Federal Register / Vol. 62, No. 160 / Tuesday, August 19, 1997 / Notices 44159

3 15 U.S.C. § 78o–3.

4 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3This notice includes Amendment No. 1 to the

proposed rule change, supplementing the Statement

of Purpose in Section II, which was filed with the

Commission on August 8, 1997. See letter from

Michael D. Pierson, Office of Regulatory Policy,

Pacific Exchange, to Mandy S. Cohen, Office of

Market Supervision, Division of Market Regulation,

Commission (dated August 7, 1997).

4 ‘‘POETS’’ is an acronym for the Pacific Options

Exchange Trading System.

5See also PCX Options Floor Procedure Advice

G–9 (‘‘Fast Market Procedures’’).

million annually, which Nasdaq seeks

to recover through this fee.

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(5) of the

Act,3 which requires that the rules of the

NASD provide for the equitable

allocation of reasonable dues, fees and

other charges among members and

issuers and other persons using any

facility or system which the NASD

operates or controls.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the persons of the Act, as amended.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

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.

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. 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 number

SR–NASD–97–54 and should be

submitted by September 9, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–21907 Filed 8–18–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38927; File No. SR–PCX–

97–21]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

the Suspension of its Automatic

Execution System (‘‘Auto-Ex’’) During

Unusual Market Conditions

August 12, 1997.

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 4,

1997, the Pacific Exchange, Inc.

(‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II and III

below, which Items have been prepared

by the self-regulatory organization.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 is proposing to adopt

new rules on the suspension of its

Automatic Execution System (‘‘AutoEx’’) for options trading during unusual

market conditions, and the maximum

bid-ask spread differentials that are

permitted during unusual market

conditions. The text of the proposed

rule change is available at the Exchange.

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

self-regulatory organization 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 self-regulatory organization 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

Statement of Purpose

The Exchange is proposing to modify

its Rule 6.28 (‘‘Unusual Market

Conditions’’) to address situations

involving system failures, ranging from

‘‘frozen screens’’ in an issue (where

quote changes are entered into the

system, but such changes are not

reflected in the market being

disseminated) to a floor-wide system

malfunction of the POETS system

(where all screen displays on the floor

fail).4 Rule 6.28 currently provides that

whenever an Options Floor Official

determines that ‘‘an unusual condition

or circumstance’’ exists, because of an

influx of orders or other unusual

conditions or circumstances, and the

interests of maintaining a fair and

orderly market so require, such official

may declare a ‘‘fast market’’ in one or

more classes of option contracts.5 The

proposed amendments are designed to

provide additional safeguards and

procedures to deal with such situations.

First, the Exchange is proposing to

modify subsection (a) of Rule 6.28 to

require the agreement of two Options

Floor Officials before a ‘‘fast market’’

can be declared. Second, the Exchange

is proposing to add a new subsection

(b)(7), to allow the Options Floor

Officials who have declared a fast

market to suspend the Auto-Ex if,

because of an influx of orders or other

unusual market conditions or

circumstances, they determine that such

action is appropriate in maintaining a

fair and orderly market. The initial

suspension of Auto-Ex is limited to five

minutes and a Floor Governor must be

notified immediately. Suspension of
44160 Federal Register / Vol. 62, No. 160 / Tuesday, August 19, 1997 / Notices

6Cf. CBOE Rule 6.6(e).

7Proposed subsection (d)(1), Floor-Wide POETS

System Malfunction.

8Proposed subsection (d)(2), Non-Floor-Wide

POETS System Malfunction. Proposed subsection

(d)(3) (‘‘Other Unusual Conditions’’) further

provides that if there are other unusual market

conditions not involving a POETS System

malfunction, two Floor Officials may suspend AutoEX in accordance with Rule 6.28(b).

9Cf. CBOE Rule 6.8, Interpretation and Policy .03.

10 17 CFR 200.30–3(a)(12).

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

Auto-Ex may be continued, or its

operation resumed for a longer period

following determination by two Options

Floor Officials and one Floor Governor

(or a senior operations officer if no Floor

Governor is available) determine that

such action is appropriate. In the event

that the three officials do not agree, a 2⁄3

majority prevails.6 Upon suspension of

the Auto-Ex system, all market and

marketable limit orders thereafter

entered through the Exchange’s Member

Firm Interface will be routed to a booth

on the Floor designated by the firm that

entered the order. The order can then be

taken to the crowd manually and

represented by a floor broker.

The Exchange is also proposing to

amend Rule 6.37 (‘‘Obligations of

Market Makers’’) by adding a new

subsection (b)(4), which provides that if

the interest of maintaining a fair and

orderly market so requires, two Floor

Officials may declare a fast market and

allow Market Makers in an issue to

make bids and offers with spread

differentials of up to two times, or in

exceptional circumstances, up to three

times, the legal limits permitted under

Rule 6.37(b)(1). The rule further directs

such Floor Officials to consider the

following factors in making the

determination to allow wider markets,:

(A) whether there is an extreme influx

of option orders due to pending news,

a news announcement or other special

events; (B) whether there is an

imbalance of option orders in one series

or on one side of the market; (C)

whether the underlying security is

trading outside the bid or offer in such

security then being disseminated; (D)

whether Floor Members receive no

response to orders placed to buy or sell

the underlying security; and (E) whether

a vendor quote feed for POETS is clearly

stale or unreliable.

The Exchange is also proposing to

amend its Rule 6.87 (‘‘Automatic

Execution System’’), by adding three

new subsections relating to suspensions

of Auto-Ex. Whenever a POETS system

or vendor quote feed malfunction affects

the Exchange’s ability to disseminate or

update market quotes on a floor-wide

basis, the senior person then in charge

of the Exchange’s Control Room will be

able to halt Auto-Ex on a floor-wide

basis, upon declaration of a ‘‘fast

market’’ by two Floor Officials.7

Similarly, if a POETS malfunction

occurs and Market Makers are

physically unable to update their

quotations in an issue or issues at the

same trading post or trading quad, two

Floor Officials may declare a ‘‘fast

market’’ and direct the order book

official (‘‘OBO’’) to turn off the Auto-Ex

system in only the affected issue or

issues.8 Under either scenario, once the

system malfunction has been corrected

that the market quotes have been

updated, two Floor Officials (or the

senior person then in charge of the

Control Room in the event of a floorwide malfunction) may re-start AutoEx.9

Statutory Basis

The proposal is consistent with

Section 6(b) of the Act, in general, and

Section 6(b)(5), in particular, in that it

is designed to promote just and

equitable principles of trade and to

protect investors and the public interest.

Relation to Rule of Other SelfRegulatory Organizations

The proposed rule change is based, in

part, on Rules 6.6(e) and 6.8.03 of the

Rules of the Chicago Board Options

Exchange (‘‘CBOE’’).

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.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments on the proposed

rule change were neither solicited nor

received.

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 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.

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. 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, 450 Fifth Street, N.W.,

Washington, D.C. 20549. 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–97–21

and should be submitted by September

9, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–21908 Filed 8–18–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38924; File No. SR–Phlx–

97–36]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Extending the Pilot Program for Equity

and Index Option Specialist Enhanced

Parity Split Participants

August 11, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 24, 1997, the Philadelphia Stock

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

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the selfregulatory organization. The

Commission is publishing this notice to