Document ID: SEC-2005-0171-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2005-10-31T05:00Z

[Federal Register: October 31, 2005 (Volume 70, Number 209)]
[Notices]               
[Page 62366-62368]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc05-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52666; File No. SR-Phlx-2005-60]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to its Payment for Order Flow Program in Effect in September 
and October 2004

October 25, 2005.
    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 October 12, 2005, 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 rebate payment for order flow funds that were 
collected from Registered Options Traders (``ROTs''), but not requested 
by

[[Page 62367]]

specialists in connection with the Exchange's payment for order flow 
program that was in effect in September and October 2004 (``September/
October 2004'').

Background

    In September/October 2004, the Exchange assessed a payment for 
order flow fee as follows when ROTs traded against a customer order: 
(1) $1.00 per contract for options on the Nasdaq-100 Index Tracking 
Stock\SM\ traded under the symbol QQQQ; \5\ and (2) $0.40 per contract 
for the remaining top 150 equity options, other than the QQQQs.\6\ The 
Exchange states that, pursuant to the Exchange's September/October 2004 
payment for order flow program, any excess payment for order flow funds 
(funds not requested by specialists to pay for order flow) were carried 
forward to the next month by option and could not be applied 
retroactively to past deficits, which may be incurred when a specialist 
requested more than the amount billed and collected. Thus, ROTs did not 
receive a rebate of any excess payment for order flow funds in a 
particular option pursuant to the September/October 2004 payment for 
order flow program.
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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.
    \6\ See Securities Exchange Act Release Nos. 50471 (September 
29, 2004), 69 FR 59636 (October 5, 2004) (SR-Phlx-2004-60) and 50572 
(October 20, 2004), 69 FR 62735 (October 27, 2004) (SR-Phlx-2004-
61).
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    In November 2004, the Exchange modified its payment for order flow 
program to allow, among other things, any excess payment for order flow 
funds billed but not reimbursed to specialists to be returned to ROTs, 
by option, on a pro rata basis.\7\ However, the Exchange states that 
the rebates only applied to transactions settling on or after November 
1, 2004 and therefore, did not include any excess funds from the 
September/October payment for order flow program because, at that time, 
it did not know whether there would be any excess payment for order 
flow funds due to the specialist reimbursement process then in effect.
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    \7\ See Securities Exchange Act Release No. 50723 (November 23, 
2004), 69 FR 69978 (December 1, 2004) (SR-Phlx-2004-68).
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    The specialist reimbursement process has been completed and the 
Exchange now proposes to rebate to ROTs on a pro rata basis those 
payment for order flow funds collected, but not reimbursed to 
specialists in connection with the September/October 2004 payment for 
order flow program

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
    The Exchange states that the purpose of returning excess payment 
for order flow funds to ROTs on a pro rata basis is to help minimize 
the financial impact to them in connection with the collection of the 
September/October 2004 payment for order flow fees.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \8\ in general, and 
furthers the objectives of Sections 6(b)(4) of the Act \9\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among the Phlx's members.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 inappropriate burden on competition 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 \10\ and Rule 
19b-4(f)(2) \11\ 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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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 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-2005-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-Phlx-2005-60. 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

[[Page 62368]]

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-2005-60 and should be submitted on or before 
November 21, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-6002 Filed 10-28-05; 8:45 am]

BILLING CODE 8010-01-P