[Federal Register: May 9, 2005 (Volume 70, Number 88)]
[Notices]
[Page 24458-24459]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my05-88]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51645; File No. SR-PCX-2005-47]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change and
Amendment Nos. 1 and 2 Relating to Exchange Fees and Charges
May 2, 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 April 6, 2005, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change relating to fees applicable to Option Strategy
Executions as described in Items I, II, and III below, which Items have
been prepared by the Exchange. On April 19, 2005, PCX filed Amendment
No. 1 to the proposed rule change.\3\ On April 26, 2005, PCX filed
Amendment No. 2 to the proposed rule change.\4\ PCX designated the
proposed rule change, as amended, as establishing or changing a due,
fee, or other charge imposed by PCX under Section 19(b)(3)(A)(ii) of
the Act,\5\ and Rule 19b-4(f)(2) thereunder,\6\ 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 parties.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the proposed rule
change in its entirety. In Amendment No. 1, PCX proposed that the
fee cap on strategy trades operate on a pilot basis until September
1, 2005. Further, Amendment No. 1 clarified that in order to qualify
for the fee cap, OTP Holders and OTP Firms are required to submit to
PCX required supporting documentation. Finally, Amendment No. 1
clarified that the fee cap applies to strategy trades executed on
the same trading day in the same option class.
\4\ In Amendment No. 2, PCX clarified in the Exchange's Schedule
of Fees and Charges that the fee cap applies to each type of
strategy trade executed on the same trading day in the same option
class.
\5\ 15 U.S.C. 78s(b)(3)(A)(ii).
\6\ 17 CFR 240.19b-4(f)(2).
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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 Schedule of Fees and Charges in
order to modify the fee that applies to Option Strategy Executions. The
text of the proposed rule change is available on the Exchange's Web
site (http://www.pacificex.com/), 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 to modify the fee that applies to Option
Strategy Executions.
These transactions include reversals and conversions,\7\ dividend
spreads,\8\ and box spreads.\9\ Because the referenced Options Strategy
Transactions are generally executed by professionals whose profit
margins are generally narrow, the Exchange proposes to cap the
transaction fees associated with such executions at $1,000 per strategy
execution that are executed on the same trading day in the same option
class.\10\ In addition, the Exchange is proposing a monthly cap of
$50,000 per initiating firm for all strategy executions. The Exchange
believes that by keeping fees low, the Exchange will be able to attract
liquidity by accommodating these transactions.
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\7\ According to the Exchange, reversals and conversions are
transactions that employ calls, puts and the underlying stock to
lock in a nearly risk free profit. Reversals are established by
combining a short stock position with a short put and a long call
position that share the same strike and expiration. Conversions
employ long positions in the underlying stock that accompany long
puts and short calls sharing the same strike and expiration.
\8\ According to the Exchange, dividend spreads are trades
involving deep in the money options that exploit pricing differences
arising around the time a stock goes ex-dividend.
\9\ According to the Exchange, box spreads are a strategy that
synthesizes long and short stock positions to create a profit.
Specifically, a long call and short put at one strike is combined
with a short call and long put at a different strike to create
synthetic long and synthetic short stock positions, respectively.
\10\ The Exchange clarified in Amendment No. 2, supra note 4,
that the daily $1,000 fee cap applies to each type of strategy,
i.e., reversals and conversions, dividend spreads, and box spreads.
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The Exchange represents that OTP Holders and OTP Firms who wish to
benefit from the fee cap would be required to submit to the Exchange
forms with supporting documentation (e.g., clearing firm transaction
data) by the next business day to qualify for the cap.\11\
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\11\ Telephone conversation between Steven B. Matlin, Senior
Counsel, PCX, and Steve L. Kuan, Attorney, Division of Market
Regulation, Commission, on April 26, 2005.
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2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\12\ in general, and Section 6(b)(4) of the Act,\13\ in
particular, in that it provides for the equitable allocation of dues,
fees, and other charges among its members.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change, as amended,
will not impose any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
[[Page 24459]]
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 foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \14\ and subparagraph (f)(2) of Rule 19b-4
thereunder \15\ 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 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.\16\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(2).
\16\ For purposes of calculating the 60-day period within which
the Commission may summarily abrogate the proposed rule change under
Section 19(b)(3)(C) of the Act, the Commission considers that period
to have commenced on April 26, 2005, the date the Exchange filed
Amendment No. 2 to the proposed rule change. See 15 U.S.C.
78s(b)(3)(C).
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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 rule-comments@sec.gov. Please include
File Number SR-PCX-2005-47 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-PCX-2005-47. 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 Exchange. 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-2005-47 and should be submitted on or before May 31,
2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2223 Filed 5-6-05; 8:45 am]
BILLING CODE 8010-01-P