Federal Register / Vol. 62, No. 99 / Thursday, May 22, 1997 / Notices 28093

3 15 U.S.C. 78f(b)(5).

4The Commission notes that the NYSE has

recently ceased all equity and index options trading

on its floor, transferring its options business to the

Chicago Board Options Exchange, Inc. (‘‘CBOE’’).

Release No. 34–38542 (April 23, 1997) (Order

approving NYSE–97–05). Nevertheless, the

Commission believes it is appropriate to approve

the current rule change, particularly since NYSE

may reenter the options business at a later date.

5See SR–CBOE–96–71 and SR–AMEX–96–45.

6See SR–AMEX–96–45, Release No. 34–38123

(January 6, 1997), 62 FR 1786 (January 13, 1997);

SR–CBOE–96–71, Release No. 34–37988 (November

26, 1996), 61 FR 64405 (December 4, 1996); and SR–

PSE–96–41, Release No. 34–37920 (November 4,

1996), 61 FR 58434 (November 14, 1996).

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.

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, Section

6(b)(5).3 Section 6(b)(5) requires, among

other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade, perfect

the mechanism of a free and open

national market, and in general, to

further investor protection and the

public interest.

The Commission believes that it is

reasonable for the Exchange to amend

its rules to close trading in equity and

narrow-based index options at 4:02

p.m., versus the existing 4:10 p.m. close.

Changing the closing time for these

options to 4:02 p.m. preserves the

Exchange’s 4 stated need to continue

trading options for some period of time

after the close of trading in the

underlying securities. The Exchange has

stated that this two minute extension

from the close of the stock markets will

allow options traders to respond to late

reports of closing prices over the

consolidated tape, thereby bringing

options quotes into line with the closing

price of the underlying security. Due to

improvements in the processing and

reporting of transactions, the Exchange

believes that two minutes of options

trading after the underlying equities

close is sufficient to bring options

quotes into line with the closing prices

of the underlying securities.

As discussed in similar rule filings

submitted to the Commission, the CBOE

and the American Stock Exchange, Inc.

(‘‘Amex’’) state that a number of issuers

have adopted the practice of

disseminating important corporate news

after the close of trading on the primary

equity exchange in order to minimize

the short-term disruptive effect of the

news on the market price of the stock

by allowing investors the opportunity to

digest the significance of the news after

the markets have closed.5 These

announcements, if made while options

markets are still trading, impact narrowbased index options, as well as equity

options, because a significant news

announcement on one component of a

narrow-based index may have

substantial impact on that index. As a

result, the exchanges are often deluged

with option orders as a result of such

significant news announcements after

4:00 p.m. The exchanges state that these

orders may have a disruptive effect on

the options market at a time when the

exchanges are attempting to close in a

fair and orderly fashion.

Accordingly, the Commission finds

that a closing time of 4:02 p.m. for

equity and narrow-based index options

is a reasonable means to address the

Exchange’s desire to balance the need

for some extended trading period with

the need to prevent negative impact

from issuers’ major news

announcements made while only the

options markets remain open.

The Commission also finds that it is

reasonable for the Exchange to amend

its rules to remove the reference to the

closing time and instead to specify that

index stock group option exercise

notices must be given five minutes after

the close of trading.

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. The Commission notes

that it is approving this proposal on the

same date that it is approving nearly

identical rule change proposals

submitted by the Amex, CBOE, and

Pacific Exchange, Inc. (‘‘PCX’’). These

rule filings have been published in the

Federal Register 6 and were subject to a

full notice and comment period. No

comments were received on the

proposals. Accordingly, the Commission

believes, consistent with Section 6(b)(5)

of the Act, that good cause exists to

approve the proposed rule change on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

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 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 of the Exchange. All

submissions should refer to File No.

SR–NYSE–97–02, and should be

submitted by June 12, 1997.

V. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the Act, and, in

particular, Section 6 of the Act.

It is therefore ordered, pursuant to

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

proposed rule change (SR–NYSE–97–

02) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Jonathan G. Katz,

Secretary.

[FR Doc. 97–13457 Filed 5–21–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38649; File No. SR–PSE–

96–35]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 2 to the Proposed Rule Change by

the Pacific Stock Exchange,

Incorporated Relating to Its Rules on

Executions of ‘‘Odd Lot’’ Equity Orders

May 16, 1997.

I. Introduction

On September 25, 1996, the Pacific

Stock Exchange, Incorporated (‘‘PSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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 relating to its rules on

executions of odd lot equity orders. On

December 17, 1996, the PSE submitted

an amendment (‘‘Amendment No. 1’’) to
28094 Federal Register / Vol. 62, No. 99 / Thursday, May 22, 1997 / Notices

3Letter from Michael D. Pierson, Senior Attorney,

Regulatory Policy, PSE to Janet Russell-Hunter,

Special Counsel, Office of Market Supervision,

Division of Market Regulation, SEC, dated

December 17, 1996. In Amendment No. 1, the PSE

clarified the purpose of the rule change and made

technical corrections to the text of the rule.

4Securities Exchange Act Release No. 38087

(December 24, 1997), 62 FR 782 (January 6, 1997).

5Letter from Michael D. Pierson, Senior Attorney,

Regulatory Policy, PSE to Janet Russell-Hunter,

Special Counsel, Office of Market Supervision,

Division of Market Regulation, SEC, dated May 14,

1997. In Amendment No. 2, the PSE modified the

provision of the proposal on executions of odd-lot

market orders (see discussion below) and made a

minor technical correction to the proposal. The PSE

also requested that the Commission approve

Amendment No. 2 on an accelerated basis.

6See Amendment No. 1, supra note 3.

7The conditions are that: the stock is included in

ITS in that market center; the size of the quote is

greater than 100 shares; the bid or offer is no more

than one-quarter dollar away from the bid or offer

disseminated by the primary market; the quote

conforms to PSE Rule 5.3(b) regarding trading

differentials; the quote does not result in a locked

market; the market center is not experiencing

operational problems with respect to the

dissemination of quotes; and that the bid or offer

is firm. See PSE Rule 5.34(b)(1) (A)–(G). These

conditions are essentially the same as those

provided in New York Stock Exchange Rule 124,

Odd Lot Orders, Supplementary Material .60.

8See Amendment No. 2, supra note 5.

9See Amendment No. 1, supra note 3.

10 Id.

11 Id.

12 ‘‘PMP’’ stocks are those for which Exchange

specialists provide primary market protection.

Today, such protection applies to all stocks that

may be executed on P/COAST, the Exchange’s

automatic execution system for equity securities.

13 In approving the proposed rule change, the

Commission has considered the proposed rule

changes’ impact on efficiency, competition, and

capital formation. 15 U.S.C. § 78c(f).

the proposed rule change.3 The

proposed rule change and Amendment

No. 1 were published in the Federal

Register on December 24, 1996.4 No

comments were received on the

proposal. On May 15, 1997 the PSE

submitted a second amendment

(‘‘Amendment No. 2’’) to the proposed

rule change.5 This order approves the

proposal. Also, Amendment No. 2 is

approved on an accelerated basis.

II. Description of the Proposal

The Exchange proposed this rule

change in order to provide better service

to customers and to be competitive with

other exchanges.6 The Exchange

proposed to modify Rule 5.34(b) (‘‘Odd

Lot Executions’’) to provide as follows:

First, with regard to market orders,

the PSE proposed that an odd lot market

order shall be filled at either (a) the

price being disseminated on the

Intermarket Trading System (‘‘ITS’’) best

bid or offer at the time the odd lot dealer

receives the order, provided certain

conditions are met; 7 or (b) the price of

the next round lot sale on the primary

market or a price deemed appropriate

under prevailing market conditions if

one or more of the conditions specified

in (a) does not apply. The Exchange is

making this change in order to assure

that the application of the rule in

unusual circumstances is fair,

reasonable, and consistent with the

rules relating to the ITS. The current

rule states that such orders shall be

filled at the price of the first round lot

transaction which takes place on the

primary market, plus if a buy order, or

minus if a sell order, an odd lot

differential, if any.

Second, with regard to limit orders,

the PSE proposed that an odd lot limit

order shall be filled at, or better than,

the price of the next 8 regular way round

lot transaction that is at, or better than,

the limit order’s price printed on the

consolidated tape from the security’s

primary market.9 The PSE further

proposed that such odd lot orders shall

be allowed to establish precedence

without regard to priority of existing

round lot bids or offers at that price. The

current rule states that such orders shall

be filled at the price of the first round

lot transaction which takes place on the

primary market, which in the case of a

buy order is below the specified limit by

the amount of the trading differential, or

by a greater amount; or which in the

case of a sell order is above the specified

limit by the amount of the trading

differential, or by a greater amount; plus

if a buy order, or minus if a sell order,

an odd lot differential, if any.

Third, with regard to stop orders, the

PSE proposed that an odd lot stop order

to buy shall become a market order

when a regular way round lot

transaction takes place at or above the

price of the stop order on the primary

market.10 The PSE further proposed that

an odd lot stop order to sell shall

become a market order when a regular

way round lot transaction takes place at

or below the price of the stop order on

the primary market.11 The current rule

states that an odd lot stop order

becomes a market order when a round

lot transaction takes place on the

primary market, which in the case of a

buy order is at or above the stop price;

or which in the case of a sell order is

at or below the stop price; and it further

states, that the order shall then be filled

at the price of the next round lot

transaction which takes place on the

primary market, plus if a buy order, or

minus if a sell order, an odd lot

differential, if any.

Fourth, the PSE proposed that it shall

be inconsistent with the purpose and

intent of the Rule to engage in the

following actions: (a) the unbundling of

round lots for the purpose of entering

odd lot limit orders in comparable

amounts; (b) the failure to aggregate odd

lot orders into round lots when such

orders are for the same account or for

various accounts in which there is a

common monetary interest; and (c) the

entry of both buy and sell odd lot limit

orders in the same stock before one of

the orders is executed for the purpose of

capturing the ‘‘spread’’ in the stock. The

proposal also states that, in general, the

Exchange views order entry practices

that are intended to circumvent the

round lot auction market as abuses of

the intent and purpose of the odd lot

system, and such practices shall be

considered violations of these rules.

Finally, the PSE proposed to remove

several provisions from the rules

relating to odd lot executions that no

longer apply. First, the Exchange

proposed to eliminate all provisions in

Rule 5.34(b) on odd lot differentials.

Second, the proposal modified Rule

5.34(b) to eliminate the distinction

between ‘‘PMP stocks’’ and ‘‘non-PMP

stocks.’’ 12

The Exchange stated its belief that the

proposal is consistent with Section 6(b)

of the Act, in general, and Section

6(b)(5) of the Act, in particular, in that

it is designed to facilitate transactions in

securities and to promote just and

equitable principles of trade.

III. Discussion

After careful consideration, 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. In

particular, the Commission believes the

proposal is consistent with the

requirements of Section 6(b)(5) 13 of the

Act in that it is designed to facilitate

transactions in securities and to

promote just and equitable principles of

trade.

The Commission believes that the

Exchange’s proposed pricing procedures

for standard odd lot market orders

should facilitate the execution and

accurate reporting of odd lot

transactions, and should also assist in

the prompt and accurate clearance and

settlement of such transactions. Because

the orders, under most circumstances,

will be priced off a current market quote

instead of a subsequent transaction,

investors should receive a timely

execution of their orders. Moreover, the

Commission believes that the revised

procedures, which provide for the

pricing of standard odd lot market

orders at best bid or offer reflected in

the consolidated quote system, rather
Federal Register / Vol. 62, No. 99 / Thursday, May 22, 1997 / Notices 28095

14Supra note 7. 15See PSE Rule 5.4.

16 15 U.S.C. § 78s(b)(2).

17 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. 37920

(November 4, 1996).

4 61 FR 58434 (November 14, 1996).

5All time references are in Pacific Time.

than the price of the first round lot

transaction in the primary market, will

result in orders which should receive

execution at prices which more

accurately reflect market conditions

than would otherwise be the case under

the former procedures.

The PSE also has proposed an

alternative method of pricing odd lot

market orders in the event that the

condition provided for in the proposed

rule do not apply.14 In such an event,

an odd lot market order will be executed

at the price of the next round lot sale on

the primary market or will be executed

by the odd lot dealer at a price deemed

appropriate under prevailing market

conditions. Using this method, the PSE

can continue to provide procedures

which will facilitate the execution of

odd lot orders. The Commission

recognizes that it is difficult to develop

a method of pricing odd lot orders that

under all market conditions would

reflect appropriately the current market

price. The Commission finds that it is

reasonable for the PSE to have

determined that use of the next sale

price is appropriate under the several

enumerated circumstances.

The Commission believes that the

proposal with regard to odd lot limit

orders also represents an improvement

in the execution of such orders for

investors. Allowing such limit orders to

establish precedence without regard to

priority of existing round lot bids or

offers at that price will afford odd lot

limit orders highly efficient and price

superior execution services.

With respect to stop orders, the

Commission finds that the proposal will

provide improve execution for

investors. Once a stop order becomes a

market order under the terms of the

amended rule, it will be treated in the

same manner as a standard odd lot

market order under the amended rule.

Therefore, rather than receiving an

execution at the price of the next round

lot transaction which takes place on the

primary market, as under the rule prior

to amendment, investors will receive

execution at the best bid or offer

reflected in the consolidated quote

system.

The Commission finds appropriate

the proposal’s explicit enumeration of

those activities that shall be inconsistent

with the intent of the rule, such as the

unbundling of round lot orders for the

purpose of entering odd lot limit orders

in comparable amounts; the failure to

aggregate odd lot orders into round lots

when such orders are for the same

account or for various accounts in

which there is a common monetary

interest; and the entry of both buy and

sell odd lot limit orders in the same

stock before one of the orders is

executed for the purpose of capturing

the ‘‘spread’’ in the stock. The

Commission finds reasonable the

Exchange’s statement that, in general,

order entry practices that are intended

to circumvent the round lot auction

market will be viewed as abuses of the

intent and purpose of the odd lot system

and such practices shall be considered

violations of these rules.

The Commission believes that the

proposal’s provision removing

discussion of odd lot differentials is a

technical correction that is consistent

with the Exchange’s previous

elimination of odd-lot differentials.15

The Commission also finds appropriate

the elimination of the distinction

between ‘‘PMP stocks’’ and ‘‘non-PMP

stocks’’ in light of the fact that all stocks

that may be executed on P/COAST, the

exchange’s automatic execution system,

currently receive such primary market

protection.

The Commission finds good cause to

approve Amendment No. 2 to the

proposed rule change prior to the

thirtieth day after the publication of

notice thereof in the Federal Register.

Amendment No. 2 creates an alternate

pricing mechanism that strengthens the

proposal. Accordingly, the Commission

believes there is good cause, consistent

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

Act, to approve Amendment No. 2 to the

proposal on an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

2. Persons making written submissions

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 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, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PSE. All submissions

should refer to File No. SR–PSE–96–35

and should be submitted by June 12,

1997.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,16 that the

proposed rule change (SR–PSE–96–35),

and amendments thereto, be and hereby

are, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Dos. 97–13456 Filed 5–21–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38642; File No. SR–PSE–

96–41]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Pacific Stock Exchange, Inc.

Establishing a 1:02 p.m. Closing Time

for Equity Options Trading

May 14, 1997.

I. Introduction

On October 25, 1996, the Pacific Stock

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

filed with the Securities and Exchange

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

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

Notice of the substance of the

proposed rule change was provided by

issuance of a release 3 and by

publication in the Federal Register.4 No

comments were received. This order

approves the proposed rule change.

II. Description of the Proposal

The Exchange proposes to amend

Rule 4.2, Commentary .01 to change the

1:10 p.m. closing time for equity options

to 1:02 p.m.5 Currently, the ten minute

period for trading equity options after

the close of the underlying securities

allows options traders to respond to late

reports of closing prices over the

consolidated tape. The proposed change

will result in the close of trading in