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

67786 Federal Register / Vol. 65, No. 219 / Monday, November 13, 2000 / Notices

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

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

7 In approving this rule change, the Commission

has considered the proposal’s impact on efficiency,

competition, and capital formation, consistent with

Section 3(f) of the Act. 15 U.S.C. 78c(f).

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

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

4Telephone conversation between Hassan Abedi,

Attorney, Regulatory Policy, PCX, and Terri Evans,

Special Counsel, Division of Market Regulation,

SEC, on November 1, 2000 (clarifying that the

increased fee also applies to registered options

principals).

jurisdiction of the EBCC to include the

enforcement of rules and regulations

relating to trading, order, decorum,

health, safety, and welfare on the

trading floors. Currently, Article IV,

Section 9(b) of the PCX Constitution,

states that ‘‘[t]he jurisdiction of [the

EBCC] shall not extend to the

enforcement of rules and regulations of

the Floor Trading Committees relating

to trading, order, decorum, health,

safety, and welfare on the trading floors,

or to hearings held by and sanctions

imposed by such committees relating to

such matters.’’ Currently, the rules and

regulations governing trading, order,

decorum, health, safety, and welfare are

within the exclusive jurisdiction of the

Floor Trading Committees (‘‘FTCs’’).

The Exchange proposes to delete the

above-quoted section from the PCX

Constitution, and grant the EBCC and

FTCs concurrent jurisdiction over the

enforcement of these rules and

regulations.

Under the proposal, the EBCC will be

the primary disciplinary committee at

the Exchange and the FTCs will retain

jurisdiction to hear certain disciplinary

matters, if necessary. An FTC rather

than the EBCC may hear a case if it

involves technical issues. For example,

an FTC may act as the disciplinary

committee if a ‘‘Marking the Close’’

trading violation occurs. That is, an

incident that involves a market maker

changing his quotes at the close to not

accurately reflect the market in order to

improve the market maker’s position. In

such a case, the Exchange believes

having the expertise of Floor Officials

would be appropriate.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

Section 6(b) 5 of the Act, in general, and

furthers the objectives of Section

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

designed to assure that Exchange

members and persons associated with

Exchange members are appropriately

disciplined for violations of the Act, the

rules and regulations thereunder, and

the rules of the Exchange.

The Commission believes that it is

appropriate for the EBCC to have

jurisdiction over disciplinary matters

arising from the floor because it is less

likely that the members of the EBCC

will have personal knowledge of

relevant incidents or a Floor Official

ruling relating to the incident. The

Commission believes that this will assist

in creating a more objective disciplinary

process at the PCX. Further, the

proposed rule change will centralize

disciplinary actions in one committee at

the Exchange. The Commission believes

that having one primary disciplinary

committee responsible for hearing

complaints will better assure

consistency in the decisions rendered.

However, the Commission also

believes that it is appropriate for the

Exchange to allow the FTC to retain

jurisdiction to hear those disciplinary

matters that require specialized

knowledge of the trading rules. The

Commission understands many of the

trading rules involve complex issues

which require a high level of expertise

to fully comprehend, and evaluate in a

meaningful way.

The Commission believes that the

Exchange’s proposal to grant the EBCC

and FTCs concurrent jurisdiction over

disciplinary proceedings relating to

trading, order, decorum, health, safety,

and welfare on the trading floors, with

the EBCC being the primary committee

responsible, will result in consistent,

independent decision-making.

Moreover, the proposal will also ensure

that matters involving complex and

technical issues are handled by

committees appropriately skilled to

understand them and render fair

decisions.

IV. Conclusion

For all of the aforementioned reasons,

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.7

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–PCX–00–12)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–28946 Filed 11–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43510; File No. SR–PCX–

00–41]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to

Changes to Schedule of Rates and

Charges

November 3, 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 October

16, 2000, the Pacific Exchange, Inc.

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

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the Exchange. The

Exchange has designated this proposal

as one establishing or changing a due,

fee or other charge imposed by the

Exchange under section 19(b0(3)(A)(ii)

of the Act,3 which renders the proposal

effective upon filing with the

Commission. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested person.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

PCX is proposing to amend its

schedule of rates and charges in order

to eliminate credits for book executions,

to increase registered representative

options principal 4 fees, and to establish

examination, registration and annual

fees for off-floor trading firms and their

traders. The text of the proposed change

to the PCX fee schedule 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