[Federal Register Volume 66, Number 250 (Monday, December 31, 2001)]
[Notices]
[Pages 67606-67609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-32083]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45188; File No. SR-PCX-2001-33]


Self-Regulatory Organizations; Notice of filing of Proposed Rule 
Change and Amendment No. 1 by the Pacific Exchange, Inc. To Adopt 
Procedures for the Transfer of Options Positions

December 21, 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 August 10, 2001, the Pacific Exchange, Inc. (``PCX'' 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 PCS. The Exchange 
amended the proposed rule change on December 11, 2001.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter dated December 10, 2001 from Cindy Sink, Senior 
Attorney, Regulatory Policy, PCX, to Joe Morra, Special Counsel, 
Division of Market Regulation, Commission and attachments 
(``Amendment No. 1''). In Amendment No. 1, the PCX: (1) Clarified 
the intent of the rule that after the proper request has been 
completed, a transfer will be automatically permitted when the 
transfer satisfies one of the specified categories set forth in 
proposed Rule 6.78(d)(1); (2) revised Item 8 to state that the 
proposed rule change is based, in part, on Chicago Board Options 
Exchange Rule 6.49A; and (3) made technical changes to the rule 
text.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX proposes to establish procedures for the transfer of 
options positions. The text of the proposed rule change, as amended, is 
below. Proposed new language is italicized.
    Rule 6.78 (a)-(c)  No change.

Transfer of Positions

    (d) Transfer of Positions off the Floor. ``Transfer of positions 
off the floor'' is defined as moving a member's ownership interest in 
securities from its account to an account of another member or person 
in a manner other than trading on the floor of a securities exchange.
    (1) Transfers off the Floor. Notwithstanding the prohibition set 
forth in subsection (a), an Exchange member may transfer positions off 
the floor if the transfer involves one or more of the following events: 
(i) The dissolution of a joint account in which the remaining member 
assumes the positions of the joint account; (ii) the dissolution of a 
corporation or partnership in which a former nominee of that 
corporation or partnership assumes the positions; (iii) positions 
transferred as part of a member's capital contribution to a new joint 
account, partnership, or corporation; (iv) the donation of positions to 
a not-for-profit corporation; (v) the transfer of positions to a minor 
under the Uniform Gifts to Minors Act; (vi) a merger or acquisition 
resulting in a continuity of ownership or management; or (vii) 
consolidation of accounts within a member organization.
    (2) Written Request. No member or member organization may effect a 
transfer of positions off the floor in any security listed on the 
Exchange without the prior submission of a completed written request to 
the Exchange. This requirement applies regardless of whether the 
transfer is permitted under subsection (d)(1) or (f).
    (e) Transfer of Positions Offered on the Floor. ``Transfer of 
positions offered on the floor'' is defined as moving a member's 
ownership interest in securities from its account to an account of 
another member or person in circumstances other than those set forth in 
subsection (d)(1).
    (1) Transfer Procedure for Positions Offered on the Floor. A member 
seeking a transfer must offer the positions on the floor in the 
following manner:
    (A) A member or member organization seeking to transfer positions 
on the floor (``Transferor'') must specify the securities positions to 
be transferred that are traded on the Exchange or at another securities 
exchange (``Transfer Positions''). In offering Transfer Positions to 
the floor, the Transferor must offer a set of options or other 
financial products being offered by the Transferor as a package 
(``Transfer Package''), to be bid upon at a net debit or credit for the 
entire Transfer Package. A single Transfer Package must include no more 
than one option issue listed on the Exchange, but may also include 
stock or other securities. A Transferor may offer multiple Transfer 
Packages on the floor at the same time or on the same day. These offers 
must be made in a form

[[Page 67607]]

and manner prescribed by the Exchange.
    (F) Acceptance of the best bid or offer (``BBO'') creates a binding 
contract under Rule 6.77. The Transferor is not obligated to accept the 
BBO. If the Transferor does not accept the BBO, the Transferor may 
request an exemption pursuant to paragraph (f) of this Rule, or may 
offer the Transfer Package(s) (or the Transfer Positions in any other 
allowable combination) on the floor the next day pursuant to the 
procedures in this Rule. If the Transferor decides not to accept a BBO 
on a second day, the Transferor must request permission of two Floor 
Officials to offer the Transfer Positions on any subsequent day(s). 
    (G) The ``Request Response Time'' for a ``Request for Quotes'' for 
Transfer Packages is two hours. The transferor may apply to two Floor 
Officials to have a Request Response Time for a transfer procedure that 
is less than two hours, where the Transfer Package is not complicated, 
or that is greater than two hours, where the complexity of the 
particular Transfer Package warrants the additional time.
    (H) A Request for Quotes that is to be submitted later than 11:00 
a.m. Pacific Time must have the approval of two Floor Officials. In no 
event may a Request for Quotes be submitted to the floor later than 
12:30 p.m. Pacific Time.
    (I) The Transferor may accept a bid or offer for one or more of the 
Transfer Packages he/she has offered on the floor, if the accepted bid 
or offer for the combination of the Transfer Packages is equal to or 
better than the total of the individual BBOs for the particular 
Transfer Package combination and equal to or greater than any bid or 
offer for the same combination of Transfer Packages.
    (J) All transactions (including stock positions or other positions 
that must be transacted on another exchange) required to be completed 
in order to effectuate the transfer of the Transfer Package must be 
completed in time for the option portion to be transacted by the end of 
the trading day.
    (K) If equal bids or offers are received for a Transfer Package at 
a price accepted by the Transferor, the Transfer Package will be 
divided equally among all members submitting the bids or offers to the 
extent possible unless the parties submitting the bids or offers agree 
to a division in another manner. Two Floor Officials will resolve 
Transfer Package division disputes.
    (f) Exemptions. The Exchange's Chief Executive Officer or designee 
thereof may grant an exemption from the requirements of subsection (e), 
upon that person's own motion or upon application of a Transferor, 
when, in the judgment of the Chief Executive Officer or designee, the 
market value of the Transferor's business will be compromised by having 
to comply with subsection (e) or when, in the judgment of the Chief 
Executive Officer or designee market conditions make position transfer 
offers on the floor impractical. The Chief Executive Officer or 
designee will consider effects on open interest and other factors 
deemed necessary to ensure fair and orderly market conditions.
    Commentary:
    .01 No change.
    .02 Acquisitions and dissolutions which all or substantially all of 
the assets of one member or member organization are required by another 
or, where there remains no continuity of ownership or management are 
examples of situations that normally would be required to be subjected 
to the transfer process set forth in subsections (e) and (f). This list 
is not meant to be exhaustive, however, and there may be other 
situations in which there is a discontinuation of ownership or 
management of the positions that may require that the positions be 
brought to the floor for transfer. Questions on whether a transfer 
should be brought to the floor may be directed to the Exchange's 
Options Surveillance Department.
    .03 To the extent applicable, all other Exchange rules, including 
Rule 6.49, Solicited Transactions, will apply to the transfer procedure 
set forth in subsections (d) through (f). The following Rules do not 
apply to transfer procedures: 6.71 (Meaning of Premium Bids and 
Offers); 6.74 (Bids and Offers in Relation to Units of Trading); 6.75 
(Priority of Bids and Offers); 6.76 (Priority of Split Price 
Transactions); 6.47 (``Crossing'' Orders and Stock/Option Orders); and 
7.9 (Meaning of Premium Bids and Offers, Index Options).
    .04 The procedure established by subsections (d) through (f) may 
also be used by Market Makers who, for reasons other than a forced 
liquidation, such as an extended vacation, wish to liquidate their 
entire, or nearly their entire position in a single set of 
transactions. However, this procedure is not to be used repeatedly or 
routinely in circumvention of the normal auction market process.

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 IV 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
    The purpose of the proposed rule change is to establish which 
position transfers may occur off the floor and which position transfers 
must be offered to the floor.\4\ All transfers require a written 
request to the Exchange. To initiate transfers, the member submits a 
written request to the Financial and Operational Compliance Department 
(``FOCD'').
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    \4\ The rule is based, in part, on the Chicago Board Options 
Exchange Rule 6.49A.
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    (1) Transfer of Positions off the Floor. Transfers involving the 
following will be approved by the FOCD:
    (A) Joint account dissolution with remaining member assuming the 
positions;
    (B) Business dissolution with a former nominee assuming the 
positions;
    (C) Positions transferred as capital contribution to a new joint 
account, partnership, or corporation;
    (D) Donation of positions to a not-for-profit corporation;
    (E) Transfer to a minor under the Uniform Gifts to Minors Act;
    (F) Merger or acquisition with continuity of ownership or 
management; or
    (G) Accounts consolidation within a member organization.
    Transfers that fall under one or more of these seven categories 
((A) through (G)) that submit the proper request information qualify 
for transfer off the Floor. However, the transferor may elect to 
present to the floor.
    (2) Transfer of Positions Offered on the Floor. Transfers not 
involving one of the above seven categories ((1)(A) through (G)) will 
be sent to the Options Surveillance Department (OSD'') by the FOCD for 
assistance in offering the transfer to the floor. When a transfer is 
offered to the floor, the procedure detailed in proposed subsection (e) 
applies. Specifically, a member or member organization seeking to 
transfer positions on the floor (``Transferor'') must specify the 
securities positions to be transferred that are traded on the Exchange 
or at another securities

[[Page 67608]]

exchange (``Transfer Positions''). In offering Transfer Positions to 
the floor, the Transferor must offer a set of options or other 
financial products being offered by the Transferor as a package 
(``Transfer Package''), to be bid upon at a net debit or credit for the 
entire Transfer Package. A single Transfer Package must include no more 
than one option issue listed on the Exchange, but may also include 
stock or other securities. A Transferor may offer multiple Transfer 
Packages on the floor at the same time or on the same day. These offers 
must be made in a form and manner prescribed by the Exchange.
    A Transfer Package consisting solely of positions in one option 
issues and no other securities will be offered by the Transferor at the 
post at which that option issue is traded (``Post-Specific Transfer 
Packages''). Post-Specific Transfer Package must be individually priced 
and reported. Post-Specific Transfer Packages are subject to the 
ordinary procedures for trading options, and not those set forth in 
proposed subsection (e), unless a bid or offer is made for a 
combination of Transfer Packages pursuant to proposed subsection 
(e)(1)(I).
    A Transfer Package consisting of positions in an option issue and 
other financial instruments must be offered at the FLEX Post. In 
addition, notice must be given to the order book official (``OBO'') of 
each post (or the lead market maker for the particular issue, as 
appropriate) where a component of the Transfer Package trades. The OBO 
will announce the pending transfer of positions prior to the offer 
being made at the FLEX post.
    A member submitting a Transfer Package must designate a member of 
the Exchange (``Transferor Designeer'') to represent the order on the 
floor. The Transferor Designee must be available to answer questions 
regarding the Transfer Package during the entire Request Response Time 
(as defined in proposed subsection (e)(1)(G)).
    To the extent applicable and as modified by proposed subsection 
(e), Transfer Packages offered at the FLEX post will be subject to the 
procedures set forth in PCX Rule 8.103 (FLEX Trading Procedures and 
Principles) paragraphs (a) through (c).
    Acceptance of the best bid or offer (``BBO'') creates a binding 
contract under PCX Rule 6.77. The Transferor is not obligated to accept 
the BBO. If the Transferor does not accept the BBO, the Transferor may 
request an exemption pursuant to proposed subsection (f), or may offer 
the Transfer Package(s) (or the Transfer Positions in any other 
allowable combination) on the floor the next day pursuant to the 
procedures in proposed subsection (d). If the Transferor decides not to 
accept a BBO on a second day, the Transferor must request permission of 
two Floor Officials to offer the Transfer Positions on any subsequent 
day(s).
    The ``Request Response Time'' for a ``Request for Quotes'' for 
Transfer Packages is two hours. The Transferor may apply to two Floor 
Officials to have a Request Response Time for a transfer procedure that 
is less than two hours, where the Transfer Package is not complicated, 
or that is greater than two hours, where the complexity of the 
particular Transfer Package warrants the additional time.
    A Request for Quotes that is to be submitted later than 11:00 a.m. 
Pacific Time must have the approval of two Floor Officials. In no event 
may a Request for Quotes be submitted to the floor later than 12:30 
p.m. Pacific Time.
    The Transferor may accept a bid or offer for one or more of the 
Transfer Packages he/she has offered on the floor, if the accepted bid 
or offer for the combination of the Transfer Package is equal to or 
better than the total of the individual BBOs for the particular 
Transfer Package combination and equal to or greater than any bid or 
offer for the same combination of Transfer Packages.
    All transactions (including stock positions or other positions that 
must be transacted on another exchange) required to be completed in 
order to effectuate the transfer of the Transfer Package must be 
completed in time for the option portion to be transacted by the end of 
the trading day.
    If equal bids or offers are received for a Transfer Package at a 
price accepted by the Transferor, the Transfer Package will be divided 
equally among all members submitting the bids or offers to the extent 
possible unless the parties submitting the bids or offers agree to a 
division in another manner. Two Floor Officials will resolve Transfer 
Package division disputes.
    The Exchange's Chief Executive Officer or designee thereof may 
grant an exemption from the requirement of proposed subsection (e), 
upon that person's own motion or upon application of a Transferor, 
when, in the judgment of the Chief Executive Officer or designee, the 
market value of the Transferor's business will compromised by having to 
comply with proposed subsection (e) or when, in the judgment of the 
Chief Executive Officer or Designee market conditions make position 
transfer offers on the floor impractical. The Chief Executive Officer 
or designee will consider effects on open interest and other factors 
deemed necessary to ensure fair and orderly market conditions.
2. Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\5\ in general, and furthers 
the objectives of Section 6(b)(5),\6\ in particular, because it is 
designed to promote just and equitable principles of trade, to enhance 
competition and to protect investors and the public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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 PCX consents, the Commission will:
    (A) By order approve the proposed rule change, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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, as amended,

[[Page 67609]]

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-2001-33 and should be 
submitted by January 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-32083 Filed 12-28-01; 8:45 am]
BILLING CODE 8010-01-M