Document ID: SEC-2005-0378-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2005-12-14T05:00Z

[Federal Register: December 14, 2005 (Volume 70, Number 239)]
[Notices]               
[Page 74082-74083]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14de05-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52903; File No. SR-Phlx-2005-67]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Maintenance, Retention and Furnishing of Books, Records 
and Other Information Regarding Payment For Order Flow

December 7, 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 November 3, 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. On 
November 22, 2005, the Phlx submitted Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 provided clarifying language to Phlx Rule 
760 and the purpose section of the filing.
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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 Phlx Rule 760, Maintenance, Retention 
and Furnishing of Books, Records and Other Information, to incorporate 
recent changes to the Exchange's payment for order flow program.
    The Exchange recently amended its payment for order flow program 
for trades settling on or after October 1, 2005 (``October 
program'').\4\ Registered Options Traders who receive electronically-
delivered orders directed to them (``Directed ROTs'') may, pursuant to 
the October program, direct the Exchange to make payments to order flow 
providers on their behalf.\5\ Thus, the Exchange proposes to amend Phlx 
Rule 760 to clarify that these Directed ROTs would now be required to 
retain records relating to payment for order flow arrangements.\6\
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    \4\ The October program is in effect as a pilot program that is 
scheduled to expire on May 27, 2006. See Securities Exchange Act 
Release No. 52568 (October 6, 2005), 70 FR 60120 (October 14, 2005) 
(SR-Phlx-2005-58).
    \5\ The Exchange represents that under previous payment for 
order flow programs, specialist units requested reimbursement from 
the Exchange for monies they paid to order flow providers. Pursuant 
to the October program, the available payment for order flow funds 
would be disbursed by the Exchange according to the instructions of 
the specialist units and Directed ROTs.
    \6\ The Exchange represents that specialists/specialist units 
are already specifically required to maintain these books and 
records.
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    The text of Rule Phlx 760, as proposed to be amended, is set forth 
below with new language in italics and deletions in [brackets].

Rule 760

Maintenance, Retention and Furnishing of Books, Records and Other 
Information
    Every member and member organization shall make, keep current and 
preserve such books and records as the Exchange may prescribe and as 
may be prescribed by the Securities Exchange Act of 1934 and the rules 
and regulations thereunder. No member or member organization shall 
refuse to make available to the Exchange such books, records or other 
information as may be called for under the rules or as may be requested 
in connection with an investigation by the Exchange.
    Supplementary Material: * * *
    .01 Without limiting the general provisions of Rule 760, such Rule 
requires Registered Options Traders who receive electronically-
delivered orders directed to them, Specialists [or] and Specialist 
Units who request that payments be made [funds, or who make payments] 
to order flow providers as part of the Exchange's payment for order 
flow program, to make, keep current and preserve all books and records 
relating to payment for order flow arrangements, including but not 
limited to all records pertaining to the identity of the order flow 
providers, [and] the [origin, use, transfer, distribution and] rates, 
and the basis for the amounts they have directed the Exchange to pay to 
order flow providers [of all payments] (whether on a per contract or 
flat fee basis). [Such records should be maintained in such a fashion 
as to permit the Exchange to track payments to order flow providers on 
an option by option basis.] Such books and records shall be made 
available as may be requested by the Exchange.

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
    The Exchange states that the purpose of this proposal is to update 
Phlx Rule 760 to reflect recent changes to the Exchange's payment for 
order flow program, specifically including that Directed ROTs must now 
retain records relating to payment for order flow arrangements. The 
Exchange proposes to amend the Supplementary Material to Phlx Rule 760 
because the Exchange's current payment for order flow program no longer 
tracks payments to order flow providers on an option by option basis. 
In addition, the Exchange notes that specialists and specialist units 
no longer need to maintain records relating to the use, transfer, and 
distribution of payment for order flow funds because

[[Page 74083]]

they will now direct the Exchange to make on their behalf those payment 
for order flow payments to the order flow providers. The Exchange also 
proposes to specifically request that books and records regarding the 
rate (for example, $0.25 per contract or a flat monthly rate) that is 
paid to order flow providers and the basis for the amount that Directed 
ROTs, specialists, and specialist units direct the Exchange to pay to 
order flow providers be maintained.
2. Statutory Basis
    The Exchange believes the proposal is consistent with section 6(b) 
of the Act \7\, in general, and furthers the objectives of section 
6(b)(1) of the Act,\8\ in particular, in that it assist the Exchange in 
determining and enforcing compliance with its rules assist the Exchange 
in determining an enforcing compliance with its rules (i.e., the 
specific terms of the Exchange's payment for order flow program). By 
enabling the Exchange to verify that the payment for order flow program 
is being administered in accordance with the terms thereof as approved 
by the Exchange and set forth in its filing with the Commission, this 
proposal also promotes just and equitable principles of trade 
consistent with section 6(b)(1) of the Act.\9\
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78f(b)(1).
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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 by the Exchange on 
this proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve the proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-67 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-2005-67. 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 Exchange. 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-2005-67 and should be submitted on or before 
January 4, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-7299 Filed 12-13-05; 8:45 am]

BILLING CODE 8010-01-P