[Federal Register Volume 66, Number 117 (Monday, June 18, 2001)]
[Notices]
[Pages 32854-32856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15218]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44403; File No. SR-PCX-99-45]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Granting Approval of Proposed Rule Change and Notice of Filing and 
Order Granting Accelerated Approval to Amendment No. 2 Relating to 
Housekeeping Amendments to Rules Governing Floor Brokers

June 8, 2001.

I. Introduction

    On November 5, 1999, the pacific Exchange, Inc. (``PCX'' or 
``Exchange'') submitted to 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 making housekeeping amendments to 
the Exchange's rules governing floor brokers. On March 23, 2000, the 
PCX filed Amendment No. 1 to the proposed rule change.\3\ The proposed 
rule change, including Amendment No. 1, was published for comment in 
the Federal Register on June 8, 2000.\4\ On January 8, 2001, the PCX 
filed Amendment No. 2 to the proposed rule change.\5\ No comments were 
received on the proposal. This order approves the proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Robert P. Pacileo, Senior Attorney, 
Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), SEC, dated March 22, 
2000 (``Amendment No. 1'').
    \4\ Securities Exchange Act Release No. 42861 (May 30, 2000), 65 
FR 36489.
    \5\ See letter from Hassan Abedi, Attorney, Regulatory Policy, 
PCX, to Nancy J. Sanow, Assistant Director, Division, SEC, dated 
January 5, 2001 (``Amendment No. 2''). In Amendment No. 2, the 
Exchange made technical changes to the titles of PCX Rule 6.47(b) 
and PCX Rule 6.47(c) Also, the Exchange revised PCX Rule 6.47(b) to 
indicate that subsections (4)-(6) had been added to the rule since 
the time the proposed rule change was filed. See Securities Exchange 
Act Release No. 42848 (May 26, 2000), 65 FR 36206 (June 7, 2000). 
Next, the Exchange added ``and Rule 6.73'' to the last sentence of 
PCX Rule 6.47(d). Finally, the Exchange deleted the last two 
sentences of Commentary .05 to PCX Rule 6.47.
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II. Description Proposal

    In its proposed rule change, the Exchange seeks to modify its 
options floor broker rules by renumbering certain Options Floor 
Procedure Advices (``OFPAs''),\6\ clarifying existing

[[Page 32855]]

provisions, eliminating superfluous provisions, and incorporating 
current policies and procedures into the text of PCX Rule 6.
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    \6\ The following OFPAs are proposed to be renumbered as PCX 
rules: OFPA A-10, Subject: Broker Responsibility on Print-Throughs, 
as PCX Rule 6.46(d). In addition, the Exchange seeks to eliminate 
superfluous language currently contained in the OFPA. OFPA A-11, 
Subject: Broker Responsibility to Cancel Best Bid or Offer, as PCX 
Rule 6.46(e); OFPA D-4 Subject: Use of Orders Which Specify More 
than One Contract, as PCX Rule 6.46(f); OFPA A-6, Subject: 
Responsibility of Floor Brokers in Effecting a Cross Transaction, as 
PCX Rules 6.47(d), (e) and (f); OFPA A-9, Subject: Discretionary 
Transactions (Floor Brokers), as PCX Rule 6.48(b); OFPA B-10, 
Subject: Discretionary Transactions by Market Makers, as PCX Rule 
6.48(c); OFPA A-2, Subject: Floor Broker Acting As Both Principal 
and Agent in the Same Transaction, as PCX Rule 6.50.
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    Specifically, the Exchange proposes to change PCX Rule 6.44 
governing the registration of floor brokers. As proposed, the Exchange 
will post, for at least 10 days on the bulletin board located on the 
Exchange floor, the name of each applicant for registration as a floor 
broker that has successfully passed the prescribed floor broker 
examination.\7\
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    \7\ Similar changes are proposed for registration of market 
makers under PCX Rule 6.33. See Securities Exchange Act Release No. 
42035 (Oct. 19, 1999), 64 FR 57681 (Oct. 26, 1999) (File No. SR-PCX-
99-13).
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    The Exchange also proposes to add a provision to PCX Rule 6.45 
requiring floor brokers that act as such in respect of FLEX Options 
contracts to have one or more Letter(s) of Authorization on behalf of 
such Floor Brokers issued by a Clearing Member in accordance with Rule 
8.115(b).
    The Exchange also proposes to clarify the types of orders referred 
to in OFPA D-4, which is proposed to be renumbered as PCX Rule 6.46(f). 
Specifically, where floor brokers may accept orders that bid for or 
offer a specified number of contracts and no less, the Exchange 
proposes to codify that these orders include orders designated as 
``fill or kill,'' ``all or none,'' or ``immediate or cancel,'' 
(including such orders specifying that any unfilled portion of a 
multiple order is to be immediately canceled). However, floor brokers 
must assure that all such orders (including the contingency) are 
vocalized in the trading crowd, and that the bid or offer is not 
disseminated.
    Next, the Exchange proposes to change PCX Rule 6.46, Commentary 
.02. Currently, the Commentary states that a floor broker's use of 
diligence requires that he make all persons in the trading crowd aware 
of his request for a quotation. The PCX proposes to require that a 
floor broker make only reasonable attempts to make all persons in the 
crowd aware of each request for a quote.
    The Exchange proposes to add PCX Rule 6.47(c)(5), relating to 
crossing of solicited orders, to permit a floor broker to step out of a 
trading crowd to solicit interest after announcing an order, and then 
return to the crowd without re-announcing the order if he remained 
within hearing distance while outside the crowd.
    Finally, the Exchange proposes to adopt PCX Rule 6.49(a) to provide 
that floor brokers who are required to establish and maintain error 
accounts pursuant to PCX Rule 4.21 may only use such accounts for the 
purpose of correcting bona fide errors.

III. Discussion

    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,\8\ and, in 
particular, with the requirements of section 6(b) of the Act.\9\ The 
proposal would modify certain rules relating to floor brokers by 
clarifying existing provisions, eliminating unnecessary provisions, and 
codifying current policies and procedures. By clarifying and updating 
its rules and obligations for its members, the Commission believes the 
proposal will promote just and equitable principles of trade in 
accordance with section 6(b)(5) of the Act.\10\
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    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the Exchange's proposal to eliminate 
the current requirement that the Option Floor Trading Commission review 
and approve each floor broker application, and instead require only 
that an applicant's name be posted on the bulletin board for an 
extended ten calendar day period is appropriate and consistent with the 
Act. The Commission believes that posting each applicant's name on the 
floor of the Exchange for ten days will provide ample opportunity for 
members to bring any concerns they have regarding an applicant to the 
attention of the Exchange's Membership Committee before the floor 
broker's application for membership becomes effective. Further, the 
Commission notes that the Exchange's rule governing registration of 
floor brokers continues to require that all applicants pass an 
examination prescribed by the Exchange, thus imposing an objective 
standard that must be met for registration as a floor broker.\11\
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    \11\ See PCX Rule 6.44(a).
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    The Commission also finds that the Exchange's proposal to eliminate 
the current requirement that floor brokers make all persons in the 
trading crowd aware of each request for a quote is consistent with the 
Act. The Exchange represented that the current rule is not feasible for 
floor brokers dealing with large, active trading crowds. Thus, the 
Exchange proposed to require floor brokers to make reasonable attempts 
to notify all persons in the crowd of such requests. The Commission 
recognizes that it can be difficult to ensure that in fact every person 
in a large, active crowd is in a position to hear requests for quotes, 
and finds that it is appropriate and consistent with the Act to allow 
floor brokers to meet their obligation by making reasonable attempts to 
make all persons in the crowd aware of requests for quotes. However, 
the Commission expects that the Exchange will monitor actions taken by 
floor brokers under this rule to ensure that good faith and reasonable 
efforts are made to reach all persons in the crowd regardless of the 
size of the crowd. Further, floor brokers remain obligated under PCX 
Rule 6.46 to use due diligence in executing orders at the best price or 
prices available, which includes ascertaining whether a better price 
than that which is displayed at the time is being quoted by another 
floor broker or market maker.
    The Commission finds that the Exchange's proposed rule that would 
allow a floor broker, when crossing solicited orders, to step out of a 
crowd to solicit interest after announcing an order, and then return to 
the crowd without re-announcing the order if he remained within hearing 
distance of the crowd is consistent with the Act. If there is no 
expressed interest within the trading crowd for an order, this rule 
will allow floor brokers to attempt to solicit interest from outside 
the crowd, i.e., via telephone, without requiring the floor broker to 
re-announce the order if he remained within hearing distance. The 
Commission believes that this may facilitate the execution of orders in 
a more efficient manner.
    The Exchange proposed a new rule to require that floor brokers that 
are required to establish error accounts only use such accounts for the 
purpose of correcting bona fide errors. The Commission finds that this 
new rule should prevent manipulative acts and practices because it 
prohibits all other types of transactions from being executed in these 
account. Floor brokers are limited in the types of transactions that 
they may execute. Thus, this rule should add another level of oversight 
to ensure that floor brokers do not engage in improper transactions.

[[Page 32856]]

    Finally, by consolidating rules affecting floor brokers in one 
section of the PCX rules, the Commission believes that PCX members and 
other interested parties will have easier access to relevant 
information. The Commission believes that the rule consolidation will 
assist floor brokers in understanding their obligations, and thus 
facilitate their compliance with the rules.

IV. Amendment No. 2

    The Commission finds good cause for approving Amendment No. 2 prior 
to the thirtieth day after the date of publication of notice in the 
Federal Register. Amendment No. 2 makes technical, non-substantive 
changes to the proposal, such as changing the titles of two 
subparagraphs of PCX Rule 6.47 to better reflect their purpose; 
reflecting that additional subparagraphs were added to PCX Rule 
6.47(b); and deleting language in a commentary that duplicates language 
proposed in PCX Rule 6.47(d).
    The Commission finds that PCX's proposed changes in Amendment No. 2 
clarify the proposed rule change and raises no new regulatory issues. 
Further, the Commission believes that Amendment No. 2 does not 
significantly alter the original proposal, which was subject to a full 
notice and comment period. Therefore, the Commission finds that 
granting accelerated approval to Amendment No. 2 is appropriate and 
consistent with section 19(b)(2) of the Act.\12\
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    \12\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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 at 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-PCX-99-45 and should be 
submitted by July 9, 2001.

VI. Conclusion

    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-PCX-99-45), as amended, is 
approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 U.S.C. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-15218 Filed 6-15-01; 8:45 am]
BILLING CODE 8010-01-M