Document ID: SEC-2006-1057-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-08-16T04:00Z

[Federal Register: August 16, 2006 (Volume 71, Number 158)]
[Notices]               
[Page 47280-47282]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au06-143]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54297; File No. SR-Phlx-2006-47]

 
 Self-Regulatory Organizations; Philadelphia Stock Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Its Equity Payment for Order Flow Program

August 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 July 31, 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 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 increase its payment for order flow fee from 
$0.60 per contract to $0.70 per contract for equity options other than 
options on the Nasdaq-100 Index Tracking Stock SM traded 
under the symbol QQQQ (``QQQQ''),\5\ which would continue to be 
assessed a payment for order flow fee of $0.75, and options on the 
iShares FTSE/Xinhua China 25 Index (``FXI Options''), which would 
continue to not be assessed a payment for order flow fee. The Exchange 
represents that other than the rate change described above, no other 
changes to the Exchange's current payment for order flow program are 
being proposed at this time.
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    \5\ The Nasdaq-100 [supreg], Nasdaq-100 Index [supreg], Nasdaq 
[supreg], The Nasdaq Stock Market [supreg], Nasdaq-100 Shares 
SM, Nasdaq-100 Trust SM, Nasdaq-100 Index 
Tracking Stock SM, and QQQ SM are trademarks 
or service marks of The Nasdaq Stock Market, Inc. (``Nasdaq'') and 
have been licensed for use for certain purposes by the Philadelphia 
Stock Exchange pursuant to a License Agreement with Nasdaq. The 
Nasdaq-100 Index [supreg] (``Index'') is determined, composed, and 
calculated by Nasdaq without regard to the Licensee, the Nasdaq-100 
Trust SM, or the beneficial owners of Nasdaq-100 Shares 
SM. 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.
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    This proposal would become effective for trades settling on or 
after August 1, 2006.\6\
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    \6\ The Exchange's payment for order flow program is currently 
in effect until May 27, 2007. See Securities Exchange Act Release 
No. 53841 (May 19, 2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-
33).
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    Below is the text of the proposed rule change. Proposed deletions 
are in [brackets]. Proposed additions are italicized.
SUMMARY OF EQUITY OPTION CHARGES (p. 3/6)
* * * * *
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 Stock SM)--$0.75 per 
contract.

[[Page 47281]]

    Remaining Equity Options, except FXI Options--$0.[6]70 per 
contract.
    See Appendix A for additional fees.
    *Assessed on transactions resulting from customer orders. 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, 2007.
    ***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. At the end of each 
calendar quarter, the Exchange will calculate the amount of excess 
funds from the previous quarter and subsequently rebate excess funds on 
a pro-rata basis to the applicable ROT, Directed ROT or specialist who 
paid into that pool of funds.
* * * * *

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
    Currently, the Exchange assesses a payment for order flow fee of 
$0.60 per contract for equity options other than options on QQQQ and 
FXI Options. Further, options on QQQQ are assessed $0.75 per contract 
and no payment for order flow fee is assessed on FXI Options. 
Specialists,\7\ Directed Registered Options Traders (``Directed ROTs'') 
and Registered Options Traders (``ROTs'') are assessed a payment for 
order flow fee when a customer order is directed to a specialist unit 
or Directed ROT who participates in the Exchange's payment for order 
flow program.\8\ Trades resulting from either Directed \9\ or non-
Directed Orders that are delivered electronically over AUTOM \10\ 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.\11\
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    \7\ The Exchange uses the terms ``specialist'' and ``specialist 
unit'' interchangeably herein.
    \8\ The Phlx states that the payment for order flow fee is 
assessed, in effect, on equity option transactions between a 
customer and a ROT, a customer and a Directed ROT, or a customer and 
a specialist when a customer order is directed to a specialist or 
Directed ROT who participates in the Exchange's payment for order 
flow program.
    \9\ The term ``Directed Order'' means any customer order to buy 
or sell, which has been directed to a particular specialist, Remote 
Streaming Quote Trader or Streaming Quote Trader by an Order Flow 
Provider.
    \10\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. See Exchange Rules 1014(b)(ii) and 1080.
    \11\ Electronically-delivered orders do not include orders 
delivered through the Floor Broker Management System pursuant to 
Exchange Rule 1063.
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    The Phlx states that the purpose of the proposal is to remain 
competitive with other options exchanges. The Phlx notes that the 
International Securities Exchange, Inc. recently increased its payment 
for order flow fee to $0.65 per contract and the Chicago Board Options 
Exchange, Incorporated also assesses a payment for order flow fee of 
$0.65 per contract.\12\
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    \12\ See Securities Exchange Act Release Nos. 54152 (July 14, 
2006), 71 FR 41488 (July 21, 2006) (SR-ISE-2006-36); 53969 (June 9, 
2006), 71 FR 34973 (June 16, 2006) (SR-CBOE-2006-53); and 53044 
(December 30, 2005), 71 FR 957 (January 6, 2006) (SR-CBOE-2005-114). 
See also Securities Exchange Act Release Nos. 53341 (February 21, 
2006), 71 FR 10085 (February 28, 2006) (SR-Amex-2006-15) and 54042 
(June 26, 2006), 71 FR 37626 (June 30, 2006) (SR-Amex-2006-59).
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    The Phlx states that the proposal is effective for trades settling 
on or after August 1, 2006.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of 
Sections 6(b)(4) of the Act \14\ in particular, in that it is an 
equitable allocation of reasonable dues, fees, and other charges among 
Exchange members.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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 \15\ and Rule 
19b-4(f)(2) \16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 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-2006-47 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-2006-47. 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

[[Page 47282]]

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-2006-47 and should be 
submitted on or before September 6, 2006.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Nancy M. Morris,
Secretary.
[FR Doc. E6-13415 Filed 8-15-06; 8:45 am]

BILLING CODE 8010-01-P