Document ID: SEC-2006-0224-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-02-22T05:00Z

[Federal Register: February 22, 2006 (Volume 71, Number 35)]
[Notices]               
[Page 9186-9188]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22fe06-167]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53287; File No. SR-Phlx-2006-10]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Imposing Licensing Fees in Connection with the Firm-Related Equity 
Option and Index Option Fee Cap

February 14, 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 2, 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 Phlx. The 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 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 amend its schedule of fees to adopt a license 
fee of $.10 for options traded on the following products: \5\ (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 Index\SM\, traded under the symbol 
DGT; (2) SSGA's streetTracks based on the Dow Jones Wilshire 5000 
Index\SM\, traded under the symbol TMW; (3) BGI's iShares Dow Jones 
Select Dividend Index\SM\, traded under the symbol DVY; (4) iShares Dow 
Jones U.S. Total Market Index\SM\, traded under the symbol IYY; (5) 
iShares Dow Jones U.S. Basic Materials Index\SM\, traded under the 
symbol IWM; (6) iShares Dow Jones U.S. Consumer Services Sector 
Index\SM\, traded under the symbol IYC; (7) iShares Dow Jones U.S. 
Financial Sector Index\SM\, traded under the symbol IYF; (8) iShares 
Dow Jones U.S. Financial Services Sector Index\SM\, traded under the 
symbol IYG; (9) iShares Dow Jones U.S. Healthcare Sector Index\SM\, 
traded under the symbol IYH; (10) iShares Dow Jones U.S. Industrial 
Sector Index\SM\, traded under the symbol IYJ; (11) iShares Dow Jones 
U.S. Consumer Goods Sector Index\SM\, traded under the symbol IYK; (12) 
iShares Dow Jones U.S. Real Estate Sector Index\SM\, traded under the 
symbol IYR; (13) iShares Dow Jones U.S. Technology Sector Index\SM\, 
traded under the symbol IYW; (14) iShares Dow Jones U.S. 
Telecommunications Sector Index\SM\, traded under the symbol IYZ; (15) 
iShares Dow Jones U.S. Utilities Sector Index\SM\, traded under the 
symbol IDU; and (16) First Trust's ETF based on the Dow Jones Select 
Microcap Index\SM\, traded under the symbol FDM, (collectively ``Dow 
Jones products'') \6\ to be assessed per contract side for equity 
option ``firm'' transactions (comprised of equity option firm/
proprietary comparison transactions, equity option firm/proprietary 
transactions and equity option firm/proprietary facilitation 
transactions). This license fee will be imposed only after the 
Exchange's $60,000 ``firm-related'' equity option and index option 
comparison and transaction charge cap, described more fully below, is 
reached.
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    \5\ This fee will be charged only to Exchange Members.
    \6\ ``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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    Currently, the Exchange imposes a cap of $60,000 per member 
organization \7\ on all ``firm-related''

[[Page 9187]]

equity option and index option comparison and transaction charges 
combined.\8\ Specifically, ``firm-related'' charges include equity 
option firm/proprietary comparison charges, equity option firm/
proprietary transaction charges, equity option firm/proprietary 
facilitation transaction charges, index option firm/proprietary 
comparison charges, index option firm/proprietary transaction charges, 
and index option firm/proprietary facilitation transaction charges 
(collectively the ``firm-related charges''). Thus, such firm-related 
charges in the aggregate for one billing month may not exceed $60,000 
per month per member organization.
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    \7\ The firm/proprietary comparison or transaction charge 
applies to member organizations for orders for the proprietary 
account of any member or non-member broker-dealer that derives more 
than 35% of its annual, gross revenues from commissions and 
principal transactions with customers. Member organizations will be 
required to verify this amount to the Exchange by certifying that 
they have reached this threshold by submitting a copy of their 
annual report, which was prepared in accordance with Generally 
Accepted Accounting Principles (``GAAP''). In the event that a 
member organization has not been in business for one year, the most 
recent quarterly reports, prepared in accordance with GAAP, will be 
accepted. See Securities Exchange Act Release No. 43558 (November 
14, 2000), 65 FR 69984 (November 21, 2000) (SR-Phlx-00-85).
    \8\ See Securities Exchange Act Release No. 51024 (January 11, 
2005), 70 FR 3088 (January 19, 2005) (SR-Phlx-2004-94).
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    The Exchange also imposes a license fee of $0.10 per contract side 
for equity option and index option ``firm'' transactions on certain 
licensed products (collectively ``licensed products'') after the 
$60,000 cap, as described above, is reached.\9\ Therefore, when a 
member organization exceeds the $60,000 cap (comprised of combined 
firm-related charges), the member organization is charged $60,000, plus 
license fees of $0.10 per contract side for any contracts in licensed 
products (if any) over those that were included in reaching the $60,000 
cap. In other words, if the cap is reached, the $0.10 license fee is 
imposed on all subsequent equity option and index option firm 
transactions; these license fees are charged in addition to the $60,000 
cap.
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    \9\ For a complete list of the licensed products that are 
assessed a $.10 license fee per contract side after the $60,000 cap 
is reached, see $60,000 ``Firm Related'' Equity Option and Index 
Option Cap on the Exchange's fee schedule. See also, Securities 
Exchange Act Release No. 52220 (August 5, 2005), 70 FR 46899 (August 
11, 2005) (SR-Phlx-2005-49).
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    The Exchange proposes to adopt a $.10 license fee per contract side 
for the Dow Jones products for equity option firm transactions, which 
will be imposed after the $60,000 cap is reached in the same way as the 
current licensed product fees are assessed. Thus, when a member 
organization exceeds the $60,000 cap, the member organization will be 
charged $60,000 plus any applicable license fees for trades of licensed 
products, including the Dow Jones products, over those trades that were 
counted in reaching the $60,000 cap.\10\
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    \10\ Consistent with current practice, when calculating the 
$60,000 cap, the Exchange first calculates all equity option and 
index option transaction and comparison charges for products without 
license fees and then equity option and index option transaction and 
comparison charges for products with license fees (i.e., QQQ license 
fees) that are assessed by the Exchange after the $60,000 cap is 
reached. See Securities Exchange Act Release No. 50836 (December 10, 
2004), 69 FR 75584 (December 17, 2004) (SR-Phlx-2004-70).
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    This proposal is scheduled to become effective for transactions 
settling on or after February 2, 2006.
    The text of the proposed rule change is available at the 
Commission's Public Reference Room, at the Exchange and at the 
Exchange's Web site: http://www.phlx.com/exchange /phlx--rule--

fil.html.

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 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
    The purpose of assessing the Dow Jones products license fee of $.10 
per contract side after reaching the $60,000 cap as described in this 
proposal is to help defray licensing costs associated with the trading 
of these products, while still capping member organizations' fees 
enough to attract volume from other exchanges. The cap operates this 
way in order to offer an incentive for additional volume without 
leaving the Exchange with significant out-of-pocket costs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
dues, fees and charges 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 
dues, fees, and other charges among Exchange members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not 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

    The Exchange has neither solicited nor received comments on the 
proposed rule change. The Phlx has not received any unsolicited written 
comments from members or other interested parties.

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,\13\ and paragraph (f)(2) of Rule 
19b-4 thereunder \14\ 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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    \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-2006-10 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-2006-10. This file

[[Page 9188]]

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 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-2006-10 
and should be submitted on or before March 15, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-2457 Filed 2-21-06; 8:45 am]

BILLING CODE 8010-01-P