Document ID: SEC-2006-0411-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-03-28T05:00Z

[Federal Register: March 28, 2006 (Volume 71, Number 59)]
[Notices]               
[Page 15508-15510]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28mr06-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53529; File No. SR-Phlx-2006-16]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to its Dividend Spread and Merger Spread Program

March 21, 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 February 24, 2006, 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 Phlx. Phlx has 
designated the proposed rule change as one establishing or changing a 
due, fee, or other charge, pursuant to 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

    Phlx proposes to: (1) Amend its dividend spread strategy program to 
assess a $0.05 per contract side license fee on additional equity 
option products in connection with dividend spread strategies to 
recapture license fees associated with the trading of these products; 
and (2) extend for a period of six months its fee caps on equity option 
transaction and comparison charges on dividend spread transactions \5\ 
and merger spread transactions,\6\ and its $0.05 per contract side 
license fee imposed for dividend spread transactions. The current fee 
caps and $0.05 per contract side license fee are in effect as a pilot 
program that expired on March 1, 2006. The Exchange proposes to extend 
the pilot program for a six-month period until September 1, 2006. The 
Exchange also proposes to make a minor technical change to delete 
unnecessary text from its fee schedule and to correct a typographical 
error.
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    \5\ For purposes of this proposal, a ``dividend spread'' 
transaction is 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.
    \6\ 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.
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    The text of the proposed rule change is available on 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 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 imposes a fee cap on equity option 
transaction and comparison charges on merger spread strategy and 
dividend spread strategy transactions executed on the same trading day 
in the same options class. Specifically, Registered Options Traders' 
(ROTs) and specialists' equity option transaction and comparison 
charges are capped at $1,750 for transactions effected pursuant to a 
merger spread strategy or pursuant to a dividend spread strategy when 
the dividend is $0.25 or greater. However, for dividend spread 
transactions for a security with a declared dividend or distribution of 
less than $0.25, the ROTs' and specialists' equity option transaction 
and comparison charges are capped at $1,000 for transactions effected 
pursuant to a dividend spread strategy executed on the same trading day 
in the same options class. The fee caps are implemented after any 
applicable rebates are applied to ROT and specialist equity option 
transaction and comparison charges.\7\
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    \7\ Currently, the Exchange provides a rebate for certain 
contracts executed in connection with transactions occurring as part 
of a dividend spread or merger spread strategy. Specifically, for 
those options contracts executed pursuant to a dividend spread or 
merger spread strategy, the Exchange rebates $0.08 per contract side 
for 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. After 
the ex-date a stock is said to trade ex-dividend.) See Securities 
Exchange Act Release No. 51596 (April 21, 2005), 70 FR 22381 (April 
29, 2005) (SR-Phlx-2005-19).
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    In addition, the Exchange assesses a license fee of $0.05 per 
contract side for dividend spread strategy transactions in options in 
connection with certain products that carry license fees.\8\ The 
license fee of $0.05 per contract side: (i) Is not subject to the 
$1,750 or $1,000 caps described above; (ii) is assessed in addition to 
any other transaction and comparison charges associated with dividend 
spread strategy transactions; and (iii) does not count towards reaching 
the $1,750 or $1,000 caps. The Exchange proposes to extend the pilot 
program for the current fee caps and $0.05 per contract side license 
fee for a six-month period until September 1, 2006.\9\
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    \8\ These products are listed on the Exchange's fee schedule 
under the section entitled ``$60,000 ``Firm Related'' Equity Option 
and Index Option Cap.''
    \9\ Telephone conversation between Leah Mesfin, Special Counsel, 
Commission, and Cynthia Hoekstra, Director, Phlx, on March 21, 2006.

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[[Page 15509]]

    The Exchange also proposes to recoup the license fees owed in 
connection with the trading of additional products. Specifically, in 
addition to the products already being charged a license fee under the 
Exchange's strategy fee pilot program, the Exchange proposes to assess 
the license fee of $0.05 per contract side for dividend spread strategy 
transactions in options on: (1) State Street Global Advisors', a 
division of State Street Bank and Trust Company (``SSGA''), 
streetTracks based on the Dow Jones & Co., Inc. (``Dow Jones'') Global 
Titans 50 IndexSM, (DGT); (2) SSGA's streetTracks based on the Dow 
Jones Wilshire 5000 IndexSM, (TMW); (3) BGI's iShares Dow Jones Select 
Dividend IndexSM, (DVY); (4) iShares Dow Jones U.S. Total Market 
IndexSM, (IYY); (5) iShares Dow Jones U.S. Basic Materials IndexSM, 
(IYM); (6) iShares Dow Jones U.S. Consumer Services Sector IndexSM, 
(IYC); (7) iShares Dow Jones U.S. Financial Sector IndexSM, (IYF); (8) 
iShares Dow Jones U.S. Financial Services Sector IndexSM, (IYG); (9) 
iShares Dow Jones U.S. Healthcare Sector IndexSM, (IYH); (10) iShares 
Dow Jones U.S. Industrial Sector IndexSM, (IYJ); (11) iShares Dow Jones 
U.S. Consumer Goods Sector IndexSM, (IYK); (12) iShares Dow Jones U.S. 
Real Estate Sector IndexSM, (IYR); (13) iShares Dow Jones U.S. 
Technology Sector IndexSM, (IYW); (14) iShares Dow Jones U.S. 
Telecommunications Sector IndexSM, (IYZ); (15) iShares Dow Jones U.S. 
Utilities Sector IndexSM, (IDU); and (16) First Trust's ETF based on 
the Dow Jones Select Microcap IndexSM, (FDM).\10\
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    \10\ The products listed in this proposal were recently the 
subject of a proposed rule change filed with the Commission to 
include them on the list of products that are assessed a license fee 
of $0.10 per contract side in connection with the Exchange's $60,000 
``Firm Related'' Equity Option and Index Option Cap. This same list 
of products is also used to designate the products that are assessed 
a license fee of $0.05 per contract side for dividend spread 
strategies in connection with transactions other than firm-related 
transactions. See Securities Exchange Act Release No. 53287 
(February 14, 2006), 71 FR 9186 (February 22, 2006) (SR-Phlx-2006-
10).
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    Even with the assessment of the $0.05 license fee per contract 
side, the Exchange believes that the fee caps and rebates should 
continue to encourage specialists and ROTs to provide liquidity for 
dividend spread strategy transactions. In addition, the purpose of 
extending the pilot program is to continue to attract additional 
liquidity to the Exchange and to remain competitive.
    The reference to the $1,000 and $1,750 caps that are subject to a 
pilot program that expired on March 1, 2006 inadvertently appears twice 
on the fee schedule in the same paragraph. Therefore, the purpose of 
removing this sentence is to clarify and simplify the text relating to 
the caps and the pilot program as it appears on the Exchange's fee 
schedule. In addition, the purpose of changing one reference to the 
symbol ``IWM'' to ``IYM'' is to correct a typographical error. The 
symbol ``IYM'' is the symbol for iShares Dow Jones U.S. Basic Material 
Index\SM\.\11\
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    \11\ ``Dow Jones'' and ``SSGA's streetTracks based on the Dow 
Jones Global Titans 50 Index\SM\'', ``SSGA's streetTracks based on 
the Dow Jones Wilshire 5000 Index\SM\'', ``BGI's iShares Dow Jones 
Select Dividend Index\SM\'', ``iShares Dow Jones U.S. Total Market 
Index\SM\'', ``iShares Dow Jones U.S. Basic Materials Index\SM\'', 
``iShares Dow Jones U.S. Consumer Services Sector Index\SM\'', 
``iShares Dow Jones U.S. Financial Sector Index\SM\'', ``iShares Dow 
Jones U.S. Financial Services Sector Index\SM\'', ``iShares Dow 
Jones U.S. Healthcare Sector Index\SM\'', ``iShares Dow Jones U.S. 
Industrial Sector Index\SM\'', ``iShares Dow Jones U.S. Consumer 
Goods Sector Index\SM\'', ``iShares Dow Jones U.S. Real Estate 
Sector Index\SM\'', ``iShares Dow Jones U.S. Technology Sector 
Index\SM\'', ``iShares Dow Jones U.S. Telecommunications Sector 
Index\SM\'', ``iShares Dow Jones U.S. Utilities Sector Index\SM\'', 
and ``First Trust's ETF based on the Dow Jones Select Microcap 
Index\SM\'', are service marks of Dow Jones & Company, Inc. and have 
been licensed for use for certain purposes by the Philadelphia Stock 
Exchange, Inc. The Dow Jones products are not sponsored, endorsed, 
sold or promoted by Dow Jones, and Dow Jones makes no representation 
regarding the advisability of investing in such product(s).
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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),\13\ in 
particular, in that it is an equitable allocation of reasonable 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 does not believe that 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 rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) 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. 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.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-2006-16 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 20549-1090.

All submissions should refer to File Number SR-Phlx-2006-16. 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 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

[[Page 15510]]

you wish to make available publicly. All submissions should refer to 
File Number SR-Phlx-2006-16 and should be submitted on or before April 
18, 2006. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-4429 Filed 3-27-06; 8:45 am]

BILLING CODE 8010-01-P