[Federal Register Volume 65, Number 156 (Friday, August 11, 2000)]
[Notices]
[Pages 49280-49282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20414]


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SECURITIES AND EXCHANGE COMMISSION

[(Release No. 34-43115; File No. SR-PCX-00-16)]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc.; 
Relating to Changes to Its Schedule of Fees and Charges

August 3, 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 June 27, 2000, 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. 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 PCX is proposing to modify its Schedule of Fees and Charges for 
Exchange Services. The Exchange is also proposing to waive the monthly 
dues applicable to certain Exchange memberships.
    The text of the proposed rule change is available at the Office of 
the Secretary, the PCX, and the Commission.

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

    In its filling with the Commission, the PCX 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 PCX has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statement.

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 make the following changes to its 
Schedule of Fees and Charges:
a. Options Fees
    The Exchange is proposing to eliminate or reduce various rates and 
charges applicable to the Exchange's options business. These include 
the elimination of the current fee for manual customer transactions and 
the elimination of the current ticket data entry fee. These changes are 
intended to make the Exchange's rates more competitive, in order to 
attract order flow to the Exchange. The Exchange is also reducing its 
current market maker transaction charge and eliminating its current 
floor brokerage charge (applicable to executing floor brokers) in order 
to assure that its rates and charges are competitive with those of the 
other options exchanges. Finally, the Exchange is adopting a credit for 
Lead Market Makers (``LMMs'') who perform the service of operating the 
Limit Order Book--a service that was previously performed by Exchange 
staff. These charges are discussed separately below.
    (i) Customer Transaction Charges. The Exchange is eliminating its 
current charge, applicable to customer transactions, of $0.09 per 
contract side for manual (nonhand-held) executions.
    (ii) Market Maker Transactions Charges. The Exchange is reducing 
its current charge for PCX market maker transactions from $0.235 per 
contract to $0.21 per contract side.
    (iii) Ticket Data Entry Fee. The Exchange is eliminating its ticket 
data entry fee of $0.25 that currently applies to customer trades.
    (iv) Floor Brokerage Charge. The Exchange is eliminating the 
current floor brokerage charge, applicable to executing floor brokers, 
of $0.01 per contract.
    (v) Floor Broker Hand-Held and Booth Devices. The Exchange 
currently charges a fee of $300 per month for floor broker hand-held 
devices. There is currently no charge per month for floor broker booth 
devices. The Exchange is reducing the charge for floor broker hand-held 
devices to $175 per month and establishing a new charge for floor 
broker booth devices of $225 per month.

[[Page 49281]]

    (vi) LMM Credit for Book Operations. On July 2, 1999, the 
Commission approved a PCX proposal to permit employees of LMMs to 
provide staffing of the Options Limit Order Book.\3\ Since the time of 
the Commission's approval order in 1999, the Exchange's charges for the 
execution of orders in the Limit Order Book and other charges--which 
were designed to cover the expense of operating the Limit Order Book--
have been substantially reduced or eliminated. Accordingly, the 
Exchange is now proposing to establish a credit to help offset the 
overall expense borne by LMMs who operate the Limit Order Book with 
their own employees. The Exchange notes that in such situations, the 
operation of the Limit Order Book was previously provided by Exchange 
employees. Accordingly, the Exchange is proposing to adopt a credit of 
$0.05 per contract for each contract executed for the account of an LMM 
who operates the Limit Order Book.\4\ These credits will no longer 
apply after the November 2001 trade month.
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    \3\ See Securities Exchange Act Release No. 41595, 64 FR 38064 
(July 14, 1999).
    \4\ The proposed LMM credit of $0.05 per contract is to be 
applied against the $0.21 per contract side transaction fee paid by 
PCX market makers, including LMMs; thus, the proposed credit cannot 
result in a net financial benefit to LMMs. Telephone conversation 
between Michael Pierson, Vice President--Regulatory Policy, PCX, and 
Geoffrey Pemble, Attorney, Division of Market Regulation, SEC, on 
August 1, 2000.
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b. Equities Fees
    The Exchange is proposing to modify its fees applicable to its 
equities line of business in three respects. First, the Exchange is 
adopting new fees for the acquisition of Equity Trading Permits 
(``ETPs''). Second, the Exchange is adopting new specialist and floor 
broker fees that will apply to all equity specialists and floor 
brokers. These fees are intended to help the Exchange cover its costs 
and raise additional revenue. Third, the Exchange is proposing to amend 
its transaction fee schedule for orders in equity securities to 
eliminate the application of such fees to orders executed on behalf of 
PCX options market makers. These changes are discussed separately 
below.
    (i) ETP Fees. On May 5, 2000, the Commission approved a PCX 
proposed rule change creating a Delaware stock corporation, which will 
be a wholly-owned subsidiary of the PCX: PCX Equities.\5\ Under the 
rule change, the PCX will increase the revenue of its equities business 
by conferring trading privileges on the basis of trading permits (ETP 
and Equity ASAPs),\6\ rather than requiring equities trading 
participants to bear the costs of a seat membership.\7\ The Exchange 
intends to implement a rollout period during which both PCX members and 
ETP Holders will be permitted to trade equity securities on the PCX's 
equity trading floors.\8\ During the rollout period, the monthly fee to 
be charged to ETPs will be closely correlated, but discounted, to the 
current prevailing monthly lease rate for PCX memberships and will 
decrease proportionately over that period until it reaches $2,000 per 
month in the tenth month following inception; the fees for an ETP will 
be assessed on a monthly basis.\9\
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    \5\ See Securities Exchange Act Release No. 42759, 65 FR 30654 
(May 12, 2000).
    \6\ The fee for Equity ASAP Holders of $4,000 per year is the 
same as the fee currently charged for ASAP Memberships.
    \7\ See supra note 5.
    \8\ Id. at 30658.
    \9\ Id.
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    Based on the foregoing, the Exchange is proposing to adopt new fees 
for ETPs and new fees for PCX equity floor brokers and specialists. 
These new fees are designed to provide the PCX with additional revenue 
for the Exchange's equities business while, at the same time, 
maintaining stability of rates to provide a smooth distribution of 
seats from the equities floors to the options floor. Accordingly, the 
Exchange is proposing to adopt new rates applicable to ETPs, which 
allow PCX specialists to trade equity securities on the equities floors 
of the Exchange.
    The proposed rates will be phased in over six months as follows: 
the fee will be: $4,500 per month for the trade months of June, July 
and August, 2000; $3,000 per month for the trade months of September, 
October and November 2000; and $2,000 per month for the trade month of 
December 2000 and thereafter.
    (ii) New Specialist Fees and Floor Broker Fees. The Exchange is 
proposing to adopt a monthly fee of $2000 that will apply to each 
registered specialist and each registered floor broker on the PCX 
equity floors. The Exchange intends that the specialist and floor 
broker fees, and the ETP fees, in the aggregate, will ultimately be 
less than the current cost for an equity floor member to lease a seat.
    (iii) Elimination of Application of Transaction Fees to PCX Options 
Market Makers. The Exchange is proposing to eliminate the application 
of transaction fees for certain orders received on behalf of PCX 
options market makers. Specifically, transaction fees charged by PCX 
Equities shall not apply to orders received on behalf of registered PCX 
options market makers that are executed on the PCX equities floors. 
Market makers on the PCX options floor generate substantial revenues 
for the Exchange by providing liquidity for the options market that 
results in transaction fees charged for trades executed on the PCX 
options floor. These market makers also pay other significant fees and 
charges to the Exchange as set forth in PCX's fee schedule. They also 
send periodically equity orders to PCX Equities for execution.
    Currently, these orders, once executed, are subject to the PCX 
Equities--Exchange Transaction Fee Schedule. In order to recognize the 
contributions of the PCX options market makers to the overall revenues 
of the Exchange, PCX is proposing to eliminate the application of the 
PCX Equities--Exchange Transaction Fee schedule to equity orders sent 
by PCX options market makers to PCX Equities for execution.
c. Waiver of Monthly Dues
    The Exchange currently charges dues of $750 per month per Exchange 
membership. The Exchange is proposing to waive these dues for 
memberships that are unassigned, i.e., that are not being leased or 
otherwise being used to conduct business on the Exchange (whether as 
trading floor memberships or as clearing firm memberships). The waiver 
will be in effect beginning in July 2000 and until further notice.\10\ 
It will only apply to memberships that have been unassigned for the 
entire trade month in which it would otherwise apply. The purpose of 
this waiver is to reduce the current cost of carrying an unassigned 
membership on the Exchange, and thereby to maintain stability in the 
Exchange's seat market while the Exchange is introducing ETPs to 
replace seats and while the current equity memberships are migrating to 
the options floor.\11\
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    \10\ The Exchange intends to file a rule change proposal with 
the Commission to terminate this dues waiver.
    \11\ See generally supra note 5.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) \12\ of the Act, in general, and Section 6(b)(4) of the Act,\13\ 
in particular, because it provides for the equitable allocation of 
reasonable dues, fees and other charges among its members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).

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[[Page 49282]]

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.

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

    Written comments were neither solicited nor received.

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) \14\ of the Act and subparagraph (f)(2) 
of Rule 19b-4 \15\ thereunder. 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
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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 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 at 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-00-16 and should 
be submitted by September 1, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-20414 Filed 8-10-00; 8:45 am]
BILLING CODE 8010-01-M