Document ID: SEC-2006-0036-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-01-13T05:00Z

[Federal Register: January 13, 2006 (Volume 71, Number 9)]
[Notices]               
[Page 2289-2290]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ja06-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53078; File No. SR-Phlx-2005-88]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to the Elimination of the 500 Contract Cap on Payment for 
Order Flow Fees

January 9, 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 December 23, 2005, 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 Items have been prepared by the Exchange. The Phlx 
has designated this proposal as one changing a fee imposed by the Phlx 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\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 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 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 Phlx proposes to eliminate the 500-contract cap per individual 
cleared side of a transaction which is currently imposed in connection 
with the Exchange's equity options payment for order flow program.\5\ 
The Exchange states that the elimination of the 500-contract cap would 
be scheduled to become effective for trades settling on or after 
January 2, 2006.
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    \5\ See Securities Exchange Act Release No. 52568 (October 6, 
2005), 70 FR 60120 (October 14, 2005) (SR-Phlx-2005-58).
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    Below is the text of the proposed rule change. Proposed deletions 
are in [brackets].
* * * * *

Summary of Equity Option Charges (p. 3/6)

    For any top 120 option listed after February 1, 2004 and for any 
top 120 option acquired by a new specialist unit ** within the first 
60-days of operations, the following thresholds will apply, with a cap 
of $10,000 for the first 4 full months of trading per month per option 
provided that the total monthly market share effected on the Phlx in 
that top 120 Option is equal to or greater than 50% of the volume 
threshold in effect:

First full month of trading: 0% national market share.
Second full month of trading: 3% national market share.
Third full month of trading: 6% national market share.
Fourth full month of trading: 9% national market share.
Fifth full month of trading (and thereafter): 12% national market 
share.

    ** A new specialist unit is one that is approved to operate as a 
specialist unit by the Options Allocation, Evaluation, and 
Securities Committee on or after February 1, 2004 and is a 
specialist unit that is not currently affiliated with an existing 
options specialist unit as reported on the member organization's 
Form BD, which refers to direct and indirect owners, or as reported 
in connection with any other financial arrangement, such as is 
required by Exchange Rule 783.
Real-Time Risk Management Fee
    $.0025 per contract for firms/members receiving information on a 
real-time basis.
Equity Option Payment for Order Flow Fees *
    (1) For trades resulting from either Directed or non-Directed 
Orders that are delivered electronically and executed on the Exchange: 
Assessed on ROTs, specialists and Directed ROTs on those trades when 
the specialist unit or Directed ROT elects to participate in the 
payment for order flow program.***
    (2) No payment for order flow fees will be assessed on trades that 
are not delivered electronically.

QQQQ (NASDAQ-100 Index Tracking StockSM)--$0.75 per 
contract.
Remaining Equity Options, except FXI Options--$0.60 per contract.

    * Assessed on transactions resulting from customer orders[, 
subject to a 500-contract cap, per individual cleared side of 
transaction]. This proposal will be in effect for trades settling on 
or after October 1, 2005 and will remain in effect as a pilot 
program that is scheduled to expire on May 27, 2006.
    *** Any excess payment for order flow funds billed but not 
utilized by the specialist or Directed ROT will be carried forward 
unless the Directed ROT or specialist elects to have those funds 
rebated to the applicable ROT, Directed ROT or specialist on a pro 
rata basis, reflected as a credit on the monthly invoices.

See Appendix A for additional fees.
* * * * *

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 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

1. Purpose
    According to the Phlx, currently, the following payment for order 
flow rates are in effect at the Exchange: (1) Equity options other than 
QQQQ \6\ and FXI Options are assessed $0.60 per contract; (2) options 
on QQQQ are assessed $0.75 per contract; and (3) no payment for order 
flow fees are assessed on FXI Options. Trades resulting from either 
Directed or non-Directed Orders that are delivered electronically over 
AUTOM and executed on the Exchange are assessed a payment for order 
flow fee, while non-electronically-delivered orders (i.e., represented 
by a floor broker) are not assessed a payment for order flow fee.\7\ 
The Exchange also imposes a 500-contract cap per individual cleared 
side of a transaction.
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    \6\ The Nasdaq-100[reg], Nasdaq-100 Index[reg], Nasdaq[reg], The 
Nasdaq Stock Market[reg], Nasdaq-100 SharesSM, Nasdaq-100 
TrustSM, Nasdaq-100 Index Tracking StockSM, 
and QQQSM are trademarks or service marks of The Nasdaq 
Stock Market, Inc. (``Nasdaq'') and have been licensed for use for 
certain purposes by the Phlx pursuant to a License Agreement with 
Nasdaq. The Nasdaq-100 Index[reg] (``Index'') is determined, 
composed, and calculated by Nasdaq without regard to the Licensee, 
the Nasdaq-100 TrustSM, or the beneficial owners of 
Nasdaq-100 SharesSM. The Exchange states that Nasdaq has 
complete control and sole discretion in determining, comprising, or 
calculating the Index or in modifying in any way its method for 
determining, comprising, or calculating the Index in the future.
    \7\ The Phlx states that electronically-delivered orders do not 
include orders delivered through the Floor Broker Management System 
pursuant to Exchange Rule 1063.
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    At this time, the Exchange proposes to eliminate the 500-contract 
cap per

[[Page 2290]]

individual cleared side of a transaction. The Phlx states that the 
purpose of this proposal is to remain competitive with other options 
payment for order flow programs in place at other exchanges that do not 
cap payment for order flow fees collected on a per order or trade 
basis.\8\ The Exchange represents that no other changes to the 
Exchange's payment for order flow program are being proposed at this 
time.
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    \8\ See, e.g., Securities Exchange Act Release No. 52024 (July 
13, 2005), 70 FR 41806 (July 20, 2005) (SR-PCX-2005-82). Telephone 
conversation between Cynthia K. Hoekstra, Director, Exchange, and 
Michou Nguyen, Attorney, Division of Market Regulation, Commission, 
on January 9, 2006.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \9\ in general, and 
furthers the objectives of Sections 6(b)(4) of the Act \10\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among the Phlx's members.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    No written comments were either solicited or received.

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 \11\ and Rule 
19b-4(f)(2) \12\ thereunder, because it establishes or changes a due, 
fee, or other charge imposed by the Exchange. Accordingly, the proposal 
will take effect upon filing with the Commission. At any time within 60 
days of the filing of such 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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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 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 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-Phlx-2005-88 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-2005-88. 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-2005-88 and should be submitted on or before 
February 3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-326 Filed 1-12-06; 8:45 am]

BILLING CODE 8010-01-P