Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment 1 Thereto by the Pacific Exchange, Inc., Relating to Fines for Disruptive Action on the Options Floor

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40063; File No. SR-PCX-98-21]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment 1 Thereto by the Pacific Exchange, Inc., Relating

to Fines for Disruptive Action on the Options Floor

June 3, 1998.

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 April 16, 1998, the Pacific Exchange, Inc. (``PCX'' 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. On May 28, 1998, the Exchange filed Amendment 1 to the

proposal with the Commission.\3\ The Commission is publishing this

notice to solicit comments on the proposed rule change, as amended,

from interested persons.

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

\2\ 17 CFR 240.19b-4.

\3\ Amendment 1 clarifies the purpose section of the filing by

noting that fines over $2,500 are subject to higher reporting

requirements than fines of $2,500 or less. See Letter from Michael

D. Pierson, Senior Attorney, Regulatory Policy, PCX, to Lisa

Henderson, Attorney, SEC, dated May 26, 1998.

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I. Self-Regulatory Organization's Statement of the Term of

Substance of the Proposed Rule Change

PCX is proposing to increase its recommended fines under the Minor

Rule Plan (``MRP'') for disruptive action involving physical contact

between members while on the options trading floor. Proposed new

language is in italics; proposed deleted language is in brackets.

6133 Minor Rule Plan

Rule 10.13(a)-(j)--No change.

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\4\ Rule 19d-1(c)(2) under the Act authorizes national

securities exchanges to adopt minor rule violation plans for the

summary discipline and abbreviated reporting of minor rule

violations by exchange members and member organizations. See

Securities Exchange Act Release No. 21013 (June 1, 1984), 49 FR

23828 (June 8, 1984) (order approving amendments to paragraph (c)(2)

of Rule 19d-1 under the Act). Pursuant to PCX Rule 10.13, the

Exchange may impose a fine on any member or member organization for

any violation of an Exchange rule that has been deemed to be minor

in nature and approved by the Commission for inclusion in the MRP.

PCX Rule 10.13(h)-(j) sets forth the specific Exchange rules deemed

to be minor in nature.

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(k) Minor Rule Plan: Recommended Fine Schedule.

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\5\ As noted in PCX Rule 10.13(e), pursuant to Securities

Exchange Act Release No. 30958, any person or organization found in

violation of a minor rule under the MRP is not required to report

such violation on SEC Form BD, provided that the sanction imposed

consists of a fine not exceeding $2,500 and the sanctioned person or

organization has not sought an adjudication, including a hearing, or

otherwise exhausted the administrative remedies available with

respect to the matter. Accordingly, any fine imposed in excess of

$2,500 will be subject to reporting on SEC Form BD in addition to

the immediate, rather than periodic, reporting requirement of

Section 19(d)(1) of the Act. See Securities Exchange Act Release No.

32080 (January 22, 1992), 57 FR 3452 (noting that fines in excess of

$2,500, assessed under New York Stock Exchange, Inc. (``NYSE'') Rule

476A, are not considered pursuant to the NYSE's minor rule violation

plan and are thus subject to the current reporting requirements of

Section 19(d)(1) of the Act).

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Fines

(i) Options Floor Decorum and --------------------------------------

Minor Trading Rule Violations 1st 2nd 3rd

violation violation violation

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1.-16. No change

17. Disruptive action involving

physician contact while on the

trading floor. (Rule 6.2)....... [$500.00]

1,500.00 [$1,000.00]

3,000.00 [$2,500.00]

5,000.00

18.-34. No change.

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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 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 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

The Exchange is proposing to increase the recommended fines under

the MRP \4\ for disruptive action involving physical contact between

members while on PCX's Options Trading Floor. These fines are currently

set at $500, $1,000 and $2,500 for first, second and third violations,

respectively, during a running two-year period. The Exchange is

proposing to increase these fines at $1,500, $3,000, and $5,000,

respective.\5\ The purpose of the rule change is to deter future

incidents of disruptive conduct involving physical contact. The

Exchange notes that there has been a moderate increase recently in the

number of such cases, and the Exchange intends that the proposed rule

change will serve to reverse that trend.

[[Page 31824]]

2. Basis

The Exchange believes the proposed rule change is consistent with

Section 6(b) of the Act,\6\ in general, and furthers the objectives of

Section 6(b)(5),\7\ in particular, in that it is designed to promote

just and equitable principles of trade. In addition, the Exchange

believes that the proposal will serve to promote fair and orderly

markets on the Options Floor and thereby will serve to protect

investors and the public interest.

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\6\ 15 U.S.C. 78f(b).

\7\ 15 U.S.C. 78f(b)(5).

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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 PCX 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, including whether the proposed rule

change is consistent with the Act. 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, 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 PCX. All submissions should

refer to File No. SR-PCX-98-21 and should be submitted by July 1, 1998.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\8\

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\8\ 17 CFR 200.30-3(a)(12).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98-15416 Filed 6-9-98; 8:45 am]

BILLING CODE 8010-01-M