Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Notices 12577

3 15 U.S.C. 78f(b)(5).

4 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

order, (2) an order being facilitated, or

(3) orders being crossed, the execution

of which are imminent, to enter, based

on such knowledge, an order to buy or

sell an option of the same class as any

option that is the subject of the order,

or an order to buy or sell the security

underlying such class, or an order to

buy or sell any related instrument.

This prohibition of the proposed rule

change would continue until either (1)

all of the terms of the order of which the

member or associated person has

knowledge are disclosed to the trading

crowd, or (2) the trade can no longer

reasonably be considered imminent in

view of the passage of time since the

order was received. The rule specifies

that the terms of an order are

‘‘disclosed’’ to the trading crowd on the

Exchange when the order is entered into

the System or into the Facilitation

Mechanism.

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

ISE 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 Exchange 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 Exchange is proposing to adopt

Supplementary Material .02 to Rule 400

(Just and Equitable Principles of Trade)

to prohibit the use of non-public

information received during the

facilitation and solicitation processes.

ISE Rule 717(d)–(e), in conjunction with

ISE Rule 716(d), required that orders be

displayed to the trading crowd before

being crossed with facilitation orders or

orders that have been solicited. The

purpose of this requirement is to

provide the trading crowd with an

opportunity to participate in the

transaction with the facilitating member

or the solicited party.

The Exchange seeks to codify its

policy prohibiting either a member or a

person associated with a member from

using non-public information for the

member’s benefit by trading in the

underlying stock or in related

instruments prior to exposing the order

to the trading crowd. This policy

prevents members and associated

persons from using undisclosed

information about imminent options

transactions to trade the relevant option

or any closely related instrument in

advance of the trading crowd. Such

action would undermine the ability of

crowd participants to participate in the

execution of the order at equally

favorable terms as the member

representing the order.

2. Statutory Basis

The basis for this proposed rule

change is the requirement under section

6(b)(5) of the Act 3 that an exchange

have rules that are designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, and, in general, to

protect investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change does not 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

The Exchange has not solicited, and

does not intend to solicit, comments on

this proposed rule change. The

Exchange has not received any

unsolicited written comments from

members or other interested parties.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Act

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 ISE 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,

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 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 the filing will also be

available for inspection and copying at

the principal offices of the Exchange.

All submissions should refer to File No.

SR–ISE–01–02 and should be submitted

by March 20, 2001.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–4756 Filed 2–26–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43988; File No. SR–NASD–

00–37]

Self-Regulatory Organizations; Notice

of Withdrawal of Proposed Rule

Change by the National Association of

Securities Dealers, Inc., Relating to

Permanent Approval of the Nasdaq

Application of the OptiMark System

February 20, 2001.

On June 19, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary the

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),

filed with the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change, pursuant to

section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 and Rule

19b–4 thereunder,2 to seek permanent

approval of the Nasdaq Application of

the OptiMark System without any

restrictions on the trading activity to be

conducted through the facility. Notice of

the proposed rule change was published

on August 9, 2000, in the Federal

Register, to solicit comment from

12578 Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Notices

3Securities Exchange Act Release No. 43107

(Aug. 2, 2000), 65 FR 48771.

4See letter from Peter R. Geraghty, Assistant

General Counsel, Nasdaq, to John Polise, Senior

Special Counsel, Division of Market Regulation,

Commission, dated February 12, 2001.

5 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3–4On February 9, 2001, the Exchange submitted

Amendment No. 1 to the proposed rule change. See

letter from Michael Pierson, Vice President,

Regulatory Policy, PCX, to John Roeser, Attorney,

Division of Market Regulation, Commission, dated

February 8, 2001 (‘‘Amendment No. 1’’). In

Amendment No. 1, the PCX made technical changes

to the proposed rule text.

5 15 U.S.C. 78s(b)(3)(A).

6 17 CFR 240.19b–4(f)(6).

7The Commission has agreed to waive the 5-day

pre-filing notice requirement. See 17 CFT 240.19b–

4(f)(6)(iii).

8On January 30, 2001, the Commission approved

similar proposals submitted by the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’) and the

International Securities Exchange LLC (‘‘ISE’’). See

Securities Exchange Act Release No. 43904 (January

30, 2001), 66 FR 9112 (February 6, 2001).

9Under the proposal, the interim linkage would

be for a pilot period expiring on January 31, 2002.

10See Securities Exchange Act Release Nos.

43086 (July 28, 2000), 65 FR 48023 (August 4,

2000); 43573 (November 16, 2000), 65 FR 70851

(November 28, 2000); and 43574 (November 16,

2000), 65 FR 70850 (November 28, 2000). 11 15 U.S.C. 78f(b)(5).

interested persons.3 On February 12,

2001, the Nasdaq withdrew the

proposed rule change.4

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–4750 Filed 2–26–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43986; File No. SR–PCX–

01–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to an

Interim Intermarket Linkage Program

February 20, 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 February

6, 2001,3,4 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 PCX. PCX filed the

proposal pursuant to section 19(b)(3)(A)

of the Act,5 and Rule 19b–4(f)(6)

thereunder,6 which renders the proposal

effective upon filing with the

Commission.7 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 PCX is proposing to adopt a rule

providing for the implementation of

‘‘interim linkages’’ with other option

exchanges.8

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 this proposed rule

change is to implement certain aspects

of an intermarket options linkage on an

‘‘interim’’ basis.9 This interim linkage

would utilize existing systems to

facilitate the sending and receiving of

order flow between PCX market makers

and their counterparts on the other

option exchanges as an interim step

towards development of a ‘‘permanent’’

linkage.

The Commission has approved a

linkage plan that now includes all five

option exchanges.10 The option

exchanges continue to work towards

implementation of this linkage.

However, because the implementation

may take a significant amount of time,

the option exchanges have discussed

implementing an ‘‘interim’’ linkage.

Such a linkage would use the existing

market infrastructure to route orders

between market makers on the

participating exchanges in a more

efficient manner.

The key component of the interim

linkage would be for the participating

exchanges to open their automated

customer execution systems, on a

limited basis, to market maker orders.

Specifically, market makers would be

able to designate certain orders as

‘‘customer’’ orders, and thus would

receive automatic execution of those

orders on participating exchanges.

This proposed rule would authorize

the PCX to implement bilateral or

multilateral interim arrangements with

the other exchanges to provide for equal

access between market makers on our

respective exchanges. The Exchange

currently anticipates that the initial

arrangements would allow PCX

Designated Lead Market Makers

(‘‘LMMs’’) and their equivalents on the

other exchanges, when they are holding

customer orders, to effectively send

those orders to the other market for

execution when the other market has a

better quote. Such orders would be

limited in size to the lesser of the size

of the two markets’ automatic execution

size for customer orders.

All interim linkage orders must be

‘‘immediate or cancel’’ (that is, they

cannot be placed on an exchange’s limit

order book), and a market maker may

send a linkage order only when the

other (receiving) market is displaying

the national best bid or offer and the

sending market is displaying an inferior

price. This will allow a market maker to

access the better price for its customer.

In addition, if the interim linkage

includes principal orders, it would

allow market makers to attempt to

‘‘clear’’ another market displaying a

superior quote. Any exchange

participating in the interim linkage will

implement heightened surveillance

procedures to help ensure that their

market makers send only properlyqualified orders through the linkage.

LMM participation in the interim

linkage will be voluntary. Only when an

LMM and its equivalent on another

exchange believe that this form of

mutual access would be advantageous

will the exchanges employ the interim

linkage procedures. The PCX believes

that the interim linkage will benefit

investors and will provide useful

experience that will help the exchanges

in implementing the full linkage.

2. Statutory Basis

The PCX believes that the proposed

rule change meets the requirement of

section 6(b)(5) under the Act 11 in that

it is designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transaction in securities to

remove impediments to and perfect the

mechanism for a free and open market

and a national market system, and, in