[Federal Register Volume 67, Number 223 (Tuesday, November 19, 2002)]
[Notices]
[Pages 69794-69796]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29241]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46805; File No. SR-PCX-2002-62]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc., to Amend the PCX's Market Data 
Revenue Sharing Program for Tape A Securities Traded on the Archipelago 
Exchange

November 8, 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 October 4, 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

[[Page 69795]]

III below, which Items have been prepared by PCXE. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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, through PCXE, proposes to modify its market data revenue 
sharing program for Tape A securities traded on the Archipelago 
Exchange (``ArcaEx''), the equities trading facility of PCXE. The text 
of the proposed rule change 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 Exchange 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 Exchange 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 proposes to amend its fee schedule for services provided to 
ETP Holders \3\ and Sponsored Participants \4\ (collectively ``Users'') 
on the ArcaEx by increasing the level of the transaction credits paid 
to Users with respect to transactions in issues listed on the New York 
Stock Exchange (``Tape A'' securities) that are traded on ArcaEx.
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    \3\ See PCXE Rule 1.1(n).
    \4\ 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).
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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.\5\ The 
proposed rule change was effective upon filing, 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.\6\ 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.\7\ Accordingly, 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 (``Tape B'' securities).\8\ On August 6, 
2002, the PCX filed a similar proposed rule change to reinstate its 
market data revenue sharing program for Tape A securities.\9\ Both SR-
PCX-2002-42 and SR-PCX-2002-56 were effective upon filing with the 
Commission. The PCX subsequently amended its Tape A revenue sharing 
program on September 30, 2002, reducing the transaction credits from 
50% to 40% per qualifying transaction.\10\
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    \5\ See Securities Exchange Act Release No. 46070 (June 12, 
2002), 67 FR 42089 (June 20, 2002) (SR-PCX-2002-28).
    \6\ See SR-PCX-2002-37.
    \7\ 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).
    \8\ See Securities Exchange Act Release No. 46293 (August 1, 
2002), 67 FR 51314 (August 7, 2002) (SR-PCX-2002-42).
    \9\ See File No. SR-PCX-2002-56.
    \10\ See File No. SR-PCX-2002-61.
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    With the instant proposed rule change, the Exchange proposes to 
modify its Tape A market data revenue sharing program by increasing the 
level of the transaction credits paid to Users with respect to 
transactions in such securities from 40% to 50%. No other changes are 
proposed at this time.

Summary of Proposed Changes

    Under the current market data revenue sharing program for Tape A 
securities, the Exchange shares 40% of its gross revenues derived from 
related market data fees with (i) any User that provides liquidity in a 
Tape A security 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;\11\ and (iii) any User that 
represents all of one side and all or a portion of the other side of a 
Cross Order \12\ execution in a Tape A security. The Exchange is 
seeking to increase the level of the transaction credits from 40% to 
50% (per qualifying transaction) that will be paid to a User that meets 
the requirements stated above. The proposed increase in the Tape A 
revenue credit is intended to create additional incentives to market 
participants to provide liquidity on the ArcaEx facility.
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    \11\ 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'').
    \12\ 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).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) \13\ of the Act, in general, and furthers the objectives 
of section 6(b)(5),\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposal is consistent with 
section 6(b)(4)\15\ of the Act, in that it provides for the equitable 
allocation of reasonable dues, fees and other charges among its 
members.
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    \15\ 15 U.S.C. 78f(b)(4).
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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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such

[[Page 69796]]

longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the PCX consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    On July 2, 2002, the Commission issued an Order abrogating certain 
proposed rule changes relating to market data revenue sharing 
programs.\16\ In that Order, the Commission expressed concern that the 
subject proposed rule changes raised ``serious questions as to whether 
they are consistent with the Act and with the protection of 
investors.'' Specifically, the Commission questioned the effect of 
market data rebates on the accuracy of market data, and on the 
regulatory functions of self-regulatory organizations.
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    \16\ Securities Exchange Act Release No. 46159 (July 2, 2002), 
67 FR 45775 (July 10, 2002)(File Nos. SR-NASD-2002-61, SR-NASD-2002-
68, SR-CSE-2002-06, and SR-PCX-2002-37) (Order of Summary 
Abrogation).
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    The Commission now solicits comment on the instant proposed rule 
change, and in general, on (1) market data fees; (2) the collection of 
market data fees; (3) the distribution of market data rebates; (4) the 
effect of market data revenue sharing programs on the accuracy of 
market data; and (5) the impact of market data revenue sharing programs 
on the regulatory functions of self-regulatory organizations.
    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 Exchange. All 
submissions should refer to file number SR-PCX-2002-62, and should be 
submitted by December 10, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-29241 Filed 11-18-02; 8:45 am]
BILLING CODE 8010-01-P