[Federal Register: July 27, 2005 (Volume 70, Number 143)]
[Notices]
[Page 43490-43492]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy05-158]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52070; File No. SR-PCX-2005-61]
Self-Regulatory Organizations; The Pacific Exchange, Inc.; Notice
of Filing of Proposed Rule Change, and Amendment No. 1 Thereto,
Establishing a De Minimus Exception to the 80/20 Test
July 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 April 26, 2005, the Pacific Exchange, Inc. (``Exchange'' or ``PCX'')
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. On June 29, 2005, the Exchange
submitted Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No.1 added clarifying language to the proposed
rule text.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify the ``80/20 Test'' in determining
limitations on Principal Order access under the rules imposed by the
Plan for the Purpose of Creating and Operating an Intermarket Option
Linkage (``Linkage Plan'') \4\ and related rules.
---------------------------------------------------------------------------
\4\ On July 28, 2000, the Commission approved a national market
system plan for the purpose of creating and operating an intermarket
options market linkage (``Linkage'') proposed by the American Stock
Exchange, LLC, Chicago Board Options Exchange, Inc. and the
International Securities Exchange, Inc. See Securities Exchange Act
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000).
Subsequently, the Philadelphia Stock Exchange, Inc., the PCX, and
the Boston Stock Exchange, Inc. joined the Linkage Plan. See
Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65
FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 70850
(November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029
(February 12, 2004).
---------------------------------------------------------------------------
[[Page 43491]]
The text of the proposed rule change, as amended, is available on
the PCX's Web site at http://www.pacificex.com, the PCX's Office of the
Secretary, and at the Commission's Public Reference Room.
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
1. Purpose
The purpose of this proposed rule change, as amended, is to
implement proposed Joint Amendment No. 17 to the Linkage Plan. Joint
Amendment No. 17, together with this proposed rule change, will modify
the so called ``80/20 Test'' set forth in Section 8(b)(iii) of the
Linkage Plan and PCX Rule 6.96. PCX Rule 6.96 states that Market Makers
should send Principal Orders through Linkage on a limited basis and not
as a primary aspect of their business.\5\ The 80/20 Test implements
this general principle by prohibiting a Market Maker from sending
Principal Orders in an eligible option class if, in the last calendar
quarter, the Market Maker's Principal Order contract volume is
disproportionate to the Market Maker's contract volume executed against
customer orders in its own market.
---------------------------------------------------------------------------
\5\ The Exchange defines a Principal Order as an order for a
principal account of an eligible Market Maker that does not relate
to a customer order the Market Maker is holding. See PCX Rule
6.92(a)(12)(ii).
---------------------------------------------------------------------------
The Exchange believes that applying the 80/20 Test has resulted in
anomalies for Market Makers with limited volume in an eligible option
class. Specifically, if a Market Maker has very little overall trading
volume in an option, the execution of one or two Principal Orders
during a calendar quarter could result in the Market Maker failing to
meet the Test. This would bar the Market Maker from using the Linkage
to send Principal Orders in that option class for the following
calendar quarter. It was not the intent of the Exchange to bar Market
Makers with limited volume from sending Principal Order through the
Linkage in these circumstances since such trading was not ``a primary
aspect of their business.'' Thus, the proposed rule would create a de
minimus exemption from the 80/20 Test for Market Makers that have total
contract volume of less than 1000 contracts in an option class for a
calendar quarter.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \6\ in general and furthers the objectives
of Section 6(b)(5) \7\ in particular because 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 facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The PCX does not believe that the proposed rule change will impose
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
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, 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 at http://www.sec.gov/rules/sro.shtml
or send an e-mail to rule-comments@sec.gov.
Please include File No. SR-PCX-2005-61 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File No. SR-PCX-2005-61. 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 also will be available for
inspection and copying at the principal office of the 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 Number SR-PCX-2005-61
and should be submitted on or before August 17, 2005.
[[Page 43492]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3981 Filed 7-26-05; 8:45 am]
BILLING CODE 8010-01-P