Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Notices 21801

21 15 U.S.C. 78f(b)(5).

22See note 22, supra.

23 15 U.S.C. 78s(b).

24 15 U.S.C. 78f(b)(6).

25 15 U.S.C. 78s(6)(2).

26 17 CFR 200.30–3(a)(12)

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the PCX re-designated the

filing as a submission pursuant to section 19(b)(2)

of the Act, 15 U.S.C. 78s(b)(2), rather than section

19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A). In

Amendment No. 2, the PCX added rule text to

provide that the Auto-Ex-Between-the-Quotes

feature would not permit execution of orders at

prices that trade through other markets. See letters

from Cindy L. Sink, Senior Attorney, Regulatory

Policy, PCX, to Nancy Sanow, Assistant Director,

Division of Market Regulation, SEC, dated January

2, 2001 (‘‘Amendment No. 1’’), and March 29, 2001

(‘‘Amendment No. 2’’).

others, rules and procedures governing

trading halts, disclosures to members,

responsibilities of the specialist,

account opening and customer

suitability requirements, the election of

a stop or limit order, and margin.

The Commission further finds that: (1)

By requiring that the underlying

securities in a trust issued receipt be

registered under Section 12 of the Act

and listed on a national securities

exchange or Nasdaq, and (2) by

establishing minimum values for the

number of outstanding receipts, average

daily trading volume, average daily

dollar volume, and public float, the

Exchange’s proposed listing criteria will

help to ensure that a minimum level of

liquidity will exist to allow for the

maintenance of fair and orderly markets

for those trust issued receipts listed and

traded pursuant to Rule 19b–4(e). The

Commission believes that these listing

criteria will help to ensure that no

security underlying a trust issued

receipt will be readily susceptible to

manipulation, while permitting

sufficient flexibility in the construction

of various trust issued receipts to meet

investors’ needs. The Commission

further believes that these criteria

should serve to ensure that the

underlying securities of such trust

issued receipts are well capitalized and

actively traded, which will help to

ensure that U.S. securities markets are

not adversely affected by the listing and

trading of new trust issued receipts

under Rule 19b–4(e). Accordingly, the

Commission finds that these criteria are

consistent with section 6(b)(5) of the

Act,21 because they serve to prevent

fraudulent or manipulative acts;

promote just and equitable principles of

trade; remove impediments to and

perfect the mechanism of a free and

open market and a national market

system; and protect investors and the

public interest.

Additionally, as the Commission

noted in its previous review and

approval of CHX and Amex Rules, the

Exchange’s delisting criteria allows it to

consider the suspension of trading and

the delisting of a trust issued receipt if

an event occurs that makes further

dealings in such securities inadvisable.

This will give the Exchange flexibility to

delist trust issued receipts if

circumstances warrant.

The Commission notes that, in

connection with its previous review and

approval of CHX and Amex Rules, it

approved similar applicable minimum

price increments, surveillance

procedures, and disclosure and

prospectus delivery requirements for

trust issued receipts.22 In accord with

these previous findings, the

Commission believes that PCX’s

proposed rules will provide adequate

safeguards to prevent manipulative acts

and practices and to protect investors

and the public interest. Further, the

Commission believes that the proposal

will ensure that investors have

information that will allow them to be

adequately apprised of the terms,

characteristics, and risk of trading trust

issued receipts.

Finally, PCX will file Form 19b–4(e)

with the Commission within five

business days of commencement of

trading a trust issued receipt under the

listing standards and will comply with

all Rule 19b–4(e) recordkeeping

requirements.

The Commission finds good cause for

approving the proposed rule change

(SR–PCX–2001–01) prior to the thirtieth

day after the date of publication of

notice thereof in the Federal Register.

The Commission notes that the

proposed rule change is similar to rules

previously approved by the Commission

for Amex and CHX, and that is concerns

issues that previously have been the

subject of a full comment period

pursuant to section 19(b) of the Act.23

The Commission does not believe that

the proposed rule change raises novel

regulatory issues that were not

addressed in the previous filings.

Moreover, the Commission believes that

approving the listing and trading of TIRs

on the PCX will increase industry

competitiveness by providing an

additional venue for the trading of such

issues, to the benefit of the investor.

Accordingly, the Commission finds that

there is good cause, consistent with

section 6(b)(5) of the Act,24 to approve

the proposal on an accelerated basis,

and before expiration of the period for

filing comments.

V. Conclusion

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,25 that the

proposed rule change (SR–PCX–2001–

01) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.26

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10746 Filed 4–30–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44216; File No. SR–PCX–

00–48]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Pacific Exchange,

Inc. Relating to Auto-Ex Between-theQuotes

April 24, 2001.

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 December

13, 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 and

II below, which Items have been

prepared by the Exchange. Amendment

Nos. 1 and 2 to the proposed rule

change were filed on January 3, and

April 2, 2001, respectively.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

approve it on an accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCX is proposing to effect a

change to its Automatic Execution

System (‘‘Auto-Ex’’) that will allow

small-sized customer option orders that

improve the PCX best bid or offer

(‘‘BBO’’) to be automatically executed

by the Auto-Ex System. Below is the

text of the proposed rule change. New

text is in italics.

Pacific Exchange, Inc. Constitution and

Rules

* * * * *

Rule 6 Options Trading Automatic Execution

System

¶ 5231

Rule 6.87(a)–(1)—No change.

(m) Auto-Ex-Between-the Quotes. Lead

Market Makers may, at their discretion,

employ the Auto-Ex-Between-the-Quotes

21802 Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Notices

4Pacific Option Exchange Trading System.

5The PCX provides such guarantees in all option

series in order to remain competitive with the other

options exchanges. See PCX Rules 6.86, 6.87.

6Likewise, if the PCX offered a guaranteed size

of 75 contracts and the inbound order was an order

to sell 75 contracts, then one contract would trade

against the customer limit order and 74 contracts

would trade against the members of the trading

crowd.

7PCX Rule 6.87(e)(4) provides, in part, that a

market maker who has been logged on to Auto-Ex

in an option issue at any time during an expiration

month must continue to be logged on to Auto-Ex

in that issue whenever present in that trading

crowd, until the close of business on the next

Expiration Friday. 8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(5).

feature of POETS. This feature will permit

the automatic execution of limit orders

entered into POETS that are: (i) to buy or sell

five option contracts or less; and(ii) have

limit prices that are between, but not equal

to, the best bid or offering price then being

disseminated on the PCX. Lead Market

Makers must provide the members of the

trading crowd with at least five minutes

notice before activating this feature. If the

feature is on, Market Makers are exempt from

the mandatory log-on requirements of Rule

6.87(e)(4). This feature does not allow the

execution of orders at prices that tradethrough other markets.

* * * * *

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 III 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

This proposal would allow for the

automatic execution (by the Auto-Ex

feature of POETS 4) of small-sized

customer limit orders that improve the

PCX’s disseminated best bid or offer.

This feature will be employed at the

discretion of the designated Lead

Market Maker (‘‘LMM’’) in the relevant

option issue.

The new feature would operate in the

following manner. Assume that the PCX

best bid or offer (‘‘BBO’’) is 5 bid, 51⁄4

asked. Next, assume that a customer

limit order to purchase one option

contract at 51⁄8 is entered electronically

on the PCX. If the new feature is not

operating, the incoming order would be

placed in the limit order book and

displayed automatically, so that the new

PCX BBO would be 51⁄8 bid, 51⁄4 offered.

However, if the new feature is operating,

the incoming order would be executed

by the Auto-Ex System before having an

opportunity to be placed in the limit

order book. Consequently, the

customer’s limit order would be

immediately executed at its limit price

and the PCX BBO would remain

unchanged from 5 bid, 51⁄4 asked.

The PCX guarantees that customers

will receive an execution on Auto-Ex, at

the PCX’s disseminated price, for all

customer orders for up to 20 contracts

(and in certain option issues, up to 75

contracts).5 In addition, all customer

orders entered electronically on the PCX

are immediately displayed if they

improve the PCX BBO, regardless of the

size of the order. If a customer limit

order to purchase one option contract is

entered on the PCX and disseminated

over the Options Price Reporting

Authority the price (e.g., 51⁄8 but not the

size (one contract) will be disseminated

to the public. Thus, for example, if the

PCX (and national) best bid in a series

is 51⁄8 based solely upon a customer

order to buy one contract, and a market

order to sell 20 contracts is then entered

on the PCX for automatic execution, the

market order will be executed at 51⁄8

(the PCX’s disseminated price), with

one contract trading against the

customer limit order and 19 contracts

trading against the members of the

trading crowd who are logged on to

Auto-Ex—even though they may be

bidding 5 for that particular series.6

Currently, on the PCX, if a small

customer limit order changes the PCX

BBO, market-makers may manually

execute that order to reduce their risk of

having to trade additional contracts

through Auto-Ex at the price of the

customer limit order. This is a difficult

process, however, in option issues and

series that are so thinly-traded that the

markets are not displayed on overhead

screens on the trading floor, but are

displayed on ‘‘buried’’ screens that have

to be called up manually. The traders of

such issues therefore may not be aware

of an order to buy one contract at 51⁄8,

for example, that has just been entered.

Before the traders realize it, another

order, to sell 20 contracts at 51⁄8, may

have just been automatically executed

on Auto-Ex, with 19 of those contracts

being sold against those traders’

accounts. However, if the new feature

had been in operation, the order for one

contract would have been immediately

executed and the market-makers would

not have been required to buy those 19

option contracts at 51⁄8 when their quote

was 5 bid.

The proposed rule change provides

that Lead Market Makers may, at their

discretion, employ the Auto-ExBetween-the-Quotes feature of POETS. It

further provides that this feature would

permit the automatic execution of limit

orders entered into POETS that: (i) Are

to buy or sell five option contracts or

less; and (ii) have limit prices that are

between, but not equal to, the best bid

or offering price then being

disseminated on the PCX. It further

states that Lead Market Makers would

be required to provide the members of

the trading crowd with at least five

minutes notice before activating this

feature. If the feature is on, marketmakers would be exempt from the

mandatory log-on-requirements of PCX

Rule 6.87(e)(4).7 The rule change would

allow the LMM to set the number of

contracts (from between one to five) that

may be automatically executed if the

new feature is in operation.

The Exchange believes that the

proposal would facilitate transactions in

securities by eliminating the need to

execute certain very small customer

limit orders manually (as in currently

the case). The Exchange also believes

that the proposal would remove

opportunities for manipulative acts and

practices involving small customer

orders that are entered for the sole

purpose of changing the PCX BBO and/

or the national best bid and offer

(‘‘NBBO’’).

2. Statutory Basis

The Exchange believes that this

proposal is consistent with section 6(b)

of the Act,8 in general, and furthers the

objectives of section 6(b)(5),9 in

particular, in that it is designated to

facilitate transactions in securities, to

prevent fraudulent and manipulative

acts and practices, and 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.

Federal Register / Vol. 66, No. 84 / Tuesday, May 1, 2001 / Notices 21803

10 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

11 15 U.S.C. 78f(b)(5).

12 ‘‘Small order baiting’’ occurs when a customer

limit order for a minimal number of contracts is

entered on one side of the market at a better price

than the disseminated quote, thereby improving the

quote. A large customer order on the other side of

the market is then sent to the Auto-Ex to obtain the

better price set by the small limit order.

13Telephone conversation between Cindy L.

Sink, Senior Attorney, Regulatory Policy, PCX, and

Andrew Shipe, Attorney, Division of Market

Regulation, SEC, April 24, 2001.

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

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

16 17 CFR 200.30–3(a)(12).

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

III. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposal, 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 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 PCX. All

submissions should refer to File No.

SR–PCX–00–48 and should be

submitted by May 22, 2001.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

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.10 In particular, the

Commission believes that the proposal

is consistent with sections 6(b)(5) of the

Act,11 which requires, among other

things, that the rules of an Exchange be

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market,

and to protect investors and the public

interest.

The Commission notes that, under

current PCX Rules 6.86 and 6.87,

market-makers taking part in Auto-Ex

are required to be firm for a minimum

of twenty or more contracts at the bid

or offer displayed as the disseminated

market quote. By the operation of these

rules, therefore, a limit order for a small

number of contracts, priced better than

the disseminated quote, would establish

the best bid or offer on the Exchange,

and thereby commit the Exchange’s

market-makers to electronically execute

large numbers of contracts at prices

better than those at which they are

willing to trade.

The proposed rule change would alter

this situation by permitting certain

small limit orders (those for five or

fewer contracts) to be automatically

executed through operation of the PCX’s

Auto-Ex system. Under the proposal,

LMMs would be permitted, at their

discretion, and upon giving five minutes

notice to the crowd, to activate this

function. While the function is active,

market-makers logged on to the Auto-Ex

system would be excused from

compliance with Exchange Rule

6.87(e)(4) and, therefore, permitted to

log off the system. Small limit orders

that improve the best bid or offer would

then be executed, at their limit prices,

against those market-makers who opt to

remain logged on to Auto-Ex, or against

the lead LMM. The intended effect

would be to execute a small limit order

rather than to display it, which

potentially would allow a larger contraside order to enter the POETS system,

execute against it, and trigger the

execution of multiple contracts by

market-makers at prices they did not

quote.

The Commission believes that the

proposed feature should foster a fair and

orderly market by preserving booked

order priority, allowing for efficient

Auto-Ex executions, and limiting the

opportunity for ‘‘small order baiting.’’ 12

The Commission notes that, according

to PCX,13 the proposed rule change

would continue to permit limit orders in

the Exchange’s limit order book to trade

against orders in the POETS/Auto-Ex

system, thereby preserving the priority

of booked orders.

The Commission finds good cause for

approving the proposed rule change

(SR–PCX–00–48) prior to the thirtieth

day after the date of publication of

notice thereof in the Federal Register.

The proposed rule change is designed to

automatically execute small customer

orders at prices better than the

disseminated quote in certain

circumstances. Accordingly, the

Commission finds that there is good

cause, consistent with section 6(b)(5) of

the Act,14 to approve the proposal on an

accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to

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

proposed rule change, as amended, (SR–

PCX–00–48) is hereby approved on an

accelereated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10747 Filed 4–30–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44218; File No. SR–SCCP–

00–06]

Self-Regulatory Organization; Notice of

Filing and Immediate Effectiveness of

a Proposed Rule Change by Stock

Clearing Corporation of Philadelphia

Relating to Proposed Fees for

Processing of Units of Beneficial

Interest in the Nasdaq 100 Trust,

Series 1

April 25, 2001.

Pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

December 8, 2000, Stock Clearing

Corporation of Philadelphia (‘‘SCCP’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) and on

December 15, 2000, amended, the

proposed rule change as described in

Items I, II, and III, below, which Items

have been prepared by SCCP. 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

SCCP proposes to institute a fee for

the processing of Units of Beneficial

Interest in the Nasdaq 100 Trust, Series

1 (‘‘Nasdaq-100 Index Tracking Stock’’).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

SCCP 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