Self-Regulatory Organizations; Pacific Stock Exchange; Notice of Filing of Amendment No. 1 to a Proposed Rule Change Relating to Amendment to its Rules Governing Competing Specialists

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33904; File No. SR-PSE-93-08]

Self-Regulatory Organizations; Pacific Stock Exchange; Notice of

Filing of Amendment No. 1 to a Proposed Rule Change Relating to

Amendment to its Rules Governing Competing Specialists

April 13, 1994.

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

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on April 8,

1994, the Pacific Stock Exchange, Inc. (``PSE'' or ``Exchange'') filed

with the Securities and Exchange Commission (``Commission'') Amendment

No. 1 as described in Items I, II and III below. The proposed rule

change was published for comment in Securities Exchange Act Release No.

32651 (July 16, 1993), 58 FR 40679 (July 29, 1993). No comments were

received on the proposal. The Commission is publishing this notice to

solicit comments on the Amendment from interested persons.

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

of the Proposed Rule Change

The PSE is proposing to adopt procedures for its proposed competing

specialist program. The Amendment extends the PSE's official policies

relating to circuit breakers, previously approved by the Commission,\1\

to Competing Specialists. The Amendment also outlines the procedures

for registration, withdrawal, and participation in the competing

specialist program. The text of this portion of the proposed Amendment

is as follows:

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\1\Securities Exchange Act Release No. 26368 (December 16,

1988), 53 FR 51942. See also Securities Exchange Act Release No.

27370 (October 23, 1989), 54 FR 43881, at n.5.

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Pacific Stock Exchange, Inc.; Procedures for Competing Specialists

The following are procedures for the Competing Specialist Pilot

Program.

1. Registered Specialists are not eligible to act as Competing

Specialists.

2. Applications to compete must be directed to the Equity Floor

Trading Committee in writing and must list in order of preference the

stock(s) in which the applicant intends to compete. The Equity Floor

Trading Committee will consider the following in reviewing an

application:

financial capability

adequacy of staffing on the Floor

existence of adequate Chinese Wall Procedures at the

applicant firm

agreement of both Registered Specialists to allow trading

of specific issues by a Competing Specialist

3. All applicants must be registered as members with the Exchange

and must meet the net capital requirements pursuant to SEC Rule 15c3-1

(effective April 1, 1994) and capital requirements set forth in Rule

2.2(b) of the Rules of the Exchange, and conform to all other

performance requirements and standards set forth in the Rules of the

Exchange. All applicants who control, are controlled by, or are under

common control with another person engaged in a securities or related

business shall have and maintain appropriate Chinese Wall procedures as

approved by a self-regulatory organization. A competing specialist will

be subject to all the rules and policies applicable to a regular

specialist, unless otherwise indicated.\2\

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\2\The PSE has submitted a Chinese Wall filing for Competing

Specialists which is currently under review (SR-PSE-93-36).

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4. All applicant organizations, existing or newly created, must

satisfy the Equity Floor Trading Committee that they have sufficient

staffing to enable them to fulfill the functions of a specialist in all

of the stocks in which the applicant will be registered as a Competing

Specialist.

5. Order flow not specifically designated for a Competing

Specialist must be routed to either Registered Specialist. Competing

Specialists shall not make any payment for order flow that is traded on

the PSE on a Competing Specialist basis.

6. In a competitive situation, if the Competing Specialist

organization that received approval to compete with the Registered

Specialist desires to terminate the competition by requesting that it

be relieved of the stock that is the subject of the competition, it

should so notify the Equity Floor Trading Committee at least 3 business

days prior to the desired effective date of such withdrawal, except in

those situations when such notice is not practicable.

7. Any Competing Specialist who withdraws his/her registration in a

stock will be barred from applying to compete in that same stock for a

period of ninety (90) days following the effective date of withdrawal.

8. Notwithstanding the existence of Competing Specialist

situations, there is only one Exchange market in a security subject to

competition. The Registered Specialist (ITS Coordinator) will be

responsible for updating quotations; thus all competitors must

communicate their markets to the ITS Coordinator and be responsible for

their portion of the disseminated bid and/or offer. Also, competitors

must cooperate with the Registered Specialist regarding openings and

reopenings to ensure that they are unitary.

9. Limit orders entrusted to the Competing Specialist are to be

represented and executed strictly according to time priority as to

receipt of the order in accordance with the Exchange rules.

10. Competing Specialists must keep the Registered Specialists

informed about the full size of any executable ``all or none'' orders

in their possession since all-or-none orders cannot be represented in

the disseminated quote. The Competing Specialist is expected to

represent such orders on a ``best efforts'' basis to ensure the

execution of the entire order at a single price or prices, or not at

all.

11. The registration of any Competing Specialist may be suspended

or terminated by the Equity Floor Trading Committee upon a

determination of any substantial or continued failure by such Competing

Specialist to engage in dealing in accordance with the Constitution and

Rules of the Exchange.

12. The Exchange shall establish an effective date for competition

to commence for a one-year pilot program. Since the Exchange cannot

know what the impact of competition will be on its marketplace, it will

limit competition during the pilot phase as follows:

a. The total number of stocks in which competition will be

permitted shall initially be limited to ten per applicant firm, or as

determined by the Board of Governors.

b. No applicant firm will have more than one Competing Specialist.

c. The number of Competing Specialists will be limited to two on

each Equity Floor.

d. The number of competitors in any given stock will be limited to

three (two Registered Specialists and one Competing Specialist).

e. During the pilot there will be a quarterly review of the

program, or upon request by a Registered Specialist in a specific

Competing Specialist issue.

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

1. Purpose

The purpose of the proposed Amendment is to supplement the initial

Competing Specialists filing with specific procedures and guidelines,

as requested by the Commission staff.

2. Statutory Basis

The proposed Amendment 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 and to protect investors and the public interest.

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

The Exchange does not believe that the proposed Amendment 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 Amendment were neither solicited

nor received.

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

Commission Action

Within 35 days of the 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 the 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 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 at the

Commission's Public Reference Section, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of the PSE. All

submissions should refer to File No. SR-PSE-93-08 and should be

submitted by May 11, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-9444 Filed 4-19-94; 8:45 am]

BILLING CODE 8010-01-M