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Pacific Exchange, Inc. Rulemaking:
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| MM1 | 100 |
| MM2 | 200 |
| MM3 | 500 |
| Aggregated Quote Size | 800 |
| MM1 receives (200/800) x (100) = 25 contracts | |
| MM2 receives (200/800) x (200) = 50 contracts | |
| MM3 receives (200/800) x (500) = 125 contracts | |
Proposed PCX Rule 6.76(a)(4)(B) — This proposed rule change provides that the pro rata share allocated to each participant in the pool would be rounded down to a whole number, if applicable. If there are residual contracts to be filled after the pro rata calculation has been completed, such contracts would be allocated, with no more than one contract per participant, in the following sequence:
(i) The participant in the pool who has the largest fractional amount (based on the pro rata calculation) would receive the first contract, and each successive contract (if any) would be allocated to each subsequent participant who has the next largest fractional share.
(ii) If the last residual contracts are to be allocated between two or more participants having the same fractional amount, then the participant with the largest initial quote size in the pro rata pool would be allocated the next contract. Each successive contract (if any) would be allocated in the same manner.
(iii) If the last residual contracts are to be allocated between two or more participants with the same fractional amount and initial quote size, then the participant with the first time priority in the pro rata pool would be allocated the next contract. Each successive contract (if any) would be allocated in the same manner.
xv. PCX Plus Executions
The PCX's POETS system currently executes incoming orders automatically in two ways. First, if an inbound order is a market or marketable limit order and there is an order in the PCX order book to trade at the same price, the two orders would execute against each other. Second, if there were no order with priority in the PCX order book at the appropriate price (or there is an insufficient number of contracts at that price), then the incoming order (or a portion of it) would execute against the accounts of Market Makers who are logged onto the Auto-Ex "wheel."18 Under the proposal, the Auto-Ex "wheel" would be phased out so that under PCX Plus, an incoming order would be instantaneously matched against trading interest in the Consolidated Book.
Proposed PCX Rule 6.76(b) — This proposed rule change addresses situations in which orders or Quotes with Size are executed through PCX Plus.
Proposed PCX Rule 6.76(b)(1) — This proposed rule change states that an inbound order that is marketable would be immediately executed against bids and offers in the Consolidated Book unless one of the following conditions applies:
(A) the size of the inbound order exceeds the Maximum Order Size established pursuant to Rule 6.76; or
(B) the inbound order is for the account of a Firm or Non-Member Market Maker and more than 50% of the aggregate trading interest in the Consolidated Book at the execution price is for the account (or accounts) of Public Customers.
If the conditions specified in subsections (A) or (B) apply, the order would be represented in the trading crowd pursuant to proposed PCX Rule 6.76(d).
Proposed PCX Rule 6.76(b)(2) — The Exchange proposes to eliminate some of the Exchange's current system limitations regarding the automatic execution of incoming customer orders. Currently, if an incoming customer order cannot be filled in its entirety because of the maximum automatic execution size threshold, then the entire inbound order is routed to a Floor Broker Hand Held Terminal for representation in the trading crowd. The proposed rule change provides for partial electronic execution of an order before routing to a Floor Broker Hand Held Terminal or to the new Consolidated Book, as applicable. This proposed rule change provides that an inbound order would be either fully or partially executed based on the following procedures:
(A) If more than 40% of the size in the Consolidated Book is comprised of a single Firm or Non-Member Market Maker order at the price at which the inbound order would trade, and such Firm or Non-Member Market Maker order was entered less than one minute before the inbound order the inbound order would be processed as follows:
(i) the inbound order would first be matched against all available Public Customer interest in the Consolidated Book;
(ii) the inbound order, if not entirely filled, would then satisfy any available interest based on FIQ status and LMM guaranteed participation pursuant to proposed PCX Rule 6.76(a);
(iii) the inbound order, if not entirely filled, would then match, on a size pro rata basis, with the interest of the Market Makers, Firms and Non-Member Market Makers in the Consolidated Book; provided that the size pro rata share interest of each individual Firm and each Non-Member Market Maker would be limited to 40% of the size of the remaining inbound order; and
(iv) the balance of the order, if any, would then be routed to a Floor Broker Hand Held Terminal.
(B) If the same conditions set forth in subsection (b)(2)(A) apply but the Firm or Non-Member Market Maker order was entered more than one minute before the inbound order, then:
(i) the inbound order would first be matched against all available Public Customer interest in the Consolidated Book;
(ii) the inbound order, if not entirely filled, would then satisfy any available interest based on FIQ status and LMM guaranteed participation pursuant to proposed PCX Rule 6.76(a);
(iii) the inbound order, if not entirely filled, would then match, on a size pro rata basis, with the interest of the Market Makers, Firms and Non-Member Market Makers in the Consolidated Book; provided that the size pro rata share interest of each individual Firm and each Non- Member Market Maker would be limited to 40% of the size of the remaining inbound order;
(iv) the inbound order, if not entirely filled, would then match, on a size pro rata basis, with all other remaining volume in the Consolidated Book of Firms and Non-Member Market Makers who were previously limited to 40%; and
(v) the balance of the order, if any, would then be either:
(a) routed to a Floor Broker Hand Held Terminal in the case where the order locks or crosses the national best bid or offer ("NBBO"); or
(b) executed at the next available price level based on split-price execution.
If neither of the conditions specified in subsections (a) or (b) apply, and the order is no longer marketable, then such order would be represented in the Consolidated Book.
xvi. Split-Price Executions
Proposed PCX Rule 6.76(b)(3) — This proposed rule change governs the manner in which inbound electronic orders would be subject to split-price executions. An inbound electronic order would receive an execution at multiple prices if there were some, but insufficient, trading interest at a price and the remainder of the order can be filled at one (or more) other prices based on available trading interest in the Consolidated Book. Orders would not be executed at a price that trades through another market. The balance of the order, if any, would be represented in the Consolidated Book, provided that if such order locks or crosses the NBBO, then the order would be routed to a Floor Broker Hand Held Terminal. Proposed subsection (b)(3) of PCX Rule 6.76 would not apply to orders that are executed pursuant to proposed PCX Rule 6.769(b)(2)(A) or Quotes with Size that are executed pursuant to proposed PCX Rule 6.76(b)(4).19
xvii. Electronic Book Execution
Currently, a Member on the Options Floor may trade against orders in the Consolidated Book by vocalizing a bid or offer and consummating a transaction with the Order Book Official.20 Under the proposal, Members would be permitted to execute trades electronically with orders in the Consolidated Book as provided in proposed PCX Rule 6.76(b)(4).
Proposed PCX Rule 6.76(b)(4) — This proposed rule change addresses situations in which Market Makers interact electronically with orders in the Consolidated Book. When a Quote with Size initiates a trade with the Consolidated Book (the "initiating Quote with Size"), an Electronic Book Execution would occur as follows:
(A) The initiating Quote with Size would immediately execute against the Consolidated Book if the percentage of the transaction involving Public Customer interest (as represented in the Consolidated Book) would comprise no more than 40% of the transaction (e.g., if the initiating Quote with Size is for 20 contracts and the size in the Consolidated Book at the execution price is 50 contracts, six contracts of which are the Public Customer interest (6 ÷ 20 = 30%), then the initiating Quote with Size for 20 contracts would be executed in full)).
(B) If the initiating Quote with Size would effect a transaction against the Consolidated Book and the percentage of the transaction involving Public Customer interest would comprise more than 40% of the transaction, then the initiating Quote with Size would be processed as follows:
(i) the Market Maker's initiating Quote with Size would receive an execution comprising the greater of:
(a) 40% of the Public Customer interest in the Consolidated Book at that price; or
(b) the total size to which the inbound initiating Quote with Size would receive pursuant to a size pro rata allocation.
(ii) the balance of the Consolidated Book at that price would be displayed for three seconds (via a System Alert Message — SAM) to all Crowd Participants. (iii) the balance of the Public Customer interest in the Consolidated Book would then be allocated on size pro rata basis to all Crowd Participants, if any, who have entered bids or offers to trade at the execution price within the three seconds provided.
(iv) after the Public Customer interest has been allocated, the initiating Quote with Size would match against all remaining interest in the Consolidated Book. If the initiating Quote with Size does not fill the Consolidated Book, then all Crowd Participants would be matched on a size pro rata basis with the remaining interest in the Consolidated Book at that price.
(v) if the remaining Quotes with Size are executable at the next price level, they would be matched against the Consolidated Book on a size pro rata basis.
xiii. NBBO Step-Up
The Exchange currently uses NBBO Step-Up functionality in designated option issues pursuant to PCX Rule 6.87(i). PCX Rule 6.87(i) permits members on the Auto-Ex system who are quoting at a price inferior to the NBBO, to step-up to the NBBO price in executing incoming orders. This proposal would modify this feature as set forth below. PCX Rule 6.87(i) would continue to apply to orders in issues not designated for PCX Plus (during the phase-in period).
Proposed PCX Rule 6.76(b)(5)(A) — This proposed rule change states that the LMM in an issue may Step-Up and execute inbound orders at the NBBO price when the NBBO is better than the PCX's disseminated quote. Subject to the approval of two Floor Officials,21 the LMM would have sole discretion to determine whether the NBBO Step-Up feature:
(i) would be engaged or disengaged;
(ii) would be set to execute inbound orders when the NBBO is crossed or locked; and
(iii) would be set to execute inbound orders at prices that are one or more trading increments better than the LMM's best bid or offer.
Proposed PCX Rule 6.76(b)(5)(B) — Under this proposed rule change, LMMs using the NBBO Step-Up feature may, at their discretion, disseminate Quotes with Size at the NBBO price when the NBBO price is better than the LMM's own disseminated price. If the LMM chooses to do so, then quotes at the NBBO would be disseminated via OPRA on the LMM's behalf. Such quotes would include the aggregate quotation size of the LMM and any SMMs who choose to participate in the NBBO Step-Up feature. LMMs may not use the NBBO Step-Up feature to match quotations of other PCX participants who are quoting at the NBBO. Accordingly, if another PCX participant enters an order or Quote with Size at the NBBO, then the LMM's original quote would prevail and the LMM's NBBO Step-Up quote would be removed from the PCX Plus system. The Exchange proposes to surveil for quoting abuses by its Members.
Proposed PCX Rule 6.76(b)(5)(C) — This proposed rule change states that inbound orders executed based on NBBO Step-Up would be allocated to SMMs who choose to participate in the NBBO Step-Up feature and the LMM on a size pro rata basis.
xiv. Crossing Orders
Under proposed PCX Rule 6.76(c), PCX Plus would permit the execution of a "Cross Order", which is defined as two orders with instructions to match the identified buy-side with the identified sell-side at a specified price ("Cross Price"). The proposed rule establishes a crossing mechanism that automates the process that occurs on the Options Floor currently by which a Floor Broker may facilitate orders or cross two orders, regardless of size, via public outcry. The Exchange believes that this new mechanism, in conjunction with the order execution algorithm as described earlier, would foster competition and enhance market efficiency and fairness by offering incentives to all market participants that provide liquidity. The Exchange believes that the proposed crossing mechanism strikes a balance between allowing members to interact with their customer orders that they bring to the market, and providing Market Makers and other market participants with a fair opportunity and incentive to compete on an equal basis with such orders brought to the Exchange. The process in which a Cross Order is matched for execution is described below.
Proposed PCX Rule 6.76(c)(1) — For purposes of proposed PCX Rule 6.76(c), the following terms would have the meanings specified below:
(A) "Cross Order" means two orders with instructions to match the identified buy-side with the identified sell-side at the Cross Price.
(B) "Facilitation Order" means an order as defined in PCX Rule 6.47(b).
(C) "PCX Broker" means a Member, Member Organization or Associated Person who enters orders as agent for accounts other than for Market Makers.
(D) "Exposed Order" means the buy or sell side of a Cross Order that has been designated by a PCX Broker as the side to be exposed to the market and that is eligible for execution against all trading interest. Public Customer orders would always be deemed to be the Exposed Order in a Cross Order. In the case of a Cross Order involving a non-customer on both the buy side and sell side, the PCX Broker must designate one side of the Cross Order as the Exposed Order.
(E) "Shadow Order" means an order that is submitted by a PCX Broker to buy or sell a stated number of contracts at a specified price and that is to be executed in whole or in part against an Exposed Order. Any unexecuted portion of a Shadow Order would be canceled.
Proposed PCX Rule 6.76(c)(2) — This proposed rule change sets forth the steps involved in the Crossing Mechanism, as follows:
(A) A PCX Broker would be required to enter into PCX Plus the terms of each Cross Order to be executed electronically on the Exchange. The required terms include the terms of the order for a Public Customer or a broker-dealer and the proposed Facilitation Order (or two orders to be crossed neither one of which is a Facilitation Order ("non-facilitation cross")), the proposed crossing price, the quantity of the order that the PCX Broker is willing to facilitate (in case of a facilitation cross), and an indication of which order is the Exposed Order. If the proposed Cross Price were outside the BBO at the time of order entry, PCX Plus would reject the Cross Order.
(B) After accepting the Cross Order, PCX Plus would execute the Cross Order in the following sequence.
(i) If the Cross Price is between the BBO:
(a) PCX Plus would immediately display the Exposed Order's price and quantity for 30 seconds. During the 30-second exposure period, there would be no indication that the order is part of an impending cross. PCX Plus places the Shadow Order on hold and such order is not visible except to the PCX Broker that entered the Cross Order.
(b) As long as the Exposed Order is the highest priority order at the best price, other Members and Member Organizations may trade against the Exposed Order during the exposure period. If at any time during the exposure period, the Exposed Order were entirely filled, PCX Plus would cancel the remaining quantity of the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
(c) At the end of the exposure period, if the Exposed Order has not been entirely filled, but it is at the best price and has the highest priority, then PCX Plus would execute the remainder of the order against the Shadow Order. PCX Plus would then cancel the remainder of the Shadow Order and send the crossing firm a message that the crossing transaction has been completed.
(d) At the end of the exposure period, if the Exposed Order has quantity remaining and it is not the highest priority order at the market, then PCX Plus would automatically cancel the remainder of the Exposed Order and the Shadow Order and would send the PCX Broker a message that the crossing transaction has been completed.
(ii) If the Cross Price is at the BBO:
(a) The Exposed Order would be matched at the displayed price against all pre-existing trading interest in the Consolidated Book with priority in accordance with proposed Rule 6.76(a).
(b) The remainder of the Exposed Order, if any, would be exposed at the limit price for 30 seconds. As long as the Exposed Order has the highest priority at the best price, other Members and Member Organizations may trade against the Exposed Order during the 30-second exposure period. If at any time during the exposure period, the Exposed Order were entirely filled, PCX Plus would cancel the remaining quantity of the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
(c) At the end of the exposure period, if the Exposed Order has not been entirely filled, but it is at the best price and has the highest priority, then PCX Plus would execute the remainder of the order against the Shadow Order. PCX Plus would then cancel the remainder of the Shadow Order and send the crossing firm a message that the crossing transaction has been completed.
(d) At the end of the exposure period, if the Exposed Order has quantity remaining and it is not the highest priority order at the market, then PCX Plus would automatically cancel the remainder of the Exposed Order and the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
Proposed PCX Rule 6.76(c)(3) — This proposed rule change sets forth certain prohibited conduct related to Crossing Orders. The proposed rule change, as described below, is designed to place limitations on the internalization of order flow and to provide added opportunities for competition. Under the proposed rule change, it would be a violation of proposed PCX Rule 6.76(c) for a PCX Broker to be a party to any arrangement designed to circumvent this PCX Rule by providing an opportunity for a customer or a broker-dealer to execute against agency orders handled by the PCX Broker immediately upon their entry into PCX Plus.
In addition, PCX Brokers would not be permitted to execute as principal orders they represent as agent unless: (i) agency orders are first exposed on the Exchange for at least 30 seconds; (ii) the PCX Broker utilizes the Crossing Mechanism pursuant to proposed PCX Rule 6.76(c)(2); or (iii) the PCX Broker executes the orders pursuant to PCX Rule 6.47.
xx. Orders Executed Manually
The Exchange represents that, to effectively combine the benefits of open outcry trading with those of PCX Plus, it has defined specific priority rules for handling manual executions in the trading crowd.
Proposed PCX Rule 6.76(d)(1) — This proposed rule change provides that Floor Brokers manually representing orders in the trading crowd must comply with the order execution and priority principles set forth in PCX Rule 6.75 and, in addition, with the following provisions establishing priority for bids and offers by account type:
(A) Public Customer orders in the Consolidated Book have first priority. Multiple customer orders at the same price are ranked based on time priority.
(B) Bids and offers of the members of the trading crowd have second priority. These bids and offers include those made by Market Makers and Floor Brokers (on behalf of customer and broker-dealer orders they are representing).
(C) Bids and Offers of broker-dealers (including Quotes with Size and orders of Market Makers) in the Consolidated Book have last priority. Multiple bids and offers of broker-dealers would be executed on a size pro rata basis pursuant to proposed PCX Rule 6.76(a).
Proposed PCX Rule 6.76(d)(1), Commentary .01 — This proposed commentary states that the provisions of proposed PCX Rule 6.90 would apply to transactions automatically executed pursuant to proposed PCX Rule 6.76(b).
xxi. Cabinet Trades
The Exchange's rules for cabinet trading are currently set forth in PCX Rule 6.80. The Exchange proposes to retain this PCX Rule (renumbered as proposed PCX Rule 6.80(b)) and to apply it to issues not traded under PCX Plus during the phase-in period. During that time, proposed PCX Rule 6.80(c) would govern cabinet trading applicable to all issues traded on PCX Plus.
Proposed PCX Rule 6.80(a) — This proposed rule change states that the Exchange would designate option issues that are eligible for cabinet trading pursuant to this PCX Rule. If an option issue has not been designated as eligible for cabinet trading on PCX Plus, the provisions of proposed PCX Rule 6.80(b) would apply. If an option issue has been designated as eligible for cabinet trading on PCX Plus, then the provisions of subsection (c) would apply.
Proposed PCX Rule 6.80(b) — This proposed rule change sets forth the manner in which cabinet trading would be conducted in option issues not traded on PCX Plus during the phase-in period. Except for minor changes in terminology and references, the proposed rule is substantially the same as the existing rule.
Proposed PCX Rule 6.80(c) — The following provisions of proposed subsection (c) would apply to option issues designated for cabinet trading on PCX Plus:
(1) Cabinet trading under the following terms and conditions would be available in each series of option contracts open for trading on the Exchange.
(2) Trading shall be conducted in accordance with other Exchange Rules except as otherwise provided herein.
(3) Limit orders at a price of $1 per option contract must be placed on the Exchange in such form and manner as may be prescribed by the Exchange.
(4) Orders for cabinet trading may be placed for the accounts of Public Customers, Firms, and Market Makers, with priority based upon the sequence in which such orders are placed on the Exchange.
(5) Market Makers shall not be subject to the requirements of Rule 6.37 for orders placed pursuant to this PCX Rule.
(6) Members submitting opening orders priced at $1 per option contract must comply with the order entry procedures and format requirements as may be prescribed by the Exchange. Opening orders priced at $1 per option contract may be placed on the Exchange for execution only to the extent that the order book in cabinet trades contains unexecuted contract closing orders with which the opening orders immediately may be matched.
xxii. Clarification of LMM Definition
Proposed PCX Rule 6.82(a)(1) — This proposed rule change defines LMM and provides that RMMs are not eligible to act as LMMs from a location off the trading floor.
xxiii. Firm Quote Rule
Proposed PCX Rule 6.86(a)(2) — This proposed rule change clarifies the application of the Exchange's Firm Quote Rule for option issues traded on PCX Plus. Specifically, LMMs and any registered Market Makers who are quoting at the disseminated bid or offering price and who are constituting the trading crowd in such option series would collectively be the Responsible Broker or Dealer to the extent of the sizes of their respective bids and offers. For option issues not designated for trading on PCX Plus, the LMM and any registered Market Makers constituting the trading crowd in a particular option series would collectively be the Responsible Broker or Dealer to the extent of the aggregate quotation size specified.
xxiv. PCX Plus
The Exchange represents that proposed new PCX Rule 6.90, which describes the operational requirements of PCX Plus,22 is substantially similar to current PCX Rule 6.87 relating to the Exchange's Auto-Ex system, except for:
(1) stylistic and minor conforming word changes made to reflect the new market structure; and
(2) the omission of rules relating to Eligible Orders, Order Entry Firm Registration, Market Maker Requirements and Eligibility, Market Maker Restrictions on Redirecting Auto-Ex Trades, Price Adjustments, the Auto-Ex Incentive Program, the Auto-Ex Book functions, and the Auto-Ex Between-the Quotes (current PCX Rules 6.87(a), 6.87(c)(1), 6.87(e), 6.87(f), 6.87(g), 6.87(k), 6.87(l), and 6.87(m), respectively)23 because these provisions are not applicable to PCX Plus.
As stated earlier, during the phase-in period, the Exchange would designate option issues that are eligible for trading on PCX Plus. If an option issue has not been designated as eligible for execution on PCX Plus pursuant to this PCX Rule, the provisions of PCX Rule 6.87 would continue to apply.
The following provisions of PCX Rule 6.87 are being incorporated into proposed PCX Rule 6.90:
Proposed PCX Rule 6.90(c) — PCX proposes to adopt the following definitions from current PCX Rule 6.87(a).
(1) The term "User" means any person or broker-dealer that obtains electronic access to PCX Plus through an Order Entry Firm.
(2) The term "Order Entry Firm" means a member organization of the Exchange that is able to route orders to the Exchange.
Proposed PCX Rule 6.90(d) — This proposed rule change, which sets forth the obligations of Order Entry Firms regarding the proper use of PCX Plus, has been adapted from current PCX Rule 6.87(c). Order Entry Firms would be required to: comply with all applicable PCX options trading rules and procedures; provide written notice to all Users regarding the proper use of PCX Plus; and maintain adequate procedures and controls that would permit the Order Entry Firm to effectively monitor and supervise the entry of electronic orders by all Users.
Proposed PCX Rule 6.90(e) — This proposed rule change has been adapted from current PCX Rule 6.87(d) and codifies what practices are prohibited on PCX Plus. Except for minor changes in terminology, the proposed rule is substantially similar to the existing rule.
Proposed PCX Rule 6.90(g) — Proposed PCX Rule 6.90(g) includes provisions regarding the suspension of the PCX Plus system in the event of any disruption or malfunction in the use or operation of system, as well as any other unusual market conditions not involving a system malfunction. This proposed rule change has been adapted from current PCX Rule 6.87(h). Under this proposed rule change, if a PCX Plus system disruption or malfunction occurs but the Exchange is able to process and disseminate quotes accurately, then any orders received by the Exchange would be routed to Floor Broker Hand Held Terminals for representation in the trading crowd. Regular trading procedures would be resumed by the Exchange when two Floor Officials determine that the disruption or malfunction is corrected. If there are other unusual market conditions not involving a PCX Plus system disruption or malfunction, two Floor Officials may suspend the PCX Plus system in accordance with PCX Rule 6.28. Whenever such action is taken, any orders received by the Exchange would be routed to Floor Broker Hand Held Terminals for representation in the trading crowd.
Proposed PCX Rule 6.90(h) — Under this proposed rule change, the Options Floor Trading Committee may designate, for an option issue, that an order would default for manual representation in the trading crowd if the NBBO is crossed or locked. Proposed PCX Rule 6.90(h) has been adapted from current PCX Rule 6.87(j).
xv. PCX Rule 10 — Minor Rule Plan
The Exchange proposes to amend PCX Rule 10.13 to include violations of proposed PCX Rule 6.37(g)(2) in the Minor Rule Plan. Proposed new PCX Rule 6.37(g)(2) requires that each RMM provide continuous two-sided quotations in each issue in which they are appointed during 60% of all times during which the Exchange is open for options trading. This obligation would apply to all of the RMM's appointed issues collectively, rather than on an issue-by-issue basis. Compliance with this obligation would be determined on a per-calendar-quarter basis. The Exchange believes that the proposed fine schedule is consistent with the fines established for violations by a Market Maker involving the 75% primary appointment zone requirement and the 60% in-person trading requirement.
The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) of the Act,24 in general, and furthers the objectives of Section 6(b)(5) of the Act,25 in particular, in that it is designed to facilitate transactions in securities; to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and in general, to protect investors and the public interest.
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.
No written comments were solicited or received with respect to the proposed rule change.
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.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 20549-0609. 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 PCX. All submissions should refer to File No. SR-PCX-2002-36 and should be submitted by [insert date 21 days from date of publication].
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.26
Margaret H. McFarland
Deputy Secretary
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 Amendment No. 1 replaces the PCX's original Rule 19b-4 filing in its entirety.
4 See Securities Exchange Act Release Nos. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000) (order approving Options Intermarket Linkage Plan submitted by American Stock Exchange LLC, Chicago Board Options Exchange, Inc. and International Securities Exchange LLC); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000) (order approving the PCX as participant in Options Intermarket Linkage Plan); and 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000) (order approving Philadelphia Stock Exchange, Inc. as participant in Options Intermarket Linkage Plan).
5 See proposed PCX Rule 6.32(a) (definition of "Market Maker").
6 LMMs will also be responsible for performing certain functions under the Options Intermarket Linkage Plan. See supra note 4.
7 See proposed PCX Rule 6.1(b)(33) (which defines "Quote with Size" as a quotation to buy or sell a specific number of option contracts at a specific price that a Market Maker has entered into PCX Plus through an electronic interface).
8 Under the proposal, inbound orders are allocated based on the following priority sequence: Public Customer orders have first priority to trade against such orders; quotes with FIQ status have second priority (subject to a 40% cap); the portion of the order subject to LMM guaranteed participation will be allocated next; followed by any trading interest for the accounts of non-Public Customers. See proposed PCX Rule 6.76(a).
9 See proposed PCX Rule 6.1(b)(38) (which defines "Crowd Participants" as the Market Makers appointed to an option issue under Rule 6.35, and any Floor Brokers actively representing orders at the best bid or offer on the Exchange for a particular option series.)
10 See proposed PCX Rule 6.76(d).
11 This proposed rule change also provides that transactions entered from off the Options Floor, except those executed for the account of an RMM and those that are permissible under proposed PCX Rule 6.32(c), must be placed in the Market Maker's investment account and be subject to applicable customer margin.
12 Pursuant to PCX Rule 6.52(a), the Exchange will determine, on an issue-by-issue basis, the account types of orders that will be placed in the Consolidated Book. Such orders may include limit orders for the accounts of Public Customers, broker-dealers or Market Makers.
13 The Exchange proposes to delete current PCX Rule 6.52(a), which addresses the account types of orders eligible for acceptance and entry into the Order Book. Under the current PCX Rule, only non-broker-dealer customer orders may be placed with an Order Book Official.
14 The Exchange proposes to delete current PCX Rule 6.52(c), which describes the circumstances and procedures to be followed by Floor Brokers for the entry, cancellation and changes of orders held by the Order Book Official.
15 The Exchange represents that the Commission has previously expressed a view that the Exchange should modify AOR to accommodate broker-dealer orders in the automated opening process. See Securities Exchange Act Release No. 41970 (September 30, 1999), 64 FR 54713 (October 7, 1999). The Exchange believes this proposed rule change is responsive to the Commission's concern.
16 See Securities Exchange Act Release No. 45930 (May 15, 2002), 67 FR 36281 (May 23, 2002) (order approving File No. SR-PCX-2001-13).
17 The Exchange represents that, under the proposed priority rules, customer orders would always have priority and precedence over non-customer orders and Quotes with Size at the same price. The Exchange further represents that FIQ status would not apply to customer orders.
18 See Securities Exchange Act Release No. 27633 (January 18, 1990), 55 FR 2466 (January 24, 2002) (order approving POETS system); see also Securities Exchange Act Release No. 44847 (September 24, 2001), 66 FR 50237 (October 2, 2001) (order granting accelerated approval to PCX's Auto-Ex Incentive Program).
19 Proposed PCX Rule 6.76(b)(3) is applicable to order execution and describes how individual orders will interact with the Consolidated Book at multiple price levels. Proposed PCX Rule 6.76(b)(4) describes how Quotes with Size interact at different price levels based on a size pro rata allocation after trading at the initial price.
20 See generally PCX Rules 6.51 — 6.58.
21 A proposed rule change to current PCX Rule 6.87(i) to grant two Floor Officials, rather than the Options Floor Trading Committee, the supervisory authority over the NBBO Step-Up feature is pending Commission approval. See File No. SR-PCX-2002-09.
22 PCX Plus is defined in proposed PCX Rule 6.90(a) as the Exchange's electronic order delivery, execution and reporting system for designated option issues through which orders and Quotes with Size of members are consolidated for execution and/or display. This trading system includes the electronic communications network that enables registered Market Makers to enter orders/Quotes with Size and execute transactions from remote locations or the Trading Floor.
23 The manner in which orders will be subject to split-price executions in PCX Plus are set forth in proposed PCX Rule 6.76(b)(3), which have been adapted from current PCX Rule 6.87(p).
24 15 U.S.C. 78f(b).
25 15 U.S.C. 78f(b)(5).
26 17 CFR 200.30-3(a)(12).
Below is the text of the proposed rule change, as amended, for File No. SR-PCX-2002-36. Proposed new language is underlined; proposed deletions are in brackets.
* * * * *
Rule 4
General Rules
* * * * *
Trading Sessions
Rule 4.2. Unless otherwise ruled by the Board, the Exchange shall be open for the transaction of business daily except on Saturdays and Sundays. The hours at which trading sessions shall open and close shall be established by the Board.
Dealings upon the Exchange shall be limited to the hours during which the Exchange is open for the transaction of business. No member shall make any bid, offer or transaction upon the Floor or, in the case of a Remote Market Maker, through the facilities of the Exchange before the official opening of the Exchange and loans of securities may be made after those hours.
Commentary:
.01 The Board of Governors has resolved that transactions may be effected on the Options Floor of the Exchange and, in the case of a Remote Market Maker, through the
facilities of the Exchange until 1:02 p.m. for equity options and until 1:15 p.m. for index options each business day at which time no further transactions may be made.
.02 — No change.
* * * * *
Rule 6
Options Trading
¶4725 Applicability, Definitions and References
Rule 6.1(a) — No change.
(b) Definitions. The following terms as used in Rule 6 shall, unless the context otherwise indicates, have meanings herein specified:
(1) — (5) — No change.
(6) Exchange Option Transaction and Exchange Transaction-The term "Exchange option transaction" and the term "Exchange transaction," as used in Rules 6.6, 6.15, 6.22, 6.36, and 6.79 means a transaction effected on [the floor of] a national securities exchange which has qualified for participation in Options Clearing Corporation pursuant to the provisions of the By-Laws of Options Clearing Corporation, between members of such exchange or exchanges, for the purchase or sale of an option contract, or for the closing out of a long or short position in an option contract, and as used elsewhere in this Rule means a transaction effected on the [Floor of the] Exchange between Exchange members for the purchase or sale of an options contract, or for the closing out of a long or short position in an option contract.
(7) — (32) — No change.
(33) Quote with Size. The term "Quote with Size" means a quotation to buy or sell a specific number of option contracts at a specific price that a Market Maker has entered into PCX Plus through an electronic interface.
(34) — Reserved.
(35) Non-Member Market Maker. The term "Non-Member Market Maker" includes, but is not limited to, specialists, designated primary market makers, lead market makers, market makers, registered options traders, primary market makers and competitive market makers registered on an exchange other than the PCX.
(36) Firm. The term "Firm" means a broker-dealer that is not registered as a dealer-specialist or market maker on a registered national securities exchange or association.
(37) Consolidated Book. The term "Consolidated Book" means the Exchange's electronic book of limit orders for the accounts of Public Customers and broker-dealers, and Quotes with Size. All orders and Quotes with Size that are entered into the Book will be ranked and maintained in accordance with the rules of priority as provided in Rule 6.76.
(38) Crowd Participants. The term "Crowd Participants" means the Market Makers appointed to an option issue under Rule 6.35, and any Floor Brokers actively representing orders at the best bid or offer on the Exchange for a particular option series.
(c) References. (1) — No change.
(2) For purposes of the PCX rules, the term "Market Maker" includes Lead Market Makers, Remote Market Makers, Supplemental Market Makers, and Floor Market Makers, unless the context otherwise indicates.
(d) — (e) — No change.
* * * * *
¶4889 Fast Markets and Unusual Market Conditions
Rule 6.28(a) — No change.
(b) — No change.
(c) — No change.
(1) — (5) — No change.
(6) Suspend the Automatic Execution System ("Auto-Ex") pursuant to Rule 6.87(h)(3)(b) or the execution functions of PCX Plus (set forth in Rule 6.76(b)) pursuant to 6.90(g).
. (7) — (8) — No change.
(d) — No change.
* * * * *
MARKET MAKERS
¶4905 Market Maker Defined
Rule 6.32(a). A Market Maker is an individual who is registered with the Exchange for the purpose of making transactions as a dealer-specialist on the Floor of the Exchange or, in the case of a Remote Market Maker, through the facilities of the Exchange in accordance with the provisions of this subsection [Section]. Registered Market Makers are designated as specialists on the Exchange for all purposes under the Securities Exchange Act of 1934 and the Rules and Regulations thereunder. Except as provided in subsection (c) [Commentary .02] below, only transactions that are initiated on the Floor of the Exchange or executed through the facilities of the Exchange by a Remote Market Maker will [shall] count as Market Maker transactions for the purposes of Rule 6.32. A Market Maker on the Exchange must be either a Lead Market Maker, a Remote Market Maker, a Supplemental Market Maker, or a Floor Market Maker.
(1) A Lead Market Maker is a registered Market Maker who makes transactions as dealer-specialist while on the Floor of the Exchange and who meets the qualification requirements of Rule 6.82(b).
(2) A Remote Market Maker is an individual who is registered with the Exchange for the purpose of making transactions as dealer-specialist from a location off the Floor of the Exchange. A Remote Market Maker may also execute transactions while on the Floor of the Exchange. Transactions of Remote Market Makers that are executed through the facilities of the Exchange are deemed to be Market Maker transactions for purposes of Rule 6.32.
(3) A Supplemental Market Maker is a registered Market Maker who makes transactions as dealer-specialist while on the Floor of the Exchange and who provides quotations: (A) manually, by public outcry; or (B) automatically, through an electronic interface device at the LMM's prevailing bid or offering price, with a size to be designated by the Supplemental Market Maker.
(4) A Floor Market Maker is a registered Market Maker who makes transactions as a dealer-specialist while on the Floor of the Exchange and provides quotations: (A) manually, by public outcry, or (B) automatically through an auto-quoting device.
(b) [Com. .01] Market Makers and Floor Brokers effecting transactions as Market Makers are instructed that, except as specified in subsection (c) [Commentary .02] below, only transactions that are initiated on the Floor of the Exchange or, in the case of a Remote Market Maker, through the facilities of the Exchange by that person shall count as Market Maker transactions and be entitled to special margin treatment, pursuant to the net capital requirements of Rule 15c3-1 under the Securities Exchange Act of 1934 and Regulation T of the Board of Governors of the Federal Reserve system. Accordingly, any position established for the account of a Market Maker other than a Remote Market Maker which has been "entered from off the floor" must be placed in the Market Maker's investment account and be subject to applicable customer margin.
(c) [Com. .02] A Market Maker may enter opening orders from off the Floor of the Exchange and receive special margin treatment for such orders during any calendar quarter, provided that such Market Maker executes in person, and not through the use of orders, at least 80% of his or her total transactions during that calendar quarter. This provision, if applicable, shall supersede the 60% in-person requirement of Rule 6.37(d).[,] [Commentary .07.] In addition, the off-floor orders for which a Market Maker received market-maker treatment shall be consistent with a Market Maker's duty to maintain fair and orderly markets and in general shall be effected for the purpose of hedging, reducing the risk of, or rebalancing open positions of the Market Maker. Remote Market Makers may enter opening orders from off the Floor of the Exchange for execution by Floor Brokers and receive special margin treatment for them as long as the entry of such orders is consistent with the Remote Market Maker's duty to maintain fair and orderly markets and such orders are entered for the purpose of hedging, reducing the risk of, or rebalancing open positions of the Remote Market Maker.
(d) [Com. .03] A Market Maker, while on the floor, may enter a GTC order with a Floor Broker and still receive special margin treatment, as described in subsection (b) [Commentary .01] above. However, the order must be a limit order where the quantity cannot be increased or the limit changed. If the quantity is increased or the limit changed, the GTC order shall be treated as an order entered from off the floor. Likewise, limit orders to "buy and sell" in the same series, discretionary orders, and "market not-held" orders may not be handled on a GTC basis without being treated as orders [entered from off the floor.] subject to customer margin treatment.
(e) [Com .04] — No change.
[Commentary:]
[.01] [Moved to New Rule 6.32(b)]
[.02] [Moved to New Rule 6.32(c)]
[.03] [Moved to New Rule 6.32(d)]
[.04] [Moved to New Rule 6.32(e)]
* * * * *
¶4917 Trading by Members on the Floor
Rule 6.34. — No change.
Commentary:
.01 Floor Brokers' Use of the Book. Unless otherwise prohibited in this Rule or Rule 6.38 or Rule 6.52(a), a Floor Broker may enter an order for its proprietary account in the Consolidated Book for the purpose of liquidating a position resulting from a bona fide error made in the course of its floor brokerage business.1
* * * * *
¶4923 Appointment of Market Makers
Rule 6.35(a) — No change.
(b) — (f) — Reserved.
(g) Remote Market Makers.
(1) Each Remote Market Maker must select a primary appointment as set forth in subsection (2), below. Remote Market Makers may select from among any option issues traded on the Exchange for inclusion in their primary appointments, which must be approved by the Options Allocation Committee. In considering the approval of the appointment of a Remote Market Maker in each security, the Options Allocation Committee will consider:
(A) the financial resources available to the Remote Market Maker;
(B) the Remote Market Maker's experience, expertise and past performance in making markets, including the Remote Market Maker's performance in other securities;
(C) the Remote Market Maker's operational capability; and
(D) the maintenance and enhancement of competition among Market Makers in each security in which they are appointed.
(2) Except as provided in subsection (h), below, the following rules apply to the primary appointments of Remote Market Makers:
(A) Remote Market Makers on a single seat may have up to 8 option issues within their primary appointments.
(B) Remote Market Makers with 2 seats may have up to 18 option issues within their primary appointments.
(C) Remote Market Makers with 3 seats may have up to 30 option issues within their primary appointments.
(D) Remote Market Makers with 4 seats may have up to 44 option issues within their primary appointments.
(E) Remote Market Makers with 5 seats may have up to 60 option issues within their primary appointments.
(F) Remote Market Makers with 6 seats may have up to 78 option issues within their primary appointments.
(G) Remote Market Makers with 7 seats may have up to 98 option issues within their primary appointments.
(H) Remote Market Makers with 8 seats may have up to 120 option issues within their primary appointments.
The Options Floor Trading Committee will determine uniform limits on the number of issues applicable to RMMs with more than 8 seats.
(3) Remote Market Makers may change the option issues that are included in their primary appointments, subject to the approval of the Options Allocation Committee ("OAC"). Such requests must be made in a form and manner prescribed by the Exchange. In considering whether to approve Remote Market Makers' request to change their primary appointments, the OAC will consider the factors set forth in subsection (g)(1), above.
(4) Remote Market Makers may withdraw from trading an option issue that is within their primary appointment by providing the Exchange with a three-business-day written notice of such withdrawal. Remote Market Makers who fail to give advance written notice of withdrawal to the Exchange may be subject to formal disciplinary action pursuant to Rule 10. Subsequent to withdrawal, the Remote Market Maker may not be re-appointed as a Remote Market Maker in that option issue for a period of one full calendar quarter.
(5) The Exchange may suspend or terminate any appointment of a Remote Market Maker in one or more option issues under this Rule whenever, in the Exchange's judgment, the interests of a fair and orderly market are best served by such action.
(6) A Remote Market Maker may seek review of any action taken by the Exchange pursuant to this subsection (g), including the denial of the appointment for, or the termination or suspension of, a Remote Market Maker's appointment in an option issue or issues, in accordance with Rule 10 or 11, as applicable.
(h) A Member Firm acting as an LMM firm may trade up to four issues as a Remote Market Maker. These four issues are not required to be located at posts that are contiguous with the existing primary appointments of the Member Firm's individual Members. The Lead Market Maker may enter quotations electronically in such issues from a location away from the trading post.
Commentary:
.01 — .05 — No change.
* * * * *
¶4929 Letters of Guarantee
Rule 6.36(a). Required of [e] Each [m] Member. No Market Maker may [shall] make any transaction on the floor of the Exchange or, in the case of a Remote Market Maker, through the facilities of the Exchange unless there is in effect a Letter of Guarantee which has been issued for such member by a Clearing Member and approved by the Options Clearing Corporation and the Exchange. A member may not have more than one such Letter in effect at the same time except for the purpose of facilitating the transfer of that member's Market Maker account from one Clearing Member to another or unless the Exchange determines otherwise.
(b) — (c) — No change.
Commentary:
.01 — No change.
* * * * *
¶4935 Obligations of Market Makers
Rule 6.37(a) — (c) — No change.
(d) In-Person Requirements for Market Makers (other than Remote Market Makers who are not present on the Trading Floor).2 [Reserved.] In order to meet the obligations of this rule, and in the interest of a fair and orderly market, an adequate number of Market Makers must be available throughout each trading session. In acknowledgement thereof, the following minimum in-person trading requirements shall be in effect: At least 60% of a Market Maker's transactions must be executed by the Market Maker in-person, while he is present on the Options Trading Floor of the Exchange. Orders executed for a Market Maker through a Floor Broker will not be credited toward the 60% requirement. A failure to comply with this 60% in-person trading requirement may result in a fine pursuant to Rule 10.13; however, if aggravating circumstances are present, formal disciplinary action may be taken pursuant to Rule 10.3.
In order to assure compliance with the spirit and intent of the 60% requirement, the Exchange may review each of the Market Maker's transactions used to meet the 60% requirement, so as to ensure that the Market Maker is not effecting numerous single or small-lot transactions during limited appearances on the floor of the Exchange, only to meet the technical requirements of the 60% requirement.
(e) — (f) — No change.
(g) Quoting Obligations of Market Makers.
(1) Lead Market Makers. Lead Market Makers must provide continuous two-sided quotations throughout the trading day in each of their appointed issues. Such quotations must meet the legal quote width requirements of Rule 6.37(b). LMMs must also specify a size for each of their quotations applicable to:
(A) orders for Public Customers; and
(B) orders and Quotes with Size for broker-dealers.
Lead Market Makers must enter their quotations through an automated quotation system with the Exchange, but may also provide quotations by public outcry.
(2) Remote Market Makers. Remote Market Makers must provide continuous two-sided quotations in each issue in which they are appointed during 60% of all times during which the Exchange is open for options trading. Such quotations must meet the legal quote width requirements of Rule 6.37(b). In addition, Remote Market Makers must specify a size for each of their quotations applicable to:
(A) orders for Public Customers; and
(B) orders and Quotes with Size for broker-dealers.
These obligations will apply to all of the Remote Market Maker's appointed issues collectively, rather than on an issue-by-issue basis. Compliance with this obligation will be determined on a per-calendar-quarter basis. Remote Market Makers must enter all of their quotations through an electronic interface with the Exchange. The public outcry requirements of Rule 6.73 do not apply to Remote Market Makers.
(3) Supplemental Market Makers. Supplemental Market Makers must provide the size of their quotations through an electronic interface with the Exchange, but may also provide quotations by public outcry.
(4) Floor Market Makers. Floor Market Makers must provide quotations in accordance with Rule 6.37 and may enter such quotations by public outcry or through an electronic interface with the Exchange.
(h) Obligations of Remote Market Makers
(1) All PCX Rules applicable to Market Makers will also apply to Remote Market Makers unless otherwise provided or unless the context clearly indicates otherwise. The following Rules do not apply to Remote Market Makers who are not present on the Trading Floor: Rule 6.2(b) — (f) and (h) (Admission to and Conduct on the Options Trading Floor); Rule 6.35(a) (Appointment of Market Makers); Rule 6.37(d) and Commentaries .03 and .05 (Obligations of Market Makers); Rule 6.53, Commentary .01 (Issuing a Call for Market Makers); Rule 6.66 (Order Identification); Rule 6.73 (Manner of Bidding and Offering); Rule 6.74 (Bid and Offers in Relation to Units of Trading); and Rule 6.100 (Evaluation of Options Trading Crowd Performance).
(2) For purposes of the following Rules, Remote Market Makers are deemed not to be members of the trading crowd: Rule 6.8, Commentary .08(c)(2) (the firm facilitation exemption procedures relating to position limits); Rule 6.47(a) — (f) (Crossing Orders and Stock/Option Orders); and Rule 6.66 (trading crowd participants to whom order identification information must be provided).
(3) Each Remote Market Maker must meet its quoting obligations as set forth in Rule 6.37(g). A failure to comply with the 60% quoting requirement may result in a fine pursuant to Rule 10.13; however, if aggravating circumstances are present, formal disciplinary action may be taken pursuant to Rule 10.4. The Exchange may consider exceptions to this quoting requirement based on demonstrated legal or regulatory requirements or other mitigating circumstances (e.g., excused leaves of absence, personal emergencies, or equipment problems).
(4) A Remote Market Maker may be called upon by an Exchange official designated by the Board of Governors to submit a single quote or maintain continuous quotes in one or more series of an option issue to which the Remote Market Maker is appointed whenever, in the judgment of such official, it is necessary to do so in the interest of maintaining fair and orderly markets.
(5) Remote Market Makers must trade at least 75% of their average daily trading volume per quarter in issues included in their primary appointments pursuant to Rule 6.35(g). Remote Market Makers may trade up to 25% of their quarterly contract volume in option issues that are not included within their primary appointments.
(6) If the Exchange finds any failure by a Remote Market Maker to engage in a course of dealings as specified in subsections (3) — (5) above, such Remote Market Maker will be subject to disciplinary action or suspension or revocation of registration by the Exchange in one or more of the option issues in which the Remote Market Maker holds a primary appointment. Nothing in this Rule will limit any other power of the Board of Governors under the Constitution, Rules, or procedures of the Exchange with respect to the registration of a Remote Market Maker or in respect to any violation by a Remote Market Maker of the provisions of this Rule.
(7) Performance Standards. The Options Allocation Committee will periodically conduct an evaluation of Remote Market Makers to determine whether they have fulfilled performance standards relating to, among other things, quality of markets, competition among Market Makers, observance of ethical standards, and administrative factors. The Options Allocation Committee may consider any relevant information including, but not limited to, the results of a Remote Market Maker evaluation, trading data, a Remote Market Maker's regulatory history and such other factors and data as may be pertinent in the circumstances.
(A) If the Options Allocation Committee finds any failure by a Remote Market Maker to meet minimum performance standards, the Options Allocation Committee may take the following actions, after written notice and after opportunity for hearing pursuant to Rule 11:
(i) restriction of appointments to additional option issues in the Remote Market Maker's primary appointment;
(ii) suspension, termination, or restriction of an appointment in one or more option issues; or
(iii) suspension, termination, or restriction of the Remote Market Maker's registration in general.
(B) If a Remote Market Maker's appointment in an option issue or issues has been terminated pursuant to this subsection (7), the Remote Market Maker may not be re-appointed as a Remote Market Maker in that option issue or issues for a period not to exceed six (6) months.
Commentary:
.01 — .02 — No change.
.03 (a) When a Market Maker other than a Remote Market Maker displays a market on the screen that [which] is the best market in that crowd, the Market Maker is obligated to ensure that its [to inform the Order Book Official when he leaves the crowd and request that his] market [be] is removed from the screen when the Market Maker leaves the crowd.
[(b)When a Market Maker provides a market, and later changes this market within a reasonable period of time, such Market Maker shall announce the new market to the crowd and the Order Book Official. A Market Maker who repeatedly violates this requirement will be subject to disciplinary action.]
.04 — .06 — No change.
[.07 In order to meet the obligations of this rule, and in the interest of a fair and orderly market, an adequate number of Market Makers must be available throughout each trading session. In acknowledgement thereof, the following minimum in-person trading requirements shall be in effect: At least 60% of a Market Maker's transactions must be executed by the Market Maker in-person, while he is present on the Options Trading Floor of the Exchange. Orders executed for a Market Maker through a Floor Broker will not be credited toward the 60% requirement. A failure to comply with this 60% in-person trading requirement may result in a fine pursuant to Rule 10.13; however, if aggravating circumstances are present, formal disciplinary action may be taken pursuant to Rule 10.3.]
[In order to assure compliance with the spirit and intent of the 60% requirement, the Exchange may review each of the Market Maker's transactions used to meet the 60% requirement, so as to ensure that the Market Maker is not effecting numerous single or small-lot transactions during limited appearances on the floor of the Exchange, only to meet the technical requirements of the 60% requirement.]3
.07 [.08] Leaves of Absence: In order to assure compliance with all applicable rules, regulations and guidelines, the Options Allocation Committee has provided the following procedures for granting leaves of absence to Market Makers:
(a)[(1)]
Market Makers may request leaves of absence when they plan to be away from the floor or, in the case of a Remote Market Maker, withdraw temporarily from entering quotations into the PCX Plus system, for periods in excess of two weeks during a calendar quarter.
(b)[(2)] Requests for leaves of absence must be submitted in writing to the Exchange [Surveillance Department] prior to the commencement of the intended leave.
(c)[(3)] While on leave, Market Makers will not be permitted to make opening transactions in Exchange listed options, in their Market Maker accounts, through the use of a Floor Brokers, except as provided in Rule 6.32(c)[, Commentary .01].
(d)[(4)] — No change.
.08 [.09] — No change.
* * * * *
¶4941 Restriction on Acting as Market Maker and Floor Broker
Rule 6.38(a) Application
(1) The restrictions in subsection (b) do not apply to Lead Market Makers who are performing the functions of a Floor Broker pursuant to Rule 6.82(h)(3).
(2) Remote Market Makers that are trading from a location off the Floor are not eligible to perform the functions of Floor Brokers.
(b) Restrictions
(1) [(a)] — No change.
(2)[(b)] Members who act as both Market Makers and Floor Brokers whose quarterly total contract volume as a Market Maker exceeds that as a Floor Broker must obtain a [shall be given] Primary Appointment and comply with the terms of Rule 6.35 and Rule 6.37.
(3) — (5)[(c) — (e)] — No change.
* * * * *
ORDER BOOK OFFICIALS
¶5003 Order Book Official Defined
Obligations for Orders
Rule 6.52(a)
The Exchange will determine, on an issue-by-issue basis, the account types of orders that will be placed in the Consolidated Book. Such orders may include limit orders for the accounts of Public Customers, broker-dealers or Market Makers. In addition, Quotes with Size of Market Makers may be included in the Consolidated Book. There is no limit to the size of orders or quotes that may be entered into the Consolidated Book. The Exchange will determine whether any or all types of contingency orders (as defined in Rule 6.62(c)) will be eligible to be included in the Consolidated Book. [Acceptance. Order Book Officials will, for all options contracts of the class or classes assigned to them, accept and maintain a written record of orders that are placed in their custody. Such orders shall include limit orders (as defined in Rule 6.62) and such other orders as may be designated by the Options Floor Trading Committee. An Order Book Official will not accept orders of any other type or from any source other than a member. Only non-broker/dealer customer orders may be placed with an Order Book Official pursuant to this Rule. For the purposes of this Rule, the term "broker/dealer" includes foreign broker/dealers.]
(b) — No change.
(c) Members submitting orders or Quotes with Size to the Order Book Official for execution or for entry into the Consolidated Book must comply with such procedures and format requirements as may be prescribed by the Exchange. [Timeliness of Entering Orders in the Book. Floor Brokers have a positive obligation to ensure that the urgency of the need to deal with the Book at a given moment is consistent with the maintenance of an orderly Book market. In some situations it may be unnecessarily disruptive to the maintenance by the OBO of an orderly market if an attempt is made to enter into, cancel from, or change an order in the Book that is reasonably away from the market and had no immediate urgency. OBOs must report to Floor Officials any instances that appear to violate this obligation.]
Commentary:
.01 — .05 — No change.
* * * * *
¶5039 Disclosure of Orders
Rule 6.57. Equal Access to Book Depth and Size.
(a) If an option issue has not been designated by the Exchange as eligible for trading on PCX Plus, the provisions of Rule 6.57(b) will apply. If an option issue has been designated as eligible for trading on PCX Plus, then the provisions of subsection (c), below, will apply.
(b) — No change.
(c) In option issues designated for trading on PCX Plus, all Crowd Participants (as defined in Rule 6.1(b)(38)) will be able to access at the same time the same information in regard to orders and Quotes with Size placed through PCX Plus.
* * * * *
¶5073 Trading Rotations
Rule 6.64(a) — (b) — No change.
Automated Opening Rotations
(c) Automated Opening Rotations. The Exchange will designate option issues that are eligible for automated opening rotations pursuant to this Rule 6.64(c). The Exchange will also designate option issues that are eligible for automated opening rotations pursuant to Rule 6.64(d). If an option series has not been designated as eligible for automated opening rotations pursuant to Rule 6.64(d), and if that series is not opened automatically pursuant to Rule 6.64(c), then that series will be opened manually pursuant to Rule 6.64(b). [may employ automated opening rotations in designated series of options. All option series that are eligible for participation in the Automatic Opening Rotation will be opened automatically. Conversely, if an option series is not opened automatically pursuant to this Rule, then that series must be opened manually pursuant to applicable Exchange Rules. Automated Opening Rotations, when held, will be based upon the following procedures.]
(1) — (2) — No change.
(3) Automated Opening Rotations. Series eligible for the Automated Opening Rotation will be opened automatically based on the following principles and procedures:
(A) The POETS system will determine a single price at which a particular option series will be opened, as provided in Commentary .01 [.03], below.
(B) — (C) — No change.
(4) — No change.
Enhanced Automated Opening Rotations
(d) The following Rule 6.64 will apply to automated opening rotations in options designated for trading under PCX Plus, pursuant to Rule 6.90.
(1) Establishing a Market for the Opening Rotation: Prior to the opening rotation in a particular option series, the Order Book Official will determine whether there are any manual orders being represented in the trading crowd to be executed during the opening rotation and will designate the option series in which there are such orders for manual opening. In doing so, the Order Book Official will call for bids and offers from the trading crowd once the underlying security has opened. The trading crowd may determine that the bids and offers then being displayed on the overhead screens are accurate, or alternatively, may modify those bids and offers by public outcry.
(2) Designating Series that are Not Eligible for the Automated Opening Rotation. The Order Book Official must identify, prior to the opening, all option series that are not eligible for the automated opening rotation. These series include:
(A) Series for which there are no market or marketable limit orders in PCX Plus.
(B) Series for which there are one or more manual orders being represented in the trading crowd that are likely to be executed during the opening rotation, as determined by an Order Book Official.
(C) Series for which one or more members of the trading crowd has reasonably requested that a manual opening rotation be conducted. Two Floor Officials may deny member requests for manual opening rotations in the absence of reasonable justification for doing so.
(D) Series in which the "imbalance threshold" has been exceeded. Prior to the opening, the OBO, in conjunction with the Lead Market Maker in the issue, will set for each option issue a number of contracts that constitutes an imbalance threshold, i.e., a specific number of option contracts to buy in excess of the number of contracts to sell or a specific number of contracts to sell in excess of the number of contracts to buy. PCX Plus will not automatically open any series with an imbalance exceeding the threshold for that issue.
(3) Automated Opening Rotations. Series eligible for the Automated Opening Rotation will be opened automatically based on the following principles and procedures:
(A) PCX Plus will verify that a Quote with Size has been received from the LMM before a series is eligible for automated opening rotation.
(B) PCX Plus will determine a single price at which a particular option series will be opened, as provided in Commentary .01, below.
(C) Orders in the PCX Plus system will maintain priority over Market Maker bids and offers that are not being represented in the Consolidated Book as Quotes with Size. Orders in the PCX Plus system will be matched up with one another, based on the priority rules as set forth in Rule 6.76(a); provided, however, that:
(i) Market Maker Quotes with Size will have priority over orders for Firms, Market Makers, and Non-Member Market Makers during the Automated Opening Rotation; and
(ii) orders for the accounts of Firms, Market Makers, and Non-Member Market Makers will be executed based on price/time priority.
(D) Following the opening, any unexecuted contracts will be represented as bids and offers on the Exchange.
(4) Contingency orders will not be entitled to participate in the automated opening rotations.
(e) — (h) — [(d) — (g)] — No change.
Commentary:
.01 — .02 — No change.
* * * * *
¶5127 Manner of Bidding and Offering
Rule 6.73. To be effective, a bid or offer must either be represented electronically in the Consolidated Book or be made by public outcry at the trading post where the option is traded. [Bids and offers to be effective must be made at the post by public outcry, except that bids and offers made by the Order Book Official shall be effective if displayed in a visible manner in accordance with Rule 6.55.] All bids and offers shall be general ones and shall not be specified for acceptance by particular members.
Commentary:
.01 — No change.
* * * * *
¶5139 Priority [of Bids and Offers]and Order Allocation Procedures
Rule 6.75. Except as provided by Rule 6.76 below, the following rules of priority shall be observed with respect to bids and offers:
(a) — (c) — No change.
(d) Opening rotations. The following priority rules will apply when a manual opening rotation is employed pursuant to Rule 6.64(b):
(1) — (3) — No change.
(e) — (f) — No change.
(g) — Reserved.
(h)
Priority on Split Price Transactions.4
(1)
Purchase priority. If a member purchases one or more option contracts of a particular series at a particular price or prices, the member must, at the next lower price at which another member bids, have priority in purchasing up to the equivalent number of option contracts of the same series that the member purchased at the higher price or prices, provided that the member's bid is made promptly and continuously and that the purchase so effected represents the opposite side of a transaction with the same order or offer as the earlier purchase or purchases.
(2) Sale priority. If a member sells one or more option contracts of a particular series at a particular price or prices, he shall, at the next higher price at which another member offers, have priority in selling up to the equivalent number of option contracts of the same series that he sold at the lower price or prices, provided that his offer is made promptly and that the sale so effected represents the opposite side of a transaction with the same order or bid as the earlier sale or sales.
(3) Two or more members entitled to priority. If the bids or offers of two or more members are both entitled to priority in accordance with subsections (1) or (2), it shall be afforded them, insofar as practicable, on an equal basis.
(4) The priority afforded by this rule is effective only insofar as it does not conflict with orders on the book of the Order Book Official as provided in Rule 6.75. Such orders on the book of the Order Book Official have precedence over members' orders at a particular price; orders on the book also have precedence over members' orders that are not superior in price by at least the MPV.
Commentary:
.01 — .04 — No change.
* * * * *
[¶5145] [Priority on Split Price Transactions]5
[Rule 6.76
(a). Purchase priority. If a member purchases one or more option contracts of a particular series at a particular price or prices, the member must, at the next lower price at which another member bids, have priority in purchasing up to the equivalent number of option contracts of the same series that the member purchased at the higher price or prices, provided that the member's bid is made promptly and continuously and that the purchase so effected represents the opposite side of a transaction with the same order or offer as the earlier purchase or purchases.]
[(b) Sale priority. If a member sells one or more option contracts of a particular series at a particular price or prices, he shall, at the next higher price at which another member offers, have priority in selling up to the equivalent number of option contracts of the same series that he sold at the lower price or prices, provided that his offer is made promptly and that the sale so effected represents the opposite side of a transaction with the same order or bid as the earlier sale or sales.]
[(c) Two or more members entitled to priority. If the bids or offers of two or more members are both entitled to priority in accordance with paragraph (a) or paragraph (b), it shall be afforded them, insofar as practicable, on a pro rata basis.]
[Commentary:]
[.01 The priority afforded by this rule is effective only insofar as it does not conflict with orders on the book of the Order Book Official as provided in Rule 6.75. Such orders on the book of the Order Book Official have precedence over members' orders at a particular price; orders on the book also have precedence over members' orders that are not superior in price by at least the MPV.]
* * * * *
PCX Plus
Priority and Order Allocation Procedures
Rule 6.76. The rules of priority and order allocation procedures set forth in this Rule 6.76 will apply to option issues designated by the Exchange to be traded in PCX Plus. The maximum size of an inbound order that may be eligible for execution on PCX Plus pursuant to Rule 6.76(b) (the "Maximum Order Size") will be established by the LMM in the issue, subject to the approval of two Floor Officials, whose approval must be further ratified by the Options Floor Trading Committee.
(a) Priority and Allocation Procedures for Orders and Quotes with Size
(1) Price Priority. The highest bid has priority over all other bids; and the lowest offer has priority over all other offers.
(2) Multiple bids or offers at the same price are afforded priority based on account type and other principles, as set forth below.
(A) Public Customer Orders. Bids and offers in the Consolidated Book for Public Customer accounts have first priority over other bids or offers at the same price. If there is more than one highest bid for a Public Customer account or more than one lowest offer for a Public Customer account, then such bids or offers, respectively, will be ranked based on time priority.
(B) FIQ Status. Orders and Quotes with Size in the Consolidated Book with First Improved Quote ("FIQ") status, as provided in subsection (a)(3), below, have second priority over either bids or offers at the same price, but only for up to 40% of the order against which the order or Quote with Size that has FIQ status will be executed.
(C) LMM Guaranteed Participation. Bids and offers in the Consolidated Book for the account of the LMM have third priority if the LMM is eligible to receive guaranteed participation on such bid or offer pursuant to Rule 6.82.
(i) LMMs will not receive any portion of an inbound order if their bids or offers are not at the trade price.
(ii) The LMM's guaranteed participation is expressed as a percentage of the remaining quantity after all Public Customer orders and quotes with FIQ status (to the extent of their 40% participation), if any, have first been executed.
(iii) The LMM will not be allocated a number of contracts greater than the size of the LMM's bid or offer.
(iv) If the LMM receives guaranteed participation on a trade and there are contracts remaining to be executed, the remaining portion of the LMM's bid or offer may participate in the "size pro rata" allocation, as provided in subsection (a)(4), below.
(D) Non-Customer Orders and Quotes with Size. Orders and Quotes with Size in the Consolidated Book for the accounts of non-customers (including Firms (as defined in Rule 6.1(b)(36)) and Market Makers) have last priority. If there is more than one highest bid or more than one lowest offer in the Consolidated Book for the account of a non-customer, then such bids or offers will be afforded priority on a "size pro rata" basis.
(3) First Improved Quote ("FIQ") Status
(A) A non-customer order or Quote with Size that improves the best bid or offer on the Exchange and that is disseminated via OPRA will have "FIQ status" with respect to other bids or offers at the same price, unless it has been matched or further improved within three seconds. If it is matched within three seconds, then no FIQ status will apply to that order or quote. If it is improved, then the order or Quote with Size that improved the previous price will have priority and will itself receive FIQ status. If a Member increases the size of a quote with FIQ status, the additional quantity will not be afforded FIQ status. If a Member decreases the size of a quote with FIQ status, that revised quote will retain FIQ status. For purposes of this Rule, orders and Quotes with Size may only be matched or improved through an electronic interface device.
(B) Order Allocation Process for Participants with FIQ Status.
(i) Once the available Public Customer interest in the Consolidated Book has been filled, an order or Quote with Size that has FIQ status will be entitled to trade against the greater of:
(a) 40% of the next inbound electronic order or orders to buy or sell the same series; or
(b) the total size to which the order or Quote with Size with FIQ status would receive pursuant to a size pro rata allocation.
The 40% allocation will be applied to the quantity remaining after all Public Customer orders have first been executed. In addition, an order or Quote with Size with FIQ status will not be allocated a number of contracts greater than the size of the bid or offer with FIQ status.
(ii) An order or Quote with Size will continue to maintain FIQ status until either:
(a) the entire commitment size has been filled by the execution of a single inbound order;
(b) a portion of the commitment size has been filled by the execution of a single inbound order and the number of contracts executed based on the applicable allocation method as set forth in subsection (B)(i) above is at least 20 contracts (e.g., FIQ status for 100 contracts will no longer apply once a Market Maker has been allocated 40 contracts based on an allocation of 40% of a single 100-contract order); or
(c) a portion of the commitment size has been filled by the execution of multiple inbound orders and the aggregate number of contracts allocated as a result of such executions equals or exceeds 20 contracts (e.g., FIQ status for 100 contracts will no longer apply once a Market Maker has been allocated a total of 24 contracts based on three subsequent allocations of 8 contracts, each of which are based on allocations of 40% of 20 contracts).
(C) An LMM's Quote with Size with FIQ status will receive an allocation representing the greater of:
(i) the number of contracts to which the LMM would be entitled as guaranteed participation pursuant to subsection (a)(2)(C) above; or
(ii) the number of contracts to which the LMM would be entitled for having FIQ status.
(D) If a non-customer order or Quote with Size has FIQ status but a Public Customer order on the same side of the market is then entered with a price matching that non-customer's order or Quote with Size, the Public Customer order will gain priority over the non-customer's order or Quote with Size. In such circumstances, inbound orders will be allocated as follows:
(i) the customer order will first be executed up to its designated size; and
(ii) the non-customer order or Quote with Size with FIQ status will then be eligible to participate in the balance of the order pursuant to subsection (B) above.
(4) Size Pro Rata Allocation
(A) Orders subject to allocation on a "size pro rata" basis will be allocated based on the following formula:
(Size of Order to be Allocated) x (Participant's Quote Size) = Size Pro Rata Allocation
(Aggregated Quote Size)
For example:
200 contracts to be allocated among three Market Makers quoting with the following sizes:
MM1 100
MM2 200
MM3 500
Aggregated Quote Size 800
MM1 receives (200/800) x (100) = 25 contracts
MM2 receives (200/800) x (200) = 50 contracts
MM3 receives (200/800) x (500) = 125 contracts
(B) The pro rata share allocated to each participant in the pool will be rounded down to a whole number, if applicable. If there are residual contracts to be filled after the pro rata calculation has been completed, such contracts will be allocated, with no more than one contract per participant, in the following sequence:
(i) The participant in the pool who has the largest fractional amount (based on the pro rata calculation) will receive the first contract, and each successive contract (if any) will be allocated to each subsequent participant who has the next largest fractional share.
(ii) If the last residual contracts are to be allocated between two or more participants having the same fractional amount, then the participant with the largest initial quote size in the pro rata pool will be allocated the next contract. Each successive contract (if any) will be allocated in the same manner.
(iii) If the last residual contracts are to be allocated between two or more participants with the same fractional amount and initial quote size, then the participant with the first time priority in the pro rata pool will be allocated the next contract. Each successive contract (if any) will be allocated in the same manner.
(b) PCX Plus Executions. This subsection (b) addresses situations in which orders or Quotes with Size are executed through PCX Plus.
(1) An inbound order that is marketable will be immediately executed against bids and offers in the Consolidated Book, unless one of the following conditions applies:
(A) the size of the inbound order exceeds the Maximum Order Size established pursuant to Rule 6.76; or
(B) the inbound order is for the account of a Firm or Non-Member Market Maker and more than 50% of the aggregate trading interest in the Consolidated Book at the execution price is for the account (or accounts) of Public Customers.
If the conditions specified in subsections (A) or (B) above apply, the order will be represented in the trading crowd pursuant to Rule 6.76(d).
(2) An inbound order will be either fully or partially executed as follows:
(A) If more than 40% of the size in the Consolidated Book is comprised of a single Firm or Non-Member Market Maker order at the price at which the inbound order would trade, and such Firm or Non-Member Market Maker order was entered less than one minute before the inbound order, then:
(i) the inbound order will first be matched against all available Public Customer interest in the Consolidated Book;
(ii) the inbound order, if not entirely filled, will then satisfy any available interest based on FIQ status and LMM guaranteed participation pursuant to Rule 6.76(a);
(iii) the inbound order, if not entirely filled, will then match, on a size pro rata basis, with the interest of the Market Makers, Firms and Non-Member Market Makers in the Consolidated Book; provided that the size pro rata share interest of each individual Firm and each Non-Member Market Maker will be limited to 40% of the size of the remaining inbound order; and
(iv) the balance of the order, if any, will then be routed to a Floor Broker Hand Held Terminal.
(B) If the same conditions set forth in subsection (b)(2)(A) above apply but the Firm or Non-Member Market Maker order was entered more than one minute before the inbound order, then:
(i) the inbound order will first be matched against all available Public Customer interest in the Consolidated Book;
(ii) the inbound order, if not entirely filled, will then satisfy any available interest based on FIQ status and LMM guaranteed participation pursuant to Rule 6.76(a);
(iii) the inbound order, if not entirely filled, will then match, on a size pro rata basis, with the interest of the Market Makers, Firms and Non-Member Market Makers in the Consolidated Book; provided that the size pro rata share interest of each individual Firm and each Non-Member Market Maker will be limited to 40% of the size of the remaining inbound order;
(iv) the inbound order, if not entirely filled, will then match, on a size pro rata basis, with all other remaining volume in the Consolidated Book of Firms and Non-Member Market Makers who were previously limited to 40%; and
(v) the balance of the order, if any, will then be either:
(a) routed to a Floor Broker Hand Held Terminal in the case where the order locks or crosses the NBBO; or
(b) executed at the next available price level based on split-price execution, as provided in subsection (b)(3), below.
If neither of the conditions specified in subsections (a) or (b) apply, and the order is no longer marketable, then such order will be represented in the Consolidated Book.
(3) Split-Price Executions. An inbound electronic order will receive an execution at multiple prices if there is some, but insufficient, trading interest at a price and the remainder of the order can be filled at one (or more) other prices based on available trading interest in the Consolidated Book. Orders will not be executed at a price that trades through another market. The balance of the order, if any, will be represented in the Consolidated Book, provided that if such order locks or crosses the NBBO, then the order will be routed to a Floor Broker Hand Held Terminal. This subsection (b)(3) will not apply to orders or Quotes with Size that are executed pursuant to Rules 6.76(b)(2)(A) and 6.76(b)(4).
(4) Electronic Book Execution. This subsection addresses situations in which Market Makers interact electronically with orders in the Consolidated Book. When a Quote with Size from a Market Maker initiates a trade with the Consolidated Book (the "initiating Quote with Size"), an Electronic Book Execution will occur as follows.
(A) The initiating Quote with Size will immediately execute against the Consolidated Book if the percentage of the transaction involving Public Customer interest (as represented in the Consolidated Book) would comprise no more than 40% of the transaction (e.g., if the initiating Quote with Size is for 20 contracts and the size in the Consolidated Book at the execution price is 50 contracts, six contracts of which are the Public Customer interest (6 ÷ 20 = 30%), then the initiating Quote with Size for 20 contracts will be executed in full).
(B) If the initiating Quote with Size would effect a transaction against the Consolidated Book and the percentage of the transaction involving Public Customer interest would comprise more than 40% of the transaction, then the initiating Quote with Size will be processed as follows:
(i) the Market Maker's initiating Quote with Size will receive an execution comprising the greater of:
(a) 40% of the Public Customer interest in the Consolidated Book at that price; or
(b) the total size to which the inbound initiating Quote with Size would receive pursuant to a size pro rata allocation.
(ii) the balance of the Consolidated Book at that price will be displayed for three seconds (via a System Alert Message — SAM) to all "Crowd Participants" (as defined in Rule 6.1(b)(38)).
(iii) the balance of the Public Customer interest in the Consolidated Book will then be allocated on size pro rata basis to all Crowd Participants, if any, who have entered bids or offers to trade at the execution price within the three seconds provided.
(iv) after the Public Customer interest has been allocated, the initiating Quote with Size will match against all remaining interest in the Consolidated Book. If the initiating Quote with Size does not fill the Consolidated Book, then all Crowd Participants will be matched on a size pro rata basis with the remaining interest in the Consolidated Book at that price.
(v) if the remaining Quotes with Size are executable at the next price level, they will be matched against the Consolidated Book on a size pro rata basis.
(5) NBBO Step-Up.
(A) The LMM in an issue may "Step-Up" and execute inbound orders at the NBBO price when the NBBO is better than the PCX's disseminated quote. Subject to the approval of two Floor Officials, the LMM will have sole discretion to determine whether the NBBO Step-Up feature:
(i) will be engaged or disengaged;
(ii) will be set to execute inbound orders when the NBBO is crossed or locked; and
(iii) will be set to execute inbound orders at prices that are one or more trading increments better than the LMM's best bid or offer.
(B) LMMs using the NBBO Step-Up feature may, at their discretion, disseminate Quotes with Size at the NBBO price when the NBBO price is better than the LMM's own disseminated price. If the LMM chooses to do so, then quotes at the NBBO will be disseminated via OPRA on the LMM's behalf. Such quotes will include the aggregate quotation size of the LMM and any Supplemental Market Makers who choose to participate in the NBBO Step-Up feature. LMMs may not use the NBBO Step-Up feature to match quotations of other PCX participants who are quoting at the NBBO. Accordingly, if another PCX participant enters an order or Quote with Size at the NBBO, then the LMM's original quote will prevail and the LMM's NBBO Step-Up quote will be removed from the PCX Plus system.
(C) Inbound orders executed based on NBBO Step-Up will be allocated to Supplemental Market Makers who choose to participate in the NBBO Step-Up feature and the LMM on a size pro rata basis.
(c) Crossing Orders.
(1) Definitions. For purposes of this Rule 6.76(c), the following terms will have the meanings herein specified.
(A) "Cross Order" means two orders with instructions to match the identified buy-side with the identified sell-side at a specified price (the "Cross Price").
(B) "Facilitation Order" means an order as defined in Rule 6.47(b).
(C) "PCX Broker" means a Member, Member Organization or Associated Person who enters orders as agent for accounts other than for Market Makers.
(D) "Exposed Order" means the buy or sell side of a Cross Order that has been designated by a PCX Broker as the side to be exposed to the market and that is eligible for execution against all trading interest. Public Customer orders will always be deemed to be the Exposed Order in a Cross Order. In the case of a Cross Order involving a non-customer on both the buy side and sell side, the PCX Broker must designate one side of the Cross Order as the Exposed Order.
(E) "Shadow Order" means an order that is submitted by a PCX Broker to buy or sell a stated number of contracts at a specified price and that is to be executed in whole or in part against an Exposed Order. Any unexecuted portion of a Shadow Order will be canceled.
(2) Crossing Mechanism. The Crossing Mechanism is a process by which a PCX Broker may facilitate orders or cross two orders. A Cross Order will be executed as follows:
(A) A PCX Broker must enter into PCX Plus (the "System") the terms of each Cross Order to be executed electronically on the Exchange. The required terms include the terms of the order for a Public Customer or a broker dealer and the proposed Facilitation Order (or two orders to be crossed neither one of which is a Facilitation Order ("non-facilitation cross")), the proposed crossing price, the quantity of the order that the PCX Broker is willing to facilitate (in case of a facilitation cross), and an indication of which order is the Exposed Order. If the proposed Cross Price is outside the BBO at the time of order entry, the System will reject the Cross Order.
(B) After accepting the Cross Order, the System will execute the Cross Order in the following sequence.
(i) If the Cross Price is between the BBO:
(a) The System will immediately display the Exposed Order's price and quantity for 30 seconds. During the 30-second exposure period, there will be no indication that the order is part of an impending cross. The System places the Shadow Order on hold and such order is not visible except to the PCX Broker that entered the Cross Order.
(b) As long as the Exposed Order is the highest priority order at the best price, other Members and Member Organizations may trade against the Exposed Order during the exposure period. If at any time during the exposure period the Exposed Order is entirely filled, the System will cancel the remaining quantity of the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
(c) At the end of the exposure period, if the Exposed Order has not been entirely filled, but it is at the best price and has the highest priority, then the System will execute the remainder of the order against the Shadow Order. The System will then cancel the remainder of the Shadow Order and send the crossing firm a message that the crossing transaction has been completed.
(d) At the end of the exposure period, if the Exposed Order has quantity remaining and it is not the highest priority order at the market, then the System will automatically cancel the remainder of the Exposed Order and the Shadow Order and will send the PCX Broker a message that the crossing transaction has been completed.
(ii) If the Cross Price is at the BBO:
(a) The Exposed Order will be matched at the displayed price against all pre-existing trading interest in the Consolidated Book with priority in accordance with Rule 6.76(a).
(b) The remainder of the Exposed Order, if any, will be exposed at the limit price for 30 seconds. As long as the Exposed Order has the highest priority at the best price, other Members and Member Organizations may trade against the Exposed Order during the 30-second exposure period. If at any time during the exposure period, the Exposed Order is entirely filled, the System will cancel the remaining quantity of the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
(c) At the end of the exposure period, if the Exposed Order has not been entirely filled, but it is at the best price and has the highest priority, then the System will execute the remainder of the order against the Shadow Order. The System will then cancel the remainder of the Shadow Order and send the crossing firm a message that the crossing transaction has been completed.
(d) At the end of the exposure period, if the Exposed Order has quantity remaining and it is not the highest priority order at the market, then the System will automatically cancel the remainder of the Exposed Order and the Shadow Order and send the PCX Broker a message that the crossing transaction has been completed.
(3) Prohibited Conduct Related to Crossing Orders.
(A) It will be a violation of Rule 6.76(c) for a PCX Broker to be a party to any arrangement designed to circumvent this Rule by providing an opportunity for a customer or a broker-dealer to execute against agency orders handled by the PCX Broker immediately upon their entry into the System.
(B) PCX Brokers may not execute as principal orders they represent as agent unless:
(i) agency orders are first exposed on the Exchange for at least 30 seconds;
(ii) the PCX Broker utilizes the Crossing Mechanism pursuant to Rule 6.76(c)(2); or
(iii) the PCX Broker executes the orders pursuant to Rule 6.47.
(d) Orders Executed Manually.
(1) Floor Brokers manually representing orders in the trading crowd must comply with the order execution and priority principles set forth in Rule 6.75 and, in addition, with the following provisions establishing priority for bids and offers by account type:
(A) Public Customer orders in the Consolidated Book have first priority. Multiple customer orders at the same price are ranked based on time priority.
(B) Bids and offers of the members of the trading crowd have second priority. These bids and offers include those made by Market Makers and Floor Brokers (on behalf of orders they are representing).
(C) Bids and Offers of broker-dealers (including Quotes with Size and orders of Market Makers) in the Consolidated Book have third priority. Multiple bids and offers of broker-dealers will be executed on a size pro rata basis pursuant to Rule 6.76(a).
(2) Market Makers and Floor Brokers may trade with orders and Quotes with Size in the Consolidated Book by vocalizing a bid or offer in a particular series and effecting a trade with the Order Book Official.
Commentary:
.01 The provisions of Rule 6.90 will apply to transactions automatically executed pursuant to Rule 6.76(b), above.
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¶5169 Accommodation Transactions (Cabinet Trades)
Rule 6.80(a) Applicability. The Exchange will designate option issues that are eligible for cabinet trading pursuant to this Rule. If an option issue has not been designated as eligible for cabinet trading on PCX Plus, the provisions of Rule 6.80(b) will apply. If an option issue has been designated as eligible for cabinet trading on PCX Plus, then the provisions of subsection (c), below, will apply.
(b) Except as provided by subsection (c) below, the following provisions will apply to cabinet trading on the Exchange: [Trading under the following terms and conditions shall be available for all transactions in each series of option contracts open for trading on the Exchange:]
(1) — (2) [(i) — (ii)] — No change.
(3)[(iii)] Orders may be placed for customer, firm and Market Maker accounts, with priority based upon the sequence in which such orders are placed with the Order Book Official. The split-price priority provisions of Rule 6.75(h) [6.76] shall not apply.
(4) — (6) [(iv) — (vi)] — No change.
[Commentary:]
(7) [.01] — No change.
(c) The following provisions of this subsection (c) will apply to option issues designated for cabinet trading on PCX Plus:
(1) Cabinet trading under the following terms and conditions will be available in each series of option contracts open for trading on the Exchange.
(2) Trading shall be conducted in accordance with other Exchange Rules except as otherwise provided herein.
(3) Limit orders at a price of $1 per option contract must be placed on the Exchange in such form and manner as may be prescribed by the Exchange.
(4) Orders for cabinet trading may be placed for the accounts of Public Customers, Firms, and Market Makers, with priority based upon the sequence in which such orders are placed on the Exchange.
(5) Market Makers shall not be subject to the requirements of Rule 6.37 for orders placed pursuant to this Rule.
(6) Members submitting opening orders priced at $1 per option contract must comply with the order entry procedures and format requirements as may be prescribed by the Exchange. Opening orders priced at $1 per option contract may be placed on the Exchange for execution only to the extent that the order book in Cabinet Trades contains unexecuted contract closing orders with which the opening orders immediately may be matched.
* * * * *
[LEAD MARKET MAKERS]
¶5181 Lead Market Makers
Rule 6.82(a). General Provisions:
(1) Lead Market Maker Defined. A Lead Market Maker ("LMM") is an individual or entity that has been deemed qualified by the Options Allocation Committee for the purpose of making transactions on the Options Floor of the Exchange in accordance with the provisions of Rule 6.82. Each LMM or nominee thereof must be registered with the Exchange as a Market Maker. Any member or member organization registered as a Market Maker with the Exchange is eligible to be qualified as an LMM. Remote Market Makers are not eligible to act as LMMs from a location off the trading floor.
(2) — (3) — No change.
(b) — (h) — No change.
Commentary:
.01 — .03 — No change.
* * * * *
¶ 5221 Firm Quotes
Rule 6.86(a) Definitions
(1) — No change.
(2) For purposes of this Rule and SEC Rule 11Ac1-1 as applied to the Exchange and its members, the term "Responsible Broker or Dealer" means that with respect to any bid or offer for any listed option made available by the Exchange to quotation vendors:[,]
(A) in the case of option issues designated for trading on PCX Plus, the Lead Market Maker and any registered Market Makers who are quoting at the disseminated bid or offering price and who are constituting the trading crowd in such option series will collectively be the Responsible Broker or Dealer to the extent of the sizes of their respective bids and offers; or
(B) for option issues not designated for trading on PCX Plus, the Lead Market Maker and any registered Market Makers constituting the trading crowd in such option series will collectively be the Responsible Broker or Dealer to the extent of the aggregate quotation size specified.
(3) — No change.
(b) — (d) — No change.
Commentary:
.01 — .02 — No change.
* * * * *
¶5231 Automatic Execution System
Rule 6.87(a) — No change.
(b) Eligible Orders. The Exchange will designate options issues that are eligible for execution on the Auto-Ex system pursuant to this Rule. Option issues that are not eligible for execution pursuant to Rule 6.87 will be eligible for execution pursuant to Rule 6.90. The following types of orders are eligible for execution on the Auto-Ex system:
(1) — (7) — No change.
(c) — (p) — No change.
Commentary:
.01 — No change.
¶5232 Floor Broker Hand-Held Terminals
[Exchange Sponsored Hand-Held Terminals for Floor Brokers]
Rule 6.89(a). Exchange-Sponsored Hand-Held Terminals for Floor Brokers.
(1) — No change.
(2)[(b)] — No change.
(b) Proprietary Brokerage Order Routing Terminals.6
(1) Members and Member Organizations ("Members") must obtain prior Exchange approval to use any brokerage order routing terminals ("Terminals") on the Options Floor of the Exchange. To request such approval, Members must submit a letter of application to the Exchange specifying the make, model number, functions and intended use of the equipment, and must also provide additional information upon the request of the Exchange. The format of any orders to be transmitted over the Terminals must also be pre-approved by the Exchange.
(2) In considering the approval of an application, as well as whether a previously issued approval should be withdrawn, the Exchange will take into account such factor as the physical size of the Terminal; space available at the post where the Terminal is to be used; telecommunication, electrical and radio frequency requirements; Terminal characteristics and capacity; and any factors that the Exchange considers relevant in the interest of maintaining fair and orderly markets, the orderly and efficient conduct of Exchange business, the maintenance and enhancement of competition, the ability of the Exchange to conduct surveillance of the use of the Terminal and the business transmitted through it, the adequacy of applicable audit trails, and the ability of the Terminal to interface with other Exchange facilities.
(3) Members must report to the Exchange every proposed material change in functionality of a Terminal and every proposed change in the use of a Terminal. Members must not implement any such proposed changes unless and until they been approved by the Exchange. Members must also promptly file with the Exchange supplements to their applications whenever the information currently on file becomes inaccurate or incomplete for any reason.
(4) The following restrictions apply to Members' use of Terminals on the Options Floor:
(A) Members may receive brokerage orders in the trading crowd via Terminals, but must represent such orders in the trading crowd by open outcry in a manner that is consistent with Exchange rules.
(B) When a Member executes an order that was received over a Terminal, the Member must fill out and time stamp a trading ticket within one minute of the execution. Exchange rules on record keeping and trade reporting are unchanged.
(C) Terminals may be used to receive brokerage orders only. Terminals may not be used to perform a market making function. No Member may knowingly use a Terminal on a regular and continuous basis to simultaneously represent orders to buy and sell option contracts in the same series for the account of the same beneficial holder. If the Exchange determines that a person or entity has been sending, on a regular and continuous basis, orders to simultaneously buy and sell option contracts in the same series for the account of the same beneficial holder, the Exchange may prohibit orders for the account of such person or entity from being sent through the Exchange's Member Firm Interface for such period of time as the Exchange deems appropriate. Any system used by a Member to operate a Terminal must be separate and distinct from any system that may be used by a Member or any person associated with a Member in connection with market making functions.
(D) No Member or any person associated with a Member may use for the benefit of such Member or any person associated with such Member any information contained in any brokerage order in the Terminal system until that information has been disclosed to the trading crowd. Such use includes, without limitation, placing an order or making or changing a bid or offer on the Exchange or in any other securities or futures market.
(5) The operation and use of all aspects of the Terminal and all orders entered through the Terminal are subject to inspection and audit by the Exchange at any time upon reasonable notice. Members must furnish to the Exchange such information concerning the Terminal as the Exchange may from time to time request upon reasonable notice, including without limitation an audit trail identifying transmission, receipt, entry, execution and reporting of all orders. For the purpose of this paragraph, a notice of at least twenty-four hours shall be deemed to be reasonable (however, shorter periods may be provided in appropriate circumstances).
(6) Neither the Exchange nor its directors, officers, employees or agents will be liable to a Member, a Member's employees, a Member's customers or any other person for any loss, damage, cost, expense or liability arising from the installation, operation, relocation, use of, or inability to use a Terminal on the floor of the Exchange (including any failure, malfunction, delay, suspension, interruption or termination in connection therewith).
(7) The Exchange may at any time determine to terminate all approvals for the installation and use by Members of Terminals on the floor of the Exchange or at particular trading posts, in which event such approvals will be deemed terminated on the 30th calendar day following the day on which the Exchange gives notice to such Member(s) of such termination of approval. Any Exchange decision to terminate its approval of the installation or use of Terminals on the Floor will be based on the factors set forth in subsection (2), above, and on whether the installation or use of Terminals violates any provisions set forth in this Rule. Members who incur costs in developing or implementing proprietary systems do so at their own risk. A Member's approval to use a Terminal may also be summarily terminated by the Exchange, once notice has been provided to the affected Member, if any statement by such Member in its application or any supplement thereto is inaccurate or incomplete, or if such Member has failed to comply with any provision of this Policy, or if the operation of the Terminal is causing operational difficulties on the floor of the Exchange, and the Member has failed to cure the same within seven calendar days following the giving of notice (or such shorter period of time as the Exchange may deem appropriate if it determines the circumstances have created a situation requiring a shortened cure period). Members must immediately stop using their Terminals and must remove such Terminals from the floor of the Exchange upon the termination of approval pursuant to this paragraph. Nothing in this paragraph will be construed as a waiver of or limitation upon whatever right a Member may otherwise have to seek appropriate relief pursuant to PSE Rule 11 in the event the Exchange terminates approval of a Member's Terminal pursuant to this paragraph.
[¶5233 ] [Proprietary Brokerage Order Routing Terminals]7
[Rule 6.90. (a) Members and Member Organizations ("Members") must obtain prior Exchange approval to use any brokerage order routing terminals ("Terminals") on the Options Floor of the Exchange. To request such approval, Members must submit a letter of application to the Exchange specifying the make, model number, functions and intended use of the equipment, and must also provide additional information upon the request of the Exchange. The format of any orders to be transmitted over the Terminals must also be pre-approved by the Exchange.]
[(b) In considering the approval of an application, as well as whether a previously issued approval should be withdrawn, the Exchange will take into account such factor as the physical size of the Terminal; space available at the post where the Terminal is to be used; telecommunication, electrical and radio frequency requirements; Terminal characteristics and capacity; and any factors that the Exchange considers relevant in the interest of maintaining fair and orderly markets, the orderly and efficient conduct of Exchange business, the maintenance and enhancement of competition, the ability of the Exchange to conduct surveillance of the use of the Terminal and the business transmitted through it, the adequacy of applicable audit trails, and the ability of the Terminal to interface with other Exchange facilities.]
[(c) Members must report to the Exchange every proposed material change in functionality of a Terminal and every proposed change in the use of a Terminal. Members must not implement any such proposed changes unless and until they been approved by the Exchange. Members must also promptly file with the Exchange supplements to their applications whenever the information currently on file becomes inaccurate or incomplete for any reason.]
[(d) The following restrictions apply to Members' use of Terminals on the Options Floor:
(1) Members may receive brokerage orders in the trading crowd via Terminals, but must represent such orders in the trading crowd by open outcry in a manner that is consistent with Exchange rules.
(2) When a Member executes an order that was received over a Terminal, the Member must fill out and time stamp a trading ticket within one minute of the execution. Exchange rules on record keeping and trade reporting are unchanged.
(3) Terminals may be used to receive brokerage orders only. Terminals may not be used to perform a market making function. No Member may knowingly use a Terminal on a regular and continuous basis to simultaneously represent orders to buy and sell option contracts in the same series for the account of the same beneficial holder. If the Exchange determines that a person or entity has been sending, on a regular and continuous basis, orders to simultaneously buy and sell option contracts in the same series for the account of the same beneficial holder, the Exchange may prohibit orders for the account of such person or entity from being sent through the Exchange's Member Firm Interface for such period of time as the Exchange deems appropriate. Any system used by a Member to operate a Terminal must be separate and distinct from any system that may be used by a Member or any person associated with a Member in connection with market making functions.
(4) No Member or any person associated with a Member may use for the benefit of such Member or any person associated with such Member any information contained in any brokerage order in the Terminal system until that information has been disclosed to the trading crowd. Such use includes, without limitation, placing an order or making or changing a bid or offer on the Exchange or in any other securities or futures market.]
[(e) The operation and use of all aspects of the Terminal and all orders entered through the Terminal are subject to inspection and audit by the Exchange at any time upon reasonable notice. Members must furnish to the Exchange such information concerning the Terminal as the Exchange may from time to time request upon reasonable notice, including without limitation an audit trail identifying transmission, receipt, entry, execution and reporting of all orders. For the purpose of this paragraph, a notice of at least twenty-four hours shall be deemed to be reasonable (however, shorter periods may be provided in appropriate circumstances).]
[(f) Neither the Exchange nor its directors, officers, employees or agents will be liable to a Member, a Member's employees, a Member's customers or any other person for any loss, damage, cost, expense or liability arising from the installation, operation, relocation, use of, or inability to use a Terminal on the floor of the Exchange (including any failure, malfunction, delay, suspension, interruption or termination in connection therewith).]
[(g) The Exchange may at any time determine to terminate all approvals for the installation and use by Members of Terminals on the floor of the Exchange or at particular trading posts, in which event such approvals will be deemed terminated on the 30th calendar day following the day on which the Exchange gives notice to such Member(s) of such termination of approval. Any Exchange decision to terminate its approval of the installation or use of Terminals on the Floor will be based on the factors set forth in Subsection (b), above, and on whether the installation or use of Terminals violates any provisions set forth in this Rule. Members who incur costs in developing or implementing proprietary systems do so at their own risk. A Member's approval to use a Terminal may also be summarily terminated by the Exchange, once notice has been provided to the affected Member, if any statement by such Member in its application or any supplement thereto is inaccurate or incomplete, or if such Member has failed to comply with any provision of this Policy, or if the operation of the Terminal is causing operational difficulties on the floor of the Exchange, and the Member has failed to cure the same within seven calendar days following the giving of notice (or such shorter period of time as the Exchange may deem appropriate if it determines the circumstances have created a situation requiring a shortened cure period). Members must immediately stop using their Terminals and must remove such Terminals from the floor of the Exchange upon the termination of approval pursuant to this paragraph. Nothing in this paragraph will be construed as a waiver of or limitation upon whatever right a Member may otherwise have to seek appropriate relief pursuant to PSE Rule 11 in the event the Exchange terminates approval of a Member's Terminal pursuant to this paragraph.]
* * * * *
PCX Plus
Rule 6.90(a). Generally, PCX Plus is the Exchange's electronic order delivery, execution and reporting system for designated option issues through which orders and Quotes with Size of members are consolidated for execution and/or display. This trading system includes the electronic communications network that enables registered Market Makers to enter orders/Quotes with Size and execute transactions from remote locations or the Trading Floor.
(b) Applicability. The Exchange will designate option issues that are eligible for trading on PCX Plus pursuant to this Rule 6.90 and Rule 6.76. If an option issue has not been designated as eligible for execution on PCX Plus pursuant to this Rule, the provisions of Rule 6.75 and Rule 6.87 will apply.
(c) Definitions.8
(1) The term "User" means any person or broker-dealer that obtains electronic access to PCX Plus through an Order Entry Firm.
(2) The term "Order Entry Firm" means a member organization of the Exchange that is able to route orders to the Exchange.
(d) Obligations of Order Entry Firms. Order Entry Firms must:9
(1) comply with all applicable PCX options trading rules and procedures;
(2) provide written notice to all Users regarding the proper use of PCX Plus; and
(3) maintain adequate procedures and controls that will permit the Order Entry Firm to effectively monitor and supervise the entry of electronic orders by all Users. Order Entry Firms must monitor and supervise the entry of orders by Users to prevent the prohibited practices set forth in subsection (e).
(e) Prohibited Practices. Prohibited practices include, but are not limited to, the following:10
(1) Dividing an order involving a single investment decision into multiple smaller lots so as not to exceed the Maximum Order Size established pursuant to Rule 6.76.
(A) Multiple orders to trade the same option issue that are on the same side of the market (whether short or long) and multiple orders to trade the same option series entered within any 15-second period for the account of the same beneficial owner will be presumed to be based on a single investment decision.
(B) Multiple orders to trade the same option issue that are on the same side of the market (whether short or long) and multiple orders to trade the same option series entered outside of any 15-second period for the account of the same beneficial owner will be deemed to be separate investment decisions; provided, however, that no Order Entry Firm may divide up or permit an existing order to be divided up to make its parts eligible for execution pursuant to Rule 6.76(b).
(2) Entering orders via PCX Plus to perform a market making function. No member or person associated with a member may use PCX Plus on a regular and continuous basis to simultaneously execute orders to buy and sell series for the account of the same beneficial holder. In making the determination of whether a member or person associated with a member is using PCX Plus to perform a market making function, the Exchange will consider the following factors: the simultaneous or near-simultaneous entry of limit orders to buy and sell the same option; and the entry of multiple limit orders at different prices in the same option series.
(3) Effecting transactions that constitute manipulation as provided in PCX Rule 4.6(a) and SEC Rule 10b-5.
(f) — Reserved.
(g) Suspension of the PCX Plus System. 11
(1) System Disruption and Malfunctions. In the event of any disruption or a malfunction in the use or operation of PCX Plus with respect to an option issue or issues, two Floor Officials may declare a "fast market" and disengage the PCX Plus system for that option issue or issues. If a PCX Plus system disruption or malfunction occurs but the Exchange is able to process and disseminate quotes accurately, then any orders received by the Exchange will be routed to Floor Broker Hand Held Terminals for representation in the trading crowd. Regular trading procedures will be resumed by the Exchange when two Floor Officials determine that the disruption or malfunction is corrected.
(2) Other Unusual Conditions. If there are other unusual market conditions not involving a PCX Plus system disruption or malfunction, two Floor Officials may suspend the PCX Plus system in accordance with Rule 6.28. Whenever such action is taken, any orders received by the Exchange will be routed to Floor Broker Hand Held Terminals for representation in the trading crowd.
(h) Crossed or Locked Markets. The OFTC may designate, for an option issue, that an order will default for manual representation in the trading crowd if the NBBO is crossed or locked.12
* * * * *
Rule 10
Disciplinary Proceedings and Appeals
Minor Rule Plan
Rule 10.13(a) — (g) — No change.
(h) Minor Rule Plan: Options Floor Decorum and Minor Trading Rule Violations
(1) — (25) — No change.
(26) Failure to meet 60% In-Person Trading Requirement. (Rule 6.37(d))[, Com. .07)]
(27) — (38) — No change.
(39) Failure to meet 60% quoting requirement. (Rule 6.37(g)(2))
(i) — (j) — No change.
(k) Minor Rule Plan: Recommended Fine Schedule
| Fines | |||
|---|---|---|---|
| (i) Options Floor Decorum and Minor Trading Rule Violations13 | 1st Violation | 2nd Violation | 3rd Violation |
| 1. — 25. — No change. | |||
| 26. Failure to meet 60% In-Person Trading Requirement. (Rule 6.37(d))[, Com. .07)] | $500 | $1,000 | $2,500 |
| 27. — 38. — No change. |
* * * * *
Options Floor Procedure Advices
Conduct of Floor Brokers
[A-5]
[Subject: Prohibitions Against Use of the Book by Floor Brokers in Closing Out Errors]14
[Rule 6.34 forbids any member, while on the Floor, from initiating a transaction in which the member has an interest, unless the member is acting as a Market Maker, or unless the member is liquidating a position taken into his own account as a result of an error made while attempting to execute an order for a customer. Since bids, offers and transactions made to close out a position carried by a Floor Broker as the result of a brokerage error are clearly for the proprietary account of that member, they should not receive the priority treatment accorded to public customer orders held in the Book.]
[Accordingly, the placing of such of such orders in the Book shall be deemed a violation of Section 66(a) of Rule 6.52(a).]
* * * * *
1 Adapted from Options Floor Procedure Advice ("OFPA") A-5, which is being deleted.
2 Former Rule 6.37, Commentary .07 is being renumbered as new Rule 6.37(d).
3 Former Rule 6.37, Com. .07 is being moved to new Rule 6.37(d).
4 Former Rule 6.76 is being renumbered as new Rule 6.75(h).
5 Former Rule 6.76 is being moved to new Rule 6.75(h).
6 Former Rule 6.90 is being renumbered as new Rule 6.89(b).
7 Former Rule 6.90 is being moved to new Rule 6.89(b).
8 Proposed Rule 6.90(c) is adapted from current Rule 6.87(a).
9 Proposed Rule 6.90(d) is adapted from current Rule 6.87(c).
10 Proposed Rule 6.90(e)(1) — (3) is adapted from current Rule 6.87(d).
11 Proposed Rule 6.90(g) is adapted from current Rule 6.87(h).
12 Proposed Rule 6.90(h) is adapted from current Rule 6.87(j).
13 Fines for multiple violations of Options Floor Decorum and Minor Trading Rules are calculated on a running two-year basis.
14 Modified text was incorporated into new Rule 6.34, Commentary .01.
http://www.sec.gov/rules/sro/34-46803.htm
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