[Federal Register Volume 68, Number 166 (Wednesday, August 27, 2003)]
[Notices]
[Pages 51625-51626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48363; File No. SR-PCX-2003-39]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Relating to Changes in Schedule 
of Fees and Charges

August 19, 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 July 28, 2003, the Pacific Exchange, Inc. (``PCX'') submitted to 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.
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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 is proposing to amend its schedule of rates and charges in 
order to provide a limit on the fees that it collects with regard to 
certain options strategy executions.
    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

[[Page 51626]]

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 currently assesses the following trade-related charges on 
transactions involving equity or index options: \3\
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    \3\ The PCX also provides a volume discount program that reduces 
the fees as market makers increase their quarterly average daily 
contract volume.

Transaction fees: $0.21 per contract side.
Comparison fees: $0.05 per contract.
Ticket data entry fees: $0.25 per firm trade and $0.50 per market 
maker trade.

    From time to time, market participants engage in financing 
strategies known as option strategy plays for the purpose of reducing 
risk. These transactions include reversals and conversions,\4\ dividend 
spreads,\5\ and box spreads.\6\ Because the referenced options strategy 
transactions are generally executed by professionals whose profit 
margins are generally narrow, the PCX proposes to cap the transaction 
fees associated with such executions at $2,000.\7\ The PCX believes 
that, by keeping fees low, it will be able to attract liquidity by 
accommodating these transactions. By adopting the $2,000 cap on fees, 
the PCX focuses on the size of the particular order rather than the 
aggregate monthly volume of the routing firm.\8\ Therefore, the PCX 
believes that the proposal will not have a disparate impact on members 
and will not favor any member over another.
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    \4\ Reversals and conversions are transactions that employ 
calls, puts and the underlying stock to lock in a nearly risk free 
profit. Reversals are established by combining a short stock 
position with a short put and a long call position that shares the 
same strike and expiration. Conversions employ long positions in the 
underlying stock that accompany long puts and short calls sharing 
the same strike and expiration.
    \5\ Dividend spreads are trades involving deep in the money 
options that exploit pricing differences arising around the time a 
stock goes ex-dividend.
    \6\ The Box Spread strategy synthesizes long and short stock 
positions to create a profit. Specifically, a long call and short 
put at one strike are combined with a short call and long put at a 
different strike to create synthetic long and synthetic short stock 
positions, respectively.
    \7\ According to the PCX, the $2,000 cap applies to the 
transaction fees arising from a set of executions forming a single 
strategy play. The PCX also represents that a member executing such 
a strategy submits to the PCX a record of the strategy play after it 
has been executed. The PCX then reviews the submission for accuracy. 
Conversation between Mai Shiver, Senior Attorney, Regulatory Policy, 
PCX and Tim Fox, Attorney, Division of Market Regulation, 
Commission, on August 14, 2003.
    \8\ The PCX represents that member firms of all sizes can 
execute transactions large enough to benefit from the proposed fee 
cap. Conversation between Mai Shiver, Senior Attorney, Regulatory 
Policy, PCX and Tim Fox, Attorney, Division of Market Regulation, 
Commission, on August 14, 2003.
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2. Statutory Basis
    The PCX believes that its proposal is consistent with Section 6(b) 
of the Act \9\ in general, and furthers the objectives of Section 
6(b)(4) of the Act \10\ in particular, in that it provides for the 
equitable allocation of reasonable fees among its members.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    The 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 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) of the Act \11\ and Rule 19b-4(f)(2) 
\12\ thereunder. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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 filings will also be 
available for inspection and copying at the principal office of the 
PCX. All submissions should refer to File No. SR-PCX-2003-39 and should 
be submitted by September 17, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-21946 Filed 8-26-03; 8:45 am]
BILLING CODE 8010-01-P