[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29286-29287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14114]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40020; File No. SR-PCX-98-23]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to the Number of Option Issues Permitted To Be Traded Under 
the LMM Book Pilot Program

May 21, 1998.
    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 May 1, 1998, 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 self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX is proposing to remove the current cap on the number of 
issues traded under the Lead Market Maker (``LMM'') Book Pilot Program.

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

Purpose
    On October 11, 1997, the Commission approved an Exchange proposal 
to adopt a one-year pilot program under which a limited number of LMMs 
would be able to assume operational responsibility for the options 
public limit order book (``Book'') in certain option issues.\3\ On 
September 22, 1997, the Commission approved an Exchange proposal to 
extend the program for one year, so that it is currently set to expire 
on October 12, 1998.\4\
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    \3\ See Securities Exchange Act Release No. 37810 (October 11, 
1996), 61 FR 54481 (October 18, 1996) (approving File No. SR-PSE-96-
09).
    \4\ See Securities Exchange Act Release No. 39106 (September 22, 
1997), 62 FR 51172 (September 30, 1997).
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    Under the pilot program, approved LMMs manage the Book function, 
take responsibility for trading disputes and errors, set rates for Book 
execution, and pay the Exchange a fee for systems and services.\5\ 
Currently, both multiply-listed and non-multiply-listed option issues 
are eligible to be traded under the pilot program.\6\ Initially, the 
program was limited by allowing no more than three LMMs to participate 
in the program and no more than 40 option symbols to be used. But on 
April 1, 1997, the Commission approved an Exchange proposal to expand 
the program so that up to nine LMMs may participate and up to 150 
option symbols may be used.\7\
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    \5\ See Securities Exchange Act Release No. 37874 (October 28, 
1996), 61 FR 56597 (November 1, 1996) (approving SR-PSE-96-38, 
establishing a staffing charge for LMMs who participate in the pilot 
program). See also File No. SR-PCX-98-03 (proposal to modify the LMM 
Book Pilot staffing charge).
    \6\ See Securities Exchange Act Release No. 38273 (February 12, 
1997), 62 FR 7489 (February 19, 1997) (approving File No. SR-PSE-96-
45). See also Securities Exchange Act Release No. 39667 (February 
13, 1998), 63 FR 9895 (February 26, 1998) (approving proposal to 
allow non-multiply-listed option issues to be traded under the 
program).
    \7\ See Securities Exchange Act Release No. 38462 (April 1, 
1997), 62 FR 16886 (April 8, 1997).
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    The Exchange is now proposing to expand the LMM Book Pilot Program 
to eliminate the cap on the number of symbols that may be used. The 
Exchange notes that the program has been in operation for approximately 
eighteen months and no significant problems have occurred. The program 
has been viable and effective, and has resulted in significant cost 
savings to customers in Book execution charges. The Exchange believes 
that it has adequate systems and operation capacity to expand the scope 
of the program beyond its current limits.
    The Exchange believes that the proposed change will make the 
Exchange's LMM Program more competitive because it will allow LMM 
participants to reduce book execution charges in a greater number of 
issues than currently permitted. The Exchange notes that it is 
currently seeking to expand the number of LMMs who may participate in 
the program which is currently limited to nine.\8\
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    \8\ See File No. SR-PCX-98-17.
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Basis

    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \9\ of the Act, in general, and furthers the objectives of 
Section 6(b)(5),\10\ in particular, in that it is designed to 
facilitate transactions in securities, to promote just and equitable 
principles of trade, and to protect investors and the public interest. 
The Exchange does not believe that the proposal will affect the 
protection of investors or the public interest because the proposal 
will merely expand the ability of LMMs already participating in the 
program to reduce the rates charged to customers. The Exchange further 
believes that by allowing further reductions in rates charged to 
customers, the proposal encourages competition rather than placing any 
burdens on it.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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.

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 shall become operative 30 days after the 
date of filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest 
pursuant to Section 19(b)(3)(A) \11\ of the Act and subparagraph (e)(6) 
of Rule 19b-4 thereunder.\12\ Pursuant to Rule 19b-4(e)(6) a proposed 
rule change may become effective 30 days after filing with the 
Commission if it does not significantly affect the protection of 
investors or the public interest; does not impose any significant 
burden on competition; and by its terms does not become operative for 
30 days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest. At any time within 60 days of the filing of 
such

[[Page 29287]]

proposed rule change, the Commission may summarily abrogate such 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 f the purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(e)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the submission 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. 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 
betweeen 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 20549. 
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-98-23 and should be submitted by June 18, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14114 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M