conditions in the 

merger agreement, including the right of 

PMC Capital to terminate the merger 

agreement prior to its approval by PMC 

Capital shareholders in the exercise of 

its fiduciary duty in connection with a 

superior proposal, subject to a 

termination fee; (k) that the combined 

company would have a larger equity 

market capitalization, which could 

generate greater research coverage and 

institutional investment as well as 

potentially increase the trading volume 

of the PMC Commercial common shares 

to be received by PMC Capital 

shareholders in the Merger as compared 

to the trading volume of PMC Capital’s 

common stock before the Merger; (l) the 

historical market prices and trading 

information with respect to the PMC 

Capital common stock and PMC 

Commercial common shares; (m) the 

comparisons of historical financial 

measures for PMC Capital and PMC 

Commercial, including earnings, return 

on capital and cash flow, and 

comparisons of historical operational 

measures for PMC Commercial and PMC 

Capital; (n) the expectation that the 

Merger would be a tax-free transaction 

for U.S. Federal income tax purposes; 

(o) the proposed composition of the 

management of PMC Commercial 

following the Merger, which would 

facilitate the integration of both 

companies and assist the continuation 

of the best practices of PMC Capital and 

PMC Commercial following the 

completion of the Merger; (p) the 

expectation that unification of the 

businesses of PMC Capital and PMC 

Commercial would remove some of the 

confusion in the marketplace resulting 

from having two separate public 

companies with similar names and 

management; (q) the timing of receipt 

and the terms of approvals from 

appropriate governmental entities, 

including the possibility of delay in 

obtaining satisfactory approvals or the 

imposition of unfavorable terms or 

conditions in the approvals; (r) the 

desire to simplify PMC Capital’s 

complex business and regulatory 

structure; (s) the likelihood that the 

transactions contemplated by the 

Merger would be successfully 

completed; and (t) the current industry, 

economic, market and other relevant 

conditions. 

15. On August 22, 2003, PMC 

Commercial’s registration statement on 

Form S–4 (the ‘‘Registration 

Statement’’)3 was filed with the 

Commission. The Registration 

Statement includes a joint proxy 

statement/prospectus (the ‘‘Joint Proxy 

Statement/Prospectus’’), which was 

used to offer the securities to be issued 

by PMC Commercial and to solicit 

proxies in connection with the approval 

of the Merger by the stockholders of 

each of PMC Commercial and PMC 

Capital. The Registration Statement was 

declared effective on November 12, 

2003, and the Joint Proxy Statement/

Prospectus was first mailed to 

shareholders on or about November 12, 

2003. On December 30, 2003, PMC 

Capital shareholders approved the 

Merger. On January 9, 2004, PMC 

Commercial shareholders approved the 

Merger.

Applicants’ Legal Analysis 

1. Section 57(a)(2) generally makes it 

unlawful for any person related to a 

BDC in a manner described in section 

57(b), acting as principal, knowingly to 

purchase from such BDC any security or 

other property. Section 57(b), in turn, 

provides that section 57(a) applies to, 

among other persons, any person 

directly or indirectly controlled by or 

under common control with a BDC. 

2. The transfer of the assets of PMC 

Capital to PMC Commercial as a result 

of the Merger could be deemed to 

violate section 57(a)(2) to the extent that 

PMC Capital and PMC Commercial are 

deemed to be under common control by 

virtue of PMC Capital controlling 

Advisers, which, as PMC Commercial’s 

investment adviser, could be deemed to 

control PMC Commercial. 

3. Section 57(c) of the Act provides 

that the Commission will exempt a 

transaction from section 57(a) if the 

terms of the proposed transaction, 

including the consideration to be paid 

or received, are reasonable and fair and 

do not involve overreaching of the BDC 

or its shareholders on the part of any 

person concerned, and the proposed 

transaction is consistent with the policy 

of the BDC and consistent with the 

general purposes of the Act. Applicants 

believe that the requested relief meets 

these standards for the reasons 

discussed below. 

4. Applicants believe that the Merger, 

whereby shares of PMC Capital will be 

converted into the right to receive 

shares of PMC Commercial, would 

benefit PMC Capital’s stockholders in a 

number of ways. It would result in 

increased size, increased portfolio 

diversity, and a superior mix of current 

and capital gain income. The Merger 

would also eliminate the need for costly 

duplication of efforts related to 

maintaining and reporting for two 

separate public entities. 

5. Applicants assert that the extensive 

involvement of the board of PMC 

Capital, including PMC Capital Special 

Committee, the fairness opinion 

rendered by the independent financial 

adviser for PMC Capital, and the fact 

that PMC Capital was represented by 

separate counsel in connection with the 

Merger ensures that no overreaching of 

PMC Capital or its shareholders will 

occur in connection with the Merger.

5618 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

1 15 U.S.C. 78k–1.

2 17 CFR 240.11Aa3–2.

3On July 28, 2000, the Commission approved a 

national market system plan for the purpose of 

creating and operating an intermarket options 

market linkage proposed by the Amex, CBOE, and 

ISE. See Securities Exchange Act Release No. 43086 

(July 28, 2000), 65 FR 48023 (August 4, 2000). 

Subsequently, upon request by the Phlx and PCX, 

the Commission issued orders to permit these 

exchanges to participate in the Plan. See Securities 

Exchange Act Release Nos. 43573 (November 16, 

2000), 65 FR 70850 (November 28, 2000) and 43574 

(November 16, 2000), 65 FR 70851 (November 28, 

2000).

4See Securities Exchange Act Release No. 49010 

(December 30, 2003), 69 FR 706.

5See Securities Exchange Act Release No. 47028 

(December 18, 2002), 67 FR 79171 (December 27, 

2002) (Notice of Proposed Joint Amendment No. 4).

6Trade-throughs occur when a broker-dealer 

executes its customer’s order on one exchange at a 

price inferior to another exchange’s disseminated 

quote.

7See letter from Michael Simon, Senior Vice 

President and General Counsel, ISE, to Annette 

Nazareth, Director, Division of Market Regulation, 

Commission, dated November 19, 2002.

8See Securities Exchange Act Release No. 47298 

(January 31, 2003), 68 FR 6524 (February 7, 2003) 

(approval of pilot program on a 120-day basis); see 

also Securities Exchange Act Release No. 48055 

(June 18, 2003), 68 FR 37869 (June 25, 2003) 

(approval of pilot program).

9 Id.

10 15 U.S.C. 78k–1.

11 17 CFR 240.11Aa3–2.

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2357 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49146; File No. 4–429] 

Joint Industry Plan; Order Approving 

Joint Amendment No. 8 to the Options 

Intermarket Linkage Plan Relating to 

Satisfaction Orders and TradeThroughs 

January 29, 2004. 

I. Introduction 

On December 18, 2003, December 22, 

2003, December 29, 2003, and December 

30, 2003, the International Securities 

Exchange, Inc. (‘‘ISE’’), the Pacific 

Exchange, Inc. (‘‘PCX’’), the American 

Stock Exchange LLC (‘‘Amex’’), the 

Philadelphia Stock Exchange, Inc. 

(‘‘Phlx’’), and the Chicago Board 

Options Exchange, Inc. (‘‘CBOE’’) 

(collectively, the ‘‘Participants’’), 

respectively submitted to the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) in accordance with 

section 11A of the Securities Exchange 

Act of 1934 (‘‘Act’’)1 and Rule 11Aa3–

2 thereunder,2 a proposed amendment 

to the Options Intermarket Linkage Plan 

(the ‘‘Plan’’).3 The amendment proposes 

to extend the pilot provision limiting 

trade-through liability to 10 contracts 

per satisfaction order at the end of the 

day for an additional five months, until 

June 30, 2004.

The proposed amendment to the Plan 

was published in the Federal Register

on January 6, 2004.4 No comments were 

received on the proposed amendment. 

This order approves the proposed 

amendment to the Plan.

II. Description of the Proposed 

Amendment 

In Joint Amendment No. 8, the 

Participants propose to extend the pilot 

provision contained in section 

8(c)(ii)(B)(2)(c) of the Plan that limits 

trade-through liability to 10 contracts 

per satisfaction order at the end of the 

day for an additional five months, until 

June 30, 2004, in order to gain more 

experience with the limitation on tradethrough liability. Pursuant to the pilot, 

an exchange member’s trade-through 

liability is limited to 10 contracts per 

Satisfaction Order for the period 

between five minutes prior to the close 

of trading in the underlying security and 

the close of trading in the options class. 

III. Discussion 

When this pilot was originally 

proposed in Joint Amendment No. 4 to 

the Plan,5 the Participants represented 

to the Commission that their members 

had expressed concerns regarding their 

obligations to fill Satisfaction Orders 

(which arise after a trade-through 6) at 

the close of trading in the underlying 

security. Specifically, the Participants 

represented that their members were 

concerned that they may not have 

sufficient time to hedge the positions 

they acquire.7 The Participants stated 

that they believed that their proposal to 

limit liability for trade-throughs for the 

last five minutes of trading in the 

underlying security to the filling of 10 

contracts per exchange, per transaction 

would protect small customer orders, 

but still establish a reasonable limit for 

their members’ liability. The 

Participants further represented that the 

proposal should not affect a member’s 

potential liability under an exchange 

disciplinary rule for engaging in a 

pattern or practice of trading through 

other markets under section 8(c)(i)(C) of 

the Plan.

The Commission approved the 

proposal for a one-year pilot 8 to give the 

Participants and the Commission an 

opportunity to evaluate: (1) The need for 

the limitation on liability for tradethroughs near the end of the trading 

day; (2) whether 10 contracts per 

Satisfaction Order is the appropriate 

limitation; and (3) whether the 

opportunity to limit liability for tradethroughs near the end of the trading day 

leads to an increase in trade-throughs. 

In its approval order, the Commission 

requested that the Participants provide 

a report to the Commission at least sixty 

days prior to seeking permanent 

approval of the pilot program. The 

Commission specified that the report 

should include information about the 

number and size of trade-throughs that 

occur during the last seven minutes of 

the trading day, the number and size of 

Satisfaction Orders that Participants 

might be required to fill without the 

limitation on liability and how those 

amounts are affected by the limitation 

on liability, and the extent to which the 

Participants use the underlying market 

to hedge their options positions.9

In connection with the request in 

Joint Amendment No. 8 to extend the 

pilot for an additional five months until 

June 30, 2004, the Commission notes 

that the Participants represent that if 

they seek to make the limitations on 

trade-throughs permanent, they will 

submit the above-referenced report to 

the Commission no later than March 31, 

2004. The Participants further represent 

in Joint Amendment No. 8 that each 

exchange plans to submit individual 

reports regarding the requested data and 

that these reports will detail the number 

of trade-throughs in the last seven 

minutes of options trading and the rest 

of the day, as well as the number and 

size of Satisfaction Orders that would 

have been filled absent the current 

exemption. In addition, the Participants 

represent that the reports will provide 

information on the extent to which the 

exchange’s members hedge their options 

trading during the day as part of their 

overall risk management. Finally, the 

Participants represent that they will 

make every effort to provide specific 

information regarding their members’

hedging at the end of the trading day. 

After careful consideration, the 

Commission finds that the proposed 

amendment to the Plan seeking to 

extend the current pilot is consistent 

with the requirements of the Act and the 

rules and regulations thereunder. 

Specifically, the Commission finds that 

the proposed amendment to the Plan is 

consistent with section 11A of the Act 10

and Rule 11Aa3–2 thereunder,11 in that 

extending the pilot, while the 

Participants gather and evaluate data