67784 Federal Register / Vol. 65, No. 219 / Monday, November 13, 2000 / Notices

5 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b-4.

3The ISE corrected a typographical error that

appeared in the proposed rule language. Telephone

conversation between Michael J. Simon, Senior

Vice President and General Counsel, ISE, Katherine

A. England, Assistant Director, and Susie Cho.

Attorney, Division of Market Regulation,

Commission, October 31, 2000.

transactions, to remove impediments to

perfect the mechanism of a free and

open market and a national market

system and, in general, to protect

investors and the public interest.

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

No written comments were either

solicited or 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,

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, NW,

Washington, DC 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 at

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–BSE–00–12 and should be

submitted by December 4, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–28944 Filed 11–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43508; File No. SR–ISE–

00–09]

Self Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the International Securities Exchange

LLC Relating to Chinese Wall

Procedures

November 2, 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

September 12, 2000, the International

Securities Exchange LLC (‘‘ISE’’ 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 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 proposing to amend

ISE Rule 810 relating to Chinese Wall

procedures. Proposed new language is

italicized.

810. Limitations on Dealings

(a) General Rule. A market maker on the

Exchange may engage in Other Business

Activities, or it may be affiliated with a

broker-dealer that engages in Other Business

Activities, only if there is a Chinese Wall

between the market making activities and the

Other Business Activities. ‘‘Other Business

Activities’’ means: 3

(1) conducting an investment or banking or

public securities business;

(2) making markets in the stocks

underlying the options in which it makes

markets; or

(3) functioning as an Electronic Access

Member.

(b)–(e) No changes.

(b) Exception to Chinese Wall Requirement.

A market maker shall be exempt from

paragraph (a)(3) of this Rule to the extent the

market maker complies with the following

conditions:

(1) such member functions as an Electronic

Access Member solely in options classes (i)

contained in Groups to which the member is

not appointed as a market maker pursuant

to Rule 802 or (ii) in which the member is

prohibited from acting as a market maker

pursuant to regulatory requirements; and

(2) the member enters orders as an

Electronic Access Member only for (i) the

proprietary account of the member or (ii) the

account of entities that are affiliated with the

member.

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

ISE Rule 810 requires that ISE market

makers erect a ‘‘Chinese Wall’’ between

their market making activity and certain

other business activities, including their

trading as an Electronic Access Member

(‘‘EAM’’). The wall is intended to

prevent any real-time communication

between the various business lines. The

ISE believes that this is especially

critical to the integrity of the ISE market

with respect to EAM activities. Without

the wall, a trader entering an order as an

EAM could potentially inform the

person making markets about the

pending order. The market maker could

then, based on this knowledge, move its

quotation either (i) to ‘‘intercept’’ an

order against which the firm wants to

trade, or (ii) to avoid an order against

which it does not want to trade. The

Exchange adopted ISE Rule 810 because

such behavior would be inconsistent

with the agency auction market

structure of the Exchange.

The ISE believes that although ISE

Rule 810 generally has worked well, it

broad restrictions limit the ability of

Federal Register / Vol. 65, No. 219 / Monday, November 13, 2000 / Notices 67785

4The ISE assigns market makers to bins of

options. There are 10 bins, and each bin has one

Primary Market Maker (‘‘PMM’’) and up to 10

Competitive Market Makers (CMM) assigned to

each.

5See NYSE Rule 105. This applies solely to

CMMs. Because CMMs are required to provide

continuous quotes in only 60 percent of the options

in a bin, it is possible that a CMM could be assigned

a bin in which it is not permitted to make markets

in certain options classes. Such a CMM simply

would not quote in these ‘‘restricted’’ options.

PMMs must provide continuous quotes in all

options in a bin and thus were bit assigned bins

where these regulatory restrictions apply.

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

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

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Cindy L. Sink, Senior Attorney,

Regulatory Policy, PCX, to Jennifer L. Colihan,

Attorney, Division of Market Regulation,

Commission, dated September 11, 2000

(‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 43312

(September 20, 2000), 65 FR 58139.

certain market makers to send

proprietary order flow to the ISE in

options outside of their assigned groups

of options (‘‘bins’’. 4 In particular, many

market makers do not have the facilities

to establish a ‘‘Chinese Wall’’, which

requires physical separation of

functions (generally on separate floors),

between their proprietary traders and

individuals performing ISE market

making activities. The ISE notes that

several of its market maker members do

a significant amount of proprietary

trading.

The ISE represents that the purpose of

the proposed rule change is to ease ISE

Rule 810 to allow members to conduct

proprietary trading in the same physical

space as their market making activities,

but only: (i) in options that are not

within their market making assignments

or (ii) in options which, pursuant to

regulatory requirements, the member is

prohibited from making markets. This

latter provision is intended to apply to

market makers that are specialists in the

underlying stock on the New York Stock

Exchange, Inc. (‘‘NYSE’’), whose rules

limit the options trading of specialists

and affiliated firms to ‘‘hedging

activities,’’ thus prohibiting them from

making markets in options.5 In addition,

the proposed rule change would permit

only proprietary trading without the

Chinese Wall and would not permit the

market maker to enter agency orders

(except with respect to proprietary

orders for its affiliates) without

complying with the full restrictions of

ISE Rule 810.

In these narrow circumstances, the

Exchange does not believe that there is

the potential for the type of harm

against which ISE Rule 810 is intended

to protect. Since the member will not be

making markets in the stocks in which

they are engaging in proprietary trading,

there is no opportunity for using the

dual roles either to manipulate the

market or take unfair advantage of

market information. Thus, the ISE

believes that relaxing this rule will help

attract proprietary order flow to the ISE,

without any adverse regulatory

implications.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

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

furthers the objectives of Section

6(b)(5) 7 in particular, in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism for a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.

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

The Exchange did not solicit or

receive written comments on the

proposed rule change.

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 long 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 Exchange 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, as amended, is consistent with

the Act. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 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 at

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–ISE–00–09 and should be submitted

by December 4, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–28945 Filed 11–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43509; File No. SR–PCX–

00–12]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

Disciplinary Jurisdiction of the Ethics

and Business Conduct Committee

November 2, 2000.

I. Introduction

On March 26, 2000, the Pacific

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

submitted to the Securities and

Exchange Commission (‘‘Commission’’

or ‘‘SEC’’) pursuant to Section 19(b)(1)

of Securities Exchange Act 1934

(‘‘Act’’) 1 Rule 19b–4 thereunder,2 a

proposed rule change relating to the

disciplinary jurisdiction of the Ethics

and Business Conduct Committee

(‘‘EBCC’’). On September 12, 2000, the

PCX filed Amendment No. 1 to the

proposed rule change.3

The proposed rule change, including

Amendment No. 1, was published for

comment in the Federal Register on

September 27, 2000.4 No comments

were received on the proposal. This

order approves the proposal.

II. Description of Proposal

In its proposed rule change, the

Exchange seeks to broaden the