Document ID: SEC-2006-0057-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-01-18T05:00Z

[Federal Register: January 18, 2006 (Volume 71, Number 11)]
[Notices]               
[Page 2975-2976]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18ja06-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53094; File No. SR-Phlx-2005-75]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendments No. 1 and 2 Thereto Relating to Dividend Spread and 
Merger Spread Strategy Rebate Request Forms

January 10, 2006.
    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 November 30, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or the ``Commission'') the proposed rule change as described 
in Items I, II and III below, which items have been prepared by Phlx. 
On December 21, 2005, the Exchange filed Amendment No. 1 to the 
proposal.\3\ On January 10, 2006, the Exchange filed Amendment No. 2 to 
the proposal.\4\ Phlx has designated the proposed rule change as one 
constituting a stated policy, practice, or interpretation with respect 
to the meaning, administration, or enforcement of an existing rule, 
pursuant to Section 19(b)(3)(A)(i) of the Act \5\ and Rule 19b-4(f)(1) 
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 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, Phlx modified the statutory basis for 
the immediate effectiveness of the proposal from Section 
19(b)(3)(A)(ii) of the Act and Rule 19b-4(f)(2) thereunder to 
Section 19(b)(3)(A)(iii) of the Act and Rule 19b-4(f)(3) thereunder, 
and also changed the implementation date for the proposal from the 
third business day of December 2005 to the third business day of 
January 2006.
    \4\ In Amendment No. 2, Phlx changed the statutory basis for the 
immediate effectiveness of the proposal from Section 
19(b)(3)(A)(iii) of the Act and Rule 19b-4(f)(3) thereunder to 
Section 19(b)(3)(A)(i) of the Act and Rule 19b-4(f)(1) thereunder. 
Amendment No. 2 also provided a revised statutory basis for the 
proposal.
    \5\ 15 U.S.C. 78s(b)(3)(A)(i).
    \6\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to amend the timeframe in which dividend spread and 
merger spread strategy rebate request forms must be submitted to the 
Exchange. Rebate request forms will now be due three business days 
after the end of each month.
    The text of the proposed rule change is available on the Phlx's Web 
site at http://www.phlx.com, at the Office of the Secretary at Phlx, 

and at the Commission's Public Reference Room.

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, as 
amended, and discussed any comments it received on the proposal. 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
    Currently, the Exchange provides a rebate for certain contracts 
executed in connection with transactions occurring as part of a 
dividend spread strategy \7\ or merger spread strategy.\8\ 
Specifically, for those options contracts executed pursuant to a 
dividend spread strategy or merger spread strategy, the Exchange 
rebates $0.08 per contract side for Registered Options Trader (``ROT'') 
executions and $0.07 per contract side for specialist executions on the 
business day before the underlying stock's ex-date. The ex-date is the 
date on or after which a security is traded without a previously 
declared dividend or distribution.\9\
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    \7\ For purposes of this proposal, the Exchange defines a 
``dividend spread'' transaction as any trade done within a defined 
time frame pursuant to a strategy in which a dividend arbitrage can 
be achieved between any two deep-in-the-money options.
    \8\ For purposes of this proposal, the Exchange defines a 
``merger spread'' transaction as a transaction executed pursuant to 
a merger spread strategy involving the simultaneous purchase and 
sale of options of the same class and expiration date, but different 
strike prices, followed by the exercise of the resulting long 
options position, each executed prior to the date on which 
shareholders of record are required to elect their respective form 
of consideration, i.e., cash or stock. See Securities Exchange Act 
Release No. 51596 (April 21, 2005), 70 FR 22381 (April 29, 2005).
    \9\ The Exchange also imposes a fee cap on equity option 
transaction and comparison charges on merger spread transactions and 
dividend spread transactions executed on the same trading day in the 
same options class. These fee caps are implemented after any 
applicable rebates are applied to ROT and specialist equity option 
transaction and comparison charges. The fee caps are in effect as a 
pilot program that is currently set to expire on March 1, 2006. See 
Securities Exchange Act Release No. 52380 (September 2, 2005), 70 FR 
53828 (September 12, 2005).

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[[Page 2976]]

    Currently, the Exchange uses a manual procedure to process rebate 
requests.\10\ Specifically, to qualify a transaction for the rebate 
process, a written rebate request, along with supporting documentation, 
must be submitted to the Exchange within 30 calendar days of the 
billing period (i.e., within thirty days from the issue date of the 
invoice).\11\ After the appropriate verification and subsequent 
acceptance, the Exchange credits the member's account for the amount of 
the rebate (either $0.08 or $0.07 per contract side) on contracts 
executed in transactions occurring as part of a merger spread strategy 
or dividend spread strategy.
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    \10\ See Securities Exchange Act Release Nos. 48983 (December 
23, 2003), 68 FR 75703 (December 31, 2003); and 51596 (April 21, 
2005), 70 FR 22381 (April 29, 2005).
    \11\ Members who wish to benefit from the fee cap submit to the 
Exchange the same written rebate request form with supporting 
documentation to receive the cap.
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    The Exchange now proposes to reduce the time period in which 
dividend spread strategy and merger spread strategy rebate request 
forms must be submitted to the Exchange from 30 calendar days to three 
business days following the end of the previous month, e.g., for merger 
spread and dividend spread transactions settling in December 2005, 
rebate request forms for those transactions must be submitted by the 
third business day in January 2006.\12\
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    \12\ No new fees are being proposed, nor are any fees being 
imposed retroactively. Rather, the rebate request form for January 
2006, which covers transactions occurring in December 2005, is now 
due at an earlier date.
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    This proposal would be effective beginning with rebate request 
forms that will be due in January 2006, which reflect trades settling 
on or after December 1, 2005.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \14\ in particular, as the proposal is designed to 
prevent fraudulent and manipulative acts and practices, 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    No written comments were solicited or received on the proposed rule 
change, as amended.

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)(i) of the Act \15\ and subparagraph (f)(1) of Rule 19b-4 
thereunder \16\ because it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule. 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(i).
    \16\ 17 CFR 240.19b-4(f)(1).
    \17\ The effective date of the original proposed rule change is 
November 30, 2005, the date of the original filing, and the 
effective dates of Amendments No. 1 and 2 are, respectively, 
December 21, 2005 and January 10, 2006, the filing dates of the 
amendments. For purposes of calculating the 60-day abrogation period 
within which the Commission may summarily abrogate the proposed rule 
change, as amended, under Section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on January 10, 2006, the 
date on which the Exchange submitted Amendment No. 2. 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, as amended, 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-Phlx-2005-75 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-Phlx-2005-75. 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 Phlx. 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-Phlx-2005-75 and should be submitted on or before 
February 8, 2006.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
[FR Doc. E6-432 Filed 1-17-06; 8:45 am]

BILLING CODE 8010-01-P