Document ID: SEC-2007-0830-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2007-06-15T04:00Z

[Federal Register: June 15, 2007 (Volume 72, Number 115)]
[Notices]               
[Page 33271-33272]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jn07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55891; File No. SR-Phlx-2007-39]

 
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 Pilot Program

June 11, 2007.
    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 May 18, 2007, 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 substantially prepared by the 
Exchange. Phlx has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by 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 extend its payment for order flow pilot 
program, which is currently in effect until May 27, 2007, for an 
additional one-year period until May 27, 2008. This proposal is 
scheduled to expire on the same date as the one-year pilot program in 
effect in connection with the provisions of Exchange Rule 1080(l) 
relating to Directed Orders.\5\
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    \5\ The provisions of Phlx Rule 1080(l) are in effect for a one-
year pilot period. The Exchange filed a separate proposed rule 
change to extend the Rule 1080(l) one-year pilot program for an 
additional year until May 27, 2008. See Securities Exchange Release 
No. 55803 (May 23, 2007), 72 FR 30413 (May 31, 2007) (SR-Phlx-2007-
37).
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    Other than extending the date of the pilot program for an 
additional year, no other changes to the Exchange's current payment for 
order flow program are being proposed at this time.
    The Exchange is also proposing to make minor clarifying changes to 
the Exchange's Summary of Equity Option and RUT and RMN Charges fee 
schedule to update the language that appears in a footnote and to 
clarify the title relating to the Exchange's payment for order flow 
fees.
    Below is the text of the proposed rule change. Proposed deletions 
are in [brackets]; proposed additions are italicized.
Summary of Equity Option Charges (p. 3/6)
* * * * *
[EQUITY OPTION] PAYMENT FOR ORDER FLOW FEES*
    (1) For trades resulting from either Directed or non-Directed 
Orders that are delivered electronically and executed on the Exchange: 
Assessed on ROTs, specialists and Directed ROTs on those trades when 
the specialist unit or Directed ROT elects to participate in the 
payment for order flow program. * * *
    (2) No payment for order flow fees will be assessed on trades that 
are not delivered electronically.

QQQQ and options that are trading in the Penny Pilot Program--$0.25 per 
contract
Remaining Equity Options--$0.70 per contract

    See Appendix A for additional fees.
    *Assessed on transactions resulting from customer orders and are 
available to be disbursed by the Exchange according to the instructions 
of the specialist units/specialists or Directed ROTs to order flow 
providers who are members or member organizations, who submit, as 
agent, customer orders to the Exchange or non-members or non-member 
organizations who submit, as agent, customer orders to the Exchange 
through a member or member organization who is acting as agent for 
those customer orders. The [is proposal] payment for order flow fees 
[will be in effect for trades settling on or after October 1, 2005 and] 
will remain in effect as a pilot program that is scheduled to expire on 
May 27, 200[7]8.
    ***Any excess payment for order flow funds billed but not utilized 
by the specialist or Directed ROT will be carried forward unless the 
Directed ROT or specialist elects to have those funds rebated to the 
applicable ROT, Directed ROT or specialist on a pro rata basis, 
reflected as a credit on the monthly invoices. At the end of each 
calendar quarter, the Exchange will calculate the amount of excess 
funds from the previous quarter and subsequently rebate excess funds on 
a pro-rata basis to the applicable ROT, Directed ROT or specialist who 
paid into that pool of funds.
* * * * *

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. 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 extending the Exchange's 
payment for order flow program for an additional year is to remain 
competitive with other options exchanges that administer payment for 
order flow programs.\6\
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    \6\ See e.g., Securities Exchange Act Release Nos. 53969 (June 
9, 2006), 71 FR 34973 (June 16, 2006) (SR-CBOE-2006-53); 55265 
(February 9, 2007), 72 FR 7697 (February 16, 2007) (SR-CBOE-2007-
11); 55271 (February 12, 2007), 72 FR 7699 (February 16, 2007) (SR-
ISE-2007-08); and 54152 (July 14, 2006), 71 FR 41488 (July 21, 2006) 
(SR-ISE-2006-36).
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    Currently, the following payment for order flow fees are in effect 
at the Exchange: \7\ (1) Equity options (other than those options that 
trade as part of

[[Page 33272]]

the Exchange's Penny Pilot Program) \8\ and options on the Russell 
2000[supreg] Index \9\ traded under the symbol RUT and options on the 
one-tenth value Russell 2000[supreg] Index traded under the symbol RMN, 
are all assessed $0.70 per contract; and (2) options that trade as part 
of the Exchange's Penny Pilot Program are assessed $0.25 per contract. 
Trades resulting from either Directed or non-Directed Orders that are 
delivered electronically over AUTOM \10\ and executed on the Exchange 
are assessed a payment for order flow fee,\11\ while non-
electronically-delivered orders (i.e., represented by a floor broker) 
are not assessed a payment for order flow fee.\12\
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    \7\ See Securities Exchange Act Release Nos. 53841 (May 19, 
2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-33); 54297 (August 
9, 2006), 71 FR 47280 (August 16, 2006) (SR-Phlx-2006-47); 54485 
(September 22, 2006), 71 FR 57017 (September 28, 2006) (SR-Phlx-
2006-56); 55290 (February 13, 2007), 72 FR 8051 (February 22, 2007) 
(SR-Phlx-2007-05); and 55473 (March 14, 2007), 72 FR 13338 (March 
21, 2007) (SR-Phlx-2007-12).
    \8\ Currently, the following option classes, listed by symbol, 
are traded in the Penny Pilot Program: QQQQ, IWM, SMH, GE, AMD, 
MSFT, INTC, CAT, WFMI, TXN, A, FLEX, and SUNW. See Securities 
Exchange Act Release No. 55290 (February 13, 2007), 72 FR 8051 
(February 22, 2007) (SR-Phlx-2007-05). The Penny Pilot Program is 
scheduled to expire on July 26, 2007. If the Penny Pilot Program is 
not extended, the Exchange intends to file a separate proposed rule 
change to make any necessary changes to the payment for order flow 
pilot dates.
    \9\ Russell 20007[supreg] is a trademark and service mark of the 
Frank Russell Company, used under license. Neither Frank Russell 
Company's publication of the Russell Indexes nor its licensing of 
its trademarks for use in connection with securities or other 
financial products derived from a Russell Index in any way suggests 
or implies a representation or opinion by Frank Russell Company as 
to the attractiveness of investment in any securities or other 
financial products based upon or derived from any Russell Index. 
Frank Russell Company is not the issuer of any such securities or 
other financial products and makes no express or implied warranties 
of merchantability or fitness for any particular purpose with 
respect to any Russell Index or any data included or reflected 
therein, nor as to results to be obtained by any person or any 
entity from the use of the Russell Index or any data included or 
reflected therein.
    \10\ The term ``AUTOM'' is used interchangeably with the term 
``Phlx XL,'' the Exchange's fully electronic trading platform for 
options. The Exchange intends to file a separate proposed rule 
change to update its rules to reflect that orders are now delivered 
electronically over Phlx XL.
    \11\ Specialists and Directed ROTs who participate in the 
Exchange's payment for order flow program are assessed a payment for 
order flow fee, in addition to ROTs. Therefore, the payment for 
order flow fee is assessed, in effect, on equity option transactions 
between a customer and an ROT, a customer and a Directed ROT, or a 
customer and a specialist.
    \12\ Electronically-delivered orders do not include orders 
delivered through the Floor Broker Management System pursuant to 
Exchange Rule 1063.
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    The purpose of making minor technical changes to the payment for 
order flow fee section of the Exchange's Summary of Equity Option and 
RUT and RMN Charges fee schedule is to delete obsolete words. 
Additionally, the purpose of deleting the words ``equity option,'' 
which appear in front of the payment for order flow fee section is to 
more clearly reflect that RUT and RMN, although index options, are also 
assessed payment for order flow charges.\13\
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    \13\ See Securities Exchange Act Release No. 55473 (March 14, 
2007), 72 FR 13338 (March 21, 2007) (SR-Phlx-2007-12) (The Exchange 
assesses equity option charges, including payment for order flow 
charges, on options on RUT and RMN).
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    This proposal, consistent with the Exchange's current payment for 
order flow program, will remain in effect as a pilot program that is 
scheduled to expire on the same date as the one-year pilot program in 
effect in connection with the provisions of Exchange Rule 1080(l) 
relating to Directed Orders.\14\
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    \14\ See supra, note 5.
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2. Statutory Basis
    The Exchange believes that the proposed rule change to amend its 
schedule of fees is consistent with Section 6(b) of the Act \15\ in 
general, and Section 6(b)(4) of the Act \16\ in particular, in that it 
is an equitable allocation of reasonable fees and other charges among 
Exchange members.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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 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 with respect to the 
proposed rule change.

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 \17\ and Rule 
19b-4(f)(2) \18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 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-2007-39 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-2007-39. 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-2007-39 and should be submitted on or before July 6, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-11551 Filed 6-14-07; 8:45 am]

BILLING CODE 8010-01-P