[Federal Register Volume 70, Number 212 (Thursday, November 3, 2005)]
[Notices]
[Pages 66885-66887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-6083]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52672; File No. SR-PCX-2005-121]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add to 
Its Current Revenue Sharing Program an Opportunity To Share in ETP 
Operating Revenue for Cross Orders in Tape C Securities

October 25, 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 October 21, 2005, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared

[[Page 66886]]

by the Exchange. The Exchange filed the proposal pursuant to Section 
19(b)(3)(A) of the Act,\3\ and Rule 19b-4(f)(6) \4\ thereunder,\5\ 
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).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange provided the Commission with written notice of 
its intention to file this proposed rule change on September 9, 
2005. See Rule 19b-4(f)(6), 17 CFR 240.19b-4(f)(6).
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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 rules governing the Archipelago 
Exchange (``ArcaEx''), the equities trading facility of PCXE. With this 
proposed rule change, the Exchange proposes to add to its current 
revenue sharing program an opportunity to share in ETP Operating 
Revenue for Cross Orders \6\ in Tape C securities. The text of the 
proposed rule change is available at the PCX's Web site (http://www.pacificex.com), at the PCX's principal office, and at the 
Commission's Public Reference Room.
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    \6\ See PCXE Rule 7.31 for Cross Order definitions.
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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 its proposal and discussed any 
comments it received regarding the proposal. 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 Exchange proposes to modify the current ArcaEx revenue sharing 
program applicable to Cross Orders executed in ArcaEx Tape C 
securities. The Exchange proposes to add language to the ArcaEx fee 
schedule describing the new ETP Operating Revenue sharing program. The 
proposal is similar to revenue sharing programs currently in place at 
the Nasdaq Stock Market and the National Stock Exchange,\7\ although it 
will be a more narrow application of such programs because it is 
limited to Cross Orders.
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    \7\ See Securities Exchange Act Release Nos. 48303 (August 8, 
2003), 68 FR 48654 (August 14, 2003) and 46688 (October 18, 2002), 
67 FR 65816 (October 28, 2002). The NSX program includes book fees 
and technology fees, and the Nasdaq program includes technology 
fees. ArcaEx does not charge technology fees or book fees, and as 
such, these fees are not included in the proposed calculation of ETP 
Operating Revenue, infra.
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    Under the proposal, ETP Holders would be eligible to share in ETP 
Operating Revenue (``ETPOR'') associated with Cross Orders in Tape C 
securities. Specifically, ETPOR is defined as operating revenue that is 
generated by ETP Holders and consists of transaction fees and market 
data revenue that is attributable to ETP Holders' Cross Order 
executions. ETPOR shall not include any investment income or regulatory 
monies.
    The sharing of ETPOR shall be based on each ETP Holder's pro rata 
contribution to ETPOR and the amount shared shall not exceed ETPOR. 
Under the proposal, PCX's Board of Directors would have the authority 
to determine the appropriate amount of ETPOR to be shared with ETP 
Holders. In making this determination, the Board would balance the 
objective of sharing a meaningful percentage of ETPOR with the 
objective of maintaining ArcaEx's financial integrity.\8\ Such payments 
would be made quarterly after ArcaEx has accounted for operating 
expenses and working capital contributions. ArcaEx proposes to 
implement such changes effective November 1, 2005.
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    \8\ Regulatory fees are currently separately allocated to PCX 
and as such, ArcaEx will not compromise funds that would be used for 
regulatory responsibilities.
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    A specific example of how the proposal would be implemented 
follows.
    First, the number of cross order executions in Tape C securities 
would be determined by ETP Holder for the quarter. Second, transaction 
fees and market data revenue (ETPOR) associated with such executions 
would be calculated. Third, PCX's Board of Directors would determine 
what percentage of ETPOR would be shared with ETP Holders. Fourth, that 
percentage would be allocated on a pro rata basis to ETP Holders based 
on their relative number of cross order executions in Tape C 
securities.
    The rationale for these changes is to reduce the costs incurred by 
ETP Holders in executing Cross Orders on ArcaEx and to make the pricing 
for executions on the ArcaEx more competitive. The Exchange evaluated 
the economics of modifying its current revenue sharing program and 
determined that is [sic] was feasible and appropriate, given the costs 
involved and competitive concerns.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \9\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\10\ in particular, because it is 
designed to facilitate transactions in securities, to promote just and 
equitable principles of trade, to enhance competition, and to protect 
investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \11\ and 
Rule 19b-4(f)(6) thereunder.\12\ 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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    The PCX has asked the Commission to waive the 30-day operative 
delay. The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Such waiver will allow the PCX to implement competitive pricing of 
ArcaEx Cross Orders in Tape

[[Page 66887]]

C securities. For these reasons, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\13\
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    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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-2005-121 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-2005-121. 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 PCX.
    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-2005-121 
and should be submitted on or before November 25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6083 Filed 11-2-05; 8:45 am]
BILLING CODE 8010-01-P