regulatory organizations; proposed rule changes: Pacific Exchange, Inc.,

[Federal Register: October 21, 1998 (Volume 63, Number 203)]

[Notices]

[Page 56282-56283]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21oc98-123]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40551; File No. SR-PCX-98-36]

Self-Regulatory Organizations; Order Granting Approval to Proposed Rule Change by the Pacific Exchange, Inc., Relating to the OptiMark System--Specialists Bids and Offers

October 14, 1998.

  1. Introduction

    On July 2, 1998, the Pacific Exchange, Inc. (``PCX'' or the ``Exchange'') submitted to the Securities and Exchange Commission (``SEC'' or ``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 that would require Specialists to ensure that their best bids and offers will be represented in the OptiMark System.

    \1\ 15 U.S.C. 78s(b)(1).

    \2\ 17 U.S.C. 19b-4.

    On August 27, 1998, the proposed rule change was published for comment in the Federal Register.\3\ The Commission received one comment letter on the proposal.\4\

    \3\ Securities Exchange Act Release No. 40348 (August 20, 1998), 63 FR 45892.

    \4\ Letter from James E. Buck, Senior Vice President and Secretary, NYSE, to Jonathan G. Katz, dated September 16, 1998. In the comment letter, the NYSE took no position on whether the Commission should approve PCX's proposal. NYSE noted, however, that the filing does not address the NYSE's concerns regarding proposed amendments to the plan governing the Intermarket Trading System to accommodate the OptiMark System and the PCX Application.

    This order approves the proposed rule change.

  2. Description of the Proposal

    The Exchange proposes to adopt new Rule 15.3(b) to require PCX Specialists to use the PCX Application of the OptiMark System (``PCX Application'') with respect to the bids and offers that they publish. The purpose of the rule is to facilitate best execution of customer orders by requiring PCX Specialists to include best bids and offers in the OptiMark System as Profiles. Specifically, proposed Rule 15.3(b) provides that PCX Specialists must ensure that at all relevant times during regular trading hours, their best bids and offers (whether reflecting limit orders or the Specialist's own interest) will be included in the OptiMark System. Once included, such trading interest is expected to interact with other trading interest, resulting in improved execution opportunities on the PCX. The Exchange believes that the rule change will facilitate interaction between the PCX Application and existing trading interest on the PCX floors, thereby promoting more efficient and effective market operations.

    The Exchange is also proposing to modify PCX Rule 15.2 by adding the following provision: ``The Exchange will assure that each Specialist is provided with appropriate access to the PCX Application for the purpose of submitting Profiles from the Specialist's Post.''

  3. Discussion

    After careful review, the Commission believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission believes that the proposed rule change is consistent with Section 11A(a)(1)(C)(iii) and (iv) of the Act. Congress found in those provisions that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure that availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities, and to assure

    [[Page 56283]]

    the practicability of brokers executing investors' orders in the best market.\5\ The proposed rule change will assure the availability of information with respect to quotations because it requires specialists to enter best bids and offers (whether their own or those of customers) into the OptiMark System at all relevant times during regular trading hours. Similarly, because customer limit orders as well as the Specialist's own bids and offers must be entered into the OptiMark System, there will be an opportunity for price improvement for quotations in the OptiMark System.

    \5\ 15 U.S.C. 78k-1(a)(1)(C) (iii) and (iv).

    In addition, the Commission believes the proposal is consistent with the Section 6(b)(5) \6\ requirements that the rules of an exchange not be designed to discrimination against broker-dealers issuers and others using the Exchange because each PCX Specialist must be provided with appropriate access to the PCX Application at the Specialist's Post.\7\

    \6\ 15 U.S.C. 78f(b)(5).

    \7\ In approving these rules, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

    In approving the proposal, the Commission is not suggesting that PCX Specialists' use of the OptiMark System satisfies those specialists' best execution obligations. By enhancing the investment choices available to investors over a broad range of trading scenarios, however, the proposal should help to ensure that investors that trade through PCX have a enhanced opportunity to obtain better prices for their securities transactions.

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\8\ that the proposed rule change (PCX-98-36) is approved.

    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12).

    Margaret H. McFarland, Deputy Secretary.

    [FR Doc. 98-28196Filed10-20-98; 8:45 am]

    BILLING CODE 8010-01-M

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