[Federal Register: March 26, 2003 (Volume 68, Number 58)]
[Notices]
[Page 14735-14737]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26mr03-178]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47549; File No. SR-PCX-2003-04]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. To
Amend its Fee Schedule for Services Provided to ETP Holders and
Sponsored Participants That Trade Nasdaq Securities on the Archipelago
Exchange
March 20, 2003.
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 30, 2003, 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, II
and III below, which Items have been prepared by the Exchange. On March
19, 2003, the Exchange amended the proposal.\3\ The PCX has designated
this proposal as one establishing or changing a due, fee, or other
charge imposed by the PCX under section 19(b)(3)(A)(ii) of the Act,\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, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See March 18, 2003 letter from Rhonda Y. Jones, Regulatory
Policy, PCX, to Joseph P. Morra, Special Counsel, Division of Market
Regulation, SEC, and attachments (``Amendment No. 1''). Amendment
No. 1 replaces and supersedes the original proposed rule change in
its entirety. For purposes of calculating the 60-day abrogation
period, the Commission considers the period to have commenced on
March 19, 2003, the date the PCX filed Amendment No. 1. See section
19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
\4\ 15 U.S.C. 78s(b)(3)(A)(ii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange, through PCXE, proposes to amend its fee schedule for
services provided to ETP Holders and Sponsored Participants that trade
Nasdaq securities on the Archipelago Exchange, the equities trading
facility of PCXE. The text of the proposed rule change is available at
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 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.
The 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 amend the fees charged to ETP Holders \5\
and Sponsored Participants \6\ (collectively ``Users'') that access the
ArcaEx trading facility to include certain fees and credits for Nasdaq
securities. ArcaEx is scheduled to begin trading Nasdaq securities
pursuant to unlisted trading privileges \7\ in the early first quarter
of 2003. The Exchange proposes to adopt fees for Nasdaq securities that
parallel the Exchange's rate structure for exchange-listed securities.
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\5\ See PCXE Rule 1.1(n).
\6\ A ``Sponsored Participant'' means ``a person which has
entered into a sponsorship arrangement with a Sponsoring ETP Holder
pursuant to [PCXE] Rule 7.29.'' See PCXE Rule 1.1(tt).
\7\ See Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges (``Nasdaq UTP Plan''). The participants in the Nasdaq UTP
Plan are the National Association of Securities Dealers, Inc.
(``NASD''), the American Stock Exchange LLC (``Amex''), the Boston
Stock Exchange, Inc. (``BSE''), the Chicago Stock Exchange, Inc.
(``CHX''), the Cincinnati Stock Exchange, Inc. (``CSE''), the
Pacific Exchange, Inc. (``PCX''), and the Philadelphia Stock
Exchange, Inc. (``Phlx''). Eligible securities under the Nasdaq UTP
Plan are defined in section III.B.
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Trade-Related Charges
(a) Transaction Fees. The PCX currently charges all Users a
transaction fee of $0.003 per share for orders in exchange-listed
securities that extract liquidity by responding to, and executing
against, orders residing in the ArcaEx Book (``Book'').\8\ The Exchange
proposes to charge this same transaction fee to Users for orders in
Nasdaq securities. The Exchange believes that this proposed fee will
provide incentives for increasing order flow to ArcaEx, and will have
the effect of attracting resting limit orders into the Book, which will
help promote liquidity, transparency, and in turn, price discovery. The
Exchange notes that the following items continue to be excluded from
this fee: (i) Directed Orders, regardless of account type, that are
matched within the Directed Order Process;\9\ (ii) Directed Orders for
the account of a retail public customer that are executed partially or
in their entirety via the other Order processes;\10\ (iii) orders
executed in the Opening Auction and the Market Order Auction;\11\ (iv)
Cross Orders;\12\ and (v) participants in the Nasdaq UTP Plan that
transmit orders via telephone.\13\
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\8\ ArcaEx maintains an electronic file of orders, called the
ArcaEx Book, through which orders are displayed and matched. The
ArcaEx Book is divided into four components, called processes--the
Directed Order Process, the Display Order Process, the Working Order
Process, and the Tracking Order Process. See PCXE Rules 7.36 and
7.37 for a detailed description of these order execution processes.
\9\ The Directed Order Process is the first step in the ArcaEx
execution algorithm. Through this Process, Users may direct an order
to a Market Maker with whom they have a relationship and the Market
Maker may execute the order. To access this process, the User must
submit a Directed Order, which is a market or limit order to buy or
sell that has been directed to a particular Market Maker by the
User. See PCXE Rule 7.37(a)(description of ``Directed Order
Process'').
\10\ If a retail public customer order has not been executed in
its entirety after progressing through the Directed Order, Display
Order, Working Order, and Tracking Order processes, the remaining
portion of such order, if eligible, will be routed to another market
center or participant. Any executed portion of that order will be
subject to the proposed transaction fee of $0.004 per share.
\11\ See PCXE Rules 7.35(b) and (c) for a detailed description
of the Opening Auction and the Market Order Auction, respectively.
\12\ A Cross Order is defined as a two-sided order with
instructions to match the identified buy-side with the identified
sell-side at a specified price (the cross price), subject to price
improvement requirements. See PCXE Rule 7.31(s).
\13\ See footnote 7, supra.
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The PCX also proposes to charge a transaction fee of $0.004 per
share for any unfilled or residual portion of a User's order in Nasdaq
securities (including a retail public customer
[[Page 14736]]
order)\14\ that is routed away via ArcaEx and executed by another
market center or participant. The proposed transaction fee of $0.004
per share is the same amount that is currently applied to orders in
exchange-listed securities that are routed away and executed by another
market center or participant. The Exchange believes that this fee is
reasonable and is structured to allocate fairly the costs of operating
the ArcaEx facility.
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\14\ See footnote 10, supra.
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(b) Odd and Mixed Lots. The Exchange proposes to charge all odd-lot
orders executed in Nasdaq securities (including the odd-lot portion of
a mixed lot) a $0.03 per share transaction fee for orders that extract
liquidity by responding to, and executing against, orders residing in
the ArcaEx Book. In addition, the PCX proposes to adopt a $0.03 per
share transaction fee for orders in Nasdaq securities that are routed
away and executed by another market center or participant. These
proposed transaction fees for Nasdaq securities are of the same amount
as currently applied to odd-lot orders in exchange-listed securities.
The PCX notes that odd-lot orders that are created as a result of a
partial fill of a round lot will be excluded from these fees.
Market Maker Transaction Credits
The Exchange proposes to increase the level of the transaction
credit paid to Market Makers who provide liquidity in exchange-listed
securities. Currently, Market Makers who enter Q Orders \15\ in
exchange-listed securities that are subsequently executed against
incoming marketable orders, earn a credit of $0.0015 per share.\16\ The
Exchange proposes to increase the level of the transaction credit for
exchange-listed securities from $0.0015 to $0.0025 per share.\17\ The
Exchange is also proposing to establish a $0.002 credit per share for
Nasdaq securities. In addition, $0.02 per share will be credited to any
Market Maker that executes against an odd-lot order in a Nasdaq
security during the Odd Lot Tracking Process.\18\ These credits are
intended to provide an additional incentive to firms to become Market
Makers in exchange-listed and Nasdaq securities and to build liquidity
in the Book, which will foster price competition and order interaction.
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\15\ Q Orders are limit orders that are submitted to ArcaEx by a
Market Maker in those securities in which the Market Maker is
registered to trade. See PCXE Rule 7.31(k).
\16\ The transaction credit applied to orders in Exchange-Traded
Funds (``ETFs'') and American Depositary Receipts (``ADRs'') is
currently $0.002 per share.
\17\ The current $0.02 per share credit that is provided to any
Market Maker that executes against an odd-lot order in the Odd Lot
Tracking Order Process will remain in effect.
\18\ The Tracking Order Process is the fourth step of the ArcaEx
execution algorithm. If the unfilled marketable order (or portion of
an order) that enters the Tracking Order Process is an odd lot, such
order will be executed against a Market Maker that is registered as
an Odd Lot Dealer. See PCXE Rules 7.31(g) and 7.37(c).
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Other Fees, Charges and Credits
(a) User Transaction Credit. PCX proposes to establish a
transaction credit for Users who provide liquidity in the Book in
Nasdaq securities. Under the proposal, a User that enters a resting
limit order into the Book that is subsequently executed against an
incoming marketable order in a Nasdaq security will receive a credit of
$0.002 per share. This credit is designed to enhance market efficiency
and fairness by offering incentives to market participants that provide
liquidity through ArcaEx. Any credit received by a User will be applied
to reduce any charges payable to ArcaEx. Any remaining balance may be
paid directly to the User.
(b) ``Drop Copy'' Processing Fee. The PCX currently charges Market
Makers a $0.001 per share fee for processing ``drop copies''\19\ of
their transactions executed on other market centers. The Exchange
proposes to broaden the application of this fee to include any ETP
Holders that want to receive drop copies of such off-board
transactions. The current fee of $0.001 per share will remain in effect
and will apply to such off-board transactions in exchange-listed and
Nasdaq securities. In addition, the Exchange notes that Market Maker
transactions that are subject to this fee will continue to be
ineligible to receive the Market Maker Transaction Credit or User
Transaction Credit. The Exchange believes that this fee is reasonable
and is structured to allocate fairly the costs of operating the ArcaEx
facility.
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\19\ Under the current fee schedule, a ``drop copy'' is an
electronic report of a transaction for a Market Maker's account that
is executed on another market center and that has been prepared for
informational purposes (e.g., Market Maker inventory tracking,
surveillance audit trail). Market Maker transactions that are
subject to this fee will not be eligible to receive the Market Maker
Transaction Credit or User Transaction Credit.
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2. Statutory Basis
The Exchange believes the proposal is consistent with section 6(b)
of the Act,\20\ in general, and section 6(b)(4) of the Act,\21\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among its members.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4).
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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 has become effective pursuant to section
19(b)(3)(A)(ii) of the Act \22\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\23\ because it establishes or changes a due, fee, or other
charge. 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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\22\ 15 U.S.C. 78s(b)(3)(A)(ii).
\23\ 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 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, 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 such filing will also be available for
inspection and copying at the principal office of the PCX. All
submissions should refer to file number SR-PCX-2003-04 and should be
submitted by April 16, 2003.
[[Page 14737]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7227 Filed 3-25-03; 8:45 am]
BILLING CODE 8010-01-P