[Federal Register Volume 70, Number 88 (Monday, May 9, 2005)]
[Notices]
[Pages 24458-24459]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2223]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51645; File No. SR-PCX-2005-47]


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

May 2, 2005.
    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 April 6, 2005, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change relating to fees applicable to Option Strategy 
Executions as described in Items I, II, and III below, which Items have 
been prepared by the Exchange. On April 19, 2005, PCX filed Amendment 
No. 1 to the proposed rule change.\3\ On April 26, 2005, PCX filed 
Amendment No. 2 to the proposed rule change.\4\ PCX designated the 
proposed rule change, as amended, as establishing or changing a due, 
fee, or other charge imposed by PCX under Section 19(b)(3)(A)(ii) of 
the Act,\5\ and Rule 19b-4(f)(2) thereunder,\6\ which renders the 
proposal effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the proposed rule 
change in its entirety. In Amendment No. 1, PCX proposed that the 
fee cap on strategy trades operate on a pilot basis until September 
1, 2005. Further, Amendment No. 1 clarified that in order to qualify 
for the fee cap, OTP Holders and OTP Firms are required to submit to 
PCX required supporting documentation. Finally, Amendment No. 1 
clarified that the fee cap applies to strategy trades executed on 
the same trading day in the same option class.
    \4\ In Amendment No. 2, PCX clarified in the Exchange's Schedule 
of Fees and Charges that the fee cap applies to each type of 
strategy trade executed on the same trading day in the same option 
class.
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-4(f)(2).
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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 in 
order to modify the fee that applies to Option Strategy Executions. The 
text of the proposed rule change is available on the Exchange's Web 
site (http://www.pacificex.com/), at the Office of the Secretary, 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 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 proposes to modify the fee that applies to Option 
Strategy Executions.
    These transactions include reversals and conversions,\7\ dividend 
spreads,\8\ and box spreads.\9\ Because the referenced Options Strategy 
Transactions are generally executed by professionals whose profit 
margins are generally narrow, the Exchange proposes to cap the 
transaction fees associated with such executions at $1,000 per strategy 
execution that are executed on the same trading day in the same option 
class.\10\ In addition, the Exchange is proposing a monthly cap of 
$50,000 per initiating firm for all strategy executions. The Exchange 
believes that by keeping fees low, the Exchange will be able to attract 
liquidity by accommodating these transactions.
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    \7\ According to the Exchange, 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 share 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.
    \8\ According to the Exchange, dividend spreads are trades 
involving deep in the money options that exploit pricing differences 
arising around the time a stock goes ex-dividend.
    \9\ According to the Exchange, box spreads are a strategy that 
synthesizes long and short stock positions to create a profit. 
Specifically, a long call and short put at one strike is combined 
with a short call and long put at a different strike to create 
synthetic long and synthetic short stock positions, respectively.
    \10\ The Exchange clarified in Amendment No. 2, supra note 4, 
that the daily $1,000 fee cap applies to each type of strategy, 
i.e., reversals and conversions, dividend spreads, and box spreads.
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    The Exchange represents that OTP Holders and OTP Firms who wish to 
benefit from the fee cap would be required to submit to the Exchange 
forms with supporting documentation (e.g., clearing firm transaction 
data) by the next business day to qualify for the cap.\11\
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    \11\ Telephone conversation between Steven B. Matlin, Senior 
Counsel, PCX, and Steve L. Kuan, Attorney, Division of Market 
Regulation, Commission, on April 26, 2005.
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2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\12\ in general, and Section 6(b)(4) of the Act,\13\ in 
particular, in that it provides for the equitable allocation of dues, 
fees, and other charges among its members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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, as amended, 
will not impose any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

[[Page 24459]]

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 rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \15\ because it establishes or changes a due, fee, or other 
charge imposed by the Exchange. At any time within 60 days of the 
filing of the 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ 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 have commenced on April 26, 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-2005-47 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-2005-47. 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 such 
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-2005-47 and should be submitted on or before May 31, 
2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2223 Filed 5-6-05; 8:45 am]
BILLING CODE 8010-01-P