[Federal Register Volume 67, Number 67 (Monday, April 8, 2002)]
[Notices]
[Pages 16786-16787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8368]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45662; File No. SR-PCX-2002-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Pacific Exchange, Inc. Relating to the Addition of a Surcharge Fee 
for the Automatic Execution of Broker-Dealer Orders

March 27, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 4, 2002, the Pacific Exchange, Inc. (``Exchange'' or 
``PCX'') 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 PCX. On March 21, 
2002, the PCX submitted Amendment No. 1 to the proposed rule change.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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 Cindy L. Sink, Senior Attorney, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated March 20, 2002 (``Amendment No. 
1''). In Amendment No. 1, the PCX elaborated, in detail, on the 
purpose for the proposed rule change. The changes made by Amendment 
No. 1 have been incorporated into this notice. For purposes of 
calculating the 60-day period within which the Commission may 
summarily abrogate the proposed rule change under Section 
19(b)(3)(C) of the Act, the Commission considers that period to 
commence on March 21, 2002, the date the PCX filed Amendment No. 1. 
See 15 U.S.C. 78s(b)(3)(C).
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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 by 
adding a surcharge fee for the automatic execution of broker-dealer 
orders.
    The text of the proposed rule change, as amended, is available at 
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, as 
amended, 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 
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 $0.45 per contract surcharge 
fee for all broker-dealer orders \4\ executed via the Exchange's 
automatic execution system (``Auto-Ex''). On November 6, 2001, the 
Commission approved a PCX rule change proposal to permit broker-dealer 
orders to be executed on Auto-Ex.\5\ The November 6, 2001 Rule Change 
was implemented on an issue-by-issue basis, subject to the approval of 
the Options Floor Trading Committee.\6\
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    \4\ A broker-dealer order is an order for the account of a 
registered broker-dealer.
    \5\ See Securities Exchange Act Release No. 45032 (November 6, 
2001), 66 FR 57145 (November 14, 2001) (SR-PCX-2000-05) (approving 
portion of proposal that allowed for orders for the account of 
broker-dealers to be executed on Auto-Ex on an issue-by-issue basis) 
(``November 6, 2001 Rule Change'').
    \6\ Id.
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    The Exchange proposes to implement a $0.45 per contract surcharge 
on all trades executed pursuant to this

[[Page 16787]]

proposed rule change, as amended. The Exchange represents that, under 
this proposal, all trades executed via Auto-Ex on behalf of broker-
dealers will be uniformly assessed the fee. The Exchange also 
represents that the surcharge for automatic execution of broker-dealer 
orders will only be charged to member firms. The Exchange asserts that 
these firms will be assessed the fee monthly. The Exchange represents 
that bills will be issued to these firms approximately five days after 
the end of each trade month. The Exchange asserts that the surcharge 
will not apply to non-members.
    The Exchange represents that the November 6, 2001 Rule Change to 
Auto-Ex extends the benefits of automatic execution to broker-
dealers.\7\ The Exchange asserts that such change provides instant 
execution without the need for a floor broker. The Exchange represents 
that the fast turnaround time minimizes the possibility that the market 
will move away from the prevailing quote. The Exchange asserts that 
broker-dealers who want to access the PCX's markets, but who do not 
want to pay the surcharge, can send their orders to the PCX for manual 
execution by Floor Brokers. The Exchange believes, however, that the 
benefits of automatic execution outweigh the burden of paying the 
surcharge.
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    \7\ The Exchange represents that, previously, these benefits 
were only available to public customers.
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    The Exchange represents that broker-dealer orders that are 
automatically executed on Auto-Ex are not subject to brokerage fees 
that would otherwise be imposed by PCX members. The Exchange believes 
that the floor brokerage fees on broker-dealer order executions are 
generally comparable to the proposed surcharge amount. The Exchange 
represents that broker-dealer orders routed to Floor Broker Hand Held 
Terminals are not subject to the surcharge. The Exchange asserts that 
the surcharge is in addition to existing fees.
    The Exchange represents that the fee will recoup costs associated 
with developing the new feature allowing automatic execution of broker-
dealer orders in designated option issues. The Exchange asserts that 
the costs required to allow its Pacific Options Exchange Trading System 
(``POETS'') to accept and execute these orders included an extensive 
system design change, programming and testing, and that billing 
programming was also required. The Exchange believes the fee is 
reasonable.

2. Statutory Basis

    The Exchange believes the proposed rule change, as amended, is 
consistent with section 6 of the Act,\8\ in general, and with section 
6(b)(4) of the Act,\9\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members.
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    \8\ 15 U.S.C. 78f.
    \9\ 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, as amended, 
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, as amended, were 
neither solicited nor received.

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

    The foregoing proposed rule change, as amended, has become 
effective pursuant to section 19(b)(3)(A)(ii) of the Act \10\ and 
subparagraph (f)(2) of Rule 19b-4 \11\ thereunder, because it 
establishes or changes a due, fee, or other charge. At any time within 
60 days of March 21, 2002, 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ See 15 U.S.C. 78(b)(3)(C).
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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, NW, Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change, as 
amended, 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 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-2002-10 and should be 
submitted by April 29, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-8368 Filed 4-5-02; 8:45 am]
BILLING CODE 8010-01-P