Document ID: SEC-2007-0326-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2007-03-05T05:00Z

[Federal Register: March 5, 2007 (Volume 72, Number 42)]
[Notices]               
[Page 9828-9830]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05mr07-101]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55358; File No. SR-Phlx-2007-14]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Extending the Dividend, Merger, and Short Stock Interest Strategies Fee 
Cap Program

February 27, 2007.
    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 21, 2007, 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 substantially prepared by the 
Exchange. Phlx has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by a self-regulatory 
organization pursuant to Section 19(b)(3)(A)(ii) of the Act \3\ and 
Rule 19b-4(f)(2) thereunder,\4\ which

[[Page 9829]]

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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to extend for a period of one year, until March 1, 
2008, the pilot programs for: (1) The $1,000 and $25,000 fee caps on 
equity option transaction and comparison charges on dividend,\5\ 
merger,\6\ and short stock interest \7\ strategies; and (2) the license 
fee of $0.05 per contract side imposed on dividend and short stock 
interest strategies, as described below. The current fee caps and $0.05 
per contract side license fee are in effect as a pilot program that is 
scheduled to expire on March 1, 2007.\8\ Other than extending the pilot 
program for an additional one-year period until March 1, 2008, no other 
changes to the Exchange's current dividend, merger and short stock 
interest strategy program, which includes the $0.05 per contract side 
license fee, are being proposed at this time.
---------------------------------------------------------------------------

    \5\ 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, e.g., Securities Exchange 
Act Release No. 54174 (July 19, 2006), 71 FR 42156 (July 25, 2006) 
(SR-Phlx-2006-40).
    \6\ 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. Id.
    \7\ 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. Id.
    \8\ See Securities Exchange Act Release Nos. 54381 (August 29, 
2006), 71 FR 52598 (September 6, 2006) (SR-Phlx-2006-50) and 54424 
(September 11, 2006), 71 FR 54699 (September 18, 2006) (SR-Phlx-
2006-55).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.phlx.com/exchange/phlx_rule_fil.html), at the 

Exchange's principal office, 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 proposed rule change. 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 dividend, merger, and short stock 
interest strategies executed on the same trading day in the same 
options class. Specifically, Registered Options Trader (``ROT'') and 
specialist net equity option transaction and comparison charges are 
capped at $1,000 for dividend, merger, and short stock interest 
strategies executed on the same trading day in the same options 
class.\9\ In addition, there is a $25,000 per member organization fee 
cap on equity option transaction and comparison charges incurred in one 
month for dividend, merger, and short stock interest strategies 
combined. The $1,000 and $25,000 fee caps are implemented after any 
applicable rebates are applied to ROT and specialist equity option 
transaction and comparison charges occurring as part of a dividend, 
merger, or short stock interest strategy.\10\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 54424 (September 11, 
2006), 71 FR 54699 (September 18, 2006) (SR-Phlx-2006-55).
    \10\ Currently, the Exchange rebates $0.08 per contract side for 
ROT executions and $0.07 per contract side for trades occurring as 
part of a dividend, merger, or short stock interest strategy.
---------------------------------------------------------------------------

    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, if 
applicable.\11\ The applicable license fee is assessed on every 
transaction and is not subject to the $1,000 or $25,000 fee caps 
described above, nor does it count towards reaching the $1,000 or 
$25,000 fee caps.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    The Exchange represents that the purpose of extending the pilot 
program for the fee caps on equity option transaction and comparison 
charges on dividend, merger, and short stock interest strategies and 
the $0.05 per contract fee imposed on dividend and short stock interest 
strategies until March 1, 2008 is to continue to attract additional 
liquidity to the Exchange and to remain competitive with other options 
exchanges in connection with these types of options strategies. In 
addition, the Exchange also represents that the purpose of extending 
the pilot 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 these types of options strategies.
    This proposal is scheduled to become effective for trades settling 
on or after March 1, 2007 and will remain in effect as a pilot program 
until March 1, 2008.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\13\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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 become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act \14\ and Rule 19b-4(f)(2) thereunder 
\15\ because it establishes or changes a due, fee, or other charge 
imposed by the Exchange. 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 19b-4(f)(2).

---------------------------------------------------------------------------

[[Page 9830]]

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 No. SR-Phlx-2007-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2007-14. 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 Commissions 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 the 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-2007-14 
and should be submitted on or before March 26, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-3763 Filed 3-2-07; 8:45 am]

BILLING CODE 8010-01-P