[Federal Register Volume 65, Number 138 (Tuesday, July 18, 2000)]
[Notices]
[Pages 44558-44559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18070]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43020; File No. SR-PCX-00-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc., 
Modifying PCX Transaction and On-Line Comparison Fees and Establishing 
a Credit for Book Executions

July 10, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 27, 2000, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to modify its transaction and on-line 
comparison fees and establish a credit for book executions. The 
Exchange also proposes to clarify its treatment of the portion of the 
market maker transaction charge that is collected for Options Industry 
Conference (``OIC'') activities.

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, the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to reduce the transaction fee for customer 
trades that are executed manually and to eliminate the fee for customer 
trades that are executed electronically. The Exchange is also proposing 
to eliminate the on-line comparison charge for customer trades and to 
establish a credit for book executions. Moreover, the Exchange is 
proposing to raise the market maker transaction fee and implement a 
floor brokerage charge. Finally, the Exchange also proposes to clarify 
its treatment of the portion of the current market maker transaction 
charge ($0.01 per contract) collected for OIC activities.
    Currently, the PCX Schedule of Rates and Charges provides for a 
customer transaction charge of $0.12 per contract side for all 
transactions except Pacific Options Exchange Trading System (``POETS'') 
automated executions, and a market maker transaction charge of $0.185 
per contract side. In addition, the PCX charges an on-line comparison 
charge of $0.05 per contract for customers, firms, and market makers.
    The Exchange proposes to reduce customer transaction fees from 
$0.12 to $0.09 per contract side for manual (non-hand held) executions 
and to eliminate customer transaction charges for all other forms of 
electronic executions including book executions, cabinet trades, 
automated opening rotation and broker hand-held executions. The PCX 
also proposes to establish a $0.10 per contract credit for customer 
book executions.\3\ The Exchange further

[[Page 44559]]

proposes to eliminate the on-line comparison charge of $0.05 per 
contract for customer executions.\4\ The Exchange will continue to 
charge $0.05 per contract for firm and market maker executions. The 
Exchange believes that these proposed changes will attract order flow 
to the Exchange and enable it to remain competitive.
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    \3\ Customers will receive a $0.10 credit per book execution 
that will be applied to each customer's total monthly Exchange fees. 
Customers will not receive a cash payment for unused portions of the 
credit and any unused portion will not carry forward to the next 
billing month. The credit will not apply to customer orders in the 
limit order book that were executed as part of an opening rotation.
    \4\ The Exchange charges the on-line comparison charge for 
matching buyers and sellers. This charge will not apply to customers 
orders executed manually or electronically. Telephone conversation 
between Michael Pierson, Vice President, Regulatory Policy, PCX, 
Sonia Patton, Attorney, Division of Market Regulation 
(``Division''), Commission, and Susie Cho, Attorney, Division, 
Commission, June 13, 2000.
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    The Exchange also proposes to increase the market maker transaction 
fee from $0.185 to $0.235 per contract side and to implement a floor 
brokerage fee of $0.01 per contract, charged to the executing floor 
broker member. The Exchange believes that the proposed fees will (1) 
help offset the proposed reduction of customer transaction fees and the 
elimination of customer online comparison charges, and (2) cover the 
operational charges associated with running the PCX options floor.
    Finally, the Exchange proposes to clarify that the PCX does not pay 
to the OIC each $0.01 charged to PCX market makers. On August 26, 1992, 
the Commission approved an Exchange proposal to increase certain market 
maker transaction charges by $0.01 in order to fund an OIC industry-
wide options education and media program.\5\ Since 1992, the Exchange 
has continued to fund the program by reimbursing the OIC for the PCX's 
share of OIC expenses. These expenses are billed to the PCX on a 
regular basis, as the OIC incurs them.
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    \5\ See Securities Exchange Act Release No. 31098 (Aug. 26, 
1992), 57 FR 40238 (Sept. 2, 1992).
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    The Exchange notes that it does not pay to the OIC each $0.01 per 
contract side charged to each PCX market maker. In recent years, the 
amount charged has exceeded the amount paid for OIC expenses by 16% to 
37%.\6\ The Exchange represents that if it pays less into the OIC 
program than it has collected (on an aggregate $0.01 per contract 
basis), then it will treat that excess amount as ordinary revenue. 
Conversely, if the PCX pays the OIC more than has been collected (on an 
aggregate $0.01 basis), the Exchange will treat the amount that is over 
and above what it has collected as an ordinary business expense.
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    \6\ The Exchange increased the charge for manual transactions of 
market makers in equity options from $0.085 to $0.095 and in index 
options from $0.10 to $0.11. See Securities Exchange Act Release No. 
31098 (Aug. 26, 1992), 57 FR 40238 (Sept. 2, 1992).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \7\ in general, and furthers the 
objectives of Section 6(b)(4) \8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and other persons using its facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The PCX 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 did not solicit or receive comments on the proposed 
rule change.

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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\9\ and Rule 19b-4(f)(2) thereunder,\10\ in 
that it establishes or changes a due, fee, or other charge imposed by 
the Exchange. At any time within 60 days of the filing of such 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 furtherance of the purposes of the Act.\11\
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    \9\ 15 U.S.C. 78c(b)(3)(A)(ii).
    \10\ 17 CFT 240.19b-4(f)(2).
    \11\ In reviewing this proposal, the Commission has considered 
its 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 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to the File No. SR-PCX-00-14 and 
should be submitted by August 8, 2000.

    For the Commission, by the Division of Market Regulations, 
pursuant to delegated authority. \12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H.McFarland,
Deputy Secretary.
[FR Doc. 00-18070 Filed 7-17-00; 8:45 am]
BILLING CODE 8010-01-M