Self Regulatory Organizations; Pacific Stock Exchange, Inc.; Filing and Order Granting Temporary Accelerated Approval to Proposed Rule Change Relating to Listing of Municipal Securities.

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33721; File No. SR-PSE-94-05]

Self Regulatory Organizations; Pacific Stock Exchange, Inc.;

Filing and Order Granting Temporary Accelerated Approval to Proposed

Rule Change Relating to Listing of Municipal Securities.

March 7, 1994.

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

1934,\1\ and rule 19b-4 thereunder,\2\ notice is hereby given that on

February 15, 1994, the Pacific Stock Exchange Incorporated (``PSE'') or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the

Exchange. Subsequently, the PSE amended its rule filing to comport the

numbering of the proposed rules with the Rules of the Exchange that are

currently in effect.\3\ The PSE is requesting accelerated approval of

the proposed rule change as certain municipal securities the Exchange

may wish to list are likely to be issued prior to the thirtieth day

following publication of notice of the proposed rule change in the

Federal Register. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons and is

simultaneously approving the proposal for an interim period through

July 5, 1994.

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\1\15 U.S.C. 78s(b)(1) (1982).

\2\17 CFR 240.19b-4 (1991).

\3\See letter from Michael Pierson, Senior Attorney, Market

Regulation, Pacific Stock Exchange, Inc. to Scott C. Kursman,

Attorney, Division of Market Regulation, Commission (March 2, 1994).

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

of the Proposed Rule Change

The Exchange is proposing to amend rules 3.2 and 3.5 to provide

listing and delisting guidelines applicable to municipal securities.

New rule 5.13(i) would provide that all aspects of the trade

reconciliation process, including comparison, settlement, and clearing,

will be governed by the applicable requirements of the Municipal

Securities Rulemaking Board (``MSRB''). The proposed rule change would

also create an exemption from the PSE's off-board trading rules for

municipal securities.

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 PSE included statements

concerning the purpose of and basis for the proposed rule change. The

text of these statements may be examined at the places specified in

Item IV below. The PSE 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 the

Statutory Basis for, the Proposed Rule Change

1. Purpose

The Exchange is proposing to amend its rule 3.2 to provide that

municipal securities, as defined in section 3(a)(29) of the Act, are

eligible for listing on the Exchange.

To be eligible for listing, a municipal security must be rated as

investment grade by at least one nationally recognized rating service,

and satisfy the Exchange's distribution criteria for bonds of issuers

whose corporate securities are not listed on the Exchange, i.e., the

size of the issue must be at least $20 million principal amount/

aggregate market value, with at least 100 holders. In addition, the

Exchange may consider such other information as it deems necessary to

evaluate the appropriateness of the issue for exchange trading,

including the financing structure and/or arrangement of the issuer.

The Exchange is proposing that any municipal securities that it

lists be assigned to a specialist and traded in accordance with all PSE

regulations otherwise applicable to the trading of securities listed on

the Exchange. As with corporate bonds, trade reports and quotation

information will be disseminated over Network B. However, to ensure

uniformity of practice within the securities industry, proposed rule

5.13(i) provides that all aspects of the trade reconciliation process,

including comparison, settlement, and clearing, will be governed by the

applicable requirements of the MSRB.\4\

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\4\MSRB rule G-3 provides specific qualification requirements

for municipal securities principals and representatives. In light of

the PSE's qualification requirements for specialists, the Exchange

believes it is appropriate solely for purposes of this temporary

120-day approval period for the PSE to rely on this requirement for

its specialists in lieu of the rule G-3 standards. It is important,

however, that any specialist selected by the PSE for a listed

municipal security be familiar with the characteristics of municipal

securities.

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The proposed rule change will also amend PSE Rule 5.46 to specify

that any purchase or sale of a municipal security shall be exempt from

the provisions of the Exchange's off-board trading rules.

Further, the proposed rule change is not intended to otherwise

alter the existing regulatory framework and oversight applicable to

municipal securities trading.\5\

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\5\The National Association of Securities Dealers (``NASD'') has

the authority to enforce the MSRB rules. The Exchange notes that it

will also be responsible for enforcing MSRB rules for the listed

municipal securities. The PSE's enforcement in this regard will not

preempt or limit in any manner the NASD's authority to act in this

area.

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Finally the Exchange is proposing to amend its delisting guidelines

(rule 3.5) to provide that a municipal security would be subject to

delisting in the event it were no longer rated as investment grade by a

nationally recognized rating service.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent

with section 6(b) of the Act, in general, and furthers the objectives

of section 6(b)(5) in particular, in that it is designed to promote

just and equitable principles of trade, to foster cooperation and

coordination with persons engaged in regulating, clearing, settling and

processing information with respect to, and facilitating transactions

in, securities, and, in general, to protect investors and the public

interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

The proposed rule change will impose no burden on competition.

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.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

The PSE requests that the Commission find good cause, pursuant to

section 19(b)(2) of the Act, for approving the proposed rule change on

an accelerated basis for an interim period through July 5, 1994. During

this period, PSE would be able to list qualifying municipal securities.

Also, during this period, PSE will file a proposed rule change

requesting permanent approval of the listing of municipal securities

that would be subject to full notice and comment.

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, NW., Washington, DC, 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 Room. Copies of such filing will also be

available for inspection and copying at the principal office of the

PSE. All submissions should refer to the file number in the caption

above and should be submitted by April 1, 1994.

V. Commission's Findings and Order Granting Accelerated Approval

The Commission finds that the proposed rule change is consistent

with the requirements of section 6(b) of the Act, in general and

furthers the objectives of section 6(b)(5), in particular, in that it

is designed to promote just and equitable principles of trade, to

foster cooperation and coordination with persons engaged in regulating,

clearing, settling and processing information with respect to, and

facilitating transactions in, securities, and, in general, to protect

investors and the public interest.

Only municipal bond issuers that qualify under PSE's proposed non-

listed corporate issuer distribution criteria will be considered for

listing on the Exchange. These criteria, along with any other

information relevant to determine whether the issue is appropriate for

exchange trading, should ensure that only municipal bond issues that

can support a liquid trading market will be listed on the Exchange.

Moreover, the regulatory scheme in place for municipal securities now

would continue to apply to PSE-listed municipal securities, with the

additional coverage of the PSE surveillance program to the trading of

the listed municipal securities.

The Commission finds good cause for approving the proposed rule

change prior to the thirtieth day after the date of publishing notice

of the filing thereof. Temporary accelerated approval of the PSE's

proposal is appropriate because certain municipal securities the

exchange may wish to list are likely to be issued prior to the

thirtieth day following publication of notice of the proposed rule

change and it is necessary to inform prospective issuers that their

securities are eligible for listing and that the Exchange has in place

guidelines and procedures applicable to such securities. Moreover,

municipal securities are not a new product and indeed are comparable in

all material respects to other municipal securities that are currently

traded in other established and regulated markets. Finally, PSE-listed

municipal securities will be traded like other PSE-listed bonds and

will be subject to applicable MSRB rules.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,

that the proposed rule change (SR-PSE-94-05) be, and hereby is,

approved for an interim period of 120 days through July 5, 1994.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority, 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-5678 Filed 3-10-94; 8:45 am]

BILLING CODE 8010-01-M