[Federal Register: October 2, 2003 (Volume 68, Number 191)]
[Notices]
[Page 56858-56859]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02oc03-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48538; File No. SR-PCX-2002-01]
Self Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 3 to the Proposed Rule Change by the Pacific Exchange,
Inc., Relating to Procedures for Obvious Errors in Options Transactions
September 25, 2003.
I. Introduction
On January 3, 2002, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with 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 adopt an obvious error rule
for options transactions. On July 28, 2003, the Exchange submitted
Amendment No. 1 to the proposed rule change.\3\ On August 8, 2003, the
Exchange submitted Amendment No. 2 to the proposed rule change.\4\ The
proposed rule change, as amended, was published for comment in the
Federal Register on August 22, 2003.\5\ The Commission did not receive
any comments on the proposed rule change. On September 16, 2003, the
PCX filed Amendment No. 3 to the proposed rule change.\6\ This order
approves the proposed rule change, as amended, grants accelerated
approval to Amendment No. 3, and solicits comments from interested
persons on that amendment.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division of
Market Regulation (``Division''), Commission, dated July 25, 2003
(``Amendment No. 1''). Amendment No. 1 supersedes and replaces the
proposed rule change in its entirety.
\4\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division,
Commission, dated August 7, 2003 (``Amendment No. 2''). Amendment
No. 2 supersedes and replaces the proposed rule change and Amendment
No. 1 in their entirety.
\5\ See Securities Exchange Act Release No. 48342 (August 14,
2003), 68 FR 50820 (August 22, 2003) (``Notice'').
\6\ See Letter from Mai S. Shiver, Senior Attorney, Regulatory
Policy, Exchange, to Nancy J. Sanow, Assistant Director, Division,
Commission, dated September 15, 2003 (``Amendment No. 3''). In
Amendment No. 3, the Exchange amended proposed PCX Rule
6.87(g)(2)(E) to clarify a provision relating to the determination
of an obvious price error and amended proposed PCX Rule
6.87(g)(2)(G) to clarify the definition of ``parity.''
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II. Discussion and Commission Findings
The Commission has reviewed carefully the proposed rule change and
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.\7\ In particular, the Commission finds
that the proposed rule change is consistent with section 6(b)(5)\8\ of
the Act, which requires that the rules of an exchange be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism for a free and open market and a national market system,
and, in general, to protect investors and the public interest.\9\
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\7\ For a description of the proposed rule change, see Notice,
supra, n.4.
\8\ 15 U.S.C. 78f(b)(5).
\9\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
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The Commission considers that in most circumstances trades that are
executed between parties should be honored. On rare occasions, the
price of the executed trade indicates an ``obvious error'' may exist,
suggesting that it is unrealistic to expect that the parties to the
trade had come to a meeting of the minds regarding the terms of the
transaction. In the Commission's view, the determination of whether
such an ``obvious error'' has occurred should be based on specific and
objective criteria and subject to specific and objective procedures.
The Commission believes that the PCX's proposed obvious error rule
establishes specific and objective criteria for determining when a
trade is an ``obvious error.'' The Commission also believes that the
proposal establishes specific and objective procedures governing the
adjustment or nullification of such trade. In addition, the Commission
notes that several provisions of the PCX obvious error rule proposal,
as amended, are substantially similar to proposed rule changes
submitted by the Chicago Board Options Exchange, Inc. and International
Securities Exchange, Inc., which the Commission has approved.\10\
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\10\ See Securities Exchange Act Release No. 47628 (April 3,
2003), 68 FR 17697 (April 10, 2003) (SR-CBOE-00-55); Securities
Exchange Act Release No. 48097 (June 26, 2003), 68 FR 39604 (July 2,
2003) (SR-ISE-2003-10).
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The Commission finds good cause for approving Amendment No. 3 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice thereof in the Federal Register. Amendment No. 3
does not make any substantive changes to the proposed rule text. It
simply clarifies the determination of an obvious price error and the
definition of a transaction executed below parity. Therefore, the
Commission believes that granting accelerated approval of Amendment No.
3 is appropriate and consistent with section 6(b)(5)\11\ and section
19(b)\12\ of the Act.
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\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78s(b).
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III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 3, including whether Amendment No. 3
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 proposal that are filed with the Commission, and all
written communications relating to the proposal 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 at the Commission's Public Reference Room.
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.
[[Page 56859]]
SR-PCX-2002-01 and should be submitted by October 23, 2003.
IV. Conclusion
For the reasons discussed above, the Commission finds that the
proposal, as amended, is consistent with the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-PCX-2002-01), as amended,
be, and hereby is, approved, and that Amendment No. 3 to the proposed
rule change be, and hereby is, approved on an accelerated basis.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-24951 Filed 10-1-03; 8:45 am]
BILLING CODE 8010-01-P