Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Approving a Proposed Rule Change and Amendments No. 1, 2, and 3 Thereto To Permit Lead Market Makers To Operate Remotely, 48455-48456 [E5-4491]

Download as PDF Federal Register / Vol. 70, No. 158 / Wednesday, August 17, 2005 / Notices 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 PCX 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 the Market Maker Fee. Currently, the fee is $1,750 per month, and the fee is prorated for each day the Market Maker trades at the PCX. The PCX proposes to reduce the Market Maker Fee to $1,500 per month and no longer prorate the fee based on daily usage. By no longer prorating the fee, the PCX would save a substantial amount of administrative time that is associated with tracking the daily access of each Market Maker. It also would allow the PCX to automate the billing of this fee. According to the PCX, based upon past history of overall usage by the PCX Market Makers, the reduction of the fee by $250 per month, coupled with the elimination of the current policy to prorate the fee, would have little, if any, positive or negative impact on revenue for the Exchange. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,5 in general, and furthers the objectives of Section 6(b)(4) of the Act,6 in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among its members. 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 purpose of the Act. 5 15 6 15 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,7 and paragraph (f)(2) of Rule 19b–4 thereunder,8 because it establishes or changes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–PCX–2005–89 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–PCX–2005–89. 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 (https://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 U.S.C. 78f(b). U.S.C. 78f(b)(4). VerDate jul<14>2003 13:34 Aug 16, 2005 7 15 8 17 Jkt 205001 PO 00000 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). Frm 00087 Fmt 4703 Sfmt 4703 48455 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 also will be available for inspection and copying at the principal office of the Exchange. 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–2005–89 and should be submitted on or before September 7, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.9 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–4489 Filed 8–16–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52241; File No. SR–PCX– 2005–31] Self-Regulatory Organizations; Pacific Exchange, Inc.; Order Approving a Proposed Rule Change and Amendments No. 1, 2, and 3 Thereto To Permit Lead Market Makers To Operate Remotely August 11, 2005. I. Introduction On March 15, 2005, the Pacific Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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 amend its rules to allow Lead Market Makers (‘‘LMMs’’) to operate from a remote location. The Exchange submitted Amendments No. 1, 2, and 3 on May 27, 2005,3 June 6, 2005,4 and 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 makes clarifying changes to the purpose statement and rule text. Amendment No. 1 replaces the original rule filing in its entirety. 4 Amendment No. 2 makes a technical correction to the rule text in Exhibit 5. 1 15 E:\FR\FM\17AUN1.SGM 17AUN1 48456 Federal Register / Vol. 70, No. 158 / Wednesday, August 17, 2005 / Notices June 22, 2005,5 respectively. On July 6, 2005, the proposal, as amended, was published for comment in the Federal Register.6 No comment letters were received on the proposal. The Commission is approving the proposed rule change, as amended. II. Description of the Proposal The proposed rule change amends the Exchange’s trading rules in order to allow OTP Holders and OTP Firms who conduct Lead Market Making activity to do so whether on the trading floor or from a remote location. Currently, the PCX rules require a Lead Market Maker be physically present on the trading floor in order to conduct Lead Market Maker activities. With the roll out of PCX Plus, the Exchange’s electronic trading system, the Exchange seeks to introduce a platform by which Lead Market Makers may either be present on the trading floor or may serve their role from a remote location. LMMs will retain their guaranteed participation allowances and opportunities to participate in open outcry should they choose to work from the physical trading floor. For those LMMs who choose to conduct their business from remote locations, they will not be able to inure the benefits of the current open outcry strategies and will be granted their guaranteed participation rights solely based upon the size and price that they disseminate via the PCX Plus System. In order to allow LMMs to operate from a remote location, the Exchange is proposing a number of changes to its Rules. First, PCX Rule 6.32 is being amended to add LMMs to the definition of who may make transactions through the facilities of the Exchange. This change will allow LMMs who are not physically present on the trading floor to perform the duties and obligations from a remote location. Language in PCX Rule 6.32 is also being changed to allow for trades executed by an LMM through a facility of the Exchange, in addition to in-person trades, to be eligible to receive market maker margin. Presently only LMM trades that are executed on the floor of the Exchange or those that meet the criteria of PCX Rule 6.32(c) are eligible for market maker margin. Under the proposal, an LMM acting from a remote location would still be required to meet all of the 5 Amendment No. 3 clarifies how a Lead Market Maker will garner their guaranteed trade allocations by adding the words ‘‘via the PCX Plus system’’ at the end of the second paragraph in the purpose statement. Amendment No. 3 also eliminates the deletion of PCX Rule 6.37(f)(1). 6 See Securities Exchange Act Release No. 51937 (June 29, 2005), 70 FR 38997. VerDate jul<14>2003 13:34 Aug 16, 2005 Jkt 205001 obligations of an LMM as stated in PCX Rule 6.82. Second, the Exchange is proposing to eliminate the prohibition in PCX Rule 6.82(a)(1) that Remote Market Makers (‘‘RMMs’’) are not eligible to act as LMMs from a location off the trading floor. The Exchange believes that this change is necessary to permit LMMs to operate from a remote location and to eliminate any uncertainty that may exist in interpreting PCX Rules. A firm that operates at the PCX can have different employees who function as RMM and LMM, however, under proposed amendments to PCX Rule 6.35(h)(4), these individuals are prohibited from trading the same option issues. Fourth, as part of allowing Lead Market Makers to operate from a remote location, the Exchange is proposing to eliminate PCX Rule 6.82(h)(1). This rule currently allows the Lead Market Maker to perform Order Book Official functions. Since an Order Book Official is only present on the trading floor (PCX Plus does not contain a functionality similar to that which is performed by an Order Book Official), this function is not needed should a Lead Market Maker choose to operate from a remote location. Finally, the provisions of the PCX Rules that permit Lead Market Makers to perform certain functions that require them to be physically present on the trading floor (i.e. PCX Rule 6.82(h)(3)) will only be permitted should the Lead Market Maker remain physically present on the trading floor. These functions will not be permitted should the Lead Market Maker decide to operate from a remote location. III. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 7 and, in particular, the requirements of Section 6 of the Act.8 Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,9 in that the proposal has been designed to promote just and equitable principles of trade, and to protect investors and the public interest. A. Market Maker Obligations PCX Rule 6.32 is being amended to allow for trades executed by an LMM through a facility of the Exchange, in addition to in-person trades, to be eligible to receive market maker margin. The Commission believes that a Market Maker must have an affirmative obligation to hold itself out as willing to buy and sell options for its own account on a regular or continuous basis to justify this favorable treatment. The Commission believes that PCX’s rules impose such affirmative obligations LMMs that choose to operate remotely and notes that under the proposal, an LMM acting from a remote location would still be required to meet all of the obligations of an LMM set forth in PCX Rule 6.82. B. Affiliated RMMs and LMMs In addition, the Exchange is proposing to eliminate the prohibition in PCX Rule 6.82(a)(1) that RMMs are not eligible to act as LMMs from a location off the trading floor. A firm that operates at the PCX can have different employees who function as RMM and LMM. Under the proposed new rules, however, these individuals would be prohibited from trading the same option issues.10 The Commission believes that these limitations should help to reduce the opportunity for conflicts of interest. C. Order Book Official Function The Exchange is proposing to eliminate PCX Rule 6.82(h)(1), which allows LMMs to perform Order Book Official functions. Since an Order Book Official is only present on the trading floor, an LMM that chooses to operate from a remote location would not be able to fulfill this function. The Exchange has represented, and the Commission expects, that for those individuals who continue to trade via open outcry on the trading floor, the Exchange will provide the necessary staff to effectively supervise trading.11 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,12 that the proposed rule change (File No. SR– PCX–2005–31), as amended, is hereby approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–4491 Filed 8–16–05; 8:45 am] BILLING CODE 8010–01–P 10 See Proposed PCX Rule 6.35(h)(4). Exchange has also represented that at this time no LMM is currently performing the functions of an Order Book Official nor has any LMM expressed an interest in doing so. 12 15 U.S.C. 78s(b)(2). 13 17 CFR 200.30–3(a)(12). 11 The 7 The Commission has considered the amended proposed rule change’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f. 9 15 U.S.C. 78f(b)(5). PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 E:\FR\FM\17AUN1.SGM 17AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 158 (Wednesday, August 17, 2005)]
[Notices]
[Pages 48455-48456]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4491]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52241; File No. SR-PCX-2005-31]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Order 
Approving a Proposed Rule Change and Amendments No. 1, 2, and 3 Thereto 
To Permit Lead Market Makers To Operate Remotely

August 11, 2005.

I. Introduction

    On March 15, 2005, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 amend its rules to allow Lead Market Makers 
(``LMMs'') to operate from a remote location. The Exchange submitted 
Amendments No. 1, 2, and 3 on May 27, 2005,\3\ June 6, 2005,\4\ and

[[Page 48456]]

June 22, 2005,\5\ respectively. On July 6, 2005, the proposal, as 
amended, was published for comment in the Federal Register.\6\ No 
comment letters were received on the proposal. The Commission is 
approving the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 makes clarifying changes to the purpose 
statement and rule text. Amendment No. 1 replaces the original rule 
filing in its entirety.
    \4\ Amendment No. 2 makes a technical correction to the rule 
text in Exhibit 5.
    \5\ Amendment No. 3 clarifies how a Lead Market Maker will 
garner their guaranteed trade allocations by adding the words ``via 
the PCX Plus system'' at the end of the second paragraph in the 
purpose statement. Amendment No. 3 also eliminates the deletion of 
PCX Rule 6.37(f)(1).
    \6\ See Securities Exchange Act Release No. 51937 (June 29, 
2005), 70 FR 38997.
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II. Description of the Proposal

    The proposed rule change amends the Exchange's trading rules in 
order to allow OTP Holders and OTP Firms who conduct Lead Market Making 
activity to do so whether on the trading floor or from a remote 
location. Currently, the PCX rules require a Lead Market Maker be 
physically present on the trading floor in order to conduct Lead Market 
Maker activities. With the roll out of PCX Plus, the Exchange's 
electronic trading system, the Exchange seeks to introduce a platform 
by which Lead Market Makers may either be present on the trading floor 
or may serve their role from a remote location. LMMs will retain their 
guaranteed participation allowances and opportunities to participate in 
open outcry should they choose to work from the physical trading floor. 
For those LMMs who choose to conduct their business from remote 
locations, they will not be able to inure the benefits of the current 
open outcry strategies and will be granted their guaranteed 
participation rights solely based upon the size and price that they 
disseminate via the PCX Plus System.
    In order to allow LMMs to operate from a remote location, the 
Exchange is proposing a number of changes to its Rules. First, PCX Rule 
6.32 is being amended to add LMMs to the definition of who may make 
transactions through the facilities of the Exchange. This change will 
allow LMMs who are not physically present on the trading floor to 
perform the duties and obligations from a remote location. Language in 
PCX Rule 6.32 is also being changed to allow for trades executed by an 
LMM through a facility of the Exchange, in addition to in-person 
trades, to be eligible to receive market maker margin. Presently only 
LMM trades that are executed on the floor of the Exchange or those that 
meet the criteria of PCX Rule 6.32(c) are eligible for market maker 
margin. Under the proposal, an LMM acting from a remote location would 
still be required to meet all of the obligations of an LMM as stated in 
PCX Rule 6.82.
    Second, the Exchange is proposing to eliminate the prohibition in 
PCX Rule 6.82(a)(1) that Remote Market Makers (``RMMs'') are not 
eligible to act as LMMs from a location off the trading floor. The 
Exchange believes that this change is necessary to permit LMMs to 
operate from a remote location and to eliminate any uncertainty that 
may exist in interpreting PCX Rules. A firm that operates at the PCX 
can have different employees who function as RMM and LMM, however, 
under proposed amendments to PCX Rule 6.35(h)(4), these individuals are 
prohibited from trading the same option issues.
    Fourth, as part of allowing Lead Market Makers to operate from a 
remote location, the Exchange is proposing to eliminate PCX Rule 
6.82(h)(1). This rule currently allows the Lead Market Maker to perform 
Order Book Official functions. Since an Order Book Official is only 
present on the trading floor (PCX Plus does not contain a functionality 
similar to that which is performed by an Order Book Official), this 
function is not needed should a Lead Market Maker choose to operate 
from a remote location.
    Finally, the provisions of the PCX Rules that permit Lead Market 
Makers to perform certain functions that require them to be physically 
present on the trading floor (i.e. PCX Rule 6.82(h)(3)) will only be 
permitted should the Lead Market Maker remain physically present on the 
trading floor. These functions will not be permitted should the Lead 
Market Maker decide to operate from a remote location.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange \7\ and, in particular, the requirements of Section 
6 of the Act.\8\ Specifically, the Commission finds that the proposal 
is consistent with Section 6(b)(5) of the Act,\9\ in that the proposal 
has been designed to promote just and equitable principles of trade, 
and to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ The Commission has considered the amended proposed rule 
change's impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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A. Market Maker Obligations

    PCX Rule 6.32 is being amended to allow for trades executed by an 
LMM through a facility of the Exchange, in addition to in-person 
trades, to be eligible to receive market maker margin. The Commission 
believes that a Market Maker must have an affirmative obligation to 
hold itself out as willing to buy and sell options for its own account 
on a regular or continuous basis to justify this favorable treatment. 
The Commission believes that PCX's rules impose such affirmative 
obligations LMMs that choose to operate remotely and notes that under 
the proposal, an LMM acting from a remote location would still be 
required to meet all of the obligations of an LMM set forth in PCX Rule 
6.82.

B. Affiliated RMMs and LMMs

    In addition, the Exchange is proposing to eliminate the prohibition 
in PCX Rule 6.82(a)(1) that RMMs are not eligible to act as LMMs from a 
location off the trading floor. A firm that operates at the PCX can 
have different employees who function as RMM and LMM. Under the 
proposed new rules, however, these individuals would be prohibited from 
trading the same option issues.\10\ The Commission believes that these 
limitations should help to reduce the opportunity for conflicts of 
interest.
---------------------------------------------------------------------------

    \10\ See Proposed PCX Rule 6.35(h)(4).
---------------------------------------------------------------------------

C. Order Book Official Function

    The Exchange is proposing to eliminate PCX Rule 6.82(h)(1), which 
allows LMMs to perform Order Book Official functions. Since an Order 
Book Official is only present on the trading floor, an LMM that chooses 
to operate from a remote location would not be able to fulfill this 
function. The Exchange has represented, and the Commission expects, 
that for those individuals who continue to trade via open outcry on the 
trading floor, the Exchange will provide the necessary staff to 
effectively supervise trading.\11\
---------------------------------------------------------------------------

    \11\ The Exchange has also represented that at this time no LMM 
is currently performing the functions of an Order Book Official nor 
has any LMM expressed an interest in doing so.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No.SR-PCX-2005-31), as 
amended, is hereby approved.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4491 Filed 8-16-05; 8:45 am]
BILLING CODE 8010-01-P

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