[Federal Register Volume 68, Number 139 (Monday, July 21, 2003)]
[Notices]
[Pages 43245-43246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18394]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48175; File No. SR-PCX-2003-30]


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

July 14, 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 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.
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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 proposes to expand its marketing fee program to include all 
options, and also proposes to make other changes to the program as 
specified below. 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 PCX included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received. 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.

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

1. Purpose
    In July 2000, the Exchange adopted a payment-for-order-flow program 
under which it imposes a fee on market maker transactions in designated 
equity option issues as set forth in a Schedule of Rates.\3\ Under the 
program, the PCX collects and segregates the fee proceeds by trading 
post and makes the funds available to Lead Market Makers (``LMMs'') for 
their use in attracting orders in the options traded at the posts. The 
LMMs use the funds to make payments to broker-dealers for the orders 
they direct to the PCX. Currently, the LMMs determine the specific 
terms governing the orders that qualify for payment and the amounts to 
be paid. The LMMs make their determinations in whatever manner they 
believe is most likely to be effective in attracting order flow to the 
PCX in the options traded at the LMMs' assigned posts. The

[[Page 43246]]

Exchange assesses the marketing fee as set forth in a separate Schedule 
of Rates.
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    \3\ See Securities Exchange Act Release No. 43290 (September 13, 
2000), 65 FR 57213 (September 21, 2000).
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    The Exchange seeks to modify its program for all option issues 
traded on the PCX, except for the Nasdaq-100 Tracking Index (``QQQ''), 
in the following ways:
    Issues Subject to Program: Currently, the PCX's marketing fee 
program applies only to option issues that the PCX has classified as a 
top 250 issue. The PCX seeks to expand the program to include all 
equity option issues traded on the PCX, irrespective of its rank by 
volume across exchanges.
    Transaction Fee: Currently, an LMM may suggest that the Exchange 
charge a marketing charge at a rate of $0.00, $0.25, $0.50, $0.75 or 
$1.00 per contract. The PCX proposes to change the fee by assessing a 
flat $0.60 rate per contract side on all equity options except for the 
QQQ options.
    Scope of Transactions Subject to Program: Currently, the Exchange 
assesses a payment for order flow fee on all transactions other than 
market maker-to-market maker transactions. The PCX proposes to modify 
its program to collect marketing fees on only those transactions of 
LMMs and market makers involving customer orders from firms that accept 
payment for directing their orders to the PCX (``payment-accepting 
firms''). Under this proposal, an LMM will continue to be solely 
responsible for negotiating payment for order flow arrangements with 
payment-accepting firms. Although transactions involving firms that do 
not accept payment for their orders are not subject to the fee, the PCX 
notes that that LMMs and market makers would have no way of identifying 
prior to execution whether a particular order is from a payment-
accepting firm or from a firm that does not accept payment for its 
order flow.
    Treatment of QQQ Options: The Exchange intends to continue to 
collect a $1.00 per-contract marketing fee for the QQQ options and to 
assess this fee on all QQQ transactions except for market maker-to-
market maker transactions. The PCX notes that these are the current 
terms of its marketing fee program with respect to QQQ options.
    The Exchange believes that the proposed changes to its marketing 
fee program are consistent with the Act in that they would serve to 
enhance the competitiveness of the PCX and its members. Accordingly, 
the PCX believes that this proposed rule change is consistent with and 
furthers the objectives of section 6(b)(5) of the Act,\4\ which 
requires the rules of an exchange be designed to remove impediments to, 
and to perfect the mechanism of, a free and open market and a national 
market system. The Exchange also believes that the proposal furthers 
the objectives of section 11A(a)(1) of the Act,\5\ which reflects the 
findings of Congress that it is in the public interest and appropriate 
for the protection of investors and the maintenance of fair and orderly 
markets to assure fair competition among brokers and dealers among 
exchange markets.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78k-1.
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2. Basis
    The Exchange believes that this proposal is consistent with section 
6(b) of the Act,\6\ particularly section 6(b)(4) of the Act,\7\ in that 
it provides for the equitable allocation of reasonable fees among its 
members.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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

    The Exchange 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 establishes or changes a due, fee, or 
other charge imposed by the PCX, and therefore it has become effective 
pursuant to Section 19(b)(3)(A)(ii) of the Act \8\ and Rule 19b-4(f)(2) 
thereunder.\9\ At any time within 60 days after the filing of this 
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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \9\ 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 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-2003-30 and should be 
submitted by August 11, 2003.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-18394 Filed 7-18-03; 8:45 am]
BILLING CODE 8010-01-P