

[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]               
[Page 8035-8037]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15fe06-147]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53249; File No. SR-PCX-2005-138]

 
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Order Granting Accelerated Approval of a Proposed Rule 
Change and Amendments No. 1 and 2 Thereto To Amend the PCX's Rules 
Governing the Hours of Trading in Equity Options

February 7, 2006.
    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 December 16, 2005, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the PCX. On January 13, 
2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Exchange filed Amendment No. 2 to the proposed rule 
change on January 31, 2006.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as amended, from 
interested persons and to approve the amended proposal on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange provided additional 
discussion to clarify its proposed rule change.
    \4\ In Amendment No. 2, the Exchange requested that the 
implementation date for the new closing time be changed from 
February 1, 2006, as was originally proposed, to February 13, 2006.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to amend its hours of trading for equity options 
as set forth in PCX Rule 7.1 and to make a corresponding clarifying 
change to PCX Rule 6.24(g). The Exchange proposes that these changes be 
implemented on February 13, 2006.\5\ The text of the proposed rule 
change, as amended, is available on the PCX's Web site (http://www.pacificex.com
), at the principal office of the PCX, and at the 

Commission's Public Reference Room.
---------------------------------------------------------------------------

    \5\ Id.
---------------------------------------------------------------------------

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item III 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
    According to the Exchange, the purpose of the proposed rule change, 
as amended, is to amend PCX Rule 7.1, Commentary .01 ``Trading 
Sessions'' to adjust the closing time for equity options trading on the 
PCX to 1 p.m. (Pacific time). In addition, the Exchange proposes to 
make a minor ``housekeeping'' change to PCX Rule 6.24(g) ``Exercise of 
Options Contracts'' so that the rule is consistent with the new closing 
time.\6\ After the change becomes effective, the 1 p.m. (Pacific time) 
closing time for equity options will coincide with the closing time of 
the primary equity markets listing the stocks underlying PCX options. 
The primary exchanges generally close at 1 p.m. (Pacific time).
---------------------------------------------------------------------------

    \6\ The Exchange also proposes to delete certain language 
contained in PCX Rule 7.1, Commentary .01 which addresses the 
specific categories of Market Makers that are eligible to effect 
trades through the facilities of the Exchange. According to PCX, its 
rules governing trading by Market Makers, and the explanations of 
which types of Market Makers are eligible to trade either on the 
Floor of the Exchange or through the facilities of the Exchange are 
included in PCX Rule 6.32(a) entitled ``Market Makers Defined.'' The 
PCX believes that it is redundant to repeat this language in PCX 
Rule 7.1, and therefore proposes to delete it as part of this 
proposed rule change. See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

    According to the Exchange, presently, listed options are traded on 
all options exchanges until 1:02 p.m. (Pacific time), while the 
underlying equities cease trading at 1 p.m. The extended time for 
options trading, which was implemented prior to electronic order entry 
and execution, provided an opportunity for all orders that were entered 
during market hours, especially those entered near the close, to be 
properly represented and executed if possible. The extended time also 
allowed options traders to respond to late reports of closing prices of 
underlying issues over the consolidated tape. Due to technological 
advances in options trading, most orders are no longer manually handled 
or traded on the floor. Customers and Market Makers have the ability to 
transact business in an all-electronic fashion with sub-second 
processing. Even though orders can still be traded via open outcry on 
the floor, these orders are limited in number and do not create a 
processing problem, even when entered near to the end of the day. 
Therefore, the need to provide an extended period of time in order to 
accommodate any orders that were unable to be processed during normal 
trading hours is no longer necessary. In addition, improvements in the 
processing and reporting of transactions have all but eliminated delays 
in the reporting of closing prices of underlying issues. Consequently, 
the need to continue trading options, while waiting for the correct 
closing price from the primary market, is no longer necessary.
    The Exchange notes that if it were to unilaterally modify its 
closing time, the existence of dissimilar closing times applicable to 
the different options exchanges would likely lead to confusion for 
options investors and broker-dealers. It is the PCX's understanding 
that all options exchanges will make similar changes to their rules to 
change the closing time in equity options from 1:02 p.m. to 1 p.m. 
(Pacific time).\7\ The options exchanges collectively have determined 
that they would implement this new closing time on February 13, 
2006.\8\
---------------------------------------------------------------------------

    \7\ The PCX notes that, although certain other exchanges are 
also proposing to change the closing time for narrow-based index 
options, the PCX's proposed rule change does not include a provision 
regarding narrow-based indexes. The Exchange represents that, at 
this time, the PCX does not trade options on narrow-based index 
products and does not have any plans to list options on narrow-based 
index products. PCX Rule 5.20(a) governs the closing time for 
transactions in index options. If in the future the PCX were to list 
options on narrow-based indexes, the PCX represents that it will, at 
that time, make any necessary changes to PCX Rule 5.20(a) regarding 
the closing time for options on narrow-based indexes. Id.
    \8\ See Amendment No. 2, supra note 4.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is

[[Page 8036]]

consistent with section 6(b) of the Act \9\ in general, and furthers 
the objectives of section 6(b)(5) of the Act \10\ 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, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 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, as amended, 
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, as amended.

III. 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 Number SR-PCX-2005-138 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-PCX-2005-138. 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 Section. 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-2005-138 and should be submitted on or before March 
8, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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.\11\ In particular, the Commission finds that the 
proposal is consistent with section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be 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, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \11\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the Exchange believes that the need to 
continue trading options for some period of time after the close of 
trading in the underlying securities markets is no longer necessary 
because improvements in the processing and reporting of transactions 
have obviated the need to respond to late reports of closing prices 
over the consolidated tape in order to bring options quotes in line 
with the closing price of the underlying security. Because the two 
minute delay between the close of normal trading in equity options and 
the corresponding underlying equity markets is no longer necessary, the 
Commission believes that eliminating the delay is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets. Therefore, the Commission 
finds that it is consistent with the Act for the Exchange to amend its 
rules to change the close of normal trading hours in equity options 
from 1:02 p.m. (Pacific time) to 1 p.m. (Pacific time).
    The Commission finds good cause for approving this proposed rule 
change, as amended, before the thirtieth day after publication of 
notice thereof in the Federal Register. The Commission notes that all 
of the options exchanges have filed substantially similar proposals and 
seek to implement these industry-wide changes simultaneously on 
February 13, 2006.\13\ For example, on December 20, 2005, the 
Commission published for comment in the Federal Register a similar 
proposed rule change submitted by the Chicago Board Options Exchange, 
Incorporated (``CBOE'').\14\ The Commission received no comments on the 
CBOE's proposed rule change. The Commission believes that the PCX's 
proposed rule change, as amended, raises no new issues or novel 
regulatory questions. Accordingly, the Commission finds good cause, 
pursuant to section 19(b)(2) of the Act,\15\ for approving the proposed 
rule change, as amended, prior to the thirtieth day after publication 
in the Federal Register. In addition, because the existence of 
dissimilar closing times among the options exchanges could lead to 
confusion for options investors and broker-dealers, the Commission 
finds good cause to accelerate approval of the proposed rule change, as 
amended, to enable the six options exchanges to simultaneously amend 
their hours of trading on an industry-wide basis in a uniform 
manner.\16\
---------------------------------------------------------------------------

    \13\ See note 16, infra.
    \14\ See Securities Exchange Act Release No. 52949 (December 13, 
2005), 70 FR 75513 (December 20, 2005) (SR-CBOE-2005-104). See also 
Securities Exchange Act Release No. 53055 (January 5, 2006), 71 FR 
2279 (January 13, 2006) (SR-ISE-2005-58).
    \15\ 15 U.S.C. 78s(b)(2).
    \16\ The Commission notes that it is simultaneously approving 
similar proposals from the other options exchanges. See Securities 
Exchange Act Release Nos. 53244 (SR-Amex-2006-003); 53245 (SR-BSE-
2006-02); 53246 (SR-CBOE-2005-104); 52348 (SR-ISE-2005-58); and 
53247 (SR-Phlx-2006-01) (February 7, 2006).

---------------------------------------------------------------------------

[[Page 8037]]

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\17\ that the proposed rule change and Amendments No. 1 and 2 
thereto (SR-PCX-2005-138) be, and hereby are, approved on an 
accelerated basis.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
J. Lynn Taylor,
Secretary.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E6-2129 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P
