6356 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

11The Commission has considered the proposed 

rules’ impact on efficiency, competition and capital 

formation. 15 U.S.C. 78c(f).

12 15 U.S.C. 78f(b)(5).

13See supra note 8.

14The Commission notes that Exchange members 

should assure that any agency issues are addressed 

by their respective customer agreements.

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

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Amendment No. 1 replaces the originally filed 

Form 19b–4 in its entirety.

4See Securities Exchange Act Release No. 48928 

(December 16, 2003), 68 Fr 75010 (December 29, 

2003).

5 In approving this proposed rule change, the 

Commission notes that it has considered its impact 

on efficiency, competition, and capital formation. 

15 U.S.C. 78c(f).

6 15 U.S.C. 78f.

7 15 U.S.C. 78f(b).

8See e.g., NASD Rules 4611 and 4612.

9See note 4, supra.

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change, as 

amended, is consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities exchange.11

Specifically, the Commission believes 

the proposed rule change, as amended, 

is consistent with section 6(b)(5) of the 

Act,12 which requires among other 

things, that the rules of the Exchange are 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market, and in general to protect 

investors and the public interest.

The Commission believes that the 

proposed rule change codifies current 

practices on the Exchange and existing 

interpretations of NYSE rules and is 

responsive to recommendations made 

by an independent consultant retained 

by the Exchange.13 The Commission 

also believes that the proposed rule 

change should clarify Exchange 

members’ rights and obligations under 

certain rules such as a broker having to 

recross a clean agency cross when there 

has been price improvement, a 

member’s ability to resolve certain 

disputes involving a monetary 

difference of $10,000 or more by a panel 

or through arbitration, a member’s 

requirement to receive all material terms 

of an order from the member’s customer 

off the floor of the Exchange, a 

specialist’s responsibility for losses 

incurred by other members because of 

an opening transaction, and the 

conditions for stopping stock.

Moreover, the Commission believes 

the proposed rule change will clarify the 

process by which a member can confirm 

or reject a transaction involving another 

member who has elected to take or 

supply for his own account the security 

named in an order entrusted to him.14

The Commission notes that several of 

the changes to NYSE Rule 91 codify the 

NYSE’s prior interpretation of this rule. 

As a result, the Commission believes 

that codification of these interpretations 

will add greater transparency to the 

NYSE’s rules. Further, the Commission 

notes that the proposed changes to 

NYSE Rule 91 aim to maintain a degree 

of flexibility in the rule to accommodate 

various situations occurring during the 

trading day.

With respect to the changes proposed 

for NYSE Rule 91.50, the Commission 

notes that a Floor Official’s review of a 

broker’s continued pattern of rejections 

of a specialist’s principal transactions in 

no way compromises the unconditional 

right of a broker to reject any trade 

where the specialist trades as principal. 

Furthermore, the Commission notes that 

the proposed rule provides that no 

disciplinary process would be triggered 

by the broker exercising his or her right 

to reject a trade. 

IV. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,15 that the 

proposed rule change (SR–NYSE–2002–

32), as amended, is approved.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.16

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2825 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49176; File No. SR–PCX–

2003–59] 

Self-Regulatory Organizations; Pacific 

Exchange, Inc.; Order Granting 

Approval to a Proposed Rule Change 

and Amendment No. 1 Thereto by the 

Pacific Exchange, Inc. To Amend Its 

Rules Governing Market-Maker 

Obligations on the Archipelago 

Exchange 

February 3, 2004. 

On October 21, 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’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and 

Rule 19b–4 thereunder,2 a proposed rule 

change to amend its rules governing 

Market Maker obligations on the 

Archipelago Exchange (‘‘ArcaEx’’), the 

equities trading facility of PCXE. The 

PCX filed Amendment No. 1 to the 

proposal on December 2, 2003.3 The 

proposed rule change, as amended, was 

published for comment in the Federal 

Register on December 29, 2003.4 The 

Commission received no comment 

letters on the proposal. This order 

approves the proposed rule change, as 

amended.

The Commission finds that the 

proposed rule change, as amended, is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange 5 and, in particular, 

the requirements of Section 6 of the 

Act 6 and the rules and regulations 

thereunder. Specifically, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b),7 which, among other things, 

requires that the PCX’s rules be 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with persons engaged 

in regulating, clearing, settling, 

processing information with respect to, 

and facilitating transactions in 

securities, to remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

Commission notes that the PCX’s 

restrictions on Market Makers requiring 

them to become odd-lot dealers and to 

maintain cleanup orders in the 

securities in which they maintain a 

market currently impose a competitive 

barrier vis-a`-vis other market centers in 

attracting Market Maker participation on 

ArcaEx because competing market 

centers do not impose such 

requirements.8 The Commission notes 

that the Exchange believes that 

eliminating the aforementioned 

requirements will facilitate additional 

Market Maker participation on ArcaEx 

and will further enhance order 

interaction, provide greater depth in 

liquidity, and foster price competition. 

Moreover, the Exchange believes that 

the elimination of such requirements 

will place ArcaEx on a level playing 

field with other market centers and 

allow ArcaEx to fairly compete for 

Market Maker,9 and that the impact on 

the system from removing these 

requirements for Market Makers would 

be minimal on the ArcaEx.

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.