Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices 36877

15 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42660

(April 10, 2000), 65 FR 21052.

4Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42459 (February 25, 2000), 65 FR

11619 (March 3, 2000) (File No. SR–CHX–99–28);

Securities Exchange Act Release No. 42458

(February 25, 2000), 65 FR 11628 (March 3, 2000)

(File No. SR–Phlx–00–12); Securities Exchange Act

Release No. 42661 (April 10, 2000), 65 FR 20497

(April 17, 2000) (File No. SR–BSE–00–02).

5The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release No. 34–42758 (May 5, 2000), 65 FR 30175

(May 10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for public comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78k–1.

Exchange Act Rule 15c3–1 and the

adequacy of the firm’s procedures for

supervising its financial and operational

functions.

NASD Regulation requested, but did

not receive, comment on several issues

in NTM 99–67. NASD Regulation has

determined to retain the safe harbor

numbers as proposed in the Notice.

However, NASD Regulation has

determined that the definition of

disciplinary history should be amended

to include violations by officers or

principals of the member. NASD

Regulation also has determined that

restrictions in a membership agreement

should not automatically sunset after a

fixed period (e.g., five years) if the

applicant does not have any

disciplinary history; instead, restrictions

will continue to be individually

reviewed. Finally, NASD Regulation

determined that it should clarify what

happens if a change in ownership is

denied and has proposed Rule 1017(k)

to address this situation.

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 NASD. All

submissions should refer to File No.

SR–NASD–99–67 and should be

submitted by July 3, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14718 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42890; File No. SR–PCX–

00–11]

Self-Regulatory Organizations; Pacific

Exchange, Inc.; Order Approving

Proposed Rule Change To Rescind

Rules 5.43–5.49, and Modify Rule

5.5(b), Relating to the Exchange’s OffBoard Trading Restrictions

June 1, 2000.

I. Introduction

On March 26, 2000, the Pacific

Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘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 to rescind Rules

5.43–5.49, the Exchange’s off-board

trading rules, and to make a conforming

change to Rule 5.5(b). The proposed rule

change was published for comment in

the Federal Register on April 19, 2000.3

Similar proposed rule changes filed by

the American Stock Exchange, Chicago

Stock Exchange, the Philadelphia Stock

Exchange, and the Boston Stock

Exchange had already been published

for public comment.4 The Commission

received no comments on any of these

proposals. Today, in separate orders, the

Commission is approving the proposed

rule changes to rescind off-board trading

rules filed by the exchanges noted

above.5

II. Description of the Proposal

Exchange Rules 5.43–5.49 restrict a

member’s ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release, the Exchange stated that ‘‘once

the Commission approves the NYSE’s

proposal to rescind its off-board trading

restrictions, the Exchange’s off-board

trading restrictions will no longer be

necessary or appropriate.’’ Therefore,

the Exchange proposed to rescind Rules

5.43–5.49, and to make a conforming

change to Rule 5.5(b).

III. Discussion

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. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 6 which requires, among other

things, that the rules of an exchange be

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 7

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading

restrictions will help further the

national market system objective in

Section 11A(a)(1)(C)(i) to assure the

36878 Federal Register / Vol. 65, No. 113 / Monday, June 12, 2000 / Notices

8 In approving this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

9Section 11A(a)(1)(C)(v) of the Act.

10NYSE Approval Order at 30179.

11 15 U.S.C. 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42458

(February 25, 2000), 65 FR 11628.

4Securities Exchange Act Release No. 42460

(February 25, 2000), 65 FR 11618 (March 3, 2000)

(File No. SR–Amex–00–05); Securities Exchange

Act Release No. 42459 (February 25, 2000), 65 FR

11619 (March 3, 2000) (File No. SR–CHX–99–28).

5Securities Exchange Act Release No. 42661

(April 10, 2000), 65 FR 20497 (April 17, 2000) (File

No. SR–BSE–00–02); Securities Exchange Act

Release No. 42660 (April 10, 2000), 65 FR 21052

(April 19, 2000) (File No. SR–PCX–00–11).

6The New York Stock Exchange was first to

submit a proposed rule change rescinding its offboard trading rule, Rule 390. Securities Exchange

Act Release No. 42450 (February 23, 2000), 65 FR

10577 (February 28, 2000) (‘‘NYSE Release’’).

On May 5, 2000, the Commission approved the

New York Stock Exchange’s proposed rule change

to rescind Rule 390. Securities Exchange Act

Release No. 34–42758 (May 5, 2000), 65 FR 30175

(May 10, 2000) (‘‘NYSE Approval Order’’).

In the NYSE Release, the Commission also

solicited the public’s views on a broad range of

issues related to market fragmentation—the trading

of orders in multiple locations without interaction

of those orders. The period for pubic comment on

market fragmentation expired on May 12, 2000. The

Commission currently is reviewing the comments

submitted in response to the NYSE Release.

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78k–1.

economically efficient execution of

securities transactions, and in Section

11A(a)(1)(C)(ii) to assure fair

competition between exchange markets

and markets other than exchange

markets.8

As discussed more fully in the NYSE

Approval order, the existence of offboard trading restrictions can no longer

be justified in an age when advancing

technology and expanding trading

volume are introducing new

competitive challenges for the U.S.

securities markets, both at home and

abroad. Off-board trading rules such as

Rules 5.43–5.49 directly restrict a

certain type of market center

competition—competition between

exchange markets and markets other

than exchange markets. Their rescission

today eliminates an inappropriate

regulatory burden on competition that

runs contrary to the objectives set forth

in the Act.

Off-board trading restrictions have

been justified on the basis that they

promote the interaction of investors’

orders without participation by a

dealer—indeed an objective set forth in

the Act.9 The Commission believes,

however, that whatever beneficial effect

off-board trading restrictions such as

Rules 5.43–5.49 may have in enhancing

the interaction of investor orders can no

longer justify their anticompetitive

nature. To the extent off-board trading

rules enhance order interaction, they do

so in an undesirable way—by

attempting a direct restriction on

competition. Such attempts are never

wholly successful and typically only

distort, rather than eliminate,

competition and introduce unnecessary

costs ultimately borne by investors.

The outcome of competition between

market centers should depend on which

market centers are most able to serve

investor interests by providing the

highest quality trading services at the

lowest possible prices; the

Commission’s regulatory task is

removing unwarranted regulatory

barriers to competition between market

centers. As stated in the NYSE Approval

Order, the rescission of off-board trading

rules is ‘‘intended solely to free the

forces of competition and allow investor

interests to control the success or failure

of individual market centers.’’ 10 The

same nationale and motivation support

the Commission’s action today.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (SR–PCX–00–11)

is approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14722 Filed 6–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42889; File No. SR–Phlx–

00–12]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Ordering Approving Proposed Rule

Change to Rescind Rule 132, the

Exchange’s Off-Board Trading Rule

June 2, 2000.

I. Introduction

On February 10, 2000, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘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 to rescind Rule 132, the

Exchange’s off-board trading rule. The

proposed rule change was published for

comment in the Federal Register on

March 3, 2000.3 Proposed rule changes

filed by the American Stock Exchange

and the Chicago Stock Exchange to

rescind their off-board trading rules

were published on the same date as the

Phlx proposing release.4 Shortly

thereafter, the Boston Stock Exchange

and the Pacific Exchange filed similar

proposed rule changes.5 The

Commission received no comments on

any of these proposals. Today, in

separate orders, the Commission is

approving the proposed rule changes to

rescind off-board trading rules filed by

the exchanges noted above.6

II. Description of the Proposal

Exchange Rule 132 restricts a

member’s ability to effect transactions in

Exchange-listed securities off a national

securities exchange. In the proposing

release the Exchange noted that the

‘‘staff of the Commission recently asked

the Exchange to review its off-board

trading restrictions and consider

measures to repeal such restrictions.’’

Therefore, the Exchange proposed

rescinding Rule 132 to ‘‘broaden the free

market trading activities of Exchange

members and the investors they

represent by removing restrictions on

over-the-counter trading in listed

securities.’’

III. Discussion

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. In particular, the Commission

finds the proposed rule change is

consistent with Section 6(b)(5) of the

Act 7 which requires, among other

things, that the rules of an exchange be

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest, and Section 6(b)(8),

which requires that the rules of an

exchange not impose any burden on

competition not necessary or

appropriate in furtherance of the Act.

The rescission of the Exchange’s offboard trading restrictions is also

consistent with Section 11A of the Act 8

which sets forth the findings and

objectives that are to guide the

Commission in its oversight of the

national market system. Specifically,

rescinding the off-board trading