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

[Federal Register Volume 64, Number 62 (Thursday, April 1, 1999)]
[Notices]
[Pages 15856-15857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8062]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41212; File No. SR-PCX-99-03]


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

March 24, 1999.
    Pursuant to Section 19(b) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 11, 1999, 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 March 
4, 1999, the Exchange filed as amendment (``Amendment No. 1'') to the 
proposed rule change.\3\ In Amendment No. 1, the Exchange designated 
the portion of the proposed rule change dealing with customer 
transaction charges as constituting a ``non-controversial'' rule change 
under Rule 19b-4(f)(6) under the Act,\4\ which renders the part of the 
proposal effective upon receipt of this filing by the Commission.\5\ 
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\ See letter from Robert P. Pacileo, Staff Attorney, 
Regulatory Policy, PCX, to Michael A. Walinskas, Deputy Associate 
Director, Division of Market Regulation (``Division''), Commission, 
dated March 3, 1999. The Commission received a draft of the proposed 
amendment on February 26, 1999, which the Commission has accepted as 
a pre-filing pursuant to Rule 19b-4(f)(6).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Exchange has represented that the proposed rule change 
will 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 after the date 
of this filing, unless otherwise accelerated by the Commission. The 
Exchange also has provided at least five business days notice to the 
Commission of its intent to file this proposed rule change, as 
required by Rule 19b-4(f)(6) under the Act. See note 3 above. Also, 
in a telephone conversation on February 26, 1999, between Robert P. 
Pacileo, Staff Attorney, Regulatory Policy, PCX, and David 
Sieradzki, Special Counsel, and Joseph Morra, Attorney, Division, 
SEC, the Exchange requested that the Commission waive the 30-day 
waiting period under Rule 19b-4(f)(6) for the portion of the filing 
relating to customer fees.
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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 change its Schedule of Fees and 
Charges for Exchange Services as discussed below. The text of the 
proposed rule change is available 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 four changes to its Schedule of Fees an 
Charges for Exchange Services by reducing its customer transaction 
charges, increasing its Market Maker transaction charges and fees, 
reducing its LMM Book transaction charges, and increasing its Member 
dues.
    Customer Charges. Currently, for manual transactions, the Exchange 
charges its customers $0.15 per contract side for premiums less than 
one dollar and $0.35 per contract side for premiums one dollar or 
greater. For block transactions with premiums one dollar or greater, 
the Exchange charges its customers $0.35 per contract for the first 
four hundred contracts of a block trade and $0.25 per contract for all 
contracts over four hundred. The Exchange charges its customers $0.30 
per contract side for Pacific Options Exchange Trading System 
(``POETS'') transactions, with a minimum charge of $0.35 per trade. 
Also, the Exchange charges a Book execution fee of $0.45 per contract 
side for all customer Book executions. To simplify rates and reduce 
costs for customers, the Exchange proposes to reduce transaction 
charges for customers to $0.12 per contract side, which will apply to 
all manual transactions (including block transactions) and POETS 
automated transactions. Further, the Exchange proposes to reduce Book 
execution fees to $0.20 per contract side for all Book transactions, 
except accommodation/liquidation transactions,\6\ which remain 
unchanged. The Exchange proposes to make these changes in an effort to 
remain competitive, attract customer order-flow, and reduce customer 
costs.
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    \6\ An accommodation/liquidation transaction is a book-executed 
transaction for a premium less than \1/16\th. Telephone conversation 
between Robert P. Pacileo, Staff Attorney, Regulatory Policy, PCX, 
and Joseph Morra, Attorney, Division, SEC, on March 23, 1999.
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    Market Maker Charges. The current transaction charges for Market 
Makers are $0.095 per contract site for equity options, $0.11 per 
contract side for index options, and $0.085 per contract side for POETS 
transactions. Also, the Exchange currently charges a monthly Market 
Maker fee of $660, which is applied to all Market Makers after a six-
month initial waiver person. The Exchange proposes to increase 
transaction charges for Market Makers to $0.15 per contract side for 
all manual and POETS transactions. In addition,

[[Page 15857]]

the Exchange proposes to increase Market Maker fees to $1,750 per month 
per Market Maker, and proposes to eliminate the initial six-month 
waiver period. The Exchange proposes these changes to offset revenues 
lost from customer rate reductions.
    LMM Book Charges. The Exchange charges each Lead Market Maker 
(``LMM'') $0.10 per Book contract for the first 15,000 contracts, $0.20 
for 15,001 to 30,000 Book contracts, $0.30 for 30,001 to 55,000 Book 
contracts, and $0.20 for all Book contracts over 55,000. These charges 
are applied to the monthly total of all Book contracts in all options 
issues collectively traded by an LMM under the program. The Exchange 
proposes to reduce its per Book contract rates to $0.05 per Book 
contract for the first 15,000 contracts, $0.10 for 15,001 to 30,000 
Book contracts, $0.15 for 30,001 to 55,000 Book contracts, and $0.10 
for all Book contracts over 55,000. The Exchange proposes these fee 
changes to reduce charges consistent with the reduction in Book 
execution fees for customers. In addition, the fee reduction is 
intended to attract LMMs to participate in the LMM Book Program.
    Member dues. Currently, monthly dues for Exchange Members are $250. 
The Exchange proposes to increase its monthly Member dues to $750 per 
month to maintain a revenue base for the operations of the Exchange.
2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\7\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act,\8\ in particular, because it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among its Members and issuers and other persons using its 
facilities.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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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 proposed rule change relating to membership fees, transaction 
charges for Market Makers, LMM Book charges, Market Maker fees, and 
member dues became effective upon filing pursuant to Section 
19(b)(3)(A)(ii) of the Act \10\ and subparagraph (f)(2) of Rule 19b-4 
thereunder.\11\
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    \10\ 15 U.S.C. 78f(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
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    The portion of the proposed rule regarding customer transaction 
charges have been filed by the Exchange as a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\ Consequently, because 
the Exchange represents that the foregoing proposed rule change with 
respect to customer transaction changes: (1) does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and because the Exchange 
provided the Commission with written notice of its intent to file the 
proposed rule change at least five days prior to the filing date, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act and 
Rule 19b-4(f)(6) thereunder. The Commission finds good cause to permit 
the proposed rule change relating to customer fees to become operative 
prior to thirty days from the date of filing \14\ because the 
Commission believes that those portions reducing the fees may increase 
competition between the options exchanges.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ The Exchange requested that the Commission waive the 30-day 
operative period under Rule 19b-4(f)(6) regarding the provision 
relating to customer fees. See footnote 5.
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IV. Solicitation of Comments

    Interested personal 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, N.W., Washington, DC 20549-0609. 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-99-03, and should 
be submitted by April 22, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-8062 Filed 3-31-99; 8:45 am]
BILLING CODE 8010-01-M