[Federal Register Volume 70, Number 20 (Tuesday, February 1, 2005)]
[Notices]
[Pages 5261-5263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-360]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51076; File No. SR-PCX-2004-125]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto by the Pacific Exchange, Inc. Relating to Exchange Fees and 
Charges

January 25, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 5262]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 21, 2004, 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. On 
January 12, 2005, the Exchange filed Amendment No. 1 to the proposed 
rule change. On January 13, 2005, the Exchange filed Amendment No. 2 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 For 
Exchange Services (``Schedule'') in order to eliminate the Shortfall 
Fee and corresponding Shortfall Credit and the Designated Options 
Examining Authority (``DOEA'') fee, add a clarifying change to the $500 
application fee for a request for a waiver pursuant to PCX Rule 
2.5(c)(4) and make certain administrative changes. The text of the 
proposed rule change is available on the Exchange's Web site (http://www.pacificex.com/legal/legal_pending.html), at the Exchange's Office 
of the Secretary, and at the Commission's Public Reference Room.

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 Exchange 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 is proposing to amend its Schedule in order to 
eliminate the Shortfall Fee, as well as the corresponding Shortfall 
Credit, and the DOEA fee, add a clarifying change to the $500 
application fee for a request for a waiver pursuant to PCX Rule 
2.5(c)(4) and make certain administrative changes.
The Shortfall Fee and Credit
    The ``Shortfall Fee'' is a fee that is charged on the volume 
difference between 12% of the total national market share in an option 
issue for one month and the percentage executed by the Lead Market 
Maker (``LMM''). The current Shortfall Fee is $0.35 per contract. An 
LMM is currently entitled to a ``Shortfall Credit'' of $0.35 per 
contract for any top 120 equity option issues the LMM trades where the 
PCX volume in the issue is higher than 12% of the scaled national 
volume in that issue for that month. The volume base for the Shortfall 
Credit is the PCX monthly volume for the issue less 12% of the scaled 
monthly industry volume for each qualifying issue. The Shortfall Credit 
may be used by an LMM only to offset a Shortfall Fee the LMM incurs for 
the same month and may not be used to offset other fees, or be carried 
forward or applied retroactively to the Shortfall Fee the LMM has 
incurred or will incur for other months. For the purpose of calculating 
the Shortfall Fee, the national market share of any equity option 
industry volume is capped at 2.9 million contracts per day. Shortfall 
Fee billing commences after an issue completes the first four full 
months of trading under an LMM.
    The Exchange is proposing to eliminate the Shortfall Fee and the 
corresponding Shortfall Credit in their entirety. The Exchange believes 
that the elimination of the Shortfall Fee is appropriate in order to 
make the PCX more competitive and to add liquidity to the marketplace. 
The Exchange intends to provide all LMMs with a rebate for fees paid in 
the months of October and November 2004.
DOEA Fee
    Previously, the PCX contracted with the NASD to conduct all DOEA 
examinations for the Exchange. The Exchange would pass along the cost 
of the examination plus 17% to the entity that was examined. NASD has 
stopped providing this service to the Exchange, and the Exchange no 
longer monitors any firms that require DOEA examinations. Accordingly, 
the Exchange is proposing to eliminate the DOEA fee from the Schedule.
$500 Application Fee for a Request for a Waiver Pursuant to PCX Rule 
2.5(c)(4)
    The Exchange's Shareholder and Registration Services Department has 
received numerous questions about the application of the $500 
application fee for a request for a waiver pursuant to PCX Rule 
2.5(c)(4). Option Trading Permit Holders (``OTP Holders'') and 
applicants have expressed a desire for further clarification as to the 
circumstances under which they would be subject to the fee. The purpose 
of the fee is to allow the Exchange to recover costs associated with 
independently verifying each justification given by an applicant as to 
why a waiver should be granted.\3\ The fee does not apply to 
circumstances where the Exchange only has to verify that an applicant 
has successfully completed an examination. Therefore, the Exchange is 
proposing to add clarifying language to the Schedule that states the 
fee does not apply when the request only involves validating that an 
applicant has successfully completed a qualifying examination.
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    \3\ See Securities Exchange Act Release No. 50742 (November 29, 
2004), 69 FR 70488 (December 6, 2004) (SR-PCX-2004-101).
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Administrative Changes
    The Exchange is proposing certain changes to the Schedule that will 
eliminate typographical errors, correct grammatical errors and amend 
calendar references. In addition, the Exchange is proposing certain 
clarifying language that is designed to make the Schedule easier to 
comprehend. Specifically, the Exchange is clarifying that for the 
Vendor Equipment Room Usage Fee, firms not using a full cabinet will 
not pay the full fee. Instead such firms will pay a pro rata portion 
thereof.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \4\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \5\ in particular, in that the 
proposal provides for the equitable allocation of reasonable dues, fees 
and other charges among the Exchange's OTP Holders and other persons 
using the Exchange's facilities for trading option contracts.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 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.

[[Page 5263]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has 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 proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \6\ and Rule 19b-4(f)(2) thereunder,\7\ 
because the proposed rule change establishes or changes a due, fee or 
other charge applicable only to a member of the Exchange. At any time 
within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate the rule change if it appears to the 
Commission that the action is necessary or appropriate in the public 
interest, for the protection of investors, or would otherwise further 
the purposes of the Act.\8\
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    \6\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \7\ 17 CFR 240.19b-4(f)(2).
    \8\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on January 13, 2005, the date the Exchange filed 
Amendment No. 2 to the proposed rule change. See 15 U.S.C. 
78s(b)(3)(C).
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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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2004-125 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-PCX-2004-125. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-PCX-2004-125 and should be submitted on or before 
February 22, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-360 Filed 1-31-05; 8:45 am]
BILLING CODE 8010-01-U