[Federal Register Volume 68, Number 250 (Wednesday, December 31, 2003)]
[Notices]
[Pages 75701-75703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32175]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48976; File No. SR-PCX-2003-68]


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

December 23, 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 December 16, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission

[[Page 75702]]

(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the PCX. 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 is proposing to amend the Trade-Related Charges 
portion of its Schedule of Fees and Charges (``Schedule''). The text of 
the proposed rule change is available at the Office of the Secretary, 
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 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 Exchange is proposing to amend the Trade-Related Charges 
portion of its Schedule in order to create an incentive program for 
Market Makers with respect to transaction charges. Currently, Market 
Maker transactions are assessed a charge of $0.21 per contract side for 
all issues regardless of market share or Top 120 designation. As part 
of its ongoing effort to secure existing volumes and attract higher 
levels of liquidity, the PCX is proposing to adopt a three-tiered rate 
schedule that would lower transaction charges for Market Makers 
(including Lead Market Makers) as the Exchange attains higher levels of 
market share on individual issues.\3\
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    \3\ The Exchange states that transaction charges will not change 
for Customer, Firm or Broker/Dealer transactions.
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    Specifically, the incentive program would lower marginal 
transaction costs on an issue-by-issue basis for those underlying 
symbols that the PCX attained market share beyond certain tiers. The 
three-tiered system is based on the percentage of market share attained 
for each issue and whether the issue is designated as a Top 120. The 
table below shows the marginal Market Maker transaction rates for Top 
120 Issues:

------------------------------------------------------------------------
                     Market share tiers                       Marg rate
------------------------------------------------------------------------
0.00% to 11.00%............................................        $0.21
11.00% to 20.00%...........................................         0.11
20.00% to 100.00%..........................................  ...........
------------------------------------------------------------------------

Under the proposed rate schedule, the rates would be applied based on 
market share at the end of the trade month. The PCX proposes that these 
Market Maker transaction rates would be assessed in a fair and 
equitable manner to ensure that all Market Makers trading in a 
particular issue receive the same rate incentives. Accordingly, a Top 
120 issue that had 1,000,000 contracts in national volume and a 30% PCX 
market share (or 300,000 PCX contracts) would be billed in the 
following manner. The first 11% in market share would be billed at a 
transaction rate of $0.21 per contract (11% x 1,000,000 x 
$0.21=$23,100). The next 9% in market share would be billed at a 
transaction rate of $.11 per contract (9% x 1,000,000 x $0.11 = 
$9,900). The final 10% in market share would be billed at a transaction 
rate of $0.00. The net effective rate on said issue would be $0.11 per 
contract (total transaction charges/total PCX market maker contracts or 
$33,000/300,000 contracts). All Market Makers would receive the same 
rate incentive because all Market Maker volumes in that issue would be 
charged the same effective rate: $0.11 per contract.\4\
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    \4\ For purposes of simplicity, this example assumes that all 
PCX contracts were executed by Market Makers. In the event this was 
not the case, for example, the Exchange had the same contract 
volumes but 100,000 contracts were customer contracts and 200,000 
Market Maker contracts, Market Makers would still receive the same 
rate incentive: $0.11 per Market Maker contract.
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    Rates for issues that are not in the Top 120 in terms of national 
volume will still benefit from the rate incentive, albeit employing a 
different set of marginal rates. The table below summarizes those 
marginal transaction rates for Market Makers:

------------------------------------------------------------------------
                     Market share tiers                       Marg rate
------------------------------------------------------------------------
0% to 15%..................................................        $0.21
15% to 25%.................................................         0.15
25% to 100%................................................         0.05
------------------------------------------------------------------------

Using the previous example, an issue that was not in the Top 120 but 
had the same contract volumes would receive the following billing 
treatment. The first 15% in market share would be billed at a 
transaction rate of $0.21 per contract (15% x 1,000,000 x 
$0.21=$31,500). The next 10% in market share would be billed at a 
transaction rate of $.15 per contract (10% x 1,000,000 x $0.15 = 
$15,000). The final 5% in market share would be billed at a transaction 
rate of $0.05 (5% x 1,000,000 x $0.05 = $2,500). The net effective rate 
on said issue would be $0.1633 per contract ($49,000 in charges divided 
by 300,000 contracts). The PCX believes all Market Makers would receive 
the same rate incentive because all Market Maker volumes in that issue 
would be charged at the same effective rate: $0.1633 per contract. 
Singly listed issues would continue to be billed at the current flat 
Market Maker transaction rate of $0.21 per contract.
    The Exchange believes that the incentive program will help the PCX 
attract higher levels of liquidity and therefore enable the PCX to 
compete aggressively with other market centers. Moreover, the PCX 
believes the incentive program provides for a natural means of 
attracting more crowd participation on the trading floor. The incentive 
program will apply equally to issues traded on the POETS and the PCX 
Plus trading platforms.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to a 
national securities exchange and, in particular, the requirements of 
section 6(b) of the Act.\5\ Specifically, the Exchange believes the 
proposed rule change is consistent with the section 6(b)(4) 
requirements that the rules of the exchange provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members.
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    \5\ 15 U.S.C. 78f(b).
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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

    The foregoing proposed rule change has become effective pursuant to 
section

[[Page 75703]]

19(b)(3)(A)(ii) of the Act \6\ and Rule 19b-4(f)(2) \7\ thereunder, 
because it establishes or changes a due, fee, or other charge imposed 
by the Exchange. Accordingly, the proposal will take effect upon filing 
with the Commission. At any time within 60 days of the filing of such 
proposed 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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    \6\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \7\ 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. Comments may 
also be submitted electronically at the following e-mail address: [email protected]. All comment letters should refer to File No. SR-PCX-
2003-68. This file number should be included on the subject line if e-
mail is used. To help the Commission process and review your comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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-2003-68 and should be 
submitted by January 21, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-32175 Filed 12-30-03; 8:45 am]
BILLING CODE 8010-01-P