[Federal Register Volume 70, Number 174 (Friday, September 9, 2005)]
[Notices]
[Pages 53705-53706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4921]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52366; File No. SR-PCX-2005-101]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Relating to 
the Extension of the Pilot Program Applicable to Option Strategy 
Executions until March 1, 2006

August 31, 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 August 25, 2005, 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 PCX. The Exchange 
designated the proposed rule change as establishing or changing a due, 
fee, or other charge imposed by the Exchange under Section 
19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii)
    \4\ 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

    PCX proposes to amend its Schedule of Fees and Charges in order to 
extend the pilot program (``Pilot Program'') that applies to Option 
Strategy Executions until March 1, 2006. 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, 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. 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 purpose of this proposed rule change is to extend the Pilot 
Program that applies to Option Strategy Executions until March 1, 
2006.\5\ The transactions included as part of the Pilot Program include 
reversals and conversions,\6\ dividend spreads,\7\ box spreads,\8\ 
short stock interest spreads,\9\ and merger spreads.\10\ Because the 
referenced Options Strategy Transactions are generally executed by 
professionals whose profit margins are generally narrow, the Pilot 
Program caps the transaction fees associated with such executions at 
$1,000 per strategy executed on the same trading day in the same option 
class. In addition, there is also 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. Extending the Pilot Program until 
March 1, 2006 will allow the Exchange to keep these fees low and thus 
continue to attract liquidity.
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    \5\ See Securities Exchange Act Release Nos. 51645 (May 2, 
2005), 70 FR 24458 (May 9, 2005) (SR-PCX-2005-47) (establishing 
pilot program for reversals and conversions, dividend spreads, and 
box spreads until September 1, 2005) and 51787 (June 6, 2005), 70 FR 
34174 (June 13, 2005) (SR-PCX-2005-65) (establishing pilot program 
for short stock interest spreads and merger spreads until September 
1, 2005).
    \6\ 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.
    \7\ Dividend spreads are trades involving deep in the money 
options that exploit pricing differences arising around the time a 
stock goes ex-dividend.
    \8\ Box spreads is 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.
    \9\ A short stock interest spread is a spread that uses two deep 
in the money put options of the same class followed by the exercise 
of the resulting long position in order to establish a short stock 
interest arbitrage position.
    \10\ A merger spread is a transaction executed pursuant to a 
strategy involving the simultaneous purchase and sale of options of 
the same class and expiration date, but with different strike prices 
followed by the exercise of the resulting long option position.
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    OTP Holders and OTP Firms who wish to benefit from the fee cap will 
be required to submit to the Exchange forms with supporting 
documentation (e.g., clearing firm transaction data) to qualify for the 
cap.
2. Statutory Basis
    The proposal is consistent with Section 6(b) of the Act,\11\ in 
general, and Section 6(b)(4) of the Act,\12\ in particular, in that it 
provides for the equitable allocation of dues, fees, and other charges 
among its members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

[[Page 53706]]

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\13\ and paragraph (f)(2) of Rule 19b-4 
thereunder \14\ because it is establishing or changing a due, fee, or 
other charge applicable only to the Exchange's members. 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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. 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-2005-101 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-PCX-2005-101. 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-2005-101 and should be submitted on or before 
September 30, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-4921 Filed 9-8-05; 8:45 am]
BILLING CODE 8010-01-P