Document ID: SEC-2006-0081-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-01-23T05:00Z

[Federal Register: January 23, 2006 (Volume 71, Number 14)]
[Notices]               
[Page 3600-3602]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ja06-110]                         

[[Page 3600]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53115; File No. SR-Phlx-2005-82]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to its Dividend Spread Strategy 
Program License Fees

January 13, 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 December 14, 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 Phlx. On January 11, 
2006, the Exchange filed Amendment No. 1 to the proposal.\3\ 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 \4\ and Rule 19b-4(f)(2) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. 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\ In Amendment No. 1, Phlx revised the proposed rule text and 
its discussion to clarify which products would be subject to the 
license fee, that the license fee is not subject to and does not 
count towards the fee cap, and that the proposed license fee is part 
of a pilot program due to expire on March 1, 2006.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 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

    Phlx proposes to amend its dividend spread strategy program in 
order to: (i) Recapture license fees associated with certain equity 
option and index option contracts that carry a license fee and that are 
executed as part of a dividend spread strategy transaction, and (ii) 
make minor technical changes to its fee schedule. The license fee 
proposal is scheduled to become effective for dividend strategy 
transactions settling on or after December 15, 2005, and it will remain 
in effect as a pilot program that is scheduled to expire on March 1, 
2006.
    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.

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, as 
amended, 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 imposes a fee cap on equity option 
transaction and comparison charges for dividend spread strategy 
transactions \6\ executed the day immediately prior to the ex-date \7\ 
and occurring on the same trading day in the same options class. 
Specifically, Registered Options Traders' (``ROTs) and specialists' 
equity option transaction and comparison charges are capped at $1,750 
for transactions effected pursuant to a dividend spread strategy when 
the declared dividend or distribution is $0.25 or greater. However, for 
dividend spread transactions for a security with a declared dividend or 
distribution of less than $0.25, the ROTs' and specialists' equity 
option transaction and comparison charges are capped at $1,000 for 
transactions effected pursuant to a dividend spread strategy executed 
on the same trading day in the same options class. The fee caps are 
implemented after any applicable rebates are applied to ROT and 
specialist equity option transaction and comparison charges.\8\
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    \6\ A ``dividend spread'' is any trade done within a defined 
timeframe in which a dividend arbitrage can be achieved between any 
two (2) deep-in-the-money options.
    \7\ The ex-date is the date on or after which a security is 
traded without a previously declared dividend or distribution. After 
the ex-date a stock is said to trade ex-dividend.
    \8\ Currently, the Exchange provides a rebate for certain 
contracts executed in connection with transactions occurring as part 
of a dividend spread strategy. Specifically, for those options 
contracts executed pursuant to a dividend spread strategy, the 
Exchange rebates $0.08 per contract side for ROT executions and 
$0.07 per side for specialist executions on the business day before 
the underlying stock's ex-date.
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    The Exchange is now proposing to assess a license fee associated 
with certain equity option and index option contracts executed as part 
of a dividend spread strategy transaction. Specifically, the Exchange 
is proposing to assess a license fee of $0.05 per contract side for 
dividend spread strategy transactions in options on: Nasdaq-100 Index 
Tracking StockSM \9\ traded under the symbol QQQQ; Russell 
1000 Growth iShares, traded under the symbol IWF; Russell 2000 iShares, 
traded under the symbol IWM; Russell 2000 Value iShares, traded under 
the symbol IWN; Russell 2000 Growth iShares, traded under the symbol 
IWO; Russell Midcap Growth iShares, traded under the symbol IWP; 
Russell Midcap Value iShares, traded under the symbol IWS; NYSE 
Composite Index, traded under the symbol NYC; NYSE U.S. 100 Index, 
traded under the symbol NY; Standard & Poor's Depositary Receipts,\10\ 
Trust Series 1, traded under the symbol SPY; iShares Lehman 1-3 Year 
Treasury Bond Fund, traded under the symbol SHY; iShares Lehman 7-10 
Year Treasury Bond Fund, traded under the symbol IEF; iShares Lehman 
20+ Treasury Bond Fund, traded under the symbol TLT; iShares Lehman 
Aggregate Bond Fund, traded under the symbol AGG; iShares Lehman TIPS 
Bond Fund, traded under the symbol TIP; KBW Capital Markets Index,\11\ 
traded under the symbol KSX; KBW Insurance Index, traded under the 
symbol KIX; Phlx/KBW Bank Index, traded under the symbol BKX; iShares 
S&P 100 Index, traded under the symbol OEF; iShares

[[Page 3601]]

S&P Europe 350, traded under the symbol IEV; iShares S&P Global 100 
Index, traded under the symbol IOO; iShares S&P Global Energy Sector 
Index, traded under the symbol IXC; iShares S&P Global Financial Sector 
Index, traded under the symbol IXG; iShares S&P Global Healthcare 
Sector Index, traded under the symbol IXJ; iShares S&P Global 
Information Technology Sector Index, traded under the symbol IXN; 
iShares S&P Global Telecom Sector Index, traded under the symbol IXP; 
iShares S&P Latin America 40, traded under the symbol ILF; iShares S&P 
MidCap 400, traded under the symbol IJH; iShares S&P SmallCap 600, 
traded under the symbol IJR; iShares S&P TOPIX 150, traded under the 
symbol ITF; iShares S&P 500, traded under the symbol IVV; S&P 
Industrial Select Sector SPDR, traded under the symbol XLI; S&P 
Technology Select Sector SPDR, traded under the symbol XLK; S&P 
Utilities Select Sector SPDR, traded under the symbol XLU; S&P Consumer 
Staples Select Sector SPDR, traded under the symbol XLP; S&P Energy 
Select Sector SPDR, traded under the symbol XLE; S&P Financial Select 
Sector SPDR, traded under the symbol XLF; S&P Health Care Select Sector 
SPDR, traded under the symbol XLV; S&P Materials Select Sector SPDR, 
traded under the symbol XLB; S&P Consumer Discretionary Select Sector 
SPDR, traded under the symbol XLY; MidCap SPDR, traded under the symbol 
MDY; Keefe, Bruyette & Woods Regional Banking Index or the KBW Regional 
Banking Index, traded under the symbol KRX; and Keefe, Bruyette & Woods 
Mortgage Finance Index or the KBW Mortgage Finance Index, traded under 
the symbol MFX.
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    \9\ The Nasdaq-100[supreg], Nasdaq-100 Index[supreg], 
Nasdaq[supreg], The Nasdaq Stock Market[supreg], Nasdaq-100 
SharesSM, Nasdaq-100 TrustSM, Nasdaq-100 Index 
Tracking StockSM, and QQQSM are trademarks or 
service marks of The Nasdaq Stock Market, Inc. (``Nasdaq'') and have 
been licensed for use for certain purposes by the Phlx pursuant to a 
License Agreement with Nasdaq. The Nasdaq-100 Index[supreg] (the 
``Index'') is determined, composed, and calculated by Nasdaq without 
regard to the licensee, the Nasdaq-100 TrustSM, or the 
beneficial owners of Nasdaq-100 SharesSM. 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.
    \10\ Standard & Poor's[supreg],'' ``S&P[supreg],'' ``S&P 
500[supreg],'' ``Standard & Poor's 500[supreg],'' ``Standard & 
Poor's Depositary Receipts[supreg],'' and ``500'' are trademarks of 
The McGraw-Hill Companies, Inc., and have been licensed for use by 
the Phlx in connection with the listing and trading of SPDRs on the 
Phlx. These products are not sponsored, sold or endorsed by S&P, a 
division of The McGraw-Hill Companies, Inc., and S&P makes no 
representation regarding the advisability of investing SPDRs.
    \11\ ``KBW,'' ``Keefe, Bruyette & Woods Capital Markets Index,'' 
and ``KBW Capital Markets Index'' are trademarks of Keefe, Bruyette 
& Woods, Inc. and have been licensed for use by the Phlx. Keefe, 
Bruyette & Woods, Inc. makes no recommendations concerning the 
advisability of investing in options based on the KBW Capital 
Markets Index.
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    The license fee of $0.05 per contract side will be assessed on 
every transaction and will not be subject to the $1,750 or $1,000 caps 
described above. Thus, this fee will be assessed in addition to any 
other transaction and comparison charges associated with dividend 
spread strategy transactions, and it will not count towards reaching 
the $1,750 or $1,000 caps. The license fee proposal is scheduled to 
become effective for dividend strategy transactions settling on or 
after December 15, 2005, and it will remain in effect as a pilot 
program that is scheduled to expire on March 1, 2006.
    The purpose of this proposal is to recoup the license fees owed in 
connection with the trading of the products listed above. Even with the 
assessment of the $0.05 license fee per contract side, Phlx believes 
that the fee caps and rebates should continue to encourage specialists 
and ROTs to provide liquidity for dividend spread strategy 
transactions.
    The Exchange is also proposing to add a ``Q'' to the trading symbol 
``QQQ'' on its $60,000 ``Firm Related'' Equity Option and Index Option 
Cap Fee Schedule to reflect the current trading symbol of the Nasdaq-
100 Index Tracking Stocksm. In addition, the Exchange 
proposes to delete WellSpring Bio-Clinical Trials Index from the 
$60,000 ``Firm Related'' Equity Option and Index Option Cap Fee 
Schedule, traded under the symbol WHC,\12\ as that product is no longer 
listed or traded at the Exchange.
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    \12\ WellSpring Bio-Clinical Trials Index (``WHC''), 
``ORCHIDs,'' and ``WellSpring'' are trademarks of WellSpring 
BioCapital Partners, LLC (``WellSpring LLC'') and have been licensed 
for use by the Phlx. WellSpring LLC makes no recommendations 
concerning the advisability of investing in options based on the 
WellSpring Bio-Clinical Trials Index.
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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 \13\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \14\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 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, as 
amended, 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, as amended.

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 \15\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \16\ 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ The effective date of the original proposed rule change is 
December 14, 2005, the date of the original filing, and the 
effective date of Amendment No.1 is January 11, 2006, the filing 
date of the amendment. For purposes of calculating the 60-day 
abrogation period within which the Commission may summarily abrogate 
the proposed rule change, as amended, under Section 19(b)(3)(C) of 
the Act, the Commission considers the period to commence on January 
11, 2006, the date on which the Exchange submitted Amendment No. 1. 
See 15 U.S.C. 78s(b)(3)(C).
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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, 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-2005-82 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 20549-9303.
    All submissions should refer to File Number SR-Phlx-2005-82. 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

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information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Phlx-2005-82 and should be submitted on or before 
February 13, 2006.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
[FR Doc. E6-699 Filed 1-20-06; 8:45 am]

BILLING CODE 8010-01-P