[Federal Register: November 12, 2003 (Volume 68, Number 218)]
[Notices]
[Page 64182-64184]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12no03-93]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48746; File No. SR-PCX-2003-32]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Exchange, Inc. Relating to the Exchange's Rules
Under the Minor Rule Plan
November 4, 2003.
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 July 8, 2003, 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 Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PCX is proposing to adopt new PCX Rules 10.13(h)(40)-(44) and
10.13(k)(i)(40)-(44) in order to incorporate five existing PCX rules
into the Minor Rule Plan (``MRP'') and Recommended Fine Schedule
(``RFS''). The five PCX Rules include: (1) Failure to honor priority of
bids and offers pursuant to PCX Rules 6.75 and 6.76; (2) failure to
quote markets within the maximum quote spread differentials or failure
to disseminate quotations accurately pursuant to PCX Rules
[[Page 64183]]
6.37(b)(1) and 6.82(c)(1); (3) trading either before the opening or
after closing of market pursuant to PCX Rule 4.2; (4) entering two-
sided quotations in options issues that are not included in a Remote
Market Maker's (``RMM'') primary appointment pursuant to PCX Rule
6.37(h)(5); and (5) failure to maintain an accurate record of orders
pursuant to PCX Rule 6.68. The Exchange is also proposing three minor
amendments to the MRP and RFS. The text of the proposed rule change is
below. Proposed new language is italicized; proposed deletions are in
brackets.
* * * * *
Minor Rule Plan
Rule 10.13(a)-(g)--No change.
(h) Minor Rule Plan: Options Floor Decorum and Minor Trading Rule
Violations
(1)-(24)--No change.
(25) Failure to meet 75% Primary Appointment [Zone] Requirement.
(Rules 6.35, Com. .03 and 6.37(h)(5))
(26)-(32)--No change.
(33) Dividing up an order to make its parts eligible for entry into
Auto-Ex or PCX Plus. (Rules 6.87)(2)[(c)] and 6.90(e)(1)).
(34)-(39)--No change.
(40) Member failed to honor the priority of bids and offers. (Rules
6.75 and 6.76)
(41) Market Maker failed to quote markets within the maximum quote
spread differentials or failed to disseminate quotes accurately. (Rules
6.37(b)(1) and 6.82(c)(1))
(42) Member traded either before the opening or after the close of
market. (Rule 4.2)
(43) Remote Market Maker entered two-sided quotations in options
issues that are not included in their primary appointments. (Rule
6.37(h)(5))
(44) Member failed to maintain an accurate record of orders. (Rule
6.68)
(i)--No change.
(j)--No change.
(k) Minor Rule Plan: Recommended Fine Schedule
(i) Options Floor Decorum and Minor Trading Rule Violation
1.-24.--No change.
1. Failure to meet 75% Primary Appointment [Zone] Requirement.
(Rules 6.35, Com. .03 and 6.37(h)(5))
26-32.--No change.
33. Dividing up an order to make its parts eligible for entry into
Auto-Ex or PCX Plus. (Rules 6.87(d)(2)[(c)] and 6.90(e)(1))
34.-38.--No change.
1. Failure to meet 60% Quoting Requirement. (Rule 6.37(g)(2))
1st Violation, $500.
2nd Violation, $1,000.
3rd Violation, $2,500.
2. Member failed to honor the priority of bids and offers. (Rules
6.75 and 6.76)
1st Violation, $500.
2nd Violation, $1,000.
3rd Violation, $2,000.
3. Market Maker failed to quote markets within the maximum quote
spread differentials or failed to disseminate quotes accurately. (Rules
6.37(b)(1) and 6.82(c)(1))
1st Violation, $500.
2nd Violation, $1,000.
3rd Violation, $2,000.
4. Member traded either before the opening of Market or after the
close of market. (Rule 4.2)
1st Violation, $1,000.
2nd Violation, $2,500.
3rd Violation. $3,500.
43. Remote Market Maker entered two-sided quotations in options
issues that are not included in their primary appointments. (Rule
6.37(h)(5))
1st Violation, $500.
2nd Violation, $1,000.
3rd Violation, $2,500.
44. Member failed to maintain accurate record of orders. (Rule
6.68)
1st Violation, $500.
2nd Violation, $1,000.
3rd Violation, $2,500.
* * * * *
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 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
I. Purpose
The Exchange proposes to adopt new PCX Rules 10.13(h)(40)-(44) and
10.13(k)(i)(40)-(44) in order to incorporate existing PCX Rules 6.75
and 6.76, 6.37(b)(1) and 6.82(c)(1), 4.2, 6.37(h)(5), and 6.68 into the
MRP and RFS.
First, the Exchange proposes to adopt new PCX Rules 10.13(h)(40)
and 10.13(k)(i)(40) into the MRP and RFS for failure to honor the
priority of bids and offers pursuant to PCX Rules 6.75 and 6.76.\3\ PCX
Rule 6.75 states that the highest bid/offer shall have priority, but
where two or more bids/offers for the same option contract represent
the highest price and one bid/offer is displayed by the Order Book
Official, such bid/offer shall have priority over any other bid/offer
at the post. Similarly, under PCX Rule 6.76, multiple bids or offers
are afforded priority based on account types and other principles. The
proposed fines are $500 for a first violation, $1,000 for a second, and
$2,000 for a third.
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\3\ PCX Rule 6.76 is the priority rule applicable to PCX Plus.
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Second, the Exchange proposes to adopt new PCX Rules 10.13(h)(41)
and 10.13(k)(i)(41) into the MRP and RFS for failure to quote markets
within the maximum quote spread differentials pursuant to PCX Rule
6.37(b)(1) or failure to disseminate quotations accurately pursuant to
6.82(c)(1). PCX Rule 6.37(b)(1) states that a Market Maker is expected
to bid/offer so as to create differences of no more than: .25 between
the bid and the offer for each option contract for which the bid is
less than $2, no more than .40 where the bid is $2 or more but does not
exceed $5, no more than .50 where the bid is more than $5 but does not
exceed $10, no more than .80 where the bid is more than $10 but does
not exceed $20, and, no more than $1 when the last bid is $20.10 or
more, provided that the Options Floor Trading Committee may establish
differences other than the above for one or more series or classes of
options. PCX Rule 6.82(c)(1) states that Lead Market Makers are
required to disseminate market quotations accurately. A member who
fails to quote markets within the maximum quote spread differentials or
fails to disseminate market quotations accurately will be subject to
disciplinary action pursuant to PCX Rule 10.13(h)(41). The proposed
fines are $500 for a first violation, $1,000 for a second, and $2,000
for a third.
Third, the Exchange proposes to adopt new PCX Rules 10.13(h)(42)
and 10.13(k)(i)(42) for trading either before the opening or after the
close of market pursuant to PCX Rule 4.2. PCX Rule 4.2 states that
trading shall be limited to the hours during which the Exchange is open
for the transaction of business. No member shall make any bid, offer or
transaction upon the Floor before the official opening of the Exchange
or after the closing of the market. Under the proposed rule, a member
that trades either before the opening or after the close of market will
be subject to disciplinary action pursuant to PCX
[[Page 64184]]
Rule 10.13(h)(42). The proposed fines are $1,000 for a first violation,
$2,500 for a second, and $3,500 for a third.
Fourth, the Exchange proposes to adopt new PCX Rules 10.13(h)(43)
and 10.13(k)(i)(43) into the MRP and RFS for violation of the two-sided
quotation restriction for RMMs. PCX Rule 6.37(h)(5) restricts RMMs from
entering two-sided quotations in options issues that are not included
in their primary appointments. RMMs are, however, permitted to enter
single-sided quotes and multiple orders to buy and sell the same option
issues. Under the proposed rule, a RMM that enters a two-sided
quotation in options issues outside of their primary appointments will
be subject to disciplinary action pursuant to PCX Rule 10.13(h)(43).
The proposed fines are $500 for a first violation, $1,000 for a second,
and $2,500 for a third.
Fifth, the Exchange proposes to adopt new PCX Rules 10.13(h)(44)
and 10.13(k)(i)(44) for failure to maintain an accurate record of
orders. PCX Rule 6.68 requires members to maintain and preserve a
written record of every order for a period of time specified by the
Commission. The proposed fines are $500 for a first violation, $1,000
for a second, and $2,500 for a third.
The Exchange also proposes to amend PCX Rule 10.13(k)(i)(39) to
include a fine schedule for RMMs' failure to meet the 60% quoting
requirement. The proposed fine schedule for PCX Rule 10.13(h)(39) was
inadvertently omitted in a previous rule filing,\4\ and it is
consistent with the fines established for violations by a Market Maker
involving the 75% primary appointment requirement and the 60% in-person
trading requirement.\5\ In addition, the Exchange proposes to amend the
text of current PCX Rules 10.13(h)(25) and 10.13(k)(i)(25) to include
references to PCX Rule 6.37(h)(5) for purposes of clarifying the
application of the fine schedule for violations by RMMs involving the
75% primary appointment requirement.
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\4\ See Securities Exchange Act Release No. 47838 (May 13,
2003), 68 FR 27129 (May 19, 2003) (Order approving PCX Plus).
\5\ See PCX Rules 10.13(k)(i)(25) and 10.13(k)(i)(26).
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Finally, the Exchange proposes two amendments to PCX Rules
10.13(h)(33) and 10.13(k)(i)(33) of the MRP and RFS. First, the
corresponding rule number will be changed to reflect the correct rule
number, which is ``Rule 6.87(d)(2)''. Second, the equivalent rule
violation in PCX Plus, ``Rule 6.90(e)(1)'', will be added to this MRP
and RFS.
The Exchange believes that the proposed rule changes will serve to
significantly strengthen the ability of the Exchange to carry out its
oversight responsibilities as a self-regulatory organization (``SRO'').
The rules should also aid the Exchange in carrying out its surveillance
and enforcement functions. Under the proposed rules, the Enforcement
Department would continue to exercise its discretion under PCX Rule
10.13(f) and take cases out of the MRP to pursue them as formal
disciplinary matters if the facts or circumstances warrant such
action.\6\
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\6\ The Commission notes that certain of the rules that PCX
proposes to add to its MRP relate to market making obligations, and
further notes that it previously has indicated that ``only the most
technical and non-substantive violations'' of a market maker's
obligations should be handled pursuant to a minor rule plan.
Securities Exchange Act Release No. 27878 (April 14, 1990), 55 FR
13345, [SR-NYSE-89-44].
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In addition, two of the proposed rule adoptions (i.e., Proposed PCX
Rules 10.13(h)(40)-(41) and 10.13(k)(i)(40)-(41)) correspond to those
found in the Chicago Board Options Exchange (``CBOE'') and the American
Stock Exchange (``Amex'') MRP, respectively.\7\ Thus, the Exchange is
proposing to include such rules into the MRP to conform to those found
in other SROs' MRPs.
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\7\ See e.g., CBOE Rule 17.50(g)(5) and Amex Rule 590G.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\8\ in general, and Section 6(b)(5) of the Act,\9\ in
particular, in that it will promote just and equitable principles of
trade; facilitate transactions in securities, remove impediments to and
perfect the mechanisms of a free and open market and a national market
system; and protect investors and the public interest. The Exchange
believes that the proposal is also consistent with Section 6(b)(6) of
the Act,\10\ which requires that members and persons associated with
members be appropriately disciplined for violations of Exchange rules.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f(b)(6).
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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 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 Exchange 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 such filing will also be
available for inspection and copying at the principal office of the
PCX. All submissions should refer to file number SR-PCX-2003-32 and
should be submitted by December 3, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-28275 Filed 11-10-03; 8:45 am]
BILLING CODE 8010-01-P