[Federal Register Volume 68, Number 132 (Thursday, July 10, 2003)]
[Notices]
[Pages 41196-41197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17417]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48119; File No. SR-PCX-2003-29]


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

July 2, 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 June 30, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
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. 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 Exchange proposes to amend its Schedule of Fees and Charges to 
eliminate the continued listing fee and to limit the application of the 
shortfall fee. The text of the proposed rule change is available at the 
Office of the Secretary 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, 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 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 Exchange proposes to amend its Schedule of Fees and Charges in 
order to: (i) eliminate the continued listing fee, and (ii) modify the 
shortfall fee, making it inapplicable to issues allocated in the first 
full four months of trading by a Lead Market Maker (``LMM''). The 
Exchange believes that this proposal will foster the Exchange's 
strategic plan of attracting new sources of capital to the Exchange and 
encouraging LMMs to expand their level of participation on the Exchange 
by accepting new allocation of issues.
Elimination of the Continued Listing Fee
    The Exchange currently assesses LMMs a continued listing fee for 
issues that have not generated at least $500 in monthly revenues to the 
Exchange 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 generated by the issue. The 
Exchange recognizes that the continued listing fee may deter an LMM 
from taking on a newly allocated issue or in maintaining trading 
activity with respect to a particular issue. As a result, the Exchange 
has determined that, on balance, the fee no longer supports the 
Exchange's paramount goal of attracting capital to the Exchange and 
maintaining a stabilized base of issues. Accordingly, the Exchange 
believes that it would be advantageous to eliminate the continued 
listing fee.
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    \3\ See Securities Exchange Act Release No. 42050 (October 21, 
1999), 64 FR 58117 (October 28, 1999) (Notice of Filing and 
Immediate Effectiveness of SR-PCX 99-32).
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Limiting the Application of the Shortfall Fee
    In February 2002, the Exchange began to assess a shortfall fee of 
$0.35 per shortfall contract on top 120 equity option issues if the PCX 
volume in the issue was less than 10% of the national volume in that 
issue for that month.\4\ In June 2002, the Exchange increased the 
volume base for the LMM shortfall fee from 10% to 12% for the top 120 
equity options nationally.\5\ The volume base for the fee is 12% of the 
monthly industry volume for each qualifying issue, less the PCX monthly 
volume for the issue.
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    \4\ See Securities Exchange Act Release No. 45351 (January 29, 
2002), 67 FR 5631 (February 6, 2002)(Notice of Filing and Immediate 
Effectiveness of SR-PCX-2001-51).
    \5\ See Securities Exchange Act Release No. 46239 (July 19, 
2002), 67 FR 48962 (July 26, 2002) (Notice of Filing and Immediate 
Effectiveness of SR-PCX-2002-38).
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    From time to time, an LMM may divest itself of a significant number 
of issues or the Exchange may add new products or new issues for 
trading. The Exchange encourages applications from qualified LMMs to 
trade newly posted issues, but given that an LMM will be required to 
maintain a 12% market share or be subject to the shortfall fee, LMMs 
may be reluctant to take on the risks of trading a significant number 
of new issues and opt to take on fewer issues until they have developed 
a trading strategy relative to the new issues.
    In order to help foster demand for top 120 issues during a period 
of continuing consolidation among trading firms, and to prepare for the 
implementation of PCX Plus,\6\ the Exchange proposes to eliminate the 
application of the shortfall fee for the first four full calendar 
months that an LMM trades a newly allocated issue. The Exchange 
believes that this modification to its shortfall fee will encourage 
LMMs to take on larger numbers of issues by limiting their exposure to 
these fees until they have had sufficient time to develop appropriate 
marketing and trading strategies.
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    \6\ See Securities Exchange Act Release No. 47838 (May 13, 
2003), 68 FR 27129 (May 19, 2003).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)\7\ of the Act, in general, and furthers the 
objectives of section 6(b)(4)\8\ of the Act in particular, in that it 
provides for the equitable allocation of reasonable fees among its 
members.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will promote 
competition by encouraging more LMMs to take on allocations of more 
issues.

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 rule change establishes or changes a due, 
fee, or

[[Page 41197]]

charge imposed by the Exchange, it has become effective pursuant to 
section 19(b)(3)(A)\9\ of the Act and subparagraph (f)(2) of Rule 19b-4 
thereunder.\10\ At any time within 60 days of the filing of the 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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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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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 submissions should refer to File No. SR-PCX-2003-29, and 
should be submitted by July 31, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-17417 Filed 7-9-03; 8:45 am]
BILLING CODE 8010-01-P