[Federal Register Volume 65, Number 105 (Wednesday, May 31, 2000)]
[Notices]
[Pages 34764-34765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13532]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42810; File No. SR-PCX-99-17]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving Proposed Rule Change Permitting Floor Brokers To Represent 
Orders With a Ticket-to-Follow

May 23, 2000.

I. Introduction

    On June 1, 1999, the Pacific Exchange, Inc. (``Exchange'' or 
``PCX'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change seeking to amend 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. Amendment No. 1 to the proposal was submitted on November 12, 
1999. \3\ Notice of the proposed rule change, including Amendment No. 
1, appeared in the Federal Register on December 8, 1999.\4\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change, as amended.
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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'').
    \4\ See Securities Exchange Act Release No. 42188 (December 1, 
1999), 64 FR 68714.
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II. Description of the Proposal

    Options Floor Brokers currently 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. \5\ The Exchange now proposes to adopt new PCX Rule 
6.2(h)(4)(C), which will permit a floor Broker in a trading crowd who 
receives an order from a Member or Member Firm representative located 
on the Trading Floor to represent that order immediately in the trading 
crowd, provided that: (i) an order ticket is prepared and time stamped 
in the member firm booth before the order is transmitted telephonically 
to the Floor Broker in the trading crowd; and (ii) a written, time-
stamped order ticket for the order must be taken immediately to the 
Floor Broker in the trading crowd.\6\
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    \5\ See Securities Exchange Act Release No. 42557 (Mar. 21, 
2000), 65 FR 16680 (Mar. 29, 2000) (SR-PCX-98-30) (order approving 
PCX Rule 6.2(h)(4)(B), ``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'').
    \6\ See Amendment No. 1, supra note 3.
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    The Exchange also proposes to amend PCX Rule 6.2(h)(4)(B) to 
eliminate the requirement that 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. \7\ In addition, the Exchange proposes to add 
new section (d) to PCX Rule 6.67, which provides that a Floor Broker 
may represent a telephonic order, with the ticket to follow, as 
provided in PCX Rule 6.2(h)(4)(C). Further, the Exchange proposes to 
modify PCX Rule 6.85 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 form 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. 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.\8\
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    \7\ See supra note 5.
    \8\ Under PCX Rule 6.2(h)(4), Floor Brokers are not permitted to 
communicate directly with persons located off the Trading Floor. See 
supra note 5.
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    Under Options Floor Procedure Advice F-5 (``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.'' The Exchange is proposing, as a matter of consistency, to 
eliminate the requirement from OFPA F-5 that 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.

III. Discussion

    Section 6(b)(5) \9\ of the Act requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
prevent fraudulent and manipulative acts and practices, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and protect investors and the public 
interest.\10\ Section 11A(a)(1)(C)(i) \11\ of the Act states that it is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets to assure the 
economically efficient execution of securities transactions. Section 
11A(a)(1)(C)(ii) \12\ states that it is in the public interest and 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure fair competition among brokers and 
dealers. For the reasons set forth below, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange, and, in particular, the requirements of Section 
6(b)(5).\13\ Further, the Commission believes that the proposed rule 
change is consistent with the goals of Section 11A(a)(1)(C).\14\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78k-1(a)(1)(C)(i).
    \12\ 15 U.S.C. 78k-1(a)(1)(C)(ii).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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    The Commission believes that the proposal should serve to remove 
impediments to and perfect the mechanism of a free and open market by 
reducing the amount of time before telephonic orders may be represented 
in the trading crowd without compromising the Exchange's audit trail. 
In this regard, the Commission notes that an order ticket 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. 
The Commission believes that requiring floor members to prepare a 
written, time-stamped order ticket before the order is transmitted to 
the crowd is consistent with the Exchange's audit trail requirements. 
Further, the Commission believes that this requirement should enable 
the Exchange to conduct adequate surveillance for market manipulation

[[Page 34765]]

and other violations of Exchange rules and the Act.
    The Commission believes that the proposal may expedite and make 
more efficient the process by which customer orders can be received and 
executed on the floor of the Exchange. The Commission also believes 
that the proposed rule change should increase the efficiency of 
transmitting orders from a member firm booth to Floor Brokers in the 
trading crowd by reducing the amount of time required before these 
orders may be represented in the crowd.
    In determining to approve this proposal, the Commission notes that 
the Exchange represents the proposal is necessary to ensure that, as 
the number of option orders transmitted and represented electronically 
on the Exchange increases, manual orders represented by Floor Brokers 
are not placed at a competitive disadvantage. The Commission believes 
that the proposal should foster coordination with persons engaged in 
facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market, and protect investors 
and the public interest by expediting and making more efficient the 
process by which orders can be received and executed on the floor of 
the Exchange. Accordingly, the Commission finds that the proposal is 
consistent with Section 6(b)(5) \15\ of the Act.
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    \15\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-PCX-99-17) is approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13532 Filed 5-30-00; 8:45 am]
BILLING CODE 8010-01-M