Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices 75755

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

6 15 U.S.C. 78s(b)(3)(A).

7 17 CFR 240.19b–4(f)(3).

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See PCX Rules 6.75(a)–(b).

4 Id.

5A ‘‘spread order’’ is an order to buy a stated

number of option contracts and to sell the same

number of contracts (or contracts representing the

same number of shares of the underlying security)

of the same class of options. See PCX Rule 6.62(d).

6A‘‘straddle order’’ is an order to buy or to sell

the same number of options of each type with

respect to the same underlying security and having

the same exercise price and expiration date (e.g., an

Continued

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

designed to promote just and equitable

principles of trade.

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

The foregoing rule change has become

effective pursuant to section

19(b)(3)(A) 6 of the Securities Exchange

Act of 1934 and subparagraph (f)(3) of

Securities Exchange Act Rule 19b–4

thereunder 7 because it is concerned

solely with the administration of the

Exchange. At any time within 60 days

of this filing, the Commission may

summarily abrogate this rule change if

it appears to the Commission that such

action is necessary or appropriate in the

public interest, for the protection of

investors, or otherwise in furtherance of

the purposes of the Act.

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 in

the Commission’s Public Reference

Room, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing

will also be available for inspection and

copying at the principal office of the

PCX. All submissions should refer to

File No. SR–PCX–00–44 and should be

submitted by December 26, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30720 Filed 12–1–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43623; File No. SR–PCX–

00–04]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

Buy-Writes & Book Priority

November 27, 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 March 3,

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

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

its rules to facilitate the execution of

stock/option orders on the Exchange.

Below is the text of the proposed rule

change. Proposed new language is

italicized and proposed deletions are in

[brackets].

* * * * *

¶ 5139 Priority of Bids and Offers

Rule 6.75. Except as provided by Rule

6.76 below, the following rules of

priority shall be observed with respect

to bids and offers:

(a)–(c) No change.

(d) Notwithstanding anything in

paragraphs (a) and (b) to the contrary,

when a member is holding a spread

order, a straddle order, or a combination

order, or stock/option order and is

bidding or offering on the basis of a total

credit or debit for the order and has

determined that the order may not be

executed by a combination of

transactions with or within the bids and

offers displayed by the Order Book

Official or other members, in procedures

determined by the Options Floor

Trading Committee, then the order may

be executed as a spread, straddle, or

combination, or stock/option order at

the total credit or debit with one or

more members without giving priority

to bids or offers for the individual

option series of the Order Book Official

or of other members at the post that are

no better than the bids or offers

comprising such total credit or debit.

Commentary: .01–.03—No change.

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

The Exchange’s priority rules for

options provide, in general, that the

highest bids and lowest offers have

priority over other bids and offers,

except that orders in the Limit Order

Book have priority over other bids and

offers at the same price.3 The rules

further provide if there are two or more

bids (or offers) representing the highest

bid (or lowest offer), and no orders in

the Limit Order Book are involved, then

priority is afforded to those bids (or

offers) in the sequence in which they

were made.4 PCX Rule 6.75(d) currently

allows three exceptions to the priority

rules with respect to ‘‘spread orders,’’ 5

‘‘straddle orders,’’ 6 and ‘‘combination

75756 Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices

order to buy two XYZ July 50 calls and to buy two

XYZ July 50 puts is a straddle order.) In the case

of adjusted options contracts, a straddle order need

not consist of the same number of put and call

contracts if such contracts both represent the same

number of shares of the underlying security. See

PCX Rule 6.62(g).

7A ‘‘combination order’’ is an order involving a

number of call option contracts and the same

number of put option contracts with respect to the

same underlying security. In the case of adjusted

options contracts, a combination order need not

consist of the same number of put and call contracts

if such contracts both represent the same number

of shares of the underlying security. See PCX Rule

6.62(h).

8A stock/option order is an order to buy or sell

a stated number of units of an underlying or a

related security coupled with either: (i) The

purchase or sale of option contract(s) of the same

series on the opposite side of the market

representing the same number of units of the

underlying or related security; or (ii) the purchase

and sale of an equal number of put and call option

contracts, each having the same exercise price,

expiration date and number of units of the

underlying or related security, on the opposite side

of the market representing in aggregate twice the

number of units of the underlying or related

security See PCX Rule 6.62(j).

9This strategy is also referred to as ‘‘covered call

writing.’’ As stated in the Characteristics and Risks

of Standardized Options:

‘‘If the writer of a physical delivery call option

owns or acquires the amount of the underlying

interest that is deliverable upon exercise of the call,

he is said to be a covered call writer. EXAMPLE:

An individual owns 100 shares of XYZ common

stock. If he writes one physical delivery XYZ call

option—giving the holder the right to purchase 100

shares of the stock at a specified exercise price—

this would be a covered call. If he writes two such

XYZ calls, one would be covered and one would

be uncovered.’’

[Citation omitted in original].

10See Options Floor Procedure Advice A–6,

which provides in part:

‘‘When a stock/option order is taken to a crowd

for execution, the stock transaction must be effected

prior to the option transaction pursuant to Rule

6.47, Commentary .04. The following procedure

should be observed:

After agreement with other members of the crowd

has been reached as to the terms of the transaction,

the option order tickets shall be written up and

time-stamped. However, the order tickets should

not be turned in to the Order Book Official at this

time. The members shall attempt to immediately

affect the transaction in the underlying or related

security. If the stock transaction cannot be executed

immediately or is effected at a price different than

the agreed-upon price, the members shall not be

held to the option transaction. If the stock

transaction is effected at the agreed-upon price,

than all the members who participated in the option

transaction shall be held to their agreed-upon price.

At the time the stock transaction is effected, the

option trade tickets should be given to the Order

Book Official.

This procedure applies to all executions of stock/

option orders.’’

[Citation omitted in original].

orders.’’ 7 As discussed below, the

Exchange is now proposing to add a

fourth exception, for stock/option

orders,8 including those that are

commonly known as ‘‘buy-writes.’’

Currently, under Rule 6.75(d), when a

member is holding a spread order, a

straddle order or combination order,

and is bidding or offering on the basis

of a total credit or debit for the order,

and has determined that the order may

not be executed by a combination of

transactions with or within the bids and

offers displayed by the Order Book

Official or other members, then the

order may be executed as a spread,

straddle or combination at the total

credit or debit with one or more

members without giving priority to bids

or offers for the individual option series

of the Order Book Official or of other

members at the post that are no better

than the bids or offers comprising such

total credit or debit.

For example, a spread order may be

executed as follows: assume that a floor

broker is holding a spread order that

requires selling 20 June 25 XYZ calls

and buying 20 July 25 XYZ calls, and

further assume that there is an order in

the book to buy 5 June 25 XYZ calls and

there are no orders in the book to sell

July 25 XYZ calls. The floor broker

could attempt to execute the spread

order as three separate transactions: (1)

Sell 5 June 25 calls to the Book; (2) sell

15 June 25 calls to the trading crowd;

and (3) buy 20 July 25 calls from the

trading crowd. If the customer’s order

specified a limit price of a specific debit

amount—$1, for example—the order

might theoretically be filled in this

manner. Thus, if the broker could sell

all 20 June calls at 4 and buy all 20 July

calls at 5, the spread order could be

filled as long as the customer’s limit

price was no more than a debit of $1.

However, if the order in the book was

to buy the June calls at 4, and the crowd

was bidding 37⁄8 for those calls, the

broker could not fill the orders at the

customer’s limit price. In this example,

the broker is placed at undue market

risk in attempting to execute the order

as separate transactions. If the broker

sold 5 June calls to the book and, while

consummating the trade, the XYZ stock

ticks up 1⁄2 a point, the crowd would

likely be unwilling to trade the

remaining calls at a price that is within

the customer’s limit. The broker is then

left with an error.

To avoid that problem, floor brokers

typically call for a quote from the crowd

for the entire spread. Following the

previous example involving the June/

July call spread, the trading crowd

might provide a bid of $1 credit for the

spread, which would satisfy the

customer’s limit price. This may occur,

in accordance with Rule 6.75(d), even

though one leg of the spread has traded

at a price equal to the price of an order

in the book on the other side of the

market, i.e., it ‘‘touches the book.’’ The

rationale for this exception is, as

described previously, that without it a

broker would assume undue risk in

executing the spread order and many

spread orders would otherwise remain

unexecuted.

A similar problem exists for stock/

option orders, such as buy-writes,

which involve writing call options and

purchasing the underlying stock.9 For

example, a customer may want to sell 10

XYZ July calls and buy 1000 shares of

XYZ stock. The broker will typically

enter the trading crowd and call for a

market for the buy-write. The crowd

will generally provide a two sided

market expressed in the form of a total

debit or credit—for example, $1 bid,

$11⁄2 offered—which will represent both

the market to ‘‘buy’’ the buy-write ($1)

as well as the market to ‘‘sell’’ the buywrite ($11⁄2). If the customer is a seller

and accepts the trading crowd’s $1 bid

on the transaction, then the stock and

option portions of the trade will both

have to be completed before the trade is

fully consummated.10

Following the previous example,

assume that the market in the

underlying stock is 657⁄8–661⁄8 and the

market in the overlying July 65 calls is

2–21⁄4. The customer would receive an

execution at a total credit of $1 if the

stock is executed at $66 and the calls are

executed at $2. However, if the stock

trades at 661⁄8, the price of the option

could be adjusted to 17⁄8, so that the net

debit is $1.

To complicate this matter, if there is

an order in the book to buy 5 July 65

calls at 2, the buy-write cannot be

executed unless either the stock trades

at a price other than 66 or the trading

crowd is willing to trade the buy-write

with a stock/option ratio other than oneto-one. This is the case because, under

PCX Rule 6.75, buy-writes are not

afforded the same priority rule

exemption that applies to spread,

straddle and combination orders.

Instead, buy-writes are only afforded a

limited exemption to the priority rule,

i.e., ‘‘a stock/option order has priority

over the bids and offers of members in

the trading crowd, but not over the bids

and offers of the Order Book Official.’’

Therefore, the Exchange is proposing

to modify Rule 6.75 to provide stock/

option orders with the same exemptive

relief from Rule 6.75(a)–(b) that

currently applies to spread orders,

straddle orders and combination orders.

The Exchange believes that this rule

change will facilitate transactions in

securities because it will allow floor

brokers to execute stock/option orders

more promptly, as a single package,

without regard to other orders that may

be in the Order Book at the time. This

Federal Register / Vol. 65, No. 233 / Monday, December 4, 2000 / Notices 75757

11 15 U.S.C. 78f(b).

12 15 U.S.C. 78f(b)(5). 13 17 CFR 200.30–3(a)(12).

will allow brokers to focus on other

orders they are representing. It will

allow brokers to avoid undue liability

and to avoid having to spend an

inordinate amount of time in executing

stock/option orders in compliance with

the current restrictions of Rule 6.75

relating to orders in the order book. It

will also allow stock/option orders to be

executed when otherwise they might

not be executed under Rule 6.75. The

Exchange believes that the current

exemptions for spread, straddle and

combination orders under Rule 6.75

should be extended to include stock/

option orders based upon just and

equitable principles of trade.

2. Basis

The Exchange believes that this

proposal is consistent with Section 6(b)

of the Act,11 in general, and furthers the

objectives of Section 6(b)(5),12 in

particular, in that it is designed to

facilitate transactions in securities,

promote just and equitable principles of

trade, and to protest 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

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 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 proposal 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 in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office at the PCX. All

submissions should refer to File No.

SR–PCX–00–04 and should be

submitted by December 26, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30769 Filed 12–1–00; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

[Declaration of Disaster #3305; Amendment

No. 2]

State of Arizona

In accordance with a notice received

from the Federal Emergency

Management Agency, dated November

27, 2000, the above-numbered

Declaration is hereby amended to

include Yavapai County in the State of

Arizona as a disaster area due to

damages caused by severe storms and

flooding which occurred beginning on

October 21, 2000 and continuing

through November 8, 2000.

In addition, applications for economic

injury loans from small businesses

located in the contiguous county of

Coconino, Arizona may be filed until

the specified date at the previously

designated location. All other

contiguous counties have been

previously declared.

All other information remains the

same, i.e., the deadline for filing

applications for physical damage is

December 26, 2000 and for economic

injury the deadline is July 27, 2001.

(Catalog of Federal Domestic Assistance

Program Nos. 59002 and 59008)

Dated: November 28, 2000.

Herbert L. Mitchell,

Acting Associate Administrator for Disaster

Assistance.

[FR Doc. 00–30778 Filed 12–1–00; 8:45 am]

BILLING CODE 8025–01–U

SMALL BUSINESS ADMINISTRATION

[License #09/09–0386]

First Commerce & Loan, L.P.; Notice of

License Surrender

Notice is hereby given that First

Commerce & Loan, L.P. (‘‘First

Commerce’’), an Arizona limited

partnership, has surrendered its license

to operate as a small business

investment company under the Small

Business Investment Act of 1958, as

amended (‘‘the Act’’). First Commerce

was licensed by the Small Business

Administration on October 19, 1990.

Under the authority vested by the Act

and pursuant to the regulations

promulgated thereunder, the surrender

of the license was accepted on

November 9, 2000, and accordingly, all

rights, privileges, and franchises derived

therefrom have been terminated.

(Catalog of Federal Domestic Assistance

Program No. 59–011, Small Business

Investment Companies)

Dated: November 28, 2000.

Don A. Christensen,

Associate Administrator for Investment.

[FR Doc. 00–30777 Filed 12–1–00; 8:45 am]

BILLING CODE 8025–01–U

SMALL BUSINESS ADMINISTRATION

Nondiscrimination on the Basis of Sex

in Education Programs or Activities

Receiving Federal Financial

Assistance

AGENCY: U.S. Small Business

Administration (SBA).

ACTION: Notice of the U.S. Small

Business Administration Financial

Assistance Programs Subject to Title IX

of the Education Amendments of 1972,

as amended.

SUMMARY: In accordance with Subpart F

of the final common rule for the

enforcement of Title IX of the Education

Amendments of 1972, as amended

(‘‘Title IX’’), this notice lists federal

financial assistance administered by the

U.S. SBA that is covered by Title IX.

Title IX prohibits recipients of federal

financial assistance from discriminating

on the basis of sex in education

programs or activities. Subpart F of the