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Notice

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

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Start Preamble November 3, 2000.

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 16, 2000, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as one establishing or changing a due, fee or other charge imposed by the Exchange under section 19(b0(3)(A)(ii) of the Act,[3] 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 person.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

PCX is proposing to amend its schedule of rates and charges in order to eliminate credits for book executions, to increase registered representative options principal [4] fees, and to establish examination, registration and annual fees for off-floor trading firms and their traders. The text of the proposed change to the PCX fee schedule is available at the Exchange 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 Start Printed Page 67787places 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

Currently, the PCX Schedule of Rates and Charges credits order flow providers $.10 per contract on all book executions, which can be used to offset other PCX charges. In addition, the PCX charges an annual fee of $25 to all registered representatives and registered options principals for maintenance, new applications, or transfer of registration status. This fee supports the costs related to regulatory oversight and enforcement within the equities and options communities. Finally, the PCX does not charge a Designated Examining Authority (“DEA”) fee for its off-floor traders.

The Exchange now proposes to modify its Schedule of Rates and Charges. First, the Exchange proposes to eliminate the $.10 credit provided to order flow providers. In its original filing with the Commission the Exchange stated that this credit was needed in order to attract order flow and enable it to remain competitive.[5] Based upon its experience with this credit, the PCX believes that providing a credit for book activity does not create a meaningful incentive for attracting order flow.

Second, the Exchange proposes to increase its registered representative and registered options principal fee by $10 to $35 for annual maintenance, new applications, and transfers. The Exchange believes that this addition is warranted due to increased costs related to regulatory oversight and enforcement.

Finally, the Exchange proposes to add DEA fees for off-floor trading firms and its traders. Currently the PCX is the DEA for 162 firms. Of these 162 firms, 15 conduct extensive off-floor trading businesses. In the past, the PCX has outsourced the examinations of these 15 firms. The PCX intends to conduct these examinations in the future. The Exchange believes that, based upon its business model, the number of off-floor trading firms for which it will serve as DEA will increase substantially in the near future. Therefore, the Exchange is seeking to establish DEA fees that will allow for recovery of costs associated with these types of examinations. The Exchange proposes to require all current and future off-floor traders to pay an initial registration fee of $75 per trader and an annual fee thereafter of $250 per trader. The Exchange is also proposing to charge a $2,000 per month Examination Fee to be paid by member organizations for which the Exchange is the DEA. An Exemption from these fees will be granted to any member operating from the PCX trading floor that has demonstrated that at least 25% of its income, as reflected on the most recently submitted FOCUS Report, was derived from on-floor activities. These fees will help to offset costs associated with providing examination services to off-floor trading firms. These include costs related to advising firms on financial reporting requirements and compliance with PCX and SEC rules. There are also extensive travel costs and initial set-up costs related to such off-floor firms. These fees are consistent with the fee structures established by other Exchange.[6]

2. Statutory Basis

The Exchange believes that 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) [8] in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities.

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

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 foregoing rule change has become effective pursuant to section 19(b)(3)(A)(ii) of the Act [9] and subparagraph (f)(2) of Rule 19b-4,[10] 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 such 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.

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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 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 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-00-41 and should be submitted by December 4, 2000.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority. [11]

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(ii).

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4.  Telephone conversation between Hassan Abedi, Attorney, Regulatory Policy, PCX, and Terri Evans, Special Counsel, Division of Market Regulation, SEC, on November 1, 2000 (clarifying that the increased fee also applies to registered options principals).

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5.  See Securities Exchange Act Release No. 43020. (July 10, 2000) 65 FR 44558 (July 18, 2000).

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6.  See Securities Exchange Act Release No. 43497 (March 6, 2000), 65 FR 14005 (March 15, 2000); Securities Exchange Act Release No. 42562 (March 22, 2000), 65 FR 16445 (March 28, 2000); Securities Exchange Act Release No. 43074 (July 26, 2000), 65 FR 47529 (August 2, 2000); Securities Exchange Act Release No. 43014 (July 6, 2000), 65 FR 43388 (July 13, 2000); Securities Exchange Act Release No. 43257 (September 6, 2000), 65 FR 55665 (September 14, 2000); and Securities Exchange Act Release No. 43279 (September 11, 2000), 65 FR 56606 (September 19, 2000).

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9.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 00-28947 Filed 11-9-00; 8:45 am]

BILLING CODE 8010-01-M