[Federal Register Volume 67, Number 173 (Friday, September 6, 2002)]
[Notices]
[Pages 57052-57054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22657]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46430; File No. SR-PCX-2002-52]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto by the Pacific Exchange, Inc. Relating to Changes in Its 
Marketing Fee Program

August 29, 2002.
    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 5, 2002, 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 PCX. PCX filed Amendment 
No. 1 to the proposed rule change on August 23, 2002.\3\ PCX filed 
Amendment No. 2 to the proposed rule change on August 28, 2002.\4\ 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\ Amendment No. 1 replaces the original filing in its 
entirety. In Amendment No. 1, the Exchange revised the description 
of the proposed rule change to conform to the proposed rule text and 
to provide greater detail, referenced the Exchange's pre-filing with 
the Commission, requested that the Commission waive the 30 day 
operative period so that the proposal may become operative on August 
29, 2002, clarified how the top 250 most actively traded equity 
options will be selected, and added proposed rule text as exhibits.
    \4\ In Amendment No. 2, the Exchange revised the proposed rule 
text to delete the requirement that the required records include 
records pertaining to the ``origin, use, transfer, distribution and 
amounts of all payments to order flow providers'' and added the 
requirement that the required records be maintained in such a 
fashion to permit the Exchange to track payments to order flow 
providers ``on the basis of payment (whether on a per contract or 
flat fee basis).'' Because the Form 19b-4 submitted on August 5, 
2002 was not complete, the proposed rule change was not considered 
filed. The proposed rule change became effective on August 28, 2002, 
the date on which Amendment No. 2 was filed with the Commission.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PCX proposes to limit the number of equity option issues to which 
marketing fees may apply to only those that are ranked in the 250 most 
actively traded equity options. The Exchange is also proposing to 
require that PCX Lead Market Makers who make payments to order flow 
providers as part of the Exchange's marketing fee program make, keep 
current, and preserve records relating to marketing fee arrangements 
and make those records available to the PCX upon request for inspection 
and review. The text of the proposed rule change is below; new language 
is italicized.
* * * * *

Schedule of Fees and Charges for Exchange Services

PCX Options: Trade-Related Charges
* * * * *

------------------------------------------------------------------------
                                            Rates Variable--See separate
                                               schedule  Top 250 most
     Marketing Charge  Eligible Issues        active nationally traded
                                                       issues
------------------------------------------------------------------------
Cap on Marketing..........................  $200 per trade Charge
------------------------------------------------------------------------

* * * * *

Pacific Exchange, Inc

Rules of the Board of Governors

Market Maker Marketing Reports and Record Keeping
    Rule 6.41(a) No Change.
    (b) Marketing Charges Record Keeping--Lead Market Makers who make 
payments to order flow providers as part of the Exchange's marketing 
charges program, must make, keep current and preserve all books and 
records relating to marketing charges arrangements, including but not 
limited to all records pertaining to the identity of the order flow 
providers. Such records must be maintained in such a fashion as to 
permit the Exchange to track payments to order flow providers on the 
basis of payment (whether on a per contract or flat fee basis). Such 
books and records must be made available to the Exchange upon request.

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 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
    On August 31, 2000, the PCX began collecting a marketing fee of 
$0.40 per contract on all equity options traded at the PCX.\5\ On 
August 31, 2001, the Exchange modified its marketing fee program in 
order to collect marketing fees ranging from $0 to $1.00 per contract 
on a per-issue basis.\6\ The

[[Page 57053]]

Exchange currently charges marketing fees as set forth in its Schedule 
of Rates.
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    \5\ See Securities Exchange Act Release No. 43290 (September 13, 
2000), 65 FR 57213 (September 21, 2000).
    \6\ See Securities Exchange Act Release No. 44830 (September 21, 
2001), 66 FR 49728 (September 28, 2001).
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    The Exchange is now proposing to make certain amendments to its 
marketing fee program. Specifically the Exchange proposes to establish 
a limit on the number of equity options as to which a marketing fee may 
be charged to include only those issues that are within the top 250 
most active, nationally-traded issues based on volume statistics 
reported by the Options Clearing Corporation.
    The Exchange is also proposing to adopt new Rule 6.41(b) to require 
PCX Lead Market Makers who make payments to order flow providers as 
part of the Exchange's marketing fee program to make, keep current, and 
preserve records relating to payment for order flow arrangements, 
including but not limited to all records pertaining to the identity of 
the order flow providers. Such records must be maintained in a fashion 
to permit the Exchange to track payments made to order flow providers 
on the basis of payment. Such books and records must be made available 
to the PCX upon request for inspection and review.
    The Exchange's determination of whether an equity option ranks in 
the top 250 most active, nationally traded issues will be based on 
volume statistics reported by the Options Clearing Corporation. The 
Exchange will consider changes to the marketing fees that are charged 
on a specific issue at the beginning of the March, June, September and 
December trade months. Any issue that is designated as a top 250 issue 
at the beginning of the March, June, September or December trade month 
will remain a top 250 issue for the purposes of charging a marketing 
fee until at least the next quarter that the Exchange amends its 
marketing fees. The Exchange will not ordinarily change marketing fees 
other than on a quarterly basis. The list of designated issues will be 
based on volume statistics for trading activity that occurred two 
months before the beginning of each quarter. For example, the list of 
top 250 issues for the March/April/May quarter will be based on 
January's volume; and the list of top 250 issues for the June/July/
August quarter will be based on April's volume.\7\
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    \7\ The Exchange notes that it intends to use the same procedure 
for designating the top 250 actively traded issues that it currently 
uses in designating the top 120 actively traded issues for purposes 
of its ``shortfall fee.'' See Securities Exchange Act Release No. 
45351 (January 29, 2002), 67 FR 5631 (February 6, 2002).
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    The Exchange intends to notify its Members of the issues that are 
designated to be in the top 250 via a regulatory bulletin that will be 
published at the beginning of each quarter.
    The Exchange believes the proposed record keeping requirements 
should help the PCX review and verify that funds collected for order 
flow purposes are not used for improper purposes.
    The Exchange proposes that the changes become effective for the 
September 2002 trade month.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with section 
6(b) of the Act,\8\ in general, and furthers the objectives of section 
6(b)(5) \9\ of the Act, in particular, because it is designed to 
promote just and equitable principles of trade, to remove impediments 
and to perfect the mechanisms of a free and open market and a national 
market system, and in general, to protect investors and the public 
interest.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The PCX has designated that the foregoing proposed rule change: (1) 
Does not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. The Exchange has 
provided the Commission with written notice of its intent to file the 
proposed rule change, at least five business days prior to the filing 
date. Therefore, the proposed rule change has become effective pursuant 
to section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6)\12\ does not 
become operative prior to 30 days after the date of filing or such 
shorter time as the Commission may designate if such action is 
consistent with the protection of investors and the public interest. 
The PCX has requested, in order to permit PCX to implement the 
proposals for the month of September, that the Commission accelerate 
the implementation of the proposed rule change so that it may take 
effect prior to the 30 days specified in Rule 19b-4(f)(6)(iii).\13\ The 
Commission believes that the proposed rule change is consistent with 
the protection of investors and the public interest and, therefore, has 
determined to allow the proposed rule change to become operative as of 
August 29, 2002.\14\
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    \12\ Id.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes of accelerating the implementation of the 
proposed rule change only, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    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 
in furtherance of the purposes of the Act.\15\
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    \15\ The proposed rule change became effective on August 28, 
2002, the date on which Amendment No. 1 was filed with the 
Commission and, therefore, the 60 day abrogation period began on 
August 28, 2002.
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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 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

[[Page 57054]]

submissions should refer to File No. SR-PCX-2002-52 and should be 
submitted by September 27, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.16
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    \16\ 17 CFR 200.30(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22657 Filed 9-5-02; 8:45 am]
BILLING CODE 8010-01-P