[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69979-69980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29708]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43550; File No. SR-PCX-00-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments No. 1 and 2 Thereto by the Pacific Exchange, Inc. 
To Require Immediate Display of Options Limit Orders in the Option 
Limit Order Book

November 13, 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 June 14, 2000, the Pacific Exchange, Inc. (``PCX'' 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 PCX 
filed Amendment Nos. 1 \3\ and 2 \4\ to the proposed rule change on 
August 1, 2000 and October 17, 2000, respectively. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
and Amendment Nos. 1 and 2 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Hassan Abedi, Attorney, Regulatory Policy, PCX, 
to Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated July 31, 2000 (``Amendment No. 
1''). Amendment No. 1 deletes the language of PCX Rule 6.55 and 
Commentary .01 thereunder, that sets forth special reporting 
requirements for highest bids and lowest offers comprised of more 
than 25 options contracts.
    \4\ Letter from Hassan Abedi, Attorney, Regulatory Policy, PCX, 
to Nancy Sanow, Assistant Director, Division, Commission, dated 
September 29, 2000 (``Amendment No. 2''). Amendment No. 2 revises 
Rule 6.55 to clarify that ``immediately'' means as soon as 
practicable after receipt, which under normal market conditions 
means no later than 30 seconds.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX proposes to amend PCX Rule 6.55 to require Order Book 
Officials to immediately display options limit orders in the Options 
Limit Order Book. As amended, the PCX proposal requires Order Book 
Officials to immediately display the highest bid and lowest offers, 
along with the corresponding number of options contracts bid or offered 
in the book for which that official acts as the Order Book Official. 
Additionally, the proposed rule change would delete the special 
requirements contained in PCX Rule 6.55 and Commentary .01 thereunder, 
that apply to highest bids and lowest offers of more than 25 options 
contracts.\5\
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    \5\ See Amendment No. 1, supra note 3.
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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 PCX 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 PCX 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 the proposed rule change is to amend Exchange Rule 
6.55 (``Displaying Bids and Offers in the Book'') to require the 
immediate display of options limit orders by Order Book Officials. 
Currently, PCX Rule 6.55 requires an Order Book Official to 
continuously display, in a visible manner, the highest bid and lowest 
offer, along with the corresponding number of options contracts bid or 
offered, in his book in each option contract for which he is the Order 
Book Official.
    The Exchange represents that limit orders are routed to an Order 
Book Official either manually or electronically. A manual order is sent 
to an Order Book Officials by a floor

[[Page 69980]]

broker, who places a written, time-stamped order ticket into the proper 
receptacle at the trading post.\6\ An electronic order is routed to the 
Order Book Official when a member firm places an order through the 
Exchange's Member Firm Interface to the Pacific Options Exchange 
Trading System (``POETS''). The order is then electronically entered 
into the Order Book Official's book through the Auto-Book function of 
POETS. Orders entered electronically into the book that improve the 
disseminated quote are immediately displayed on the overhead screens on 
the trading floor and are disseminated to the public through the 
Options Price Reporting Authority (``OPRA'').\7\ However, orders 
entered manually must be entered into the POETS system before they can 
be displayed on the floor or disseminated through OPRA.\8\
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    \6\ See PCX Rule 6.52, Commentary .04. Prior to placing an order 
into the Order Book Official's custody, a Floor Broker must use due 
diligence in handling that order. See generally, PCX Rule 6.46.
    \7\ OPRA disseminates the options exchanges' best bid and 
offering prices, but does not disseminate the corresponding size of 
those markets. However, the sizes of the best bid and offer in the 
book are displayed on the overhead screens on the PCX floor, subject 
to certain conditions. See PCX Rule 6.55.
    \8\ This process requires a member of the Order Book Official's 
staff to enter the order into the system.
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    PCX Rule 6.55 currently requires the Order Book Official to 
continuously display the best bid and offer ``so far as practicable.'' 
\9\ The Exchange believes that the practicality requirement is no 
longer appropriate. PCX Rule 6.55 was codified before orders could be 
entered electronically through POETS. Today, only a small percentage of 
options orders are routed to the Order Book Officials manually. 
Accordingly, the Exchange proposes to amend PCX Rule 6.55 to eliminate 
the practicability requirement for the display of options transactions 
and replace it with a requirement that all orders must be displayed 
``immediately.'' The proposed rule change defines the term 
``immediately'' to mean as soon as practicable after receipt, which 
under normal market conditions means no later than 30 seconds.\10\
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    \9\ See PCX Rule 6.55.
    \10\ See Amendment No. 2, supra note 4.
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    In modifying this rule, the Exchange is mindful of the importance 
of immediately displaying limit orders that represent the best bid and 
offer on the Exchange. Indeed, the Exchange notes that the Commission 
has recently emphasized the critical importance of improving industry 
practices relating to the display of limit orders.\11\ In that regard, 
the Exchange is modifying PCX Rule 6.55 to help further this important 
objective.\12\
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    \11\ See generally, Report Concerning Display of Limit Orders, 
Office of Compliance, Inspections and Examinations and Office of 
Economic Analysis, Commission (May 4, 2000).
    \12\ The Exchange represents that, currently, no PCX members 
operate any of the limit order books on the PCX Options Floor. 
Therefore, initially, the proposed change to PCX Rule 6.55 will 
apply only to PCX staff. However, the Exchange anticipates that in 
the future, PCX members may begin to operate limit order books on 
the options floor, and accordingly, the rule, as modified, will 
apply to members. See Securities Exchange Act Release No. 41595 
(July 2, 1999), 64 FR 38064 (July 14, 1999) (order approving a PCX 
proposed rule change to permit PCX members to operate limit order 
books) (File No. SR-PCX-98-02).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of section 6 of the Act,\13\ in general, and 
further the objectives of section 6(b)(5) of the Act,\14\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not 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 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

    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 Exchange consents, the Commission will:
    A. By order approve the 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 submissions, 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 persons, 
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-PCX-00-15 and should be submitted by December 12, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29708 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M