Document ID: SEC-2006-1154-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-09-06T04:00Z

[Federal Register: September 6, 2006 (Volume 71, Number 172)]
[Notices]               
[Page 52598-52600]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06se06-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54381; File No. SR-Phlx-2006-50]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Extending Its Pilot Programs 
for Dividend, Merger, and Short Stock Interest Strategies

August 29, 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 August 9, 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

[[Page 52599]]

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. On August 14, 2006, the Exchange filed Amendment No. 1 
to the proposed rule change.\5\ 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\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
    \5\ In Amendment No. 1, Phlx revised the proposed rule text to 
state that the pilot program would end on March 1, 2007.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to extend for a period of six months, until March 1, 
2007, the pilot programs for: (1) Fee caps of either $1,000 or $1,750, 
as described below, on equity option transaction and comparison charges 
on dividend,\6\ merger,\7\ and short stock interest \8\ strategies; and 
(2) the license fee of $0.05 per contract side imposed on dividend and 
short stock interest strategies. The current fee caps on equity option 
transaction and comparison charges on dividend, merger, and short stock 
interest strategies and $0.05 per contract side license fee for 
dividend and short stock interest strategies are in effect as a pilot 
program that is currently scheduled to expire on September 1, 2006. 
Other than extending the pilot program for an additional six-month 
period until March 1, 2007, no other changes to the Exchange's current 
dividend, merger, and short stock interest strategy programs are being 
proposed at this time.
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    \6\ For purposes of this proposal, the Exchange defines a 
``dividend strategy'' as transactions done to achieve a dividend 
arbitrage involving the purchase, sale and exercise of in-the-money 
options of the same class, executed prior to the date on which the 
underlying stock goes ex-dividend. See Securities Exchange Act 
Release No. 54174 (July 19, 2006), 71 FR 42156 (July 25, 2006) (SR-
Phlx-2006-40) and Phlx Fee Schedule.
    \7\ For purposes of this proposal, the Exchange defines a 
``merger strategy'' as transactions done to achieve a merger 
arbitrage involving the purchase, sale and exercise of options of 
the same class and expiration date, 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 id.
    \8\ For purposes of this proposal, the Exchange defines a 
``short stock interest strategy'' as transactions done to achieve a 
short stock interest arbitrage involving the purchase, sale and 
exercise of in-the-money options of the same class. See id.
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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, 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, merger or short stock interest strategy. Specifically, for 
these option contracts executed pursuant to a dividend or merger 
strategy, the Exchange rebates $0.08 per contract side for Registered 
Options Trader (``ROT'') executions and $0.07 per contract side for 
specialist executions transacted 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. The Exchange also provides for a rebate of $0.08 per 
contract side for ROT executions and $0.07 per contract side for 
specialist executions made pursuant to a short stock interest strategy.
    The net transaction and comparison charges after the rebate is 
applied are capped at $1,000 for short stock interest strategies 
executed on the same trading day in the same options class and at 
$1,750 for merger strategies executed on the same trading day in the 
same options class.\9\ The net transaction and comparison charges are 
capped at $1,750 for dividend strategies executed on the same trading 
day in the same options class, except for a security with a declared 
dividend or distribution of less than $0.25. In that instance, the net 
transaction and comparison charges, after any applicable rebate is 
applied, are capped at $1,000 for dividend strategies executed on the 
same trading day in the same options class.\10\
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    \9\ See Securities Exchange Act Release Nos. 54174 (July 19, 
2006), 71 FR 42156 (July 25, 2006) (SR-Phlx-2006-40); 53529 (March 
21, 2006), 71 FR 15508 (March 28, 2006) (SR-Phlx-2006-16); 53115 
(January 13, 2006), 71 FR 3600 (January 23, 2006) (SR-Phlx-2005-82); 
51657 (May 5, 2005), 70 FR 24851 (May 11, 2005) (SR-Phlx-2005-22); 
and 51596 (April 21, 2005), 70 FR 22381 (April 29, 2005) (SR-Phlx-
2005-19).
    \10\ The fee caps are implemented after any applicable rebates 
are applied to ROT and specialist equity option transaction and 
comparison charges. See Securities Exchange Act Release Nos. 54174 
(July 19, 2006), 71 FR 42156 (July 25, 2006) (SR-Phlx-2006-40) and 
53529 (March 21, 2006), 71 FR 15508 (March 28, 2006) (SR-Phlx-2006-
16).
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    In addition, the Exchange assesses a license fee of $0.05 per 
contract side for dividend and short stock interest strategies in 
connection with certain products that carry license fees.\11\ The 
license fee is assessed on every transaction and is not subject to the 
$1,750 or $1,000 fee caps described above, nor does it count towards 
reaching the $1,750 or $1,000 fee caps. The $1,000 and $1,750 fee caps 
and the $0.05 per contract license fee are subject to a pilot program 
that is scheduled to expire on September 1, 2006.
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    \11\ For a complete list of these product symbols, see the 
Exchange's $60,000 Firm-Related Equity Option and Index Option Cap 
Fee Schedule.
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    The Exchange represents that the purpose of extending the pilot 
program for the Exchange's $1,000 or $1,750 fee caps on equity option 
transaction and comparison charges on dividend, merger, and short stock 
interest strategies and its $0.05 per contract side license fee imposed 
for dividend and short stock interest strategies until March 1, 2007 is 
to continue to attract additional liquidity to the Exchange and to 
remain competitive. In addition, the Exchange represents that the 
purpose of this proposal is to recoup the license fees owed in 
connection with the trading of products that carry license fees. 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 
strategies.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, 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 the proposed rule change, as 
amended, will impose any burden on competition

[[Page 52600]]

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, as amended, 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ The effective date of the original proposed rule change is 
August 9, 2006, the date of the original filing, and the effective 
date of Amendment No. 1 is August 14, 2006, the filing date of the 
amendment. 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 August 14, 2006, the 
date on which the Exchange submitted Amendment No. 1. 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-2006-50 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-2006-50. 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 you wish to 
make available publicly. All submissions should refer to File Number 
SR-Phlx-2006-50 and should be submitted on or before September 27, 
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. E6-14698 Filed 9-5-06; 8:45 am]

BILLING CODE 8010-01-P