[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Notices]
[Pages 40009-40011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16814]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48100; File No. SR-PCX-2003-23]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. and 
Amendment No. 1 Thereto To Reduce Archipelago Exchange Facility Fees 
and Charges for the Execution and Routing of Odd-Lot Orders and To 
Clarify the Application of Market Data Revenue Sharing Credit

June 26, 2003.
    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 May 30, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
submitted to 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 PCX. On June 26, 2003, the PCX 
filed Amendment No. 1 to the proposed rule change.\3\ 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.
    \3\ In Amendment No. 1, the PCX made a technical correction to 
the proposal, the substance of which has been incorporated into this 
notice. See letter from Peter D. Bloom, Acting Managing Director, 
Regulatory Policy, PCX to Tim Fox, Attorney, Division of Market 
Regulation, Commission, dated June 25, 2003.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX, through its wholly-owned subsidiary PCX Equities, Inc. 
(``PCXE''),

[[Page 40010]]

proposes to amend its fee schedule for services provided to ETP Holders 
\4\ and Sponsored Participants \5\ that use the Archipelago Exchange 
(``ArcaEx'') by: (1) Reducing the per-share odd-lot transaction fee for 
Nasdaq securities; \6\ (2) reducing the per-share odd-lot routing 
service fee for Nasdaq securities; and (3) clarifying the application 
of the market data revenue credit for Tracking Orders.
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    \4\ See PCXE Rule 1.1(n) (defining ``ETP Holder'').
    \5\ A ``Sponsored Participant'' means ``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).
    \6\ See PCXE Rule 1.1(aa) (defining ``Nasdaq Security'').
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    The text of the proposed rule change is available at the principal 
offices of 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 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 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 reduce the per-share odd-lot transaction fee 
charged to ETP Holders and Sponsored Participants (collectively 
``Users'') that execute trades on ArcaEx. The PCX currently charges all 
Users a transaction fee of $0.03 per share for odd-lot orders executed 
in Nasdaq securities on ArcaEx.\7\ The PCX is proposing to reduce this 
odd-lot transaction fee to $0.004 per share, and will leave unchanged 
its current odd-lot fee for listed securities. The rationale for this 
change is to adjust the odd-lot transaction fee for Nasdaq securities 
to a more competitive level to accommodate Users' interest in sending 
odd-lot orders to ArcaEx. ArcaEx evaluated the economics of lowering 
the odd-lot transaction fee for Nasdaq securities and determined that 
is was feasible, given the costs involved.
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    \7\ The PCX notes that the odd-lot portion of a mixed lot are 
subject to the $0.03 per share transaction fee. Also, odd-lot orders 
that are created as a result of a partial fill of a round lot on 
ArcaEx will continue to be excluded from this fee.
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    The PCX also proposes to reduce the per share transaction fee for 
odd-lot orders in Nasdaq securities that are routed away and executed 
by another market center or participant. The PCX proposes to reduce the 
routing service fee from $0.03 to $0.004 per share to conform to the 
proposed fee of $0.004 per share that will apply to odd-lot orders 
executed on ArcaEx.\8\ Again, for competitive reasons, the PCX will 
leave unchanged its current odd-lot routing service fee for listed 
securities.
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    \8\ The Exchange notes that odd-lot orders that are created as a 
result of a partial fill of a round lot that are subsequently routed 
away and executed on another market will continue to be subject to 
the $0.004 per share fee applicable to round lot orders.
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    With respect to PCX's market data revenue credit for exchange-
listed securities, the PCX proposes to amend its fee schedule to 
clarify the application of this credit for Tracking Orders.\9\ 
Specifically, the PCX is adding a footnote \10\ to make it clear that a 
User who submits a Tracking Order instruction that subsequently matches 
against an inbound marketable order will not be entitled to receive the 
liquidity provider credit.\11\ The PCX believes that this change will 
more accurately define the liquidity provider credit that the Exchange 
pays to Users who help promote liquidity, transparency and price 
discovery.
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    \9\ The Tracking Order Process, which is available during Core 
Trading Hours only, is the fourth step of the ArcaEx execution 
algorithm. Any User may submit an instruction to ArcaEx for the 
parameters of a Tracking Order. The parameters include: the maximum 
aggregate size; the maximum tradeable size; the price in relation to 
the NBBO; and the relevant security. See PCXE Rule 7.37(c) for a 
detailed description of the Tracking Order Process.
    \10\ The current footnote 2 in the PCX's fee schedule relating 
to the ``Drop Copy'' Processing Fee is being renumbered as footnote 
3.
    \11\ Under its market data revenue sharing program, PCX shares a 
portion of its gross revenues derived from market data fees (i.e., 
tape revenue) with any User that provides liquidity by entering a 
resting limit order into the ArcaEx Book that is then executed 
against an incoming marketable order within the Display Order or 
Working Order processes.
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2. Statutory Basis
    The PCX believes that its proposal to amend its schedule of dues, 
fees and charges is consistent with section 6(b) of the Act \12\ in 
general, and furthers the objectives of section 6(b)(4) of the Act \13\ 
in particular, in that it is an equitable allocation of reasonable 
dues, fees, and other charges among PCX members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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

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

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

    Because the PCX represents that the foregoing rule change 
establishes or changes a due, fee, or other charge imposed by the PCX, 
it has become effective pursuant to section 19(b)(3)(A)(ii) of the Act 
\14\ and Rule 19b-4(f)(2) thereunder.\15\ 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ On July 2, 2002, the Commission issued an Order abrogating 
certain proposed rule changes relating to market data revenue 
sharing programs. See 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) 
(``Abrogation Order''). The Commission's publication of the instant 
proposed rule change, which codifies an existing practice in the 
Exchange's market data revenue sharing program, should not be 
construed as resolving the issues raised in the Abrogation Order.
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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

[[Page 40011]]

public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying at the Commission's Public 
Reference Room.
    Copies of such filing also will be available for inspection and 
copying at the principal office of the PCX. All submissions should 
refer to File No. SR-PCX-2003-23 and should be submitted by July 24, 
2003.

    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. 03-16814 Filed 7-2-03; 8:45 am]
BILLING CODE 8010-01-P