[Federal Register Volume 67, Number 213 (Monday, November 4, 2002)]
[Notices]
[Pages 67231-67232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28000]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46728; File No. SR-PCX-2002-65]


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

October 25, 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 27, 2002, the Pacific Exchange, Inc. (``PCX'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II and III below, which the PCX 
has prepared. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 217 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX is proposing to amend its Schedule of Fees and Charges with 
respect to the following fees for options: broker-dealer and market 
maker transaction charges, the continued listings fee, and the 
shortfall fee. The text of the proposed rule change is below. New text 
is italicized; deleted text is in brackets.

           Schedule of Fees and Charges for Exchange Services
                  [PCX Options: Trade-Related Charges]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Transactions:
Customer..................................  $0.00 per contract side.
PCX Market Maker..........................  $0.21 per contract side.
Non-PCX Option Market Makers..............  $0.26 per contract side.
Firm......................................  $0.10 per contract side for
                                             customer facilitation.
Broker/Dealer.............................  [$0.19] $0.21 per contract
                                             side.
PCX Options: Floor and Market Maker Fees:
Continued Listings Fee....................  Difference between $500 and
                                             average monthly revenue for
                                             issues with less than $500
                                             in volume based charges
                                             (average monthly revenue
                                             based on trailing 3
                                             months). The fee will be
                                             capped at $15,000 per month
                                             per LLM firm.
Shortfall Fee.............................  $.35 per contract on
                                             shortfall volume *
------------------------------------------------------------------------
* Only applies to the top 120 options. Shortfall volume is the
  difference between 12% of the total national market share in an option
  issue for one month and the percentage executed by the LMM. For the
  purpose of this calculation, the national market share of any equity
  option industry volume will be capped at 2.9 million contracts per
  day.

* * * * *

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 had 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 those statements.

[[Page 67232]]

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

    The PCX is proposing to change its broker-dealer transaction 
charge, market maker transaction charges, continued listings fee, and 
shortfall fee effective with the October 2002 trading month. Other than 
the fees listed herein, the PCX does not seek to make any other changes 
to its fee schedule.
1. Broker-Dealer Transaction Charge
    The PCX currently imposes a fee of $0.19 per contract side on all 
transactions of broker-dealers. The PCX proposes to increase this fee 
to $0.21 per contract side, which would bring the transaction fee to 
the same level as the PCX Market Maker transaction charge.
2. Transaction Fees Originating From Non-PCX Options Market Makers
    Currently, the PCX charges all market makers a fee of $0.21 for 
every contract that they execute. The PCX proposes to increase, to 
$0.26 per contract, the transaction fee for market maker transactions 
that originate from non-PCX options market makers. The fee would be 
imposed only on member firms that clear trades for away market makers. 
The PCX proposes this increase in order to recoup its administrative 
and regulatory costs related to non-PCX market maker transactions.
3. Continued Listing Fee
    The PCX currently imposes upon LMMs a continued listing fee for 
issues that have not generated at least $500 in monthly revenues to the 
PCX on a trailing three-month average basis.\3\ The continued listing 
fee is calculated as the incremental difference between the $500 
threshold and the amount of revenue that the issue generates. The PCX 
proposes to cap the amount of the continued listings fee that can be 
charged to an LMM firm at $15,000 per month per LMM firm.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 42050 (October 21, 
1999), 64 FR 58117 (October 28, 1999) (SR-PCX-99-32).
---------------------------------------------------------------------------

    The PCX also proposes to modify the continued listing fee in order 
to adjust the method of calculating the average monthly volume-based 
charges for recently transferred issues. Currently, LMM firms that are 
transferred issues from another LMM assume the continued listings fee 
from the transferring firm. To help foster demand for issues during a 
period of continuing consolidation among trading firms, the PCX 
proposes to modify the way the continued listings fee is applied to 
transferred issues. Under the PCX's proposal, an LMM would not be 
subject to the continued listings fee for an issue that it acquired by 
transfer for any portion of the month that it acquired the issue, 
assuming a mid-month transfer. The LLM firm would be subject to a fee 
based upon the activity of the first full month that it trades an 
issue. After the second full month of trading the issue, the transferee 
LMM would be subject to a continued listings fee based upon the 
trailing two-month activity level. In future months, the transferee LMM 
would be subject to the fee based on a three-month rolling average.
4. Shortfall Fee
    In June 2002, the PCX increased the LMM shortfall fee from 10% to 
12% for the top 120 equity options traded nationally. Due to periodic 
spikes in national industry volume, the PCX proposes to cap the 
shortfall fee when equity industry volume reaches 2.9 million contracts 
per day or higher. As proposed, LMM firms would not be charged a 
shortfall fee on contracts in a top 120 issue that exceeds the 
calculated volume cap amount.
    The PCX believe that the proposal is consistent with Section 
6(b)(4) of the Act \4\ in that it provides for the equitable allocation 
of reasonable dues, fees and other charges among its members.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

    The PCX neither solicited nor received written comments on the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A) of the Act \5\ and Rule 19b-4(f)\6\ because it changes the 
PCX fee schedule. At any time within 60 days after the filing of the 
proposed rule change, the Commission may summarily abrogate the 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.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 No. SR-PCX-2002-65 and should be 
submitted by November 25, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\7\
---------------------------------------------------------------------------

    \7\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-28000 Filed 11-1-02; 8:45 am]
BILLING CODE 8010-01-P