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Notice

Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change by the Pacific Exchange, Inc. Relating to a Rebate of Marketing Charges to Market Makers

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Information about this document as published in the Federal Register.

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Start Preamble March 13, 2001.

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 January 31, 2001, 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 and II below, which Items have been prepared by the PCX. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and to grant accelerated approval of the proposal.

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

The PCX proposes to rebate to Market Makers on a quarterly basis the marketing charges that have not been paid to order flow providers. The text of the proposed rule change is available at the principal offices of the 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 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 III below. The PCX has prepared summaries, set forth in sections A, B, Start Printed Page 15940and 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

Effective September 13, 2000, the PCX began implementing a plan that imposes a marketing fee on PCX market makers to provide a source of payment to order flow providers.[3] Pursuant to the plan, the PCX collects a fee from market makers and makes the funds available to Lead Market Makers (“LMMs”) for their use in attracting orders in the options traded at their trading posts. Each LMM determines the distribution of the funds in whatever manner it believes is most likely to attract orders. The PCX has assessed this fee and distributed the proceeds according to the directions of the LMMs, and has found that excess fee proceeds remain in the fund after distribution.

Therefore, the PCX proposes to rebate to market makers, on a quarterly basis, the amount of marketing fees that have not been paid to order flow providers. The amount to be refunded to each market maker would be based on the percentage of the total marketing charges the market maker paid at each trading post during the rebate time period. The marker maker's percentage of the total marketing charges at each trading post would then be multiplied by the rebate amount. For example, if a market maker contributed 5% of the total marketing charges at a particular trading post during the rebate time period, the market maker would receive 5% of that post's overall rebate amount for the rebate time period. The rebate for each market maker would be paid directly to the market maker's clearing firm.

3. Basis

The PCX believes that this proposal is consistent with and furthers the objectives of the Act, including specifically section 6(b)(5) [4] thereof, which requires that the rules of an exchange be designed to remove impediments to and perfect the mechanism of a free and open market and a national market system, and section 11A(a)(1) [5] therefore, which reflects the finding of Congress that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure fair competition among brokers and dealers and among exchange markets.

B. Self-Regulatory Organization's Statement on Burden on Competition

The PCX 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. 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 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the 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-01-08 and should be submitted by April 11, 2001.

IV. Commission Findings and Order Granting Accelerated Approval of the Proposed Rule Change

After careful review, the Commission finds that the proposed rule change is consistent with the Act, particularly section 6(b)(5) of the Act,[6] and the rules and regulations under the Act applicable to a national securities exchange. The Commission believes that the proposed rebate program is an appropriate way to distribute excess marketing fee proceeds that the PCX has collected from market makers but that the LMMs have not distributed. Accordingly, the Commission finds that the proposed rule change is consistent with the requirement of section 6(b)(5) of the Act that the rules of an Exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice of the proposal in the Federal Register. The Commission believes that the PCX's proposed rebate program is the logical extension of its payment for order flow program (SR-PCX-00-30), which became effective upon filing [7] Moreover, the PCX's rebate program is very similar to a payment for order flow rebate program that is currently being administered at the Phlx.[8]

It is Therefore Ordered, pursuant to section 19(b)(2) of the Act.[9] that the proposed rule change (SR-PCX-01-08) be, and hereby is, approved on an accelerated basis.[10]

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Securities Exchange Act Release No. 43290 (September 13, 2000), 65 FR 57213 (September 21, 2000) (SR-PCX-00-30).

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7.  See Securities Exchange Act Release No. 43290, n. 3 above.

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8.  See Securities Exchange Act Release No. 44021 (February 28, 2001), 66 FR 13823 (March 7, 2001) (SR-Phlx-01-14).

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10.  In approving the proposal, the Commission has considered the rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 01-6950 Filed 3-20-01; 8:45 am]

BILLING CODE 8010-01-M