Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1713

5Assigned short positions are margined at OCC

from the assignment date through the exercise

settlement date (E+3).

6 15 U.S.C. 78q–1.

7 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See letter from Robert P. Pacileo, Staff Attorney,

Regulatory Policy, PCX, to Richard Strasser,

Assistant Director, Division of Market Regulation

(‘‘Division’’), SEC, dated January 6, 2000

(‘‘Amendment No. 1’’).

4See letter from Robert P. Pacileo, Senior

Attorney, Regulatory Policy, PCX, to Jack Drogin,

Assistant Director, Division, SEC, dated May 24,

2000 (‘‘Amendment No. 2’’).

5Securities Exchange Act Release No. 43149

(August 11, 2000), 65 FR 51392.

6See letter from Peter D. Bloom, Director,

Regulatory Projects, Regulatory Policy, PCX, to

Kelly Riley, Division, SEC, dated December 20,

2000 (‘‘Amendment No. 3’’). In Amendment No. 3,

the Exchange made non-substantive reference

changes to proposed PCX Rules 6.51, 6.64 and 6.65

to reflect other amendments made to the rules.

Because the changes in Amendment No. 3 were

non-substantive, notice is not required.

potential disputes as to a stock’s

primary market.

Rule 601 specifies the procedure for

margining short positions in equity

options. Open short positions are

margined based on prices or quotes for

the option itself. Assigned short

positions, however, are margined based

on the difference between the strike

price of the option and the ‘‘marking

price’’ of the underlying stock.5 Unlike

the definition of ‘‘closing price’’ in Rule

805(j), the definition of ‘‘marking price’’

in Rule 601(b)(6) still refers to the

closing price of an underlying stock on

its ‘‘primary market.’’

Discussion

1. Conforming Rule 601(b)(6) to Rule

805(j). OCC believes that the definition

of ‘‘marking price’’ in Rule 601(b)(6) and

the definition of ‘‘closing price’’ in Rule

805(j) should not be materially different.

According to OCC, the two prices are

normally determined in the same

manner and therefore should be defined

in the same way. Therefore, OCC

proposes that the Rule 601 definition of

‘‘marking price’’ conform to Rule 805

because the same concerns that led OCC

to replace the term ‘‘primary market’’ in

Rule 805 apply equally in the context of

Rule 601.

2. Regular Trading Hours. OCC

believes that with the growth of afterhours trading, questions might arise

concerning the time that the ‘‘last

reported sale price’’ of an underlying

stock should be determined for

purposes of fixing both the Rule 805

closing price and the rule 601 marking

price. OCC therefore proposes that Rule

805(j) and 601(b)(6) be amended to refer

to the last reported sale price ‘‘during

regular trading hours (as determined by

the Corporation [OCC]) * * *.’’ This

amendment would allow OCC to avoid

potential disputes by (i) eliminating any

basis for arguing that the closing price

or the marking price should be

determined based on after-hours trading

and (ii) giving OCC discretion to

determine when ‘‘regular trading hours’’

end.

OCC believes that the proposed rule

change is consistent with the purposes

and requirements of Section 17A of the

Act 6 because it promotes the prompt

and accurate clearance and settlement of

equity and index options.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

OCC does not believe that the

proposed rule change would impose any

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

members, Participants or Others

Written comments were not and are

not intended to be solicited with respect

to the proposed rule change and none

have been received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 OCC 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

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to file number SR–OCC–00–04 and

should be submitted by January 30,

2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–543 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43779; File No. SR–PCX–

99–44]

Self-Regulatory Organizations; Pacific

Exchange Inc.; Order Approving

Proposed Rule Change Relating to

PCX Rule 6, Options Trading, Trading

Practices and Procedures

December 28, 2000.

I. Introduction

On October 29, 1999, the Pacific

Exchange, Inc. (‘‘PCX’’ 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

amend some of its options trading rules.

On January 7, 2000, the PXC submitted

Amendment No. 1 to the proposed rule

change.3 On May 25, 2000, the PCX

submitted Amendment No. 2 to the

proposed rule change.4 The proposed

rule change, as amended by

Amendment Nos. 1 and 2, was

published in the Federal Register on

August 23, 2000.5 On December 22,

2000, the Exchange submitted

Amendment No. 3 to the proposed rule

change.6 The Commission did not

receive any comments on the proposed

rule change. This order approves the

proposal, as amended.

1714 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

7 17 CFR 240.17a–4.

II. Description of the Proposal

The Exchange proposed to modify its

rules to trading practices and

procedures on its options floor by

clarifying existing provisions,

eliminating superfluous provisions,

incorporating current policies and

procedures, and merging certain

Options Floor Procedure Advices

(‘‘OFPAs’’) into the text of PCX Rule 6.

a. OFPAs

The Exchange proposed to delete the

following OFPAs: OFPA A–1, Subject:

Responsibility of Floor Brokers at the

Opening; OFPA A–3, Subject: Procedure

for Entering Orders in the Book Under

Certain Circumstances; OFPA A–7,

Subject: Floor Broker Giving Up a Name

Other Than His Own as Executive

Member; OFPA C–1, Subject:

Procedures for Opening Rotations;

OFPA D–7, Subject: Expressing

Fractions in Writing; OFPA D–8b,

Subject: Priority on Split Price

Transactions; OFPA D–11, Subject:

Record Retention Requirements; OFPA

F–1, Subject: Admission to the Trading

Floor, OFPA F–5, Subject: Means of

Communication on the Options Floor;

OFPA G–1, Subject: Options

Transactions Based on Erroneous Prints

of Underlying Security; OFPA G–2,

Subject: Imbalance of Orders at

Openings; OFPA G–5, Subject: Trading

Procedures for Combination, Spread, or

Straddle Orders Under Priority Rules;

OFPA G–10, Subject: Public Outcry/

OBO Awareness; and OFPA G–12,

Subject: Reporting of Trade Information.

b. Proposed PCX Rule 6.64, Trading

Rotations

The PCX proposed to make several

changes to PCX Rule 6.64 relating to

trading rotations. First, the Exchange

proposed to allow two Floor Officials,

rather than the Options Floor Trading

Committee (‘‘OFTC’’), as currently

required, to direct that a trading rotation

be employed. Second, the Exchange

proposed to modify and renumber PCX

Rule 6.64, Commentary .01 (a) as

proposed PCX Rule 6.64(b), OFPA C–1,

Subject: Procedures for Opening

Rotations, as proposed PCX Rule

6.64(b)(1) through (7), and OFPA G–2,

Subject: Imbalance of Orders at

Openings, as proposed PCX Rule

6.64(b)(8).

Third, the Exchange proposed to

renumber PCX Rule 6.64, Commentary

.01(b) as proposed PCX Rule 6.64(d). In

addition, under proposed Rule 6.64(d),

the Exchange proposed to specify that

the book staff should notify floor

brokers by 12:50 p.m. Pacific time that

a closing rotation may be necessary. The

Exchange also clarified that closing

rotations should commence at least ten

minutes after the trading floor has been

notified. Finally, under proposed Rule

6.64(d), the Exchange proposed to

codify an express requirement that only

orders that have been entered before

1:02 p.m. Pacific time are eligible for

execution during a closing rotation.

Fourth, the Exchange proposed to

remember PCX Rule 6.64, Commentary

.01(c) as proposed PCX Rule 6.64(d) and

to renumber PCX Rule 6.64,

Commentary .02 as proposed PCX Rule

6.64(e). Fifth, the Exchange proposed to

renumber OFPA A–1, Subject:

Responsibility of Floor Brokers at the

Opening, as proposed PCX Rule 6.64(f).

Finally, the Exchange proposed to

renumber Commentaries .03 and .04 as

Commentaries .01 and .02 respectively.

c. Proposed PCX Rule 6.65, Trading

Halts and Suspensions

Currently, PCX Rule 6.65,

Commentary .02 requires an Options

Floor Official that authorizes a trading

halt and the order book official (‘‘OBO’’)

assigned to the halted option to file a

report with the Exchange Options Floor

Committee and the Department of

Member Firms. The Exchange proposed

to have the report filed with Exchange

Operations.

d. Proposed PCX Rule 6.66, Order

Identification

The Exchange proposed to remember

OFPA A–7, Subject: Floor Broker Giving

Up a Name Other Than His Own as

Executing Member, as proposed PCX

Rule 6.66(d).

e. Proposed PCX Rule 6.67, Orders

Required to be in Written Form

First, the Exchange proposed to

renumber PCX Rule 6.67, Commentary

.02 as proposed PCX Rule 6.67(a).

Second, the Exchange proposed to

renumber OFPA F–5, Subject: Means of

Communication on the Options Floor,

as proposed PCX Rule 6.67(d). Third,

the Exchange proposes to renumber PCX

Rule 6.67, Commentary .01 as proposed

PCX Rule 6.67(e). Finally, the Exchange

proposed to eliminate OFPA D–7, which

reiterated the requirement of PCX Rule

6.67 that all orders must be in a written

form that is approved by the Exchange.

f. Proposed PCX Rule 6.68, Record of

Orders

The Exchange proposed to renumber

OFPA D–11, Subject: Record Retention

Requirements, as proposed PCX Rule

6.68(b). In addition, the Exchange

proposed to delete language in proposed

PCX Rule 6.68(b) that reminded

members that, pursuant to PCX Rule

6.68, every member organization is

required to maintain and preserve for

the period of time required in 17a–4

under the Act.7 a written record of every

order.

g. Proposed PCX Rule 6.69, Reporting

Duties

The Exchange proposed to renumber

OFPA G–12, Subject, Reporting of Trade

Information, as proposed PCX Rule 6.69,

Commentary .02. In addition, the

Exchange proposed that market maker

clearing firms be directed to instruct

their respective trading desks to identify

market maker orders that are entered

from off the floor and not entitled to

market maker margin treatment by

placing a ‘‘C’’ after the market maker’s

number in the ‘‘firm’’ box on the ticket.

The Exchange proposed that floor

brokers that accept market maker orders

by phone to identify such orders in the

same manner. Finally, in proposed PCX

Rule 6.69, the Exchange proposed to

add Commentary .04, which clarifies

that time stamping on the back of the

hard card does not meet the Exchange’s

time stamp requirements.

h. Proposed PCX Rule 6.70, Price

Binding Despite Erroneous Report

The Exchange proposed to renumber

OFPA G–1, Subject: Options

Transactions Based on Erroneous Prints

of Underlying Security, as proposed

PCX Rule 6.70, Commentary .01. In

addition, the Exchange added language

to provide that members should use

reasonable care when effecting

transactions based on bids and offers

that differ from previous bids and offers

because of the probability that a print or

market may be erroneous.

i. Proposed PCX Rule 6.73, Manner of

Bidding and Offering

The Exchange proposed to renumber

OFPC G–10, Subject: Public Outcry/

OBO Awareness, as proposed PCX Rule

6.73, Commentary .01. In addition, the

Exchange proposed to eliminate the

requirement that the OBO by fully

aware of all quotes and transactions at

his or her assigned post.

j. Proposed PCX Rule 6.75, Priority of

Bids and Offers

The Exchange proposed to renumber

PCX Rule 6.75, Commentary .03. as

proposed PCX Rule 6.75(c)(3). The

Exchange also proposed to renumber

OFPA A–3, Subject: Procedure for

Entering Orders in the Book Under

Certain Circumstances, as proposed PCX

Rule 6.75, Commentary .03 and OFPA

G–5, Subject: Trading Procedures for

Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1715

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)(5).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

Combination, Spread, or Straddle

Orders Under Priority Rules, as

proposed PCX Rule 6.75, Commentary

.04.

k. Proposed PCX Rule 6.76, Priority of

Split Price Transactions

In PCX Rule 6.76(a), the Exchange

proposed to change reference to ‘‘he’’

and ‘‘his’’ to ‘‘the member.’’ The

Exchange also proposed to change

language in proposed PCX Rule 6.76 to

read as follows: ‘‘[i]f a member

purchases one or more option contracts

of a particular series at a particular price

or prices, the member must, at the next

lower price at which another member

bids, have priority in purchasing up to

the equivalent number of option

contracts of the same series that the

member purchased at the higher price or

prices, provided that the member’s bid

is made promptly and continuously and

that the purchases effected represents

the opposite side of a transaction with

the same order or offer as the earlier

purchase or purchases.’’

In addition, the Exchange proposed to

eliminate OFPA D–8b, which simply

reiterated the requirements of PCX Rule

6.76 pertaining to priority on split price

transactions.

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 In particular, the

Commission finds that the proposed

rule change is consistent with the

requirements of Section 6(b)(5 of the

Act,9 which requires, among other

things, that the rules of an exchange be

designed 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 transactions in

securities, and in general, to protect

investors and the public interest.

a. OFPAs

The Commission believes that the

proposed rule change should foster

efficiency in the implementation and

enforcement of the Exchange’s rules.

Currently, members must refer to both

the Exchange’s rules and the Exchange’s

OFPAs to ensure that they are

complying with all of the applicable

requirements of the Exchange’s rules. By

combining the OFPAs with the

applicable Exchange rules, the

Commission believes that it should be

easier for Exchange members to locate

pertinent rule language and to comply

with applicable Exchange rules.

b. Trading Rotations

The Commission finds that the

proposed changes to the procedures

relating to trading rotations are

consistent with the Act because they

should foster just and equitable

principles of trade by expediting the

trading rotation process. Specifically,

the Exchange proposed to permit two

floor officials to direct that a trading

rotation be employed instead of the full

OFTC, which should result in faster

implementation of trading rotations.

Faster implementation of trading

rotations should permit the reopening of

affected options contracts and, thus, a

resumption of normal trading, in a more

timely fashion.

The Exchange also proposed to

implement a new notification procedure

in the event a closing rotation is

necessary. Specifically, the Exchange

proposed that the book staff notify floor

brokers by 12:50 p.m. Pacific time, that

a closing rotation may be necessary, and

to require that only orders entered by

1:02 p.m. Pacific time will be eligible for

execution during the trading rotation.

The Commission believes that these

new closing rotation procedures should

foster efficiency on the floor of the

Exchange. The proposal should provide

floor brokers with sufficient notice that

a closing rotation may be employed and

should provide them with ample time to

ensure that their orders are entered by

1:02 p.m. Pacific time so that they may

be executed during the closing rotation.

The Commission believes that providing

express procedures for orders entered at

or near the close of trading should result

in more efficient executions.

c. Reporting Duties

The Exchange proposed to require

market making clearing firms to instruct

their respective trading desks to identify

market maker orders that are entered

from off the Exchange floor and not

entitled to market maker margin

treatment with a ‘‘C’’ identifier. Floor

brokers will also be required to use this

identifier when accepting orders by

phone from market makers. The

Commission believes that the use of this

new identifier should ensure that

Exchange members properly handle

market maker orders.

d. Erroneous Bids and Offers

The Exchange proposed to amend

PCX Rule 6.70, Commentary .01 to

direct that reasonable care should also

be exercised prior to effecting

transactions based on bids or offers that

differ from previous bids or offers such

that the difference may give rise to the

probability that a print or market may be

erroneous. The Commission believes

that this should foster just and equitable

principles of trade by potentially

reducing the number of transactions

executed based on erroneous market

information.

e. OBO Awareness of Quotes and

Transactions

The Exchange proposed to eliminate

the requirement that OBOs be aware of

all quotes and transactions that occur at

his or her assigned post. While the

Commission appreciates that it may be

impracticable for the OBO to keep track

of all bids and offers and transactions

occurring at a particular post, the

Commissions believes that the OBO

must be aware of a significant amount

of quotes and transactions such that he

or she can maintain a fair, orderly and

competitive market at the post. Thus,

the Commission believes that it is

appropriate to eliminate the current

requirement because it is impracticable

but expects that each OBO will continue

to be sufficiently aware of the market at

his or her post to be able to fulfill his

or her responsibilities and obligations.

Further, the Commission expects that

the Exchange will monitor its floor to

ensure that each OBO continues to

fulfill his or her responsibilities and that

the elimination of this requirement does

not negatively impact the efficiency and

integrity of each market at each post.

IV. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (SR–PCX–99–44),

as amended, is approved.

For the Commission, by the Divistion of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–538 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

OFFICE OF THE UNITED STATES

TRADE REPRESENTATIVE

Request for Comments Concerning

Compliance with Telecommunications

Trade Agreements

AGENCY: Office of the United States

Trade Representative.