[Federal Register: February 6, 2003 (Volume 68, Number 25)]
[Notices]
[Page 6242-6243]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe03-156]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47295; File No. SR-PCX-2002-64]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by Pacific Exchange, Inc., Relating to Rules Governing the
Intermarket Linkage, and Notice of Filing and Order Granting
Accelerated Approval to Amendment No. 1 Thereto
January 31, 2003.
I. Introduction
On September 26, 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 (the ``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt new rules, governing the
operation of the intermarket linkage (the ``Linkage''). The proposed
rule change was published for comment in the Federal Register on
December 26, 2002.\3\ The Commission received no comments on the
proposed rule change. On January 29, 2003, the Exchange filed Amendment
No. 1 to the proposed rule change.\4\ This order approves the proposed
rule change, provides notice of filing of Amendment No. 1 and grants
accelerated approval to Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 47026 (December 18,
2002), 67 FR 78843.
\4\ See letter from Mai S. Shiver, Senior Attorney, Regulatory
Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of
Market Regulation, Commission, dated January 28, 2003 (``Amendment
No. 1''). In Amendment No. 1, the Exchange proposed to amend: (1)
The definition of ``Linkage Order'' contained in PCX Rule
6.92(a)(12) to state that such orders are immediate or cancel
orders; (2) PCX Rule 6.93(e) to clarify the Lead Market Market's
obligation to address a linkage order when such order is not
eligible to be automatically executed; (3) PCX Rule 6.94(a) to
clarify language regarding liability for trade-throughs at the end
of the trading day and to request approval of this provision only
for a one-year pilot period; and (4) PCX Rule 6.94(e) to clarify
that members may not engage in a pattern or practice of trading
through.
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II. Description of Proposal
In general, the proposed rules contain relevant definitions,
establish the conditions pursuant to which market makers may enter
Linkage orders, impose obligations on the Exchange regarding how it
must process incoming Linkage orders, and establish a general standard
that members should avoid trade-throughs.\5\ The proposed rules
establish potential regulatory liability for members who engage in a
pattern or practice of trading through other exchanges, whether or not
the exchanges traded through participate in the Linkage, provide
procedures to unlock and uncross markets, and codify the ``80/20 Test''
contained in section 8(b)(iii) of the Plan for the Purpose of Creating
and Operating an Intermarket Options Linkage (the ``Plan''),\6\ which
provides that a market maker on an Exchange would be restricted from
sending principal orders (other than P/A orders, which reflect
unexecuted customer orders) through the Linkage if the market maker
effects less than 80 percent of specified order flow on the Exchange.
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\5\ Trade-throughs occur when broker-dealers execute customer
orders on one exchange at prices inferior to another exchange's
disseminated quote.
\6\ Approved by the Commission in Securities Exchange Act
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000), as
subsequently amended. See Securities Exchange Act Release No. 44482
(June 27, 2001), 66 FR 35470 (July 5, 2001) (``Initial Amendment
Order'') and Securities Exchange Act Release No. 46001 (May 30,
2002), 67 FR 38687 (June 5, 2002); 47274 (January 29, 2003); and
47298 (January 31, 2003).
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III. Discussion
The Commission has reviewed the PCX's proposed rule change and
finds that the proposal is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange,\7\ and with the requirements of section 6(b).\8\
In particular the Commission finds that the proposed rule change is
designed to
[[Page 6243]]
prevent fraudulent and manipulative acts and practices, 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, 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 in accordance with section
6(b)(5) of the Act.\9\
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\7\ In approving this rule proposal, the Commission notes that
it has also considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the rules proposed by the PCX will
adequately govern the operation of the Linkage as envisioned in the
Plan. The Commission believes that these rules will help to ensure that
the Linkage is operated fairly and effectively, in accordance with the
principles of the Act and the Plan.
The Commission also finds good cause for approving proposed
Amendment No. 1 prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register.
Amendment No. 1 proposes several changes to the Exchange's original
proposal that are designed to conform the Exchange's rules governing
linkage more closely to the Plan. The provisions of the Plan have
already been subject to notice and comment, and have been approved by
the Commission. The changes proposed in Amendment No. 1 do not raise
any novel regulatory issues, and therefore, it is appropriate for the
Commission to accelerate approval of Amendment No. 1.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 to the proposed rule change,
including whether Amendment No. 1 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 Amendment No. 1 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 Exchange. All submissions should refer
to File No. SR-PCX-2002-64 and should be submitted by February 27,
2003.
V. Conclusion
It is therefore Ordered, pursuant to section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-PCX-2002-64), be, and hereby
is, approved, and that Amendment No. 1 to the proposed rule change be,
and hereby is, approved on an accelerated basis.
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\10\ 15 U.S.C. 78s(b)(2).
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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2948 Filed 2-5-03; 8:45 am]
BILLING CODE 8010-01-P