Document ID: SEC-2005-0448-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Pacific Exchange, Inc.
Posted Date: 2005-12-28T05:00Z

[Federal Register: December 28, 2005 (Volume 70, Number 248)]
[Notices]               
[Page 76897-76899]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de05-165]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52986; File No. SR-PCX-2005-137]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change and 
Amendment No. 1 Thereto To Expand Its $2.50 Strike Price Program

December 20, 2005.
    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 December 14, 2005, the Pacific Exchange, Inc. (``PCX'' 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 PCX. On December 16, 2005, 
PCX filed Amendment No. 1 to the proposed rule change.\3\ The Exchange 
has filed the proposal as a ``non-controversial'' rule change pursuant 
to Section 19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) 
thereunder,\5\ which renders it effective upon filing with the 
Commission. 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\ Amendment No. 1 corrected an omission in the proposed rule 
text.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX proposes to amend PCX Rule 6.4 Commentary .03 governing the 
listing of options with strike price intervals of $2.50. Below is the 
text of the proposed rule change. Proposed new language is in italics; 
proposed deletions are in [brackets].
* * * * *

Rule 6.4. Series of Options Open for Trading

    (a)-(e)--No change.
    Commentary .01-.02--No change.

[[Page 76898]]

    .03 The Exchange may select [a limited number]up to 43 classes of 
its listed options on individual stocks or Exchange-Traded Fund Shares 
for which the interval of strike prices will be $2.50 where the strike 
price is greater than $25 but less than [$50.] $75. The Exchange will 
list $2.50 strikes prices between $50 and $75 provided the $2.50 strike 
prices between $50 and $75 are no more than $10 from the closing price 
of the underlying stock on its primary market on the preceding day. In 
addition to those options selected by the Exchange, the strike price 
interval may be $2.50 in any multiply traded option once another 
exchange trading that option selects such options. An option class 
shall remain in the $2.50 Strike Price Program until otherwise 
designated by the Exchange and a decertification notice is sent to the 
Options Clearing Corporation.
    .04-.07--No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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 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
    PCX proposes to amend PCX Rule 6.4 Commentary .03 to allow the 
listing of options with $2.50 strike price intervals for options with 
strike prices between $50 and $75 on those option classes that have 
been selected as part of the $2.50 Strike Price Program (``Program''). 
PCX proposes to list options with $2.50 strike price intervals above 
$50 only if the new strike price is within $10 of the closing price of 
the underlying security on the previous trading day.
    Under the Program, initially adopted in 1995 as a joint program of 
the options exchanges, exchanges were permitted to list options with 
$2.50 strikes price intervals up to $50 on a total of 100 option 
classes.\6\ The Program was later expanded and permanently approved in 
1998 to allow the exchanges collectively to select up to 200 issues on 
which to list options with $2.50 strike price intervals up to $50.\7\ 
Of the 200 available issues, PCX has been allocated 43 issues. This 
proposal does not increase the number of issues that the PCX will be 
allocated under the Program. In addition to an allocation from the 200 
issues, each exchange is also permitted to list options with $2.50 
strike price intervals on any option class that another exchange 
selects as part of its Program. In addition, the Exchange proposes to 
amend PCX Rule 6.4 Commentary .03 to note that an option class shall 
remain in the Program until otherwise designated by the Exchange and a 
decertification notice is sent to the Options Clearing Corporation.
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    \6\ See Securities Exchange Act Release No. 35993 (July 19, 
1995), 60 FR 38073 (July 25, 1995) (approving File Nos. SR-Phlx-95-
08, SR-Amex-95-12, SR-PSE-95-07, SR-CBOE-95-19, and SR-NYSE-95-12).
    \7\ See Securities Exchange Act Release No. 40662 (November 12, 
1998), 63 FR 64297 (November 19, 1998) (approving File Nos. SR-Amex-
98-21, SR-CBOE-98-29, SR-PCX-98-31, and SR-Phlx-98-26).
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    PCX believes that the experiences over the past ten years of 
listing options series with strike prices at $2.50 intervals up to $50 
have produced positive results.\8\ Specifically, this has stimulated 
customer interest by creating additional trading opportunities, by 
creating more flexibility in trading decisions, and by affording 
customers the ability to more closely tailor investment strategies to 
the precise movement of the underlying security. The proposal to expand 
the listing of options with $2.50 strike price intervals is intended to 
provide customers with greater flexibility in their investment choices 
for those stocks priced between $50 and $75. PCX represents that 
Options Price Reporting Authority has the capacity to accommodate the 
increase of series added pursuant to this rule change.
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    \8\ Telephone conversation between Glenn Gsell, Director, 
Regulation, PCX, and Theodore S. Venuti, Attorney, Division of 
Market Regulation, Commission, on December 20, 2005.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\9\ in general, and furthers the objective of 
Section 6(b)(5) of the Act,\10\ in particular, in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 will 
impose any burden on competition 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

    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

    Because the foregoing rule change does not: (1) Significantly 
affect the protection of investors or the public interest; (2) impose 
any significant burden on competition; and (3) become operative for 30 
days after the date of this filing, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest.\15\ The Exchange has requested that 
the Commission waive the 30-day pre-operative delay, and the Commission 
hereby grants that request.\16\ The Commission believes that waiving 
the 30-day pre-operative delay is consistent with the protection of 
investors and in the public interest. This action will allow the 
Exchange to immediately expand its Program to list options with $2.50 
strike price intervals for options with strike prices between $50 and 
$75.

[[Page 76899]]

The Commission notes that it recently approved similar expansions to 
the $2.50 Strike Price Programs of the Chicago Board Options Exchange 
(``CBOE'') and the American Stock Exchange (``Amex'').\17\ These 
proposals were subject to a full notice-and-comment period, and no 
negative comments were submitted. The Commission does not believe that 
PCX's proposal raises any novel issues.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ Id.
    \15\ In addition, Rule 19b-4(f)(6)(iii) requires that the 
Exchange give the Commission written notice of its intent to file 
the proposed rule change, along with a brief description and text of 
the proposed rule change, at least five business days prior to the 
date of filing of the proposed rule change, or such shorter time as 
designated by the Commission. The Commission has decided to waive 
the five-day pre-filing notice requirement.
    \16\ For the purposes only of waiving the 30-day pre-operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ See Securities Exchange Act Release Nos. 52892 (December 5, 
2005), 70 FR 73492 (December 12, 2005) (approving SR-CBOE-2005-39) 
and 52893 (December 5, 2005), 70 FR 73488 (December 12, 2005) 
(approving SR-Amex-2005-067).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the Act.\18\
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    \18\ For purpose of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on December 16, 2005, the date that PCX filed Amendment 
No. 1.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File No. SR-PCX-2005-137 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File No. SR-PCX-2005-137. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, 100 F Street, NE., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of PCX. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-PCX-2005-137 and should be 
submitted on or before January 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7895 Filed 12-27-05; 8:45 am]

BILLING CODE 8010-01-P