[Federal Register: February 15, 2006 (Volume 71, Number 31)]
[Notices]
[Page 8035-8037]
[DOCID:fr15fe06-147]

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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.
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    \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.
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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.
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    \5\ Id.
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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).
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    \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.
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    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\
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    \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.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is

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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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, 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<EMAIL_ADDRESS>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.
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    \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).
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    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\
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    \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).

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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.
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    \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.
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    \18\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E6-2129 Filed 2-14-06; 8:45 am]

BILLING CODE 8010-01-P