[Federal Register Volume 66, Number 55 (Wednesday, March 21, 2001)]
[Notices]
[Pages 15939-15940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6950]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44071; File No. SR-PCX-01-08]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to a Rebate of Marketing Charges to Market 
Makers

March 13, 2001.
    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 January 31, 2001, 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 and II below, which Items have been prepared by the PCX. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to grant accelerated 
approval of the proposal.
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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 proposes to rebate to Market Makers on a quarterly basis 
the marketing charges that have not been paid to order flow providers. 
The text of the proposed rule change is available at the principal 
offices of the PCX 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 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 III below. The PCX has prepared summaries, set forth in sections 
A, B,

[[Page 15940]]

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
    Effective September 13, 2000, the PCX began implementing a plan 
that imposes a marketing fee on PCX market makers to provide a source 
of payment to order flow providers.\3\ Pursuant to the plan, the PCX 
collects a fee from market makers and makes the funds available to Lead 
Market Makers (``LMMs'') for their use in attracting orders in the 
options traded at their trading posts. Each LMM determines the 
distribution of the funds in whatever manner it believes is most likely 
to attract orders. The PCX has assessed this fee and distributed the 
proceeds according to the directions of the LMMs, and has found that 
excess fee proceeds remain in the fund after distribution.
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    \3\ See Securities Exchange Act Release No. 43290 (September 13, 
2000), 65 FR 57213 (September 21, 2000) (SR-PCX-00-30).
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    Therefore, the PCX proposes to rebate to market makers, on a 
quarterly basis, the amount of marketing fees that have not been paid 
to order flow providers. The amount to be refunded to each market maker 
would be based on the percentage of the total marketing charges the 
market maker paid at each trading post during the rebate time period. 
The marker maker's percentage of the total marketing charges at each 
trading post would then be multiplied by the rebate amount. For 
example, if a market maker contributed 5% of the total marketing 
charges at a particular trading post during the rebate time period, the 
market maker would receive 5% of that post's overall rebate amount for 
the rebate time period. The rebate for each market maker would be paid 
directly to the market maker's clearing firm.
3. Basis
    The PCX believes that this proposal is consistent with and furthers 
the objectives of the Act, including specifically section 6(b)(5) \4\ 
thereof, which requires that the rules of an exchange be designed to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and section 11A(a)(1) \5\ 
therefore, which reflects the finding of Congress that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure fair competition 
among brokers and dealers and among exchange markets.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-l(a)(1).
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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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. 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 in the 
Commission's Public Reference Room. Copies of the 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-01-08 and should 
be submitted by April 11, 2001.

IV. Commission Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act, particularly section 6(b)(5) of the 
Act,\6\ and the rules and regulations under the Act applicable to a 
national securities exchange. The Commission believes that the proposed 
rebate program is an appropriate way to distribute excess marketing fee 
proceeds that the PCX has collected from market makers but that the 
LMMs have not distributed. Accordingly, the Commission finds that the 
proposed rule change is consistent with the requirement of section 
6(b)(5) of the Act that the rules of an Exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market, and to protect 
investors and the public interest. The Commission finds good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the proposal in the Federal Register. 
The Commission believes that the PCX's proposed rebate program is the 
logical extension of its payment for order flow program (SR-PCX-00-30), 
which became effective upon filing \7\ Moreover, the PCX's rebate 
program is very similar to a payment for order flow rebate program that 
is currently being administered at the Phlx.\8\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ See Securities Exchange Act Release No. 43290, n. 3 above.
    \8\ See Securities Exchange Act Release No. 44021 (February 28, 
2001), 66 FR 13823 (March 7, 2001) (SR-Phlx-01-14).
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    It is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act.\9\ that the proposed rule change (SR-PCX-01-08) be, and hereby is, 
approved on an accelerated basis.\10\
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ In approving the proposal, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
15 U.S.C. 78c(f).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 20.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-6950 Filed 3-20-01; 8:45 am]
BILLING CODE 8010-01-M