Document ID: SEC-2006-1196-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-09-18T04:00Z

[Federal Register: September 18, 2006 (Volume 71, Number 180)]
[Notices]               
[Page 54699-54701]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18se06-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54424; File No. SR-Phlx-2006-55]

 
 Self-Regulatory Organizations; Philadelphia Stock Exchange, 
Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Amending Its Dividend, Merger, and Short Stock Interest Strategy 
Program

September 11, 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 31, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'')

[[Page 54700]]

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 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. 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 dividend,\5\ merger,\6\ and short 
stock interest \7\ strategies to: (1) Replace the current $1,750 fee 
cap on equity option transaction and comparison charges for both merger 
strategies executed on the same trading day in the same options class 
as well as 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, with a $1,000 fee cap; and (2) 
adopt 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.
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    \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 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. See 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. See Id.
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    The $1,000 and $25,000 caps will be implemented after any 
applicable rebates, as more fully described below, are applied to 
Registered Options Trader (``ROT'') and specialist equity option 
transaction and comparison charges occurring as part of a dividend, 
merger or short stock interest strategy.
    In addition, the Exchange will continue to assess a $0.05 per 
contract side license fee for dividend and short stock interest 
strategies in connection with certain products that carry license fees, 
if applicable. The applicable license fee will be assessed on every 
transaction and will not be subject to the $1,000 or $25,000 fee caps 
described above, nor will it count towards reaching the $1,000 or 
$25,000 caps.
    This proposal is scheduled to become effective for trades settling 
on or after September 1, 2006 and the $1,000 and $25,000 fee caps on 
equity option transaction and comparison charges as described above 
will be subject to the pilot program currently in effect until March 1, 
2007.\8 \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.
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    \8\ The current fee caps on equity option transaction and 
comparison charges on dividend, merger and short stock interest 
strategies and the $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 March 1, 2007. See 
Securities Exchange Act Release No. 34-54381 (August 29, 2006), 71 
FR 52598 (September 6, 2006) (SR-Phlx-2006-50).
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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 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 strategy, the 
Exchange rebates $0.08 per contract side for 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 merger or short stock 
interest strategy.
    At present, the net transaction charges and comparison charges for 
specialists and ROTs 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 are capped 
at $1,000 for dividend strategies executed on the same trading day in 
the same options class.\10\ Pursuant to this proposal, the net 
transaction charge and comparison charges, after the rebate is applied, 
will be capped at $1,000 for dividend, merger and short stock interest 
strategies as described above and further capped at $25,000 per month 
per member organization for dividend, merger and short stock interest 
strategies combined for that month.
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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 currently 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 
Exchange will continue to assess the $0.05 per contract side license 
fee for dividend and short stock interest strategies in connection with 
certain products that carry license fees if applicable.\12\ The 
applicable license fee will be assessed on every transaction and will 
not be subject to the $1,000 or $25,000 fee caps, nor will it count 
towards reaching the $1,000 or $25,000 caps, consistent with the 
Exchange's current practice.
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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.
    \12\ Id.

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[[Page 54701]]

    This proposal is scheduled to become effective for trades settling 
on or after September 1, 2006 and the $1,000 and $25,000 fee caps on 
equity option transaction and comparison charges, as described above, 
will be subject to the pilot program currently in effect until March 1, 
2007.\13\ The purpose of the proposal is to attract additional order 
flow to the Exchange. The Exchange believes that implementing a lower 
fee cap of $1,000 and a monthly $25,000 per month per member 
organization fee cap, should increase the Exchange's ability to compete 
with other options exchanges for order flow in connection with these 
types of options strategies.
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    \13\ See footnote 8.
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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 \14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \15\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 solicited or received on the proposed rule 
change.

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 \16\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2006-55 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-2006-55. 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-2006-55 and should be submitted on or before October 10, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-15402 Filed 9-15-06; 8:45 am]

BILLING CODE 8010-01-P