[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57684-57685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27892]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-42041; File No. SR-PCX-99-31]
Self-Regulatory Organization; Noticed of Filing of Proposed Rule
Change by the Pacific Exchange, Inc. Relating to Cross-Only Contingency
Orders
October 20, 1999.
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 August 25, 1999, 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)(2)
\2\ 17 CFR 240.19b-4.
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1. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The PCX is proposing to amend its rules to permit Floor Brokers to
represent orders with a ``cross-only'' contingency. The text of the
proposed rule change is set forth below. Addition are italicized.
* * * * *
PACIFIC EXCHANGE, INC. RULES TRADING PRACTICES AND PROCEDURES
para.4987 ``Crossing'' Orders
Rule 6.47
(a)-(c)--No change.
Cross-Only Contingency Orders
(d) A Floor Broker who holds cross-only orders a defined in rule
6.62(c)(3) may cross those orders by proceeding in the following
manner: Prior to representing the orders in the trading crowd, the
floor Broker must make the crowd award of the total number of contracts
the Floor Brokers wishes to cross, the order are to executed on a
cross-only basis, the price at which the Floor Broker wishes to cross
the orders, and the name of the clearing member or members through whom
the transaction will clear. The price must be or within the bid or
offer.
* * * * *
para.5061 Certain Types of Orders Defined
Rule 6.62
(a)-(b)-No change.
(c) Contingency Orders.--No change.
(12)-(2)--No change.
(3) Cross-Only Orders. A cross-only order is a contingency order
that is to be executed in whole in equity options only, the amount
determined by the Member Organization Placing the order, in a cross
transaction with an order for another customer or the Member
Organization itself. If the trading crowd does not allow the cross to
take place, the Member Organization placing the order may withdraw it
from consideration by the trading crowd.
* * * * *
para.5127 Manner of Bidding and Offering
Rule 6.73
No change.
Commentary:
.01 Notwithstanding the above provision that all bids and offers
must be general ones, a Floor Broker may represent orders with a cross-
only contingency as defined in Rule 6.62.
* * * * *
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 PCX proposes to amend certain Exchange Rules to permit a Member
Organization to enter and a Floor Broker to represent orders with a
cross-only contingency. The purpose of the proposed rule change is to
allow a Floor Broker to disclose to the trading crowd, prior to
execution, that the Floor Broker wishes to cross two orders for a
certain number of contracts, at a certain price within or at the quoted
bid or offer. The Floor Broker must also disclose, prior to execution,
the name of the clearing member or members through whom the transaction
will clear. If the crowd does not permit the Floor Broker to do this,
then the cross-only contingency provides that the Member Organization
placing the orders may withdraw the orders, as if they never existed in
the trading crowd. The two orders the Floor Broker holds to cross under
this contingency may be two customer orders or orders between a
customer and the firm itself. There are no restrictions on who the
customer may be, e.g., a customer could be a Market Maker, broker-
dealer, or a public customer. The cross would be effected at or between
the bid and offer. A cross-only order is defined to include only equity
options orders that are to be executed in whole.
The Exchange believes that by allowing for the cross-only
contingency, the Exchange will help to develop customer business and
will expedite crosses yielding a similar result to what occurs on the
floor currently, although currently it is done in a much more
circuitous route. With the current competition in the marketplace, the
Exchange believes that by providing the cross-only contingency more
firms will want to bring business to the PCX, since the firm will have
the ability to take the order elsewhere if the crowd does not allow the
cross.
Although Exchange Rules currently allow a similar result as the
cross-only contingency, it is much more cumbersome. The proposed rule
change provides that the Floor Broker may make the crowd aware in
advance of the number of contracts the Floor Broker wishes to cross;
the price at which the cross would take place, at or between the quoted
prices; the customer ``give up'' information;\3\ and if the crowd bars
the cross from taking place, the Member Organization may withdraw the
orders. As the rules stand currently, a Floor Broker does not disclose
in advance that he or she is holding two orders to cross; the Floor
Broker must bid above the highest bid or offer below the lowest offer
in the open market; if the bid or offer is not taken by the crowd, then
the Floor Broker may cross at the higher bid or lower offer.\4\ The
difference in result between the proposed Rule and the current Rule is
not substantial; however it is a much quicker result since the Floor
Broker will know immediately
[[Page 57685]]
whether the trading crowd will allow the cross to take place, and the
Member Organization placing the order may withdraw it if the cross is
not allowed by the crowd.\5\
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\3\ See PCX Rule 6.66(a).
\4\ See PCX Rule 6.47(a).
\5\ The Exchange notes that a substantially similar proposal of
the Chicago Board Options Exchange (``CBOE'') has been noticed for
public comment in the Federal Register. See Securities Exchange Act
Release No. 41610 (July 8, 1999), 64 FR 38495 (July 16, 1999). The
PCX proposal differs from the CBOE proposal in two procedural
respects: First, unlike the CBOE proposal, the PCX rule change will
require that the floor broker disclose, prior to the transaction,
the name of the clearing member or members through whom the
transaction will clear. This is the same information that floor
brokers must currently ``give up'' pursuant to PCX Rule 6.66(a). See
proposed PCX Rule 6.47(d). Second, the PCX proposal covers orders
that are to be executed in whole, while the CBOE proposal covers
orders that are to be executed in whole or in part. See proposed PCX
Rule 6.62(c)(3).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) \6\ of the Act, in general, and further the
objectives of Section 6(b)(5),\7\ in particular, in that they are
designed to promote just and equitable principles of trade, to enhance
competition and to protect investors and the public interest.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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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 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
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 is consistent with the Act. In particular, the Commission seeks
comment on whether the proposed rule change will result in fair
executions for the various orders and parties represented in the
crossing transaction. Also, commenters are requested to provide their
views on this rule revision in light of the proposed rule change
contained in SR-PCX-99-18, relating to facilitation crosses.\8\ 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 the filing will also be available for
inspection and copying at the principal offices of the Exchange. All
submissions should refer to File No. SR-PCX-99-31 and should be
submitted by November 16, 1999.
\8\ See Securities Exchange Act Release No. 41867 (September 13,
1999), 64 FR 51171 (September 21, 1999).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27892 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M