Document ID: SEC-2008-1197-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2008-08-29T04:00Z

[Federal Register: August 29, 2008 (Volume 73, Number 169)]
[Notices]               
[Page 51035-51038]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au08-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58420; File No. SR-Phlx-2008-62]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Exchange's Fee Schedule Concerning 
Complex Orders

August 25, 2008.
    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 August 22, 2008, 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 
Phlx. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to section 19(b)(1) of the Act \3\ and Rule 19b-
4 thereunder,\4\ proposes to amend its option fee schedule by 
establishing that certain fees would not be assessed on contracts that 
are executed electronically as part of a Complex Order \5\ on the 
Exchange's electronic trading platform for options, Phlx XL,\6\ and 
that contract volume thresholds applicable to certain

[[Page 51036]]

Exchange subsidies, volume bonuses and discounts would not include 
contracts that are executed electronically as part of a Complex Order.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\The Exchange recently filed, and the Commission approved, a 
proposed rule change with the Commission to automate the process for 
handling and executing complex orders. See Securities Exchange Act 
Release No. 58361 (August 14, 2008) (SR-Phlx-2008-50) (``Approval 
Order''). A Complex Order is composed of two or more option 
components and is priced as a single order (a ``Complex Order 
Strategy'') on a net debit or net credit basis.
    \6\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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    This proposal is effective upon filing and will be implemented 
beginning with the rollout of the automated Complex Order system on the 
Exchange on August 22, 2008. The rollout date will be posted on the 
Exchange's Web site at http://www.phlx.com/index.aspx.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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
    The purpose of the proposed rule change is to revise the Exchange's 
fee schedule in order to launch the Exchange's automated Complex Order 
system, and to compete for and encourage the submission of electronic 
Complex Order flow to the Exchange. Pursuant to this proposal, the 
Exchange intends to amend the Exchange's: (i) Summary of Equity Option, 
and MNX, NDX, RUT and RMN Charges; (ii) Summary of Index Option 
Charges; (iii) Summary of U.S. Dollar-Settled Foreign Currency Option 
Charges; (iv) Market Access Provider Subsidy; and (v) Options Floor 
Broker Subsidy, as described in detail below.
Summary of Equity Option, and MNX, NDX, RUT and RMN Charges
    Currently, the Exchange assesses various option transaction charges 
for equity options, depending on such factors as the category of 
person(s) submitting orders for execution (e.g., customers, 
specialists, broker-dealers, Registered Options Traders (``ROTs'') \7\ 
and Firms are all charged differently, on a per contract basis, ranging 
from $0.00 per contract to $0.45 per contract) and the manner in which 
the order is delivered to the Exchange. For example, broker-dealer 
orders submitted electronically to the Exchange's systems are charged 
$0.45 per contract, whereas broker-dealer orders submitted through 
means other than the Exchange's electronic system are charged $0.25 per 
contract. Customers submitting orders in equity options are generally 
not charged transaction fees \8\ whereas ROTs and Firms are charged.
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    \7\ ROT equity option transaction charges are referred to on the 
Exchange's fee schedule as ``Registered Option Trader (on floor).'' 
This charge applies to ROTs, Streaming Quote Traders (``SQTs''), and 
Remote Streaming Quote Traders (``RSQTs''). SQTs and RSQTs are 
considered to be ROTs pursuant to Exchange Rule 1014. ROT 
transactions entered from off-floor would continue to be included in 
the broker-dealer equity option transaction charges for billing 
purposes, as set forth in footnote 3 of the Exchange's Summary of 
Equity Option, and MNX, NDX, RUT and RMN Charges fee schedule.
    \8\ Customers are charged $0.12 per contract for executions in 
MNX and NDX options.
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    The Exchange also assesses an option comparison charge of $0.03 per 
contract for ROTs and $0.04 per contract for Firms that submit 
proprietary orders. Customers and broker-dealers are not charged.
    The Exchange currently provides a discount for ROTs (on-floor) and 
specialists that exceed 4.5 million contracts in a given month (the 
``Volume Threshold'') by assessing $0.01 per contract on contract 
volume above the Volume Threshold instead of the applicable options 
transaction charge and option comparison charge described in the 
Summary of Equity Option, and MNX, NDX, RUT and RMN Charges. Complex 
Order volume will not be used in calculating the Volume Threshold.
    In order to compete for order flow respecting Complex Orders in 
equity options, the Exchange proposes to amend the fee schedule to 
clarify that the option comparison charge and the option transaction 
charge will not be assessed on contracts in equity options that are 
executed electronically as part of a Complex Order.
Summary of Index Option Charges
    The Exchange currently assesses an option comparison charge and an 
option transaction charge for index option transactions, as described 
in the Exchange's Summary of Index Option Charges. The Exchange 
proposes to amend the fee schedule to clarify that the option 
comparison charge and the option transaction charge will not be 
assessed on contracts in Index Options that are executed electronically 
as part of a Complex Order.
Summary of U.S Dollar-Settled Foreign Currency Option Charges
    The Exchange currently assesses an option comparison charge and an 
option transaction charge for transactions in options overlying U.S. 
dollar-settled foreign currencies, as described in the Exchange's 
Summary of U.S Dollar-Settled Foreign Currency Option Charges. The 
Exchange proposes to amend the fee schedule to clarify that the option 
comparison charge and the option transaction charge will not be 
assessed on contracts in U.S dollar-settled foreign currency options 
that are executed electronically as part of a Complex Order.
Market Access Provider Subsidy
    In August 2007, the Exchange amended its fee schedule to provide a 
per contract subsidy (the ``Subsidy'') for certain Exchange members 
known as Market Access Providers (``MAPs'').\9\ A MAP is an Exchange 
member organization that offers to customers automated order routing 
systems and electronic market access to U.S. options markets. The 
Exchange pays a per-contract MAP Subsidy to any Exchange member 
organization that qualifies as a MAP (an ``Eligible MAP,'' as described 
in footnote 5(b) of the Market Access Provider Subsidy section of the 
Exchange's fee schedule). The Subsidy is paid on contract volume that 
exceeds the ``Baseline Order Flow'' in ``Eligible Contracts'' as 
described in the MAP Subsidy section. The Exchange also pays a monthly 
Volume Bonus to MAPs that exceed certain volume thresholds in Eligible 
Contracts in a given month.
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    \9\ See Securities Exchange Act Release No. 56274 (August 16, 
2007), 72 FR 48720 (August 24, 2007) (SR-Phlx-2007-54).
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    The Exchange proposes to amend the Market Access Provider Subsidy 
section of the fee schedule by clarifying that volume in Complex Orders 
that is submitted and executed electronically on Phlx XL will not be 
counted towards the MAP's Baseline Order Flow and that the Exchange 
will not use Complex Order volume to determine eligibility for the 
Monthly MAP Volume Bonus. The Exchange proposes to state in the MAP 
Subsidy section of the fee schedule that contracts executed 
electronically on Phlx XL as part of a Complex Order would not be 
considered to be ``Eligible Contracts,'' and thus will not be included 
in the Exchange's calculation of Baseline Order Flow and will not be 
included in its calculation of monthly volume in determining a MAP's 
eligibility for the Monthly Volume Bonus.

[[Page 51037]]

Options Floor Broker Subsidy
    The Exchange currently pays an Options Floor Broker Subsidy to 
member organizations with registered Floor Brokers based on two volume 
thresholds. In order to be eligible for the Options Floor Broker 
Subsidy, the member organization must have an average daily volume in a 
particular calendar month in excess of 75,000 contracts, and must have 
40,000 executed contracts or more per day for at least 8 trading days 
during that same month.
    The Exchange proposes to amend the Options Floor Broker Subsidy 
section of the fee schedule by establishing that only the largest 
component of a complex order (i.e., the component that includes the 
greatest number of contracts) will be included in the calculation of 
the two above-mentioned volume thresholds, and that, while the largest 
component's volume will count towards the volume threshold, the 
Exchange will not pay the Options Floor Broker Subsidy for any 
contracts that are executed electronically as part of a Complex Order.
Cancellation Fees
    The Exchange currently charges a cancellation fee of $1.10 per 
order for each order (in equity, index and U.S. dollar-settled foreign 
currency options) that is delivered electronically that exceeds the 
number of orders executed on the Exchange by a member organization in a 
given month. The cancellation fee is not assessed in a month in which 
fewer than 500 electronically delivered orders are cancelled. For 
example, if a member organization delivers 1700 orders in a given 
month, and 700 of those orders are executed on the Exchange but the 
member organization cancels 1,000 of those orders in a given month, the 
Exchange will assess a cancellation fee of $330.00 ($1.10 x 300 orders 
cancelled in excess of the 700 executed orders). The cancellation fee 
will not apply to Complex Orders that are submitted electronically in 
equity, index and U.S. dollar-settled foreign currency options.
Miscellaneous Fees and Charges
    There are several current charges that will continue to be assessed 
for contracts executed electronically as part of a Complex Order, and 
thus are not proposed to be amended.
    First, the Exchange charges a real-time risk management fee in 
equity and index options of $.0025 per contract for firms receiving 
information on a real-time basis. The real-time risk management fee 
will apply to Complex Orders that are executed electronically as part 
of a Complex Order in equity and index options.
    Secondly, the Exchange assesses per-contract payment for order flow 
fees on transactions resulting from customer orders in equity options 
as described in the Equity Option, and MNX, NDX, RUT and RMN Charges. 
Such fees, if applicable, will apply to Complex Orders that are 
executed electronically as part of a Complex Order in equity options.
    Third, the Exchange charges a specialist deficit (shortfall) fee of 
$0.35 per contract for specialists trading any Top 120 equity option if 
12% of the total national monthly contract volume (volume threshold) is 
not affected on the Exchange. The Exchange will include contracts 
executed electronically as part of a Complex Order in its calculation 
of the volume threshold.
    Finally, the Exchange currently ``caps'' the specialist deficit 
(shortfall) fee for any Top 120 equity option listed after February 
2004 and for any Top 120 equity option acquired by a new specialist 
unit \10\ within the first 60 days of operations, by establishing 
increasing volume thresholds (beginning at 0% for the first month of 
operations, ramping up to 12% in the fifth month of operations and 
thereafter). The Exchange will include contracts executed 
electronically as part of a Complex Order in its calculation of the 
``new specialist unit'' volume threshold.
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    \10\ A ``new specialist unit'' is one that is approved to 
operate as a specialist unit by the Exchange's Options Allocation, 
Evaluation and Securities Committee on or after February 1, 2004.
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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 \11\ in general, and 
furthers the objectives of section 6(b)(4) of the Act \12\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. Specifically, the Exchange 
believes that this proposal is equitable because it generally should 
result in the effective waiver of comparison and transaction charges 
that would otherwise be assessed to specialists, ROTs, SQTs, RSQTs and 
Floor Brokers submitting Complex Orders to the Exchange, thus 
encouraging the submission of electronic Complex Orders to the Exchange 
for execution.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Exchange further believes that the inclusion of contract volume 
executed electronically as part of Complex Orders in its calculation of 
certain volume thresholds relating to the various volume discounts and 
volume bonuses enumerated above is equitable because it generally 
applies to all market participants that qualify for such volume bonuses 
and discounts. The Exchange also believes that the exclusion of Complex 
Orders and contract volume executed electronically as part of Complex 
Orders from certain fees should create incentives for member 
organizations to submit electronic Complex Orders to the Exchange, thus 
enhancing the depth and liquidity of the Exchange's markets.

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 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 \13\ and paragraph (f)(2) of Rule 19b-4\14\ 
thereunder. 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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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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-2008-62 on the subject line.

[[Page 51038]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2008-62. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the principal office of the self-regulatory 
organization. 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-2008-62 and should be submitted on or before September 19, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20140 Filed 8-28-08; 8:45 am]

BILLING CODE 8010-01-P