18636 Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Notices

8 In permanently approving the CHX’s pilot

program for stopping stock in minimum variation

markets, the Commission noted that unintended

consequences may arise from the interplay between

a regional exchange’s price protection rules and its

procedures for stopping stock. In this regard, the

Commission believed that the benefits of stopping

stock in minimum variation markets sufficiently

offset the possible harm to the limit orders on the

book. For similar reasons, the Commission is

approving the BSE program, as proposed to be

amended, on a permanent basis. See Securities

Exchange Act Release No. 36401 (Oct. 20, 1995), 60

FR 54893 (Oct. 26, 1995).

9 17 CFR 240.11b–1(a)(2)(ii).

10Section 11(b) permits a specialist to accept only

market or limit orders.

11See H. Rep. No. 1383, 73d Cong. 2d Sess. 22,

S. Rep. 792, 73d Cong. 2d Sess. 18 (1934).

12See Special Study, supra note 4.

13Moreover, stopped orders as ‘‘limit orders’’

would not bypass pre-existing limit orders on the

same side of the market. Under the BSE’s new

procedures being approved herein, specialists may

not execute a stopped order before the limit order

interest on the Exchange (at the same price as the

stopped order) is exhausted.

14See supra note 7.

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.

3See Securities Exchange Act Release No. 36841

(February 14, 1996), 61 FR 6666 (February 21,

1996).

stopped orders. The BSE’s program, as

currently proposed, would be

substantially similar to the program

already in place in the Chicago Stock

Exchange, Incorporated (‘‘CHX’’).8

For the above reasons, the

Commission believes that the BSE

proposal is consistent with Section

6(b)(5) of the Act. Moreover, the

Commission also believes that the

proposal is consistent with the Rule

11b–1(a)(2)(ii) of the Act.9 Rule 11b–

1(a)(2)(ii) requires that a specialist

engage in a course of dealings for his

own account that assist in the

maintenance, so far as practicable, of a

fair and orderly market. The

Commission believes that the proposal

is consistent with the objectives of this

Rule because the implementation of the

proposal should help the specialist to

provide an opportunity for price

improvement to the customer whose

stop order is granted, without placing a

burden on specialists by requiring that

specialists execute other pre-existing

bids or offers when such executions

would not be otherwise required under

Exchange rules.

The Commission also believes that the

proposal is consistent with the

prohibition in Section 11(b) against

providing discretion to a specialist in

the handling of an order.10 Section 11(b)

was designed, in part, to address

potential conflicts of interest that may

arise as a result of the specialist’s dual

role as agent and principal in executing

stock transactions. In particular,

Congress intended to prevent specialists

from unduly influencing market trends

through their knowledge of market

interest from the specialist’s book and

their handling of discretionary agency

orders.11 The Commission has stated

that, pursuant to Section 11(b), all

orders other than market or limit orders

are discretionary and therefore cannot

be accepted by specialists.12

The Commission believes that it is

appropriate to treat stopped orders as

equivalent to limit orders. A limit order

is an order to buy or sell a stated

amount of security at a specified price,

or better if obtainable. The Commission

believes that stopped orders are

equivalent to limit orders, in this

instance, because the orders would be

automatically elected after a transaction

takes place on the primary market at the

stopped price. The Commission,

therefore, believes that the requirements

imposed on the specialist for granting

stops in minimum variation markets

provide sufficiently stringent guidelines

to ensure that the specialist will

implement the proposed rule change in

a manner consistent with his market

making duties and Section 11(b).13

In permanently approving the

Exchange’s proposal, the Commission

expects the Exchange to continue

monitoring the practice of stopping

stock in minimum variation markets

and to take appropriate action in the

event BSE identifies any instances of

specialist non-compliance with the

program’s procedures.

Finally, the Commission finds good

cause for approving the proposed rule

change prior to the thirtieth day after

the date of publication of notice of filing

thereof. Accelerating the approval of the

proposal would allow the BSE

specialists to continue stopping stock in

minimum variation markets although

they will no longer be able to execute

stopped stock ahead of prior-entered

same priced limit orders. Moreover, the

BSE’s program, as currently proposed, is

substantially similar to the CHX’s

procedures, which were published in

the Federal Register for the full

comment period and were approved by

the Commission on October 20, 1995.14

V. Conclusion

It is therefore ordered, pursuant to

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

proposed rule change (SR–BSE–96–03)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Jonathan G. Katz,

Secretary.

[FR Doc. 96–10317 Filed 4–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37133; File No. SR–PSE–

96–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange

Incorporated, Relating to the FLEX

Equity Options

April 19, 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 5,

1996, the (‘‘PSE’’ or ‘‘Exchange’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

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

The Exchange proposes to reduce

from five to three the minimum number

of market makers who must be qualified

to trade flexible exchange options

(‘‘FLEX Options’’) on an underlying

equity security (‘‘FLEX Equity Option’’)

before such options may be traded on

that security. The text of the proposed

rule change is available at the Office of

the Secretary, the Exchange, 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

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV below.

The Exchange has prepared summaries,

set forth in Section (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

On February 14, 1996, the

Commission approved an Exchange

proposal to list and trade FLEX Equity

Options.3 Pursuant to that rule change,

if the Exchange trades FLEX Equity
Federal Register / Vol. 61, No. 82 / Friday, April 26, 1996 / Notices 18637

4By contrast, under Rules 8.100 et seq., ‘‘FLEX

Appointed Market Makers’’ are those individuals

who have been designated by the Exchange to trade

FLEX options on a specific underlying index

(‘‘FLEX Index Option’’) that has been approved by

the Commission for FLEX Options trading. See PSE

Rules 8.100(a)(1) and 8.109(a).

5With respect to FLEX Index Options, two FLEX

Appointed Market Makers must be approved to

trade FLEX Options on a given index before the

Exchange may list FLEX Options on that index.

FLEX Appointed Market Makers must also meet the

capital requirements of Rule 8.114 (i.e., they must

maintain $1 million net liquidating equity and/or

$1 million net capital (as defined by SEC Rule

15c3–1 under the Act)), and they must also meet the

account equity requirements of Rule 8.113(a) (i.e.,

the net liquidating equity maintained in their

individual or joint accounts must be least

$100,000).

6See PSE Rule 8.115(a). 7See PSE Rule 8.109(a). 8 17 CFR 200.30–3(a0912).

Options on a security, then market

participants would be able to designate

certain contract terms for options of

such securities, including: exercise

price; exercise style (i.e., American,

European or capped); expiration date;

and option type (i.e., put, call or

spread).

PSE Rule 8.109(a) currently provides

for the selection of ‘‘FLEX Qualified

Market Makers,’’ i.e., market makers

whom the Exchange deems to be

qualified to trade Exchange Equity

Options based on the following factors:

(1) The preference of the registrants; (2)

the maintenance and enhancement of

competition among market makers; and

(3) the assurance that the market maker

will have adequate financial resources.4

In addition, pursuant to Rule 8.115(a),

FLEX Qualified Market Makers may not

effect any transactions in FLEX Equity

Options unless one of more letter(s) of

guarantee has been issued by a clearing

member and filed with the Exchange

pursuant to Rule 6.36(a). In connection

with these letters of guarantee, a

clearing member must accept financial

responsibility for all FLEX transactions

made by such market makers.

PSE Rule 8.109(a) currently provides

that the Exchange shall appoint five or

more FLEX Qualified Market Makers to

each FLEX Equity Option prior to its

listing.5 The Exchange proposes to

reduce the minimum number of FLEX

Qualified Market Makers required under

Rule 8.109(a) from five to three. The

Exchange is proposing this change in

order to enhance its ability to trade

FLEX Equity Options on the Exchange.

The Exchange believes that no undue

financial risk to the Exchange would

result from this change because each

transaction of FLEX Qualified Market

Makers will be backed by a clearing

member, which will accept financial

responsibility for all FLEX transactions

made by such market makers pursuant

to a letter of guarantee.6 The Exchange

also believes that three FLEX Qualified

Market Makers will be a sufficient

number of traders to provide quotations

in response to requests for quotes

because the Exchange expects that FLEX

Equity Options will be traded in the

same trading crowd as Non-FLEX

Options on the same underlying

securities. In this regard, the Exchange

notes that under the current rules, two

FLEX Appointed Market Makers may be

designated in lieu of five FLEX

Qualified Market Makers to trade FLEX

Equity Options.7

The Exchange believes that the

proposed rule change 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

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, and is not

designed to permit unfair

discrimination among customers,

issuers, brokers or dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that 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. 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 Exchange 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. 20549. 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–PSE–96–11

in the caption above and should be

submitted by May 17, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Jonathan G. Katz,

Secretary.

[FR Doc. 96–10315 Filed 4–25–96; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Minneapolis Advisory Council Meeting

The U.S. Small Business

Administration, Minneapolis, St. Paul

District Advisory Council will hold a

public meeting on Friday, May 24, 1996

at 11:30 am at the Decathlon Club, 1700

East 79th Street, Bloomington,

Minnesota, to discuss matters as may be

presented by members, staff of the U.S.

Small Business Administration, or

others present.

For further information, write or call

Mr. Edward A. Daum, District Director,

U.S. Small Business Administration,

610–C Butler Square, 100 North Sixth

Street, Minneapolis, Minnesota 55403,

(612) 370–2306.

Dated: April 22, 1996.

Bill Combs,

Associate Administrator for Office of

Communication and Public Liaison.

[FR Doc. 96–10401 Filed 4–25–96; 8:45 am]

BILLING CODE 8025–01–P

SOCIAL SECURITY ADMINISTRATION

Agency Information Collection

Activities: Submission for OMB

Review; Comment Request

Normally on Fridays, the Social

Security Administration publishes a list

of information collection packages that