[Federal Register Volume 64, Number 202 (Wednesday, October 20, 1999)]
[Notices]
[Pages 56562-56564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27366]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41994; File No. SR-PCX-99-34]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Market Maker Charges and Book Charges

October 8, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 27, 1999, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On September 28, 1999, the PCX submitted to the Commission 
Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Robert Pacileo, Staff Attorney, Regulatory 
Affairs, PCX to Michael Walinskas, Associated Director, Division of 
Market Regulation, Commission, dated September 27, 1999 (``Amendment 
No. 1''). Amendment No. 1 clarifies the operation of the market 
maker and book charges affected by the proposed rule change. Because 
Amendment No. 1 is substantive the Commission deems the date of the 
filing to be September 28, 1999, the date the amendment was filed 
with the Commission.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX proposes to change its Schedule of Fees and Charges for 
Exchanges services by increasing Market Maker transaction charges and 
eliminating Book Execution, Book Staff Entry and Lead Market Maker 
(``LMM'') Book Program Staffing charges. The text of the proposed rule 
change is attached as Exhibit A and is available at the Exchange and at 
the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The PCX proposes to make the following changes to its Schedule of 
Fees and Charges for PCX services:
    a. Market Maker Transaction Fee. The PCX currently charges Market 
Makers a transaction fee of $0.15 per contract side for equity and 
index options. The PCX proposes to increase this fee to $0.185 per 
contract side to offset the loss in revenues anticipated to result from 
the proposed elimination of the fees set forth in ``b,'' ``c,'' and 
``d'' below.
    b. Book Execution Fee. The PCX charges executing brokers a Book 
Execution Fee of $0.20 per contract side and an Accommodation/
Liquidation Transaction Fee of $0.10 per contract side.\4\ The Book 
Execution Fee is assessed each time an order in the Book is executed; 
the Accommodation/Liquidation Fee is charged for so-called ``cabinet'' 
trades in which the premium is less than \1/16\.\5\ The PCX proposes to 
eliminate its Book Execution and Accommodation/Liquidation Transaction 
Fees.
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    \4\ The executing broker may pass the fee on to its customer, or 
may absorb the fee itself, depending on the broker's contractual 
relationship with its customers. Telephone conservation between 
Robert Pacileo, Staff Attorney, Regulatory Affairs, PCX, and Gordon 
Fuller, Special Counsel, and Marla Chidsey, Law Clerk, Division of 
Market Regulation, Commission (October 7, 1999).
    \5\ Telephone conservation between Robert Pacileo, Staff 
Attorney, Regulatory Affairs, PCX, and Gordon Fuller, Special 
Counsel, and Marla Chidsey, Law Clerk, Division of Market 
Regulation, Commission (September 9, 1999).
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    c. Book Staff Entry Fee. The PCX charges its executing brokers a 
Book Staff Entry Fee, applied to orders manually entered onto the Book 
by PCX staff, of $0.50 per entry.\6\ The PCX now proposes to eliminate 
this Fee.
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    \6\ As with the Book Execution and Accommodation/Liquidation 
Fees discussed above, the executing broker may pass on the Book 
Staff Entry Fee to its customers. Supra note 4.

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[[Page 56563]]

    d. LMM Book Program Staffing Charges. The PCX charges its Lead 
Market Makers (``LMM'') for options contracts entered into the Book. 
Each LMM is charged $0.05 per Book contract for the first 15,000 
contracts, $0.10 for 15,001 to 30,000 Book contracts, $0.15 for the 
30,001 to 55,000 Book contracts, and $0.10 for all Book contracts over 
55,000. These charges are applied to the monthly total of all Book 
contracts in all options issues collectively traded by an LMM under the 
program. The PCX proposes to eliminate its Book Program Staffing 
Charges.
    The PCX proposes these fee changes for several reasons. First, the 
PCX seeks to reduce charges consistent with the elimination of Book 
Execution and Book Staff Entry Fees currently paid by executing 
brokers.\7\ Second, the elimination of Book Execution and Book Staff 
Entry Fees is intended to attract order flow to the PCX and make its 
rate schedule more competitive. Finally, the elimination of LMM Book 
Program Staffing Charges is consistent with the elimination of the Book 
Execution and Book Staff Entry Fees. PCX market makers will pay an 
increased transaction fee to enable PCX to recoup revenues lost through 
elimination of the three Book fees.\8\
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    \7\ Supra notes 4 and 6.
    \8\ Id.
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2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(4),\10\ in particular, because it provides 
for other equitable allocation of reasonable dues, fees and other 
charges among its members and issuers and other persons using its 
facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange represents that it does not believe that the proposed 
rule change will impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change has become immediately effective pursuant 
to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-4(f)(6) under the 
Act \12\ because:

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    (i) It does not significantly affect the protection of investors 
or the public interest;
    (ii) It does not impose any significant burden on competition; 
and
    (iii) By its terms, it does not become operative for 30 days 
after the date of the filing, or such shorter time as the Commission 
may designate if consistent with the protection of investors and the 
public interest: provided that the self-regulatory organization has 
given the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date 
of filing of the proposed rule change, or such shorter time as 
designated by the Commission.

In this regard, the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least five 
business days before the date of the filing, as required by Rule 19b-
4(f)(6). \13\
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    \13\ Id.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the proposed rule change 
if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\14\
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    \14\ In reviewing this proposal, the Commission has considered 
the proposal's impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
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IV. Solicitation of Comments

    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, N.W., Washington, 
D.C. 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, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. 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-99-34 and 
should be submitted by November 10, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

Exhibit A

    Text of the Proposed Rule Change: \16\
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    \16\ New text is in italics. Deleted text is in brackets.
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PCX Options: Trade-Related Charges

Transactions
Customer  $0.12 per contract side
Market Maker  [$0.15 per contract side] $0.185 per contract side
Firm
    $0.085 per contract side where the premium is less than $1 per 
contract
    $0.115 per contract side where the premium is $1 or more per 
contract
* * * * *
[Book Execution Fee  $0.20 per contract side

    Charge for accommodation/liquidation transactions is $0.10 per 
contract.
    Charge applies to book executions only and is in addition to the 
manual transaction charges listed above; market and marketable limit 
orders transacted through POETS do not receive this charge.]
* * * * *
[Book Staff Entry  $0.50 per entry (paid upon partial or full 
execution)

    Charge applies to orders manually entered onto book; orders booked 
electronically via POETS do not receive this charge.]
* * * * *

                    [LMM Book Program Staffing charge
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                                                 Charge per    Maximum
          LMM monthly book contracts                book      charge per
                                                  contract    rate tier
------------------------------------------------------------------------
First 15,000..................................        $0.05         $750
Next 15,000...................................         0.10        1,500
Next 25,000...................................         0.15        3,750
All contracts above 55,000....................         0.10         (**)
 

[[Page 56564]]

 
  Book staffing charge is applied to the monthly total of all book
contracts in all option issues collectively traded by an LMM under the
program.]
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* Pacific Options Exchange Trading system
** No maximum.

[FR Doc. 99-27366 Filed 10-19-99; 8:45 am]
BILLING CODE 8010-01-M