Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6357

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3The Exchange’s payment for order flow fee is 

imposed on transactions in the top 120 most 

actively traded equity options in terms of the total 

number of contracts that are traded nationally, 

based on volume statistics provided by the Options 

Clearing Corporation. The measuring period for the 

top 120 equity options encompasses three months 

and the Exchange files a separate proposed rule 

change for each three-month trading period. With 

respect to the payment for order flow fees imposed 

on trades settling on or after November 1, 2003 

through January 31, 2004, for example, the 

measuring period for the top 120 equity options was 

based on volume statistics from July, August and 

September 2003. See Securities Exchange Act 

Release No. 48688 (October 24, 2003), 68 FR 61845 

(October 30, 2003) (SR–Phlx–2003–70). For the 

payment for order flow fees imposed on trades 

settling on or after February 1, 2004 through April 

30, 2004, as set forth in this proposal, the measuring 

period for the top 120 equity options is based on 

volume statistics from October, November, and 

December 2003.

4To avoid confusion, the ROT Equity Option 

Payment for Order Flow Charges Schedule reflects 

only those options being charged more than $0.00.

5Under the Exchange’s payment for order flow 

program, a 500 contract cap per individual cleared 

side of a transaction is imposed. Thus, the 

applicable payment for order flow fee would be 

imposed only on the first 500 contracts per 

individual cleared side of a transaction. For 

example, if a transaction consists of 750 contracts 

by one ROT, the applicable payment for order flow 

fee would be applied to, and capped at, 500 

contracts for that transaction. Also, if a transaction 

consists of 600 contracts, but is divided equally 

among three ROTs, the 500 contract cap would not 

apply to any such ROT and each ROT would be 

assessed the applicable payment for order flow fee 

on 200 contracts, as the payment for order flow fee 

is assessed on a per ROT, per transaction basis. See

Securities Exchange Act Release No. 47958 (May 

30, 2003), 68 FR 34026 (June 6, 2003) (proposing 

SR–Phlx–2002–87) and Securities Exchange Act 

Release No. 48166 (July 11, 2003), 68 FR 42540 

(July 17, 2003) (approving SR–Phlx–2002–87).

6See Securities Exchange Act Release No. 47090 

(December 23, 2002), 68 FR 141 (January 2, 2003) 

(SR-Phlx-2002–75).

7The payment for order flow fee does not apply 

to specialist transactions or to transactions between: 

(1) A ROT and a specialist; (2) a ROT and a ROT; 

(3) a ROT and a firm; and (4) a ROT and a brokerdealer. According to the Phlx, the fee is not 

imposed with respect to the above-specified 

transactions because the primary focus of the 

program is to attract order flow from customers. The 

payment for order flow fee also does not apply to 

index or foreign currency options.

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(4).

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,10 that the 

proposed rule change and Amendment 

No. 1 thereto (File No. SR–PCX–2003–

59) are approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.11

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2811 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49170; File No. SR–Phlx–

2004–05] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

Philadelphia Stock Exchange, Inc. 

Relating to the Payment for Order Flow 

Fees for the Top 120 Options 

February 2, 2004. 

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 

22, 2004, the Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which the Phlx 

has prepared. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Phlx proposes to establish its 

equity options payment for order flow 

fees imposed on the transactions of Phlx 

Registered Options Traders (‘‘ROTs’’) for 

the period from February 2004 through 

April 2004 for the top 120 equity 

options based on volume statistics from 

October, November and December 

2003,3 as set forth on the ROT Equity 

Option Payment for Order Flow Charges 

Schedule 4 and subject to certain 

exceptions listed below. The Phlx 

intends to implement the payment for 

order flow fees for trades settling on or 

after February 1, 2004 through April 30, 

2004. The rate levels would not change: 

the top-ranked equity option would be 

charged a fee of $1.00 per contract; the 

next 49 equity options would be 

charged a fee of $.40 per contract; and 

no fee would be imposed for the 

remaining equity options in the top 

120.5 The Exchange’s ROT Equity 

Option Payment for Order Flow Charges 

Schedule is available at the Phlx 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 

Phlx included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it had received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Phlx 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 

The Phlx has reinstated its payment 

for order flow program.6 Under the 

program, the Phlx charges ROTs a percontract fee with respect to their 

transactions in the top 120 most actively 

traded equity options issues, subject to 

certain exceptions.7 The fees are set 

forth on the Phlx’s ROT Equity Option 

Payment for Order Flow Charges 

Schedule.

1. Purpose 

The purpose of the proposed rule 

change is to establish the payment for 

order flow fees for the top 120 equity 

options for trades settling on or after 

February 1, 2004 through April 30, 

2004. The Phlx will file with the 

Commission a proposed rule change to 

address changes to the fee schedule for 

subsequent time periods. The Phlx is 

not making any other changes to its 

payment for order flow program at this 

time. 

2. Statutory Basis 

The Exchange believes that this 

proposal to amend its schedule of dues, 

fees and charges would be an equitable 

allocation of reasonable fees among Phlx 

members, and that the proposal is 

consistent with Section 6(b) of the Act 8

and furthers the objectives of Section 

6(b)(4) of the Act.9

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any inappropriate burden on 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Phlx neither solicited nor 

received written comments on this 

proposal. 

6358 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b–4(f)(2).

12 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3As stated on the Phlx fee schedule, ECNs shall 

mean any electronic system that widely 

disseminates to third parties orders entered therein 

by an Exchange market maker or over-the-counter 

(‘‘OTC’’) market maker, and permits such orders to 

be executed against in whole or in part; except that 

the term ECN shall not include: any system that 

crosses multiple orders at one or more specified 

times at a single price set by the ECN (by algorithm 

or by any derivative pricing mechanism) and does 

not allow orders to be crossed or executed against 

directly by participants outside of such times; or, 

any system operated by, or on behalf of, an OTC 

market-maker or exchange market-maker that 

executes customer orders primarily against the 

account of such market maker as principal, other 

than riskless principal. See SEC Rule 11Ac1–1(a)(8). 

The Exchange is herein proposing minor changes to 

this definition, which appears on the fee schedule, 

to correct inconsistencies between the text of the 

SEC Rule 11Ac1–1(a)(8) and the text that appears 

on the Exchange’s fee schedule.

4See Securities Exchange Act Release No. 47120 

(January 3, 2003), 68 FR 1498 (January 10, 2003) 

(Notice of Filing and Immediate Effectiveness of 

SR–Phlx–2002–83, extending the ECN fee pilot 

program until January 31, 2004). See also Securities 

Exchange Act Release Nos. 44155 (April 5, 2001), 

66 FR 19274 (April 13, 2001) (Notice of Filing and 

Immediate Effectiveness of SR–Phlx–2001–09, 

adopting the ECN fee program on a pilot basis); and 

45456 (February 19, 2002), 67 FR 8831 (February 

26, 2002) (Notice of Filing and Immediate 

Effectiveness of SR–Phlx–2002–08, extending the 

ECN fee pilot program until January 31, 2003).

5To recoup costs due from the Exchange to the 

Commission pursuant to Section 31(b) of the Act, 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change 

has been designated as a fee change 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 10 and Rule 19b–4(f)(2) 11

thereunder. Accordingly, the proposal 

has taken effect upon filing with the 

Commission. At any time within 60 

days after the filing of the proposed rule 

change, the Commission may summarily 

abrogate the 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 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–Phlx–2004–05. 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, comments 

should be sent in hard copy or by email, but not by both methods. Copies 

of such filing will also be available for 

inspection and copying at the principal 

office of the Phlx. All submissions 

should refer to File No. SR–Phlx–2004–

05 and should be submitted by March 

2, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.12

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2809 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49173; File No. SR–Phlx–

2004–07] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

Philadelphia Stock Exchange, Inc. 

Relating to the Extension of Its Pilot 

Program To Implement Its Existing Fee 

Schedule for Electronic 

Communications Networks 

February 2, 2004. 

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 

28, 2004, the Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to extend the 

Exchange’s current pilot program for an 

additional one-year period (until 

January 31, 2005), in order to continue 

to impose a $2,500 monthly fee for 

Electronic Communications Networks 

(‘‘ECNs’’) that are member organizations 

and send order flow to the Exchange’s 

equity trading floor.3 The current pilot 

program is scheduled to expire on 

January 31, 2004.4 The $2,500 fee would 

continue to apply to ECN trades where 

the ECN is not acting as a specialist or 

a floor broker, but rather an order flow 

provider. This fee is in lieu of the equity 

transaction value charge that would 

normally apply to (non-specialist) 

equity trades.

The text of the proposed rule change 

is available at the Office of the 

Secretary, the Phlx, and 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 purpose of the proposed rule 

change is to extend the Exchange’s 

current ECN pilot program that imposes 

a $2,500 monthly fee for ECNs that are 

member organizations and send order 

flow to the Exchange’s equity trading 

floor for an additional one-year period, 

until January 31, 2005. The continuation 

of the $2,500 fee is intended to attract 

equity order flow from ECNs to the 

Exchange by continuing to substitute a 

fixed monthly fee, in light of the 

potential for high volumes of order flow 

from ECNs.5