39336 Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices

4 15 U.S.C. 78q–1.

5 15 U.S.C. 78q–1(b)(3)(F).

6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Exchange Act Release No. 38575 (May 5,

1997), 62 FR 26606 (May 14, 1997) (order granting

temporary accelerated approval of File No. SR–

PCX–97–16); see also Exchange Act Release No.

38780 (June 26, 1997), 62 FR 36087 (July 3, 1997)

(order approving File No. SR–PCX–97–15,

amending Rule 5.3(b)).

sixteenths and $0.50 per contract in the

case of eighths assuming a trading

increment of one cent) for one side of

each adjusted contract and a

corresponding loss for the other.

However, OCC believes that the

committee will not use its adjustment

authority unless it determines that the

benefits of adjusting outweigh the

detriments. If approved, the proposed

rule change will be disclosed in a

supplement to the options disclosure

document.

OCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act 4

because it should promote the prompt

and accurate clearance and settlement of

securities transactions.

B. Self-Regulatory Organizations’s

Statement on Burden on Competition

OCC does not believe that the

proposed rule change would 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 were not and are

not intended to be solicited with respect

to the proposed rule change and none

have been received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act 5

requires that the rules of a clearing

agency be designed to promote the

prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that the

proposed rule change is consistent with

this obligation because it should ensure

that the exercise price of an option on

a security can be expressed in the same

increment as the price of the underlying

security when the pricing increment of

an underlying security has been

changed after the issuance of the option.

As a result, the proposed rule change

should increase the accuracy of the

clearance and settlement of options

transactions and promote the prompt

and accurate clearance and settlement of

securities transactions.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the

publication of notice of the filing.

Approving prior to the thirtieth day

after publication of notice should

immediately reduce the possibility of

inaccurate clearance and settlement of

options transactions where the exercise

price of the option is expressed in a

different increment than the trading

increment of the underlying security.

IV. Solicitation of Comment

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, N.W.,

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 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 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to the file number SR–OCC–97–13

and should be submitted by August 12,

1998.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (File No. SR–

OCC–97–13) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19442 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40199; File No. SR–PCX–

97–46]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Pacific Exchange,

Inc. Relating to Minimum Trading

Increments

July 14, 1998.

Pursuant to Section 19(b)(1) of

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule

19b–4 thereunder,2 notice is hereby

given that on December 22, 1997, 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 and II

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 and to

grant accelerated approval to the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCX proposes to amend its Rule

5.3(b) by adding a new Commentary .02

to permit members to trade on the

Exchange in increments smaller than

1⁄16, in order to match bids and offers

displayed in other markets for the

purpose of preventing Intermarket

Trading System (‘‘ITS’’) trade-throughs.

The text of the proposed rule change is

available at the Office of the Secretary,

the PCX, 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

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

1. Purpose

In May 1997, the Commission

approved an Exchange proposal to

amend its rules to permit trading of

stocks in sixteenths when the selling

price is $5 or above.3 Previously such
Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices 39337

4 15 U.S.C. 78f(b)(5).

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

6 15 U.S.C. 78f(b)(5).

7 In approving this rule change, the Commission

has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

8See Exchange Act Release No. 38780 (June 26,

1997), 62 FR 36087 (July 3, 1997) (order approving

PCX–97–15, amending PCX Rule 5.3(b)); Exchange

Act Release No. 38571 (May 5, 1997), 62 FR 25682

(May 9, 1997) (approving an Amex proposal to

reduce the minimum trading increment to 1⁄16 for

certain Amex-listed equity securities); Exchange

Act Release No. 38678 (May 27, 1997), 62 FR 30363

(June 6, 1997) (approving a Nasdaq rule change to

reduce the minimum quotation increment to 1⁄16 for

certain Nasdaq-listed securities); Exchange Act

Release No. 38897 (Aug. 1, 1997), 62 FR 42847

(Aug. 8, 1997) (approving a NYSE rule change to

reduce the minimum quotation increment to 1⁄16 for

certain NYSE-listed securities); and Exchange Act

Release No. 39159 (Sept. 30, 1997), 62 FR 52365

(Oct. 9, 1997) (approving a CBOE rule change to

reduce the minimum quotation increment to 1⁄16 for

stocks).

9 Id.

10The Commission notes that any change to the

minimum increment for securities traded through

the facilities of the Nasdaq system would be

considered a change in an existing order-entry or

trading system of an SRO. Accordingly, the NASD

would be required to file a proposed rule change

under Section 19(b)(3)(A) of the Act to change its

minimum increment.

11Telephone conversation between Andrew S.

Margolin, Senior Attorney, Nasdaq, Gene Lopez,

Vice President, Trading and Market Services,

Nasdaq, and David Sieradzki, Attorney,

Commission, on July 8, 1998.

12To change its minimum increment, an

exchange would be required to file a proposed rule

change that would become immediately effective

under Section 19(b)(3)(A) of the Act.

13See Exchange Act Release No. 38897 (Aug. 1,

1997), 62 FR 42847 (Aug. 8, 1997). The Commission

also notes that it recently approved on an

accelerated basis a similar proposal by Amex. See

Exchange Act Release No. 40189 (July 9, 1998)

(order approving File No. SR–Amex–97–39).

14 15 U.S.C. 78f(b)(5) and 78s(b)(2).

stocks could only be traded in 1⁄8

increments.

Since that time, certain third market

makers have disseminated quotations in

certain listed securities in fractions

smaller than a sixteenth. In addition,

ITS has been modified to permit ITS

commitments to trade to be sent through

ITS in fractions as small as 1⁄64. This ITS

modification permits PCX members to

send orders via ITS to a market

displaying a quotation in 1⁄32 or 1⁄64.

The Exchange believes that it is

important to provide its members with

flexibility to effect transactions on the

Exchange at a smaller increment than

1⁄16 for the purpose of matching a

displayed bid or offer in another market

at such smaller increment(i.e., 1⁄32 or 1⁄64) for the purpose of preventing ITS

trade-throughs. For example, if the best

bid on the Exchange is 8 and a bid of

8 1⁄32 is displayed through ITS in

another market center, the Exchange

specialist or floor broker may execute a

market or marketable limit order at 8 1⁄32

in order to match the other market’s bid.

Limit orders entered on the Exchange,

however, will continue to be priced at

the current minimum trading increment

of 1⁄16, and orders priced in smaller

increments will not be accepted.

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

under Section 6(b)(5)4 that an Exchange

have rules that are designed to promote

just and equitable principles of trade, to

remove impediments to, and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The proposed rule change will impose no

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Commission’s Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

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, and, in particular, with the

requirements of Section 6(b) of the Act.5

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) 6 requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public.7

Recently, there has been a movement

within the industry to reduce the

minimum trading and quotation

increments imposed by the various selfregulatory organizations (‘‘SROs’’). Last

year, the PCX, American Stock

Exchange (‘‘Amex’’), Nasdaq Stock

Market (‘‘Nasdaq’’), New York Stock

Exchange (‘‘NYSE’’) and Chicago Board

Options Exchange (‘‘CBOE’’) reduced

their minimum trading increments.8

Currently, exchange rules provide for

trading of most equity securities in

increments as small as 1⁄16 of a dollar.9

PCX represents that several third market

makers have begun quoting securities in

increments smaller than those approved

for trading on the primary markets. The

proposed rule change will provide PCX

with the limited flexibility it needs to

address this development and remain

competitive with these markets.

The size of the minimum trading

increment for securities traded through

the facilities of Nasdaq is determined by

the technical limitations of the Nasdaq

system. Currently, Nasdaq systems are

capable of trading securities priced

under $10 in increments as fine as 1⁄32

of one dollar. Securities priced over $10

may be traded in increments as fine as

1⁄16 of one dollar.10 As a result, the

Commission recognizes that Nasdaq

third market makers may trade exchange

listed securities priced at less than $10

in increments finer than sixteenths.

Nasdaq has informed the Commission

that Nasdaq third market makers are

currently posting quotes for listed

securities in increments finer than

sixteenths.11 The proposed amendment

to Exchange Rule 5.3(b) will allow PCX

traders to match prices disseminated by

Nasdaq market makers that may better

the PCX quote by an increment finer

than the current 1⁄16 minimum

increment. In addition, the Commission

notes that the proposal will enable the

Exchange to match prices disseminated

by another exchange in the event that

another exchange were to reduce its

minimum trading increment.12 The

proposal should assist Exchange

members to fulfill their obligation to

obtain the best price for their customers.

Accordingly, the Commission believes

that it is reasonable for the Exchange to

allow trading in increments finer than

sixteenths for the limited purpose of

preventing an ITS trade-through.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. Approval of the

proposal will provide PCX members

with the ability to match a better bid or

offer made available through ITS,

thereby helping to prevent ITS tradethroughs and ensuring the best

execution of PCX customer orders. The

Commission notes that this proposal is

similar to a proposal by the NYSE that

was published for the full notice and

comment period, no comments were

made on that proposal.13 Therefore, the

Commission believes it is consistent

with Section 6(b)(5) and Section 19(b)(2)

of the Act to grant accelerated approval

to the proposed rule change.14

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
39338 Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices

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

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 40063

(June 3, 1998), 63 FR 31823.

4Rule 19d–1(c)(2) under the Act authorizes

national securities exchanges to adopt minor rule

violation plans for the summary discipline and

abbreviated reporting of minor rule violations by

exchange members and member organizations. See

Securities Exchange Act Release No. 21013 (June 1,

1984), 49 FR 23828 (June 8, 1984) (order approving

amendments to paragraph 9(c)(2) of Rule 19d–1

under the Act). Pursuant to PCX Rule 10.13, the

Exchange may impose a fine on any member or

member organization for any violation of an

Exchange rule that has been deemed to be minor in

nature and approved by the Commission for

inclusion in the MRP. PCX Rule 10.13(h)–(j) sets

forth the specific Exchange rules deemed to be

minor in nature.

5As noted in PCX Rule 10.13(e), pursuant to

Securities Exchange Act Release No. 30958, any

person or organization found in violation of a minor

rule under the MRP is not required to report such

violation on SEC Form BD, provided that the

sanction imposed consists of a fine not exceeding

$2,500 and the sanctioned person or organization

has not sought an adjudication, including a hearing,

or otherwise exhausted the administrative remedies

available with respect to the matter. Accordingly,

any fine imposed in excess of $2,500 will be subject

to reporting of SEC Form BD in addition to the

immediate, rather than periodic, reporting a

requirement of Section 19(d)(1) of the Act. See

Securities Exchange Act Release No. 30280 (January

22, 1992), 57 FR 3452 (noting that fines in excess

of $2,500, assessed under New York Stock

Exchange, Inc. (‘‘NYSE’’) Rule 476A, are not

considered pursuant to the NYSE’s minor rule

violation plan and are thus subject to the current

reporting requirements of Section 19(d)(1) of the

Act).

6 15 Proposed Rule Change 78f(b)(6).

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submission, all susequent 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, located at the above address.

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–97–46 and should be

submitted by August 12, 1998.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2)of the Act,15 that the

proposed rule change (SR–PCX–97–46)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19438 Filed 7–21–98; 8:45am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40193; File No. SR–PCX–

98–21]

Self-Regulatory Organizations; Pacific

Exchange, Inc.; Order Granting

Approval to Proposed Rule Change

Relating to Fines for Disruptive Action

on the Options Floor

July 10, 1998.

I. Introduction

On April 16, 1998, the Pacific

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

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (’’Act’’) 1 and Rule

19b–4 thereunder 2 to increase fines for

disruptive action involving physical

contact between members while on the

options floor. Notice of the filing was

published in the Federal Register on

June 10, 1998.3 No comments were

received. This order approves the

proposal.

II. Description of the Proposal

The Exchange is proposing to increase

its recommended fines under the Minor

Rule Plan (‘‘MRP’’) 4 for disruptive

action involving physical contact

between members while on the options

floor.These fines are currently set at

$500, $1,000 and $2,500 for first, second

and third violations, respectively,

during a running two-year period. The

Exchange is proposing to increase these

fines to $1,500, $3,000 and $5,000,

respectively.5 The purpose of the rule

change is to deter future incidents of

disruptive conduct involving physical

contact on the PCX options floor. The

Exchange notes that there has been a

moderate increase recently in the

number of such cases, and the Exchange

intends for the proposed rule change to

reverse that trend.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder, and,

in particular with the requirements of

Section 6(b)(6) of the Act.6 Section

6(b)(6) of the Act requires that the rules

of the Exchange provide that its

members be appropriately disciplined

for violations of the Act, the rules and

regulations thereunder, and the

Exchange’s rules. The Commission

believes that the proposed fines will

serve as a stronger deterrent to

disruptive behavior, thereby promoting

fair and orderly markets on the options

floor and protecting investors and the

public interest. The Commission also

notes that the proposed fine schedule is

graduated to account for repeat

offenders and that the Exchange may

commence a formal disciplinary

proceeding under Exchange Rule 10.3 if

it determines that a violation otherwise

covered by the MRP is not minor is

nature. Accordingly, the Commission

believes that the proposed fines will

result in appropriate discipline.

IV. Conclusions

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–PCX–98–21)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19444 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40208; File No. SR–Phlx–

97–63]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval of Proposed

Rule Change and Amendment No. 1

Thereto and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 2 to Proposed Rule

Change To Adopt a New Method of

Calculating Initial and Maintenance

Margin Requirements for Foreign

Currency Options

July 15, 1998.

I. Introduction

On December 22, 1997, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) submitted to the

Securities and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change

that would adopt a new method of