[Federal Register Volume 64, Number 208 (Thursday, October 28, 1999)]
[Notices]
[Pages 58117-58118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28198]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42050; File No. SR-PCX-99-32]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc.
Relating to the Adoption of a Continued Listing Fee
October 21, 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 25, 1999, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The PCX is proposing to adopt a new $500 per month/per issue fee
that will apply to Options Market Makers and Lead Market Makers
(``LMMs'') who want to continue trading certain low-volume option
issues.
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 PCX included statements
concerning the purpose of and basis for the proposed rule change and
discusses 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 PCX has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to adopt a new Continued Listing Fee for
option issues. The purpose of the new fee is two-fold. First, it is
designed to facilitate the delisting of inactive or low-volume option
issues that are currently listed and traded on the PCX. The Exchange
recognizes the industry-wide need to reduce the overall amount of
quotation and last sale reporting information that is currently being
disseminated through the Options Price Reporting Authority (``OPRA'').
At the same time, the Exchange is seeking to provide the members who
trade these inactive issues with an opportunity to continue trading the
ones that they deem to be most promising, subject to the fee.\3\
Second, the new fee is designed to allow the Exchange to recover the
costs of
[[Page 58118]]
supporting the listing and trading of their inactive issues.
---------------------------------------------------------------------------
\3\ In September 1999, 273 of the approximately 800 issues
traded on the Exchange were subject to the new fee. Of those issues,
LMMs paid the $500 fee for 190 issues. Consequently, 83 issues were
eligible for redistribution and were posted for reallocation.
Because there were no applicants for those issues, the Reallocation
Committee delisted them. Meeting among Michael Pierson, Director,
Regulatory Policy, PCX; and Nancy Sanow, Senior Special Counsel,
Division of Market Regulation, Commission; Gordon Fuller, Special
Counsel, Division of Market Regulation, Commission; Ira Brandriss,
Attorney, Commission; and Melinda Diller, Law Clerk, Commission
(October 8, 1999).
---------------------------------------------------------------------------
The new fee applies to equity and index option issues that do not
generate at least $400 in Exchange revenue per month, based on a
``rolling'' three-month average.\4\ The fees and charges included in
calculating whether an issue has generated $500 in Exchange revenue
are: (1) PCX Transaction Charges;\5\ PCX Ticket Data Entry Charges;\6\
(3) PCX On-line Comparison Charges;\7\ (4) PCX Book Execution Fees;\8\
and (5) PCX Book Staff Entry Charges.\9\ Once an issue is subject to
the new fee, the new fee will continue to apply in subsequent months,
unless the issue generates $500 or more in Exchange revenue per month,
based on a ``rolling'' three-month average.\10\
---------------------------------------------------------------------------
\4\ The rolling average is derived from the three months
immediately preceding imposition of the fee. For example, if an
issue generated $490 in July, $490 in August and $500 in September,
the issue will be subject to the new fee for October because the
three-month average of $493 is less than the $500 threshold.
However, if an issue generated $490 in July, 490 in August and $525
in September, the issue would not be subject to the new fee for
October because the three month average of $502 would exceed the
$500 threshold. A newly-listed option issue will not be subject to
the fee until it has been listed on the Exchange for at least three
months.
\5\ These are currently set at $0.12 per contract side for
customer transaction (except that no customer transaction charges
are applied to market and marketable limit orders executed
automatically through the POETS system); $0.185 per contract side
for market maker transactions; and for firm transactions, $0.085 per
contract side where the premium is $1 or more per contract.
Recently, the Market Maker Transaction Fees were increased from
$0.15 to $0.185 per contract side. See Securities Exchange Act
Release No. 41994.
\6\ These currently set at $0.25 per trade (except that no data
entry charge is assessed on POETS trades executed via auto
execution, handheld devices or the electronic book).
\7\ These are currently set at $0.05 per contract.
\8\ On October 8, 1999, the Commission approved a PCX proposal
to eliminate Book Execution Fees and Book Staff Entry Charges and to
increase Market Maker Transaction Fees from $0.15 to $0.185 per
contract side. The Exchange does not believe that this change will
have a significant impact on the calculation of the $500 threshold.
See Securities Exchange Act Release No. 41994, 64 FR 56562 (October
20, 1999).
\9\ See Note 8, supra.
\10\ See Note 4, supra.
---------------------------------------------------------------------------
Once an option issue has been identified as being subject to the
fee, the Exchange will immediately notify the LMM or trading crowd that
trades the issue. The LMM or trading crown representative will then
have an opportunity to make a commitment to pay the fee on an ongoing
basis.\11\ Alternatively, if the LMM or trading crowd representative
does not commit to paying the fee on an ongoing basis, then the
Exchange will make the issue available for reallocation to other
trading crowds or LMMs who are willing to commit to the fee upon
reallocation.\12\ If the issue is not reallocated, then it will be
delisted. The Exchange always provides an opportunity for an option
issue to be reallocated before initiating the delisting process.\13\
---------------------------------------------------------------------------
\11\ The Exchange represents that the LMM will have
approximately one week to decide whether or not to pay the fee. Once
an LMM or trading crowd has committed to paying the fee on an
ongoing basis, the LMM will be required to continue paying the fee
on a monthly basis unless either (a) the issue is no longer subject
to the fee (because the issue generates $500 or more in Exchange
revenue per month, based on a ``rolling'' three-month average); or
(b) the LMM or trading crowd representative indicates to the
Exchange an unwillingness to continue paying the fee, and the issue
is posted for reallocation. Telephone conversation between Michael
Pierson, Director, Regulatory Policy, PCX, and Melinda Diller, Law
Clerk, Commission (September 28, 1999).
\12\ The Exchange represents that it follows an informal policy
in reallocating before the opening of the market. Any LMM who wishes
to apply for the issue may do so by submitting an application to the
Reallocation Committee no later than 11 a.m. that day. The Committee
then meets to consider all of the applicants and reassigns the issue
to the applicant it considers to be best suited for the issue.
Meeting among Michael Pierson, Director, Regulatory Policy, PCX; and
Nancy Sanow, Senior Special Counsel, Division of Market Regulation,
Commission; Ira Brandriss, Attorney, Commission, and Melinda Diller,
Law Clerk, Commission (October 8, 1999).
\13\ Meeting among Michael Pierson, Director, Regulatory Policy,
PCX; and Nancy Sanow, Senior Special Counsel, Division of Market
Regulation, Commission; Ira Brandriss, Attorney, Commission, and
Melinda Diller, Law Clerk, Commission (October 8, 1999).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\14\ in general, and furthers the
objective of Section 6(b)(4) of the Act\15\ in particular, in that it
is designed to provide for the equitable allocation of reasonable dues,
fees, and other charges among its members.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition 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 neither solicited nor received written comments with
respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing rule change establishes or changes a due,
fee, or other charge imposed by the Exchange, it has become effective
pursuant to Section 19(b)(3)(A)(ii) of the Act\16\ and subparagraph
(f)(2) of Rule 19b-4 thereunder.\17\ At any time within 60 days of the
filing of the proposed rule change, the Commission may summarily
abrogate such 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.\18\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A)(ii).
\17\ 17 CFR 240.19b-4(f)(2).
\18\ In reviewing this proposal, the Commission has considered
the proposal's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, 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 5U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing also will be
available for inspection and copying at the principal office of the
PCX. All submissions should refer to File No. SR-PCX-99-32 and should
be submitted by November 18, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-28198 Filed 10-27-99; 8:45 am]
BILLING CODE 8010-01-M