35150 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

5 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 39086

(September 17, 1997), 62 FR 50036 (September 24,

1997) (SR–PCX–97–18)(‘‘Approval Order’’). The

PCX Application has been in operation on the

Exchange since January 1999.

4 Id. at 50046.

open market and to protect investors

and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE does not believe that the

proposed Regulatory Circular

interpretation of Exchange Rule 9.21

will impose any burden on competition.

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

Regulatory Circular interpretation of

Exchange Rule 9.21.

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 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 coping at

the principal office of the CBOE. All

submissions should refer to File No.

SR–CBOE–00–18 and should be

submitted by June 22, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13671 Filed 5–31–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42822; File No. SR–PCX–

00–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to the

PCX Application’s Mid-Point Price

Profile

May 24, 2000.

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 March 26,

2000, the Pacific Exchange, Inc.

(‘‘Exchange’’ or ‘‘PCX’’), filed a

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’). The

proposed rule change is described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is filing a proposed rule

change to modify the definition of the

term ‘‘Orders’’ under Exchange Rule

15.1(f) of its Rules of the Board of

Governors, as such term is used for

purposes of the PCX Application of the

OptiMark System (‘‘PCX Application’’),

and to add Commentary .04 to Rule 5.3,

Rules of the Board of Governors,

Equities Trading, Trading Differentials,

to provide for separate minimum

trading differentials for certain profiles

in the PCX Application. The proposed

rule change would permit certain PCX

Application Profiles to receive an

execution under specified

circumstances at price increments finer

than the minimum trading differential

permitted under the Exchange’s rules

for other transactions on the Exchange.

The text of the proposed rule change is

available at the Exchange and at the

Commission.

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

Exchange 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

Exchange 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

On September 17, 1997, the

Commission approved the PCX

Application.3 The PCX Application is a

computerized, screen-based trading

service for use by Exchange members

and their customers to purchase or sell

equity securities listed or traded on the

Exchange (‘‘PCX Securities’’). The PCX

Application is a supplement to the

Exchange’s traditional floor facilities

and allows PCX members and their

customers to submit expressions of

trading interest known as ‘‘Profiles’’

anonymously from their computer

terminal. As stated in the Approval

Order, Profiles do not constitute ‘‘bids’’

or ‘‘offers’’ within the meaning of

Exchange Act Rule 11Ac1–1, the ‘‘Firm

Quote Rule.’’ Rather, each Profile ‘‘is

only a generalized expression of interest

with conditions attached and is not

eligible for execution until the

completion of the Cycle.’’ 4

The PCX Application includes several

types of Profiles where price can be

pegged to reflect changes in a specific

market parameter. The midpoint price

(‘‘MP’’) Profile is a type of pegged

Profile. An MP Profile allows a user to

enter a Profile to be priced at the

midpoint of the national best bid or

offer (‘‘NBBO’’) posted on the

consolidated Quotation System (‘‘CQS’’)

at the time of a matching cycle of the

PCX Application. The MP feature will

automatically update the price of any

buy or sell Profile designated by the

user of the PCX Application to conform

to the midpoint of the NBBO displayed

on CQS. All Profiles, other than the CQS

Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices 35151

5The Exchange has represented that Optimark

will make information on the operation of the MP

Profile available to users of the PCX Application.

6All MP Profiles in a matching cycle on the same

side of the market are prioritized according to time

of entry of the Profile into the PCX Application.

After a cycle, all unexecuted MP Profiles that are

not cancelled are automatically entered into the

next matching cycle at the beginning of the cycle.

7Customers that use indexation strategies or are

passive investors are particularly interested in using

the midpoint pricing feature.

8Under Exchange Rule 5.3(b), most PCX

Securities trade in minimum increments of 1⁄16 of

a dollar. In 1998, the Commission approved the

Exchange’s proposal to permit trading on the

Exchange Floor at increments of 1⁄32 or 1⁄64 in order

to match bids and offers displayed by other markets

for the purpose of preventing Intermarket Trading

System trade-throughs. See Securities Exchange Act

Release No. 40199 (July 14, 1998), 63 FR 39366

(July 22, 1998) (SR–PCX–97–46).

9 15 U.S.C. 78s(b)(3)(A).

10For example, the Philadelphia Stock Exchange

(‘‘Phlx’’) operates a VWAP matching system which

report trades in fractions rounded to the nearest

1⁄256. See Securities Exchange Act Release No.

41210 (March 24, 1999), 64 FR 15847 (April 1,

1999) (SR–PHLX–96–14). The Commission also

approved a modified trading variation for the

Chicago Match System. See Securities Exchange Act

Release No. 35030 (November 30, 1994), 59 FR

63141 (December 7, 1994).

11The Exchange confirmed with the Securities

Industry Automation Corporation (‘‘SIAC’’) that it is

feasible to report through the Consolidated Trade

System (‘‘CTS’’) any transactions resulting from

midpoint pricing in price increments as small as 1⁄64

of a dollar, and that such transactions will be

reported to CTS with the sale condition ‘‘B’’ to

indicate midpoint pricing. Telephone conversation

between Brian P. Faughnan, Managing Director,

MDS/NMS Planning and CTS/CQS Development,

SIAC, and David DiCenso, Director, Equity

Operations, PCX on March 21, 2000.

12 15 U.S.C. 78f(b)(5).

13 15 U.S.C. 78k–1(a)(1)(B).

Profiles and those Profiles created from

the PCX Specialist’s book, are eligible to

be designated as an MP Profile.

The tracking of the relevant CQS

information for MP Profiles occurs on a

real-time basis in a dynamic fashion,

such that the price of each designated

MP Profile, irrespective of the NBBO

when it was entered, is based on most

current available NBBO. For example, if

the matching cycle of the PCX

Application (known as a ‘‘Call’’) for a

particular PCX Security is scheduled to

take place at 11:30 a.m. Eastern time,

the price of each MP Profile will be

updated to reflect the midpoint between

the consolidated best bid and offer

prices immediately prior to

commencement of the Call at 11:30.

From a functional standpoint, it would

be as if the user of the PCX Application

had entered a Profile at that instant with

the associated price equal to the

midpoint of the NBBO. Accordingly, all

MP Profiles receive a new entry time at

the beginning of each matching cycle in

which they are included.5 Of course, all

Profiles received by the OptiMark

System, whether or not designated as

MP, will be centrally processed based

on a computer algorithm. As specified

in Exchange Rule 15.3(c), eligible

coordinates from such buy and sell

Profiles will be matched based on the

stated principles of priority, and Profiles

so matched will result in orders capable

of immediate execution.6

The Exchange proposes to modify its

rules so that an MP Profile can be

executed at a trading differential finer

than permitted under Exchange rules.

Currently, the Exchange’s minimum

price variation is 1⁄16 (‘‘teenie’’). Over

the course of the first year of operation

of the PCX Application, OptiMark and

the Exchange have become aware of a

limitation affecting MP Profiles when

the NBBO in a matching cycle is an odd

teenie or a single teenie. As described

above, an MP Profile should be priced

at the midpoint of the NBBO. For an

even teenie spread of 1⁄8 or greater, the

midpoint can be determined precisely

(e.g., the midpoint of an NBBO of $20–

$201⁄8 is $201⁄16). Midpoint pricing is

more difficult for an odd teenie spread

because the true midpoint can only be

expressed in one thirty seconds. For

example, the midpoint of an NBBO of

$20–$203⁄16 is $203⁄32. Because the

Exchange’s minimum trading

differential is 1⁄16, a true midpoint

cannot be achieved. Thus, OptiMark

would effect a match between buy and

sell MP Profiles at either $201⁄8 or

$201⁄16, depending upon whether the

buy or sell Profile had time priority. A

similar problem arises when the NBBO

is 1⁄16 because the true midpoint can

only be expressed in one thirty seconds

(e.g., an NBBO of $20–$201⁄16). In this

situation, OptiMark will not effect a

match of MP Profiles.

Institutional customers of OptiMark

have asked the Exchange to revise the

midpoint pricing feature so that a real

midpoint trade can take place in odd

teenie markets and 1⁄16 markets.7 To

achieve this, the Exchange proposes to

allow executions of MP Profiles to take

place in the PCX Applications at finer

trading differentials than 1⁄16. Thus, the

Exchange proposes to amend its Rules

to allow an MP Profile to be executed at

a price increment as small as 1⁄64 or,

upon conversion to decimal pricing, to

one half of the minimum price

variation.8

Exchange Rule 5.3(b) provides the

Exchange with the authority to

determine the trading increments for

equity securities traded on the Exchange

by filing a proposed rule change with

the Commission pursuant to Section

19(b)(3)(A) of the Act.9 The PCX

believes that a trading differential of 1⁄64

is appropriate for MP Profiles so that a

true midpoint trade can be effected in

the PCX Application. The PCX notes

that several other exchanges operate

auxiliary matching systems that price in

finer increments than available in

regular trading.10 The Exchange believes

that a finer trading differential for

executions of MP Profiles will facilitate

enhanced Profile interaction at prices

consistent with the continued

movement in the industry to reduce the

minimum trading increment. This is a

value-added service that has been

requested by many customers and

supported by PCX members in

discussions with PCX staff and

OptiMark personnel.

The Exchange notes that all

transactions resulting from midpoint

pricing will be identified with a special

sale condition so that members, public

investors and others can distinguish

such trades from other trade reports

executed on the Exchange.11 It is

important to note that these new finer

price increments apply only to executed

trades and not to the entry of Profiles or

to publish bids and offers. In other

words, trades resulting from the MP

service may be executed on the basis of

1⁄64 increments; however, it will still not

be possible to enter Profiles, bids, or

offers in 1⁄64 increments.

2. Statutory Basis

The Exchange believes that the

proposal is consistent with the

provisions of Section 6(b)(5) of the

Act 12 in that the PCX Application is a

facility that is designed to promote just

and equitable principles of trade and to

protect investors and the public interest,

and is not designed to permit unfair

discrimination between customers,

issuers, or dealers. In addition, the

Exchange believes that the proposed

rule change is consistent with

provisions of Section 11A(a)(1)(B) of the

Act, 13 which states that new data

processing and communications

techniques create the opportunity for

more efficient and effective market

operations.

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.

35152 Federal Register / Vol. 65, No. 106 / Thursday, June 1, 2000 / Notices

14 15 U.S.C. 78s(b)(3)(A).

15 17 CFR 240.19b–4(f)(1).

16See Securities Exchange Act Release No. 38780

(June 26, 1997), 62 FR 36087 (July 3, 1997)(SR–

PCX–97–15).

17 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 17 CFR 240.19b–4(f)(6).

4The index is comprised of the following stocks

(primary markets in parentheses): Apple Computer,

Inc. (Nasdaq); Compaq Corp. (NYSE); Dell

Computer Corp. (Nasdaq); Gateway 2000, Inc.

(NYSE); Hewlitt Packard Co. (NYSE); International

Business Machines (NYSE); Micron Technology,

Inc. (NYSE); Sun Microsystems, Inc. (Nasdaq); and

Unisys Corp. (NYSE).

5See Securities Exchange Act Release No. 39895

(April 21, 1998), 63 FR 23327 (April 28, 1998).

6For instance, the holder of a BMX 800 call will

receive two BMX 400 calls.

7The Exchange represents that this procedure is

similar to the type used for equity options, where

the underlying security is subject to a two-for-one

stock split.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change constitutes

a stated policy, practice or

interpretation of Exchange Rule 5.3(b)

and therefore, has become immediately

effective pursuant to Section 19(b)(3)(A)

of the Act 14 and subparagraph (f)(1) of

Rule 19b–4 thereunder.15 The

Commission further notes that

Commentary .01 of the Exchange’s rules

states that the Exchange may change the

trading differentials for securities traded

on the Exchange by filing a proposed

rule change with the Commission

pursuant to Section 19(b)(3)(A) of the

Act.16 This proposed rule change would

change the trading differentials for the

PCX Application, which constitutes

trading on the Exchange. The language

changes to Rule 5.3(b) and Rule 15

merely effectuate this change in trading

differentials for Profile sin the PCX

Application.

At any time within 60 days of the

filing of a rule change pursuant to

Section 19(b)(3)(A) of the Act, the

Commission may summarily abrogate

the 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 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 Exchange. All

submissions should refer to File No.

SR–PCX–00–10 and should be

submitted by June 22, 2000.17

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary

[FR Doc. 00–13673 Filed 5–31–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42814; File No. SR–Phlx–

00–11]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc. To

Reduce the Value of Its Computer Box

Maker Index Option (‘‘BMX’’)

May 23, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 Rule 19b–4 thereunder,2

notice is hereby given that on March 31,

2000, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ 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 Exchange.

The proposed rule change has been filed

by the Phlx as a ‘‘non-controversial’’

rule change under Rule 19b-4(f)(6)

under the Act.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to reduce the

value of its Computer Box Maker Index

(‘‘Index’’) option (‘‘BMX’’) to one-half its

present value by doubling the base

market divisor used to calculate the

index. Additionally, the Exchange

proposes to double the position and

exercise limits applicable to BMX until

the last expiration then trading. The

index is a price weighted, narrow-based,

A.M. settled index comprised of nine

stocks issued by companies that

manufacture, market, and support

desktop and notebook personal

computers and fault tolerant systems.4

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

Phlx 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 Phlx 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 purpose of this proposed rule

change is to attract additional liquidity

to BMX. The Exchange began trading

BMX in 1998.5 On March 31, 2000, the

index value was 451.24 and the nearmonth in-the-money call premium was

$35.125 per contract. The Exchange

proposes to conduct a ‘‘two-for-one

split’’ of the index, to reduce the value

of index to one-half its current value.

The split would double the number of

BMX contracts so that for each BMX

contract held at the time of the split, a

contract holder would receive two

contracts at the reduced value, with a

strike price one-half of the original

strike price.6 Additionally, the

Exchange proposes to double the

position and exercise limits applicable

to BMX, from 25,0000 contracts to

50,000 contracts, until the last

expiration then trading. The Exchange

represents that the proposed changes

would result in an index value of 225.50

and a near-month in-the-money call

premium of $17.56.7