Federal Register / Vol. 61, No. 95 / Wednesday, May 15, 1996 / Notices 24523

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1994).

3On May 2, 1996, the PSE filed Amendment No.

1 to the proposed rule change to include within the

rule text the requirement that if the Exchange grants

a facilitation exemption on the basis of oral

representations, the member organization must file

the appropriate forms and documentation

substantiating the basis for the exemption within

either two businesses days or a period of time to

be designated by the Exchange (‘‘Amendment No.

1’’). See Letter from Michael D. Pierson, Senior

Attorney, Market Regulation, PSE, to Matthew S.

Morris, Attorney, Office of Market Supervision,

Division of Market Regulation, Commission, dated

May 2, 1996.

4The Commission notes that a facilitation trade

is defined as a transaction that involves crossing an

order of a member firm’s public customer with an

order for the member firm’s proprietary account.

5The PSE’s exercise limit provisions will

correspond to the increase in position limit levels

permitted by the firm facilitation exemption.

(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.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(a) By order approve such proposed

rule change, or

(b) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

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

Section, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing

will also be available for inspection and

copying at the principal office of the

above-mentioned self-regulatory

organization. All submissions should

refer to File No. SR–PSE–96–12 and

should be submitted by June 5, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12172 Filed 5–14–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37178; File No. SR–PSE–

96–10]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Pacific Stock

Exchange, Inc., To Establish a Firm

Facilitation Exemption

May 8, 1996.

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 April 4,

1996, the Pacific Stock Exchange, Inc.

(‘‘PSE’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II

below, which Items have been prepared

by the self-regulatory organization. The

PSE subsequently filed Amendment No.

1 to the proposed rule change on May

2, 1996.3 The PSE has requested

accelerated approval for the proposal.

This order approves the PSE’s proposal,

as amended, on an accelerated basis and

solicits comments from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PSE is proposing to amend its

rules on option position limits in order

to establish a firm facilitation exemption

to such limits.

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

PSE 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 PSE 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

The PSE is proposing to establish a

firm facilitation exemption 4 for all nonmultiply-listed Exchange option issues

by adding new Commentary .08 to

Exchange Rule 6.8, the general options

position limit rule.5 The exemption

would be available to equity, broadbased index, narrow-based index,

Flexible Exchange (‘‘FLEX’’), interest

rate, and government securities option

issues to the extent and at the levels

specified therein.

Under the proposal, the procedures in

Exchange Rule 6.47(b) and Options

Floor Procedure Advice A–6 for

crossing a customer order with a firm

facilitation order must be followed. In

this regard, before a customer order can

be crossed with a firm facilitation order,

the trading crowd must be given a

reasonable opportunity to participate.

Moreover, only after it has been

determined that the trading crowd will

not fill the order, may the firm’s

customer order be crossed with the

firm’s facilitation order.

In addition, except for an interest rate

firm facilitation exemption, which is set

at a higher level, the firm facilitation

exemption will be twice the standard

limit.

The PSE notes that the firm

facilitation exemption will be in

addition to and separate from the

standard limit, as well as other

exemptions available under Exchange

position limit rules. For example, if a

firm desires to facilitate customer orders

in the XYZ option issue, which is

assumed not to be multiply-listed and

also assumed to have a 25,000 contract

standard position limit, the firm may

qualify for a firm facilitation exemption

of up to twice the standard limit (50,000

contracts), as well as an equity hedge

exemption of up to twice the standard

limit (50,000 contracts), in addition to
24524 Federal Register / Vol. 61, No. 95 / Wednesday, May 15, 1996 / Notices

6The PSE notes, however, that the Intermarket

Surveillance Group (‘‘ISG’’) is currently working on

developing such procedures. 7 15 U.S.C. 78f(b)(5) (1988).

the 25,000 contract standard limit. If

both exemptions are allowed, the

facilitation firm may hold or control a

combined position of up to 125,000

XYZ contracts on the same-side of the

market.

The PSE notes, however, that the firm

facilitation exemption will not presently

extend to all option issues listed on the

Exchange. Rather, until coordinated

intermarket procedures are developed,

the exemption will be extended only to

non-multiply-listed option issues.6

Under the proposal, the facilitation

firm must receive approval from the

Exchange prior to executing facilitating

trades. Although Exchange approval

may be granted on the basis of verbal

representations, the facilitation firm is

required to furnish to the Exchange’s

Department of Options Surveillance,

within two business days or such other

time period designated by the Exchange,

forms and documentation substantiating

the basis for the exemption. Within five

business days after the execution of a

facilitation exemption order, a

facilitation firm must hedge all exempt

option positions that have not

previously been liquidated, and furnish

to the Exchange’s Department of

Options Surveillance documentation

reflecting the resulting hedging

positions. In meeting this requirement,

the facilitation firm must liquidate and

establish its customer’s and its own

option and stock positions or their

equivalent in an orderly fashion, and

not in a manner calculated to cause

unreasonable price fluctuations or

unwarranted price changes. In addition,

a facilitation firm is not permitted to use

the facilitation exemption for the

purpose of engaging in index arbitrage.

Moreover, the facilitation firm is

required to promptly provide to the

Exchange any information or documents

requested concerning the exempted

option positions and the positions

hedging them, as well as to promptly

notify the Exchange of any material

change in the exempted options

position or the hedge.

Lastly, to aid in understanding the

scope of the firm facilitation exemption,

Commentary .08 will include both a

table and an example showing how the

exemption will be applied.

2. Statutory Basis

The PSE believes that the proposal is

consistent with Section 6(b) of the Act,

in general, and furthers the objectives of

Section 6(b)(5), in particular, in that it

is designed to facilitate transactions in

securities while continuing to further

investor protection and the public

interest, and will accommodate the

needs of investors and other market

participants without substantially

increasing concerns regarding

manipulation and other trading abuses.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The PSE does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Comments were neither solicited nor

received with respect to the proposed

rule change.

III. 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

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filings also will be available for

inspection and copying at the principal

office of the PSE. All submissions

should refer to File No. SR–PSE–96–10

and should be submitted by [insert date

21 days from date of publication].

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, and, in particular, with the

requirements of Section 6(b)(5).7

Specifically, the Commission believes

that the PSE’s proposal is reasonably

designed to accommodate the needs of

investors and other market participants

without substantially increasing

concerns regarding the potential for

manipulation and other trading abuses.

The Commission also believes that the

proposed rule change has the potential

to enhance the depth and liquidity of

the options market by providing

Exchange members greater flexibility in

executing large customer orders.

Accordingly, as discussed below, the

Commission believes that the rule

proposal is consistent with the

requirements of Section 6(b)(5) that

exchange rules facilitate transactions in

securities while continuing to further

investor protection and the public

interest.

The PSE proposal contains several

safeguards that will serve to minimize

any potential disruption or

manipulation concerns. First, the

facilitation firm must receive approval

from the Exchange prior to executing

facilitating trades. Although Exchange

approval may be granted on the basis of

verbal representations, the Commission

believes that trading abuses are unlikely

because the facilitation firm is required

to furnish to the Exchange’s Department

of Options Surveillance, within two

business days or such other time period

designated by the Exchange, forms and

documentation substantiating the basis

for the exemption.

Second, a facilitation firm must,

within five business days after the

execution of a facilitation exemption

order, hedge all exempt options

positions that have not previously been

liquidated, and furnish to the

Exchange’s Department of Options

Surveillance documentation reflecting

the resulting hedging positions. In

meeting this requirement, the

facilitation firm must liquidate and

establish its customer’s and its own

options and stock positions or their

equivalent in an orderly fashion, and

not in a manner calculated to cause

unreasonable price fluctuations or

unwarranted price changes. In addition,

a facilitation firm is not permitted to use

the facilitation exemption for the

purpose of engaging in index arbitrage.

The Commission believes that these

requirements will help to ensure that

the facilitation exemption will not have

an undue market impact on the options

or any underlying stock positions.

Third, the facilitation firm is required

to promptly provide to the Exchange

any information or documents requested

concerning the exempted options

positions and the positions hedging

them, as well as to promptly notify the

Exchange of any material change in the

exempted options position or the hedge.

Fourth, neither the member’s nor the

customer’s order may be contingent on
Federal Register / Vol. 61, No. 95 / Wednesday, May 15, 1996 / Notices 24525

8See Securities Exchange Act Release No. 36964

(March 13, 1996), 61 FR 11453 (March 20, 1996)

(File No. SR–CBOE–95–68).

9 15 U.S.C. 78s(b)(2) (1988).

10 17 CFR 200.30-3(a) (12) (1994).

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

2 17 CFR 240.19b–4.

3See Letter from Murray L. Ross, Secretary, Phlx,

to Jon Kroeper, Attorney, SEC, dated May 8, 1996

(‘‘Amendment No. 1’’). Amendment No. 1 amends

the text of the proposed rule change to delay the

implementation of the proposed rule change until

March 26, 1997, which is the organizational

meeting of the Phlx Board of Governors after the

next scheduled annual election of governors. In its

April 17, 1996 meeting, the Board resolved by

consensus to retain for the 1996–97 governance year

recently appointed Chairmen of Standing

Committees that are not members of the Board.

Amendment No. 1 also contains representations by

the Exchange as to the application of its conflict of

interest policy to Standing Committees of the Board

and the Chairmen thereof. See infra note 7 for a

description of such representations.

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

5 15 U.S.C. 78f(b)(1).

6Presently, the Standing Committees of the Phlx

Board of Governors consist of the following: an

Admissions Committee, an Allocation, Evaluation

and Securities Committee, an Arbitration

Committee, an Audit Committee, a Business

Conduct Committee, an Elections Committee, an

Executive Committee, a Finance Committee, a

Foreign Currency Options Committee, a Marketing

Committee, a Nominating Committee, and an

Options Committee. See Phlx By-Laws, Art. X, § 10–

1(a).

‘‘all or none’’ or ‘‘fill or kill’’

instructions, and the orders may not be

executed until the procedures in

Exchange Rule 6.47(b) and Options

Floor Procedure Advice A–6 have been

satisfied, and crowd members have been

given a reasonable time to participate in

the trade.

Fifth, in no event may the aggregate

exempted position under Commentary

.08 exceed the number of contracts

specified in the exemption’s table, i.e.,

twice the applicable standard limit,

excluding interest rate options which

are set at three times the applicable

standard limit.

Sixth, the facilitation firm may not

increase the exempted options position

once it is closed, unless approval from

the Exchange is again received pursuant

to a reapplication under Commentary

.08.

In summary, the Commission believes

that the safeguards built into the

facilitation exemption process discussed

above should serve to minimize the

potential for disruption and

manipulation, while at the same time

benefitting market participants by

allowing member firms greater

flexibility to facilitate large customer

orders. This structure substantially

mirrors the firm facilitation exemption

process that was recently approved for

the Chicago Board Options Exchange,

Inc. (‘‘CBOE’’).8 The PSE also has

surveillance procedures to surveil for

compliance with the rule’s

requirements. Accordingly, the

Commission believes it is appropriate to

extend the benefits of a firm facilitation

exemption to non-multiply-listed PSE

option issues.

The Commission finds good cause to

approve the proposed rule change,

including Amendment No. 1, prior to

the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, by

accelerating the approval of the

Exchange’s rule proposal, as amended,

the Commission is conforming the

Exchange’s firm facilitation exemption

to the relief recently approved for the

CBOE. Accelerated approval of the

proposed rule change will thereby

provide for the desired uniformity of the

exchanges’ position limit exemptions.

Any other course of action could lead to

unnecessary investor confusion. In

addition, the CBOE’s proposal was

noticed for the entire twenty-one day

comment period and generated no

responses. Accordingly, the

Commission believes that it is

consistent with Sections 6(b)(5) and

19(b)(2) of the Act to approve the

proposed rule change, as amended, on

an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) 9 of the Act, that the

proposed rule change (File No. SR–PSE–

96–10), as amended, is hereby approved

on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–12173 Filed 5–14–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37180; File No. SR–Phlx–

96–04]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval to Proposed

Rule Change and Notice of Filing and

Order Granting Accelerated Approval

to Amendment No. 1 Relating to

Amendment of Its By-Laws To Require

That the Chairman of Each Standing

Committee Must Be a Member of the

Board of Governors

May 9, 1996.

I. Introduction

On January 22, 1996, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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 to

require that the Chairman of each

Standing Committee of the Exchange’s

Board of Governors must be a member

of the Board of Governors.

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 36832

(February 12, 1996), 61 FR 6280

(February 16, 1996). No comments were

received on the proposal. On May 9,

1996, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change.3 This order

approves the proposal, including

Amendment No. 1 on an accelerated

basis.

II. Description

The proposed rule change to Article

X, Section 10–1(a) of the Exchange’s ByLaws mandates that, effective March 26,

1997, the Chairman of each Standing

Committee of the Phlx’s Board of

Governors shall be a member of the

Board of Governors. The proposed rule

change is intended to update the

structural composition of the Standing

Committees and make them more

directly responsive to the Board of

Governors.

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, and, in particular, with the

requirements of Section 6(b).4

Specifically, the Commission believes

that the proposed rule change is

consistent with the Section 6(b)(1) 5

requirement that an exchange be

organized to carry out the purposes of

the Act and to enforce compliance by its

members and persons associated with

its members with the provisions of the

Act and the rules and regulations

thereunder.

By requiring that the Chairman of

each Standing Committee of the Board

of Governors 6 must be a member of the

Board of Governors, the proposed rule

change will enable the Board to more

closely oversee the exercise of the

authority it has delegated to the

Standing Committees and increase the

responsiveness of the Committees to the

Board’s concerns therewith. As a result,

the proposed rule change may enhance

the Board’s ability to perform its

responsibilities under the By-Laws and

Rules of the Exchange and, in turn, the