Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Pacific Stock Exchange, Inc. Relating to Amendment of its Minor Rule Plan and Recommended Fine Schedule With Respect to Options Floor Decorum and Other Minor Trading Rule Violations

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34944; File No. SR-PSE-94-29]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Pacific Stock Exchange, Inc. Relating to Amendment of its

Minor Rule Plan and Recommended Fine Schedule With Respect to Options

Floor Decorum and Other Minor Trading Rule Violations

November 4, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on October 14, 1994, the

Pacific Stock Exchange (``PSE'' 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 self-regulatory organization. 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)(1).

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

of the Proposed Rule Change

The PSE proposes to amend Rule 10.13(h) of its Minor Rule Plan

(``MRP''): Options Floor Decorum and Other Minor Trading Rule

Violations. The PSE also proposes to revise its Recommended Fine

Schedule pursuant to PSE Rule 10.13(h) relating to Options Floor

Decorum and Minor Trading Rule Violations.

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 self-regulatory organization

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 self-regulatory organization

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

The Exchange proposes to make three changes to the MRP. First, the

Exchange proposes to eliminate references in Rules 10.13(h) (10) and

(11) to ``ten-up'' and ``Ten-Up Rule,'' because such references are

currently inaccurate in light of a recently approved rule change, as

well as a pending proposed rule change.\2\ Second, the Exchange

proposes to add a reference to the MRP that addresses violations of

Rule 6.82(c)(2) (which requires Lead Market Makers to honor their

guaranteed markets). The Exchange believes that violations of Rule

6.82(c)(2) are already provided for in the MRP by implication (due to a

cross reference) and that this proposed change will merely eliminate an

ambiguity. Third, the Exchange proposes to amend the MRP to add a

reference to new Rule 6.66(c), which provides for the identification of

broker-dealer orders on the Options Floor.\3\ The Exchange believes

that the rule is similar in nature to the disclosure requirements of

Rule 6.86, also referred to in the MRP.

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\2\See Securities Exchange Act Release Nos. 34891 (October 25,

1994), 59 FR 54653 (approving 20-up rule); and 34702 (September 22,

1994), 59 FR 49729 (proposal to expand Auto-Ex system capacity to 20

contracts).

\3\See Securities Exchange Act Release No. 34426 (July 21,

1994), 59 FR 38497 (approving Rule 6.66(c)).

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The Exchange also proposes to increase the recommended fines in the

Recommended Fine Schedule for Option Floor Decorum and Minor Trading

Rule Violations. These infractions are currently listed in the

Exchange's MRP, which is codified at PSE Rule 10.13. Specifically, the

Exchange proposes to increase the recommended fines for the violations

specified in the following rules: 10.13 (h) (2)-(4), (h) (7)-(9),

(h)(11), (h) (13)-(23), and (h)(26).\4\ The Commission has previously

approved these rules for inclusion in the MRP.\5\

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\4\These rules denote the following Exchange Rule violations

with respect to options trading: failing to properly record the time

of receipt, change in limit, or increase in size of an order

[(h)(2)]; improper execution of a cross transaction [(h)(3)];

violation of procedures concerning a Market Maker's use of a Floor

Broker to effect transactions [(h)(4)]; failure to give up the name

of a clearing member by public outcry when requesting a quote and

size of the market or after effecting a trade [(h)(7)];

inadvertently placing a non-public order in the book [(h)(8)];

failing to remain for a specified amount of time after trade

processing [(h)(9)]; failure to honor a guaranteed market [(h)(10)];

failure to identify an order as for a broker-dealer [(h)(11)];

improper communication by use of hand signals or other means or

devices [(h)(12)]; improper vocalization of a trade [(h)(13)];

violating a standard of conduct or dress [(h)(14)]; disruptive

action [(h)(15)]; disruptive action involving physical contact

[(h)(15)]; disruptive action involving physical contact [(h)(16)];

failing to act in a professional manner [(h)(17)]; use of abusive

language [(h)(18)]; time stamping [(h)(19)]; position and exercise

limit violations [(h) (20)-(21)]; acting as both Floor Broker and

Market Maker and trading in excess of 100 contracts per month as a

Market Maker [(h)(22)]; failing to request a market to be removed

from the screen when leaving a trading crowd [(h)(23)]; and

unauthorized use of telephones in trading post areas [(h)(26)].

\5\See Securities Exchange Act Release Nos. 22654 (November 21,

1985), 50 FR 48853; 32510 (June 24, 1993), 58 FR 35491; and 34322

(July 6, 1994), 59 FR 35958.

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The Exchange proposes to increase the current fine levels for such

violations. As a result, the lowest fine on the schedule would be $100

and the highest fine would be $2,500.\6\ With respect to most of the

proposed fine increases, the Exchange is increasing the fine levels

from $100, $250, and $500, for first-, second-, and third-time

violations,\7\ respectively, to $250, $500, and $750, respectively, for

such violations. In addition, the Exchange is proposing to increase the

minimum fine for position and exercise limit violations as follows: for

between one and three violations (during a running two-year period),

the minimum fine would be increased from $100 to $250;\8\ for between

four and six violations during such period, the minimum fine would be

increased from $100 to $500; and for seven or more violations during

such period, the minimum fine would be increased from $100 to $750.

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\6\Pursuant to the MRP, the Exchange may impose a fine not to

exceed $5,000 on any member, member organization, or person

associated with a member or member organization. See PSE Rule

10.13(a). In appropriate circumstances (e.g., where aggravating or

mitigating circumstances are present), the Exchange may impose a

higher or lower fine than that set forth in the Recommended Fine

Schedule. In addition, the Exchange may, at its discretion, proceed

with formal disciplinary action if it determines that a given

violation is not minor in nature. See PSE Rule 10.13(f).

\7\Fines for multiple violations of Options Floor Decorum and

Minor Trading Rules are calculated on a running two-year basis. See

PSE MRP Recommended Fine Schedule.

\8\In addition, the provision for an informal letter of caution

for such violations is being eliminated.

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The Exchange believes that the proposed changes will enhance its

ability to enforce compliance with Exchange Rules and that the fine

levels proposed will result in appropriate discipline of members and

member organizations, in a manner that is proportionate to the minor

nature of such violations. The Exchange believes that the proposed

additions to the MRP are either objective or technical in nature and

are easily verifiable, thereby lending themselves to the use of

expedited proceedings. Finally, the Exchange notes that it will

continue to circulate a copy of its Recommended Fine Schedule to its

membership on a regular basis (approximately yearly pursuant to PSE

Rule 10.13(f).

The Exchange believes that the proposal is consistent with section

6(b) of the Act in general. In particular, the Exchange believes that

the proposal is consistent with Section 6(b)(5), in that it is designed

to promote just and equitable principles of trade, and with Section

6(b)(7) in that it is designed to provide a fair procedure for the

disciplining of members and persons associated with 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 purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received from Members, Participants, or Others

Written comments on the proposed rule change were neither solicited

nor received.

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 self-regulatory organization 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

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, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing will also be available for

inspection and copying at the principal office of the above-mentioned

self-regulatory organization. All submissions should refer to File No.

SR-PSE-94-29 and should be submitted by December 5, 1994.

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) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-27933 Filed 11-10-94; 8:45 am]

BILLING CODE 8010-01-M