Document ID: SEC-2006-0525-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-04-24T04:00Z

[Federal Register: April 24, 2006 (Volume 71, Number 78)]
[Notices]               
[Page 21087-21088]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ap06-111]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53670; File No. SR-Phlx-2006-21]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating To Delaying Implementation of Its Cancellation Fee

April 18, 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 March 31, 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 filed the proposed rule change as one establishing or changing a 
due, fee, or other charge imposed by the Phlx under Section 
19(b)(3)(A)(ii) \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.
---------------------------------------------------------------------------

    \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

    The Exchange proposes to amend the effective date for the 
cancellation fee it recently established \5\ from January 2, 2006 to 
May 1, 2006. The Exchange also proposes to clarify that the 
cancellation fee will not be assessed on any cancellation orders 
received prior to the opening of trading.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 53226 (February 3, 
2006), 71 FR 7602 (February 13, 2006) (SR-Phlx-2005-92).
---------------------------------------------------------------------------

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
    Previously, the Exchange adopted a cancellation fee of $1.10 per 
cancellation order to be assessed on member organizations for each 
cancelled AUTOM-delivered \6\ order in excess of the number of orders 
executed on the Exchange by that member organization in a given 
month.\7\ The cancellation fee was not to be assessed in a month in 
which fewer than 500 AUTOM-delivered orders were cancelled. Simple 
cancels and cancel-replacement orders were the types of orders that 
were to be counted when calculating the number of AUTOM-delivered 
orders.\8\ The objective of the fee was to discourage excessive use of 
cancellations.\9\
---------------------------------------------------------------------------

    \6\ AUTOM is the Exchange's electronic order delivery, routing, 
execution and reporting system, which provides for the automatic 
entry and routing of equity option and index option orders to the 
Exchange trading floor. See Exchange Rules 1014(b)(ii) and 1080.
    \7\ See supra note 5.
    \8\ A cancel-replacement order is a contingency order consisting 
of two or more parts, which require the immediate cancellation of a 
previously received order prior to the replacement of a new order 
with new terms and conditions. If the previously placed order is 
already filled partially or in its entirety, the replacement order 
is automatically canceled or reduced by such number. See Exchange 
Rule 1066(c)(7).
    \9\ The proposal did not cover orders delivered through the 
Exchange's Floor Broker Management System.
---------------------------------------------------------------------------

    Prior to implementing the cancellation fee, the Exchange analyzed 
data and then discussed with member organizations the potential effect 
of the fee. However, it later came to the attention of the Exchange 
that the data analyzed by the Exchange was incomplete. Therefore, 
member organizations, based on the Exchange's analysis, did not believe 
it was necessary to monitor the use of cancellation orders by any of 
their respective customers. In actuality, the assessment of the 
cancellation fee for some member organizations greatly exceeded the 
estimated amount that was communicated to them.
    At this time, the Exchange has discussed with the affected member 
organizations the amount of the cancellation fees that would have been 
incurred based on revised and complete January and February 2006 data. 
Therefore, the Exchange proposes to delay implementation of the 
cancellation fee until May 1, 2006 to allow member organizations the 
opportunity either to change behavior or

[[Page 21088]]

to determine how to most effectively deal with these charges. The 
Exchange believes it is appropriate to delay implementation of the 
cancellation fee due to the incomplete data that had been previously 
communicated to the member organizations.\10\ In addition, the Exchange 
seeks to clarify that pre-market cancellations are not included in the 
calculation of the cancellation fee because this is not the type of 
behavior that the Exchange is trying to discourage. No other changes 
are being proposed in connection with the delayed assessment of the 
cancellation fee.
---------------------------------------------------------------------------

    \10\ The Exchange indicated that no rebates need to be 
processed. Although January and February cancellation charges were 
billed on the February invoice, the Exchange separately discovered a 
billing issue and credited the amount of cancellation charges billed 
to member organizations while the billing issue was reviewed.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees 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 fees 
and other charges among Exchange members.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 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 been designated as a fee 
change pursuant to Section 19(b)(3)(A)(ii) of the Act \13\ and Rule 
19b-4(f)(2) \14\ thereunder. Accordingly, the proposal will take effect 
upon filing with the Commission. 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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-2006-21 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-2006-21. 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 the 
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-2006-21 and should be submitted on or before May 
15, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E6-6072 Filed 4-21-06; 8:45 am]

BILLING CODE 8010-01-P