[Federal Register Volume 67, Number 204 (Tuesday, October 22, 2002)]
[Notices]
[Pages 64948-64950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26785]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46662; File No. SR-PCX-2002-61]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
Pacific Exchange, Inc. To Amend a Market Data Revenue Sharing Program 
for Certain Transactions on the PCX in Tape A Securities

October 15, 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 September 30, 2002, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. On 
October 11, 2002, the PCX amended the proposal.\3\ The Exchange filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act,\4\ and Rule 
19b-4(f)(6) \5\ thereunder, which renders the proposal effective upon 
filing with the Commission. 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 October 10, 2002 letter from Peter D. Bloom, Regulatory 
Policy, PCX, to Joseph Morra, Special Counsel, Division of Market 
Regulation (``Division''), Commission (``Amendment No. 1''). In 
Amendment No. 1, the PCX provided a new Exhibit A that replaces in 
its entirety the text of the proposed rule that was included in the 
original filing. For purposes of calculating the 60-day abrogation 
period, the Commission considers the period to have commenced on 
October 11, 2002, the date that the PCX filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX, through PCXE, proposes to modify its fee schedule for 
services provided to ETP Holders \6\ and Sponsored Participants \7\ on 
the Archipelago Exchange, the equities trading facility of PCXE. 
Specifically, the Exchange proposes to amend its market data revenue 
sharing program for Tape A securities \8\ traded on the Exchange. The 
text of the proposed rule change is below. Proposed new language is in 
italics; proposed deletions are in brackets.
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    \6\ See PCXE Rule 1.1(n).
    \7\ A ``Sponsored Participant'' is ``a person which has entered 
into a sponsorship arrangement with a Sponsoring ETP Holder pursuant 
to [PCXE] Rule 7.29.'' See PCXE Rule 1.1(tt).
    \8\ Tape A securities include securities that are listed for 
trading on the New York Stock Exchange.
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Schedule of Fees and Charges for Exchange Services

* * * * *

Archipelago Exchange: Other Fees and Charges

Market Data Revenue Sharing Credit
    Tape A Securities:
        Liquidity Provider Credit......................  40% tape revenue credit per qualifying trade
                                                          (applicable to limit orders that are residing in the
                                                          Book and that execute against inbound marketable
                                                          orders).
        Directed Order.................................  40% tape revenue credit per qualifying trade
                                                          (applicable to any market maker that executes against
                                                          a Directed Order within the Directed Order Process, as
                                                          defined in PCXE Rule 7.37(a)).
        Cross Order....................................  40% tape revenue credit per qualifying trade
                                                          (applicable to any Cross Order, as defined in PCXE
                                                          Rule 7.31(s), where the ETP Holder or Sponsored
                                                          Participant represents all of one side of the
                                                          transaction and all or a portion of the other side).
    Tape B Securities:
        Liquidity Provider Credit......................  50% tape revenue credit per qualifying trade
                                                          (applicable to limit orders that are residing in the
                                                          Book and that execute against inbound marketable
                                                          orders [in Tape A or B securities]).
        Directed Order.................................  50% tape revenue credit per qualifying trade
                                                          (applicable to any market maker that executes against
                                                          a Directed Order [in a Tape A or B security] within
                                                          the Directed Order Process, as defined in PCXE Rule
                                                          7.37(a)).

[[Page 64949]]

 
        Cross Order....................................  50% tape revenue credit per qualifying trade
                                                          (applicable to any Cross Order, as defined in PCXE
                                                          Rule 7.31(s), where the ETP Holder or Sponsored
                                                          Participant represents all of one side of the
                                                          transaction and all or a portion of the other side [in
                                                          a Tape A or B security].
 

* * * * *

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 its proposal and discussed any 
comments it received regarding the proposal. 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 PCX, through PCXE, proposes to amend its fees charged to ETP 
Holders and Sponsored Participants (collectively ``Users'') that access 
the ArcaEx trading facility by amending its program for sharing with 
Users market data revenue derived from transactions in Tape A 
securities.

Background

    On May 28, 2002, the Exchange filed with the Commission a proposed 
rule change to implement, on a pilot basis through June 28, 2002, a 
mechanism for sharing market data revenue with Users on ArcaEx.\9\ The 
proposed rule change became effective upon filing pursuant to Section 
19(b)(3)(A) of the Act,\10\ and the PCXE implemented the program on 
June 1, 2002. On June 27, 2002, the Exchange filed with the Commission 
a proposed rule change to extend the market data revenue pilot program 
through August 30, 2002.\11\ On July 2, 2002, the Commission summarily 
abrogated the PCX's proposed rule change and certain proposed rule 
changes of the National Association of Securities Dealers, Inc. and the 
Cincinnati Stock Exchange relating to market data revenue sharing.\12\ 
Accordingly, after consultation with Commission staff, on July 9, 2002, 
the PCX filed with the Commission a proposed rule change to reinstate 
its market data revenue sharing program, and to reduce the level of the 
transaction credits paid to Users with respect to transactions in 
issues listed on the American Stock Exchange (i.e. ``Tape B'' 
securities).\13\
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    \9\ See Securities Exchange Act Release No. 46070 (June 12, 
2002), 67 FR 42089 (June 20, 2002)(SR-PCX-2002-28).
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ See SR-PCX-2002-37.
    \12\ See Securities Exchange Act Release No. 46159 (July 2, 
2002), 67 FR 45775 (July 10, 2002)(File Nos. SR-PCX-2002-37, SR-
NASD-2002-61, SR-NASD-2002-68, and SR-CSE-2002-06)(Order of Summary 
Abrogation).
    \13\ See Securities Exchange Act Release No. 46293 (August 1, 
2002), 67 FR 51314 (August 7, 2002)(SR-PCX-2002-42).
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    On August 7, 2002, the PCX established a market data revenue 
sharing program for certain transactions in Tape A securities.\14\ With 
the instant proposed rule change, the Exchange proposes to amend that 
program by reducing the level of the transaction credits paid to Users 
with respect to transactions in such issues. Under the program, the 
Exchange will share a portion of its gross revenues derived from market 
data fees with (i) Any User that provides liquidity in a Tape A 
securities by entering a resting limit order into the ArcaEx Book that 
is then executed against an incoming marketable order within the 
Display Order, Working Order, or Tracking Order processes; (ii) any 
Market Maker that executes against a Directed Order in a Tape A 
security within the Directed Order Process; \15\ and (iii) any User 
that represents all of one side and all or a portion of the other side 
of a Cross Order \16\ execution in a Tape A security. Any User that 
meets these requirements will receive a 40% tape revenue credit per 
qualifying transaction that is reported over the Consolidated Tape 
Association's (``CTA'') Tape A Network. The proposed tape revenue 
credit is intended to create additional incentives to market 
participants to provide liquidity on the ArcaEx facility.\17\
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    \14\ SR-PCX-2002-56.
    \15\ The Directed Order Process is the first step in the ArcaEx 
execution algorithm. Through this Process, Users may direct an order 
to a Market Maker with whom they have a relationship and the Market 
Maker may execute the order. To access this process, the User must 
submit a Directed Order, which is a market or limit order to buy or 
sell that has been directed to the particular market maker by the 
User. See PCXE Rule 7.37(a) (description of ``Directed Order 
Process'').
    \16\ A Cross Order is defined as a two-sided order with 
instructions to match the identified buy-side with the identified 
sell-side at a specified price (the cross price), subject to price 
improvement requirements. See PCXE Rule 7.31(s).
    \17\ Although the PCX characterized the instant proposed rule 
change as ``reinstating'' its market data revenue sharing program 
for Tape A securities, the Commission notes that the PCX's Tape A 
market data revenue sharing program was not terminated by the PCX's 
decision to withdraw SR-PCX-2002-56 and simultaneously file the 
instant proposed rule change. See September 27, 2002 letter from 
Peter D. Bloom, Director, Policy Development, Regulatory Policy, 
PCX, to Nancy Sanow, Assistant Director, Division, Commission. As a 
result, the PCX agreed to re-characterize the instant filing as 
``amending'' its market data revenue sharing program for Tape A 
securities. October 10, 2002 telephone conversation between Peter D. 
Bloom, Regulatory Policy, PCX, and Joseph Morra, Special Counsel, 
Division, Commission.
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2. Statutory Basis
    The Exchange believes the proposal is consistent with the 
requirements of Section 6(b) of the Act,\18\ in general, and furthers 
the objectives of Section 6(b)(5),\19\ in particular, in that it is 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments and perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission

[[Page 64950]]

may designate, it has become effective pursuant to Section 19(b)(3)(A) 
of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ 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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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4(f)(6).
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    The Exchange asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. The Commission 
believes such waiver is consistent with the protection of investors and 
the public interest. The Commission notes that the PCX's market data 
revenue sharing program for Tape A securities is substantially similar 
to Nasdaq's program.\22\ For these reasons, the Commission designates 
the proposal to be effective and operative upon filing with the 
Commission.\23\
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    \22\ See Securities Exchange Act Release No. 46551 (September 
25, 2002), 67 FR 61705 (October 1, 2002) (SR-NASD-2002-111) 
(amending NASD Rule 7010(c)(2)).
    \23\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
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 proposal 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 
submissions should refer to file number SR-PCX-2002-61 and should be 
submitted by November 12, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26785 Filed 10-21-02; 8:45 am]
BILLING CODE 8010-01-P