Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 to Proposed Rule Change by the Pacific Stock Exchange, Incorporated, Relating to its Procedure for Evaluating Options Trading Crowd Performance

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35777; File No. SR-PSE-95-10]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 to Proposed Rule Change by the Pacific Stock

Exchange, Incorporated, Relating to its Procedure for Evaluating

Options Trading Crowd Performance

May 30, 1995.

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 7,

1995, the Pacific Stock Exchange, Incorporated (``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 Exchange. The

Exchange subsequently filed Amendment No. 1 on May 25, 1995.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change and Amendment No. 1 from interested persons.

\1\In Amendment No. 1, the Exchange proposes to amend Rule

6.82(b)(4)(i) to provide that the Lead Market Maker (``LMM'')

Appointment Committee shall review LMM appointments at least semi-

annually. The rule currently provides that the LMM Appointment

Committee must review LMM appointments at least quarterly. See

Letter from Michael D. Pierson, Senior Attorney, Market Regulation,

PSE, to James McHale, Attorney, Division of Market Regulation,

Commission, dated May 23, 1995 (``Amendment No. 1'').

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

of the Proposed Rule Change

The PSE is proposing to change its procedure for evaluating options

trading crowd performance by specifying that floor broker

questionnaires will be distributed semi-annually rather than

quarterly.\2\ The text of the proposed rule change is available at the

Office of the Secretary, PSE and at the Commission.

\2\While PSE's Options Floor Procedure Advice B-13 currently

requires the trading crowd evaluation questionnaire to be

distributed to and completed by the floor brokers on a three-month

periodic basis, the Commission staff understands that the Exchange

began distributing the questionnaire on a semi-annual basis,

beginning with the questionnaire dated October 17, 1994, covering

the six (6) month period between April and September 1994. Telephone

conversation between Michael D. Pierson, Senior Attorney, Market

Regulation, PSE, and James T. McHale, Staff Attorney, Division of

Market Regulation, Commission, on May 9, 1995.

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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 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

Options Floor Procedure Advice (``OFPA'') B-13 requires the Options

Allocation Committee (``Committee'') of the Exchange to evaluate

periodically the options trading crowds\3\ to determine whether each

has fulfilled performance standards relating to, among other things,

quality of markets, competition among market makers, observance of

ethical standards, and administrative factors.\4\ In conducting its

evaluation, the Committee may consider any relevant information,

including but not limited to, the results of a trading crowd evaluation

questionnaire. The questionnaires are distributed to and completed by

floor brokers on the Options Trading Floor on

[[Page 31334]]

a ``three-month periodic basis'' pursuant to OFPA B-13.

\3\Pursuant to Rule 6.82, the program is also used to conduct

evaluations of LMMs on the Options Trading Floor. The Exchange,

through Amendment No. 1, also proposes to amend Rule 6.82(b)(4)(i)

to require the LMM Appointment Committee to review LMM appointments

on a semi-annual basis. See Amendment No. 1, supra note 1.

\4\The Commission approved the Exchange's Options Trading Crowd

Performance Evaluation Pilot Program on a permanent basis on

December 30, 1993. See Exchange Act Release No. 33407, 59 FR 1043

(January 7, 1994).

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The Exchange is proposing to amend OFPA B-13 to provide that

trading crowds will be evaluated by questionnaire semi-annually rather

than quarterly. At this time, the Exchange believes that floor brokers

who respond to the surveys will pay greater attention and care in

responding if the evaluation were conducted on a semi-annual basis.

This is based on the Exchange's belief that quarterly evaluations are

overly repetitive. Consequently, the Exchange believes that the

proposed change would result in better measurements of trading crowd

and Lead Market Maker performance. The Exchange further believes that

the proposed change would result in a better allocation of Exchange

resources, and that it will serve to enhance the Options Trading Crowd

Evaluation Program.

2. Statutory Basis

The Exchange believes 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 prevent

fraudulent and manipulative acts and practices and to promote just and

equitable principles of trade, and is not designed to permit unfair

discrimination between customers, issuers, brokers and dealers.

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

The Exchange believes 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

The Exchange has neither solicited nor received written comments on

the proposed rule change.

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, 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 at the

Commission's Public Reference Section, 450 Fifth Street, N.W.,

Washington, D.C. 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-95-10 and should be

submitted by July 5, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

\5\17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-14537 Filed 6-13-95; 8:45 am]

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