Document ID: SEC-2008-1134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2008-08-15T04:00Z

[Federal Register: August 15, 2008 (Volume 73, Number 159)]
[Notices]               
[Page 48001-48002]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58334; File No. SR-Phlx-2008-59]

 
Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Changes to Its Equity Option Fees

August 8, 2008.
    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 August 1, 2008, Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the Phlx. 
On August 8, 2008, the Exchange filed Amendment No. 1 to the proposed 
rule change. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to Section 19(b)(1) of the Act \3\ and Rule 19b-
4 thereunder,\4\ proposes to amend its equity option fees as follows: 
(1) Reduce its equity option transaction charge to $0.01 per contract 
for Registered Options Traders (``ROTs'') \5\ and specialists for 
contract volume above 4.5 million contracts per month (``Volume 
Threshold''); (2) delete the ROT equity option comparison charge for 
contract volume above the Volume Threshold; and (3) delete the $0.08 
per contract side rebate for ROTs and $0.07 per contract side rebate 
for specialists in connection with trades occurring as part of a 
dividend, merger, and short stock interest strategy.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ ROT equity option transaction charges are referred to on the 
Exchange's fee schedule as ``Registered Option Trader (on floor).'' 
This charge applies to ROTs, Streaming Quote Traders (``SQTs''), and 
Remote Streaming Quote Traders (``RSQTs''). SQTs and RSQTs are 
considered to be ROTs pursuant to Exchange Rule 1014. ROT 
transactions entered from off-floor would continue to be included in 
the broker/dealer equity option transaction charges for billing 
purposes, as set forth in footnote 3 of the Exchange's Summary of 
Equity Option, and MNX, NDX, RUT and RMN Charges fee schedule.
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    This proposal is scheduled to become effective for trades settling 
on or after August 1, 2008.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.

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 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 purpose of the proposed rule change is to revise the Exchange's 
fee schedule in order to remain competitive and encourage additional 
order flow to the Exchange. Pursuant to this proposal, the Exchange 
intends to amend its equity option transaction charges for ROTs and 
specialists. For contract volume below the Volume Threshold, ROTs would 
continue to be assessed the current equity option transaction charge of 
$0.19 per contract and specialists would be assessed the current equity 
option transaction charge of $0.21 per contract. Thereafter, both ROTs 
and specialists would be assessed an equity option transaction charge 
of $0.01 per contract for contract volume over the Volume Threshold for 
that month. ROTs would not be charged the current $0.03 per contract 
equity option comparison charge for any transactions over the Volume 
Threshold.\6\ Thus, the total equity option transaction and comparison 
charge for both specialists and ROTs would be $0.01 per contract for 
contract volume over the Volume Threshold for that month.
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    \6\ Specialists are not currently assessed a comparison charge.
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    Currently, a fee credit of $0.21 per contract is given to 
specialists that incur equity option transaction charges when a 
customer order is delivered electronically via Phlx XL \7\ or via the 
Exchange's Options Floor Broker Management System (``FBMS''),\8\ and is 
then executed via the Intermarket Option Linkage (``Linkage'') \9\ as a 
Principal Acting as Agent Order (``P/A Order''). In connection with 
decreasing the equity option transaction charge for specialists as 
described above, the fee credit would now be equal to the applicable 
equity option transaction charge per contract (i.e. $0.21 per contract 
or $0.01 per contract), in order not to give a credit that is greater 
than the equity option transaction charge that is imposed.
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    \7\ See Exchange Rule 1080.
    \8\ FBMS is designed to enable Floor Brokers and/or their 
employees to enter, route and report transactions stemming from 
options orders received on the Exchange. See Exchange Rule 1080, 
Commentary .06.
    \9\ Linkage is governed by the Options Linkage Authority under 
the conditions set forth under the Plan for the Purpose of Creating 
and Operating an Intermarket Option Linkage (the ``Plan'') approved 
by the Commission. The registered U.S. options markets are linked 
together on a real-time basis through a network capable of 
transporting orders and messages to and from each market.
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    To determine the Volume Threshold, the Exchange would aggregate the 
trading activity of separate ROTs and specialist member organizations 
if there is at least 75% common ownership between the member 
organizations as reflected on each member organizations' Form BD, 
Schedule A.\10\ Contract volume resulting from dividend, merger, and 
short stock interest strategies \11\ and contract volume resulting from 
specialists that incur Phlx equity option transaction charges when a 
customer order is delivered electronically via Phlx XL \12\ or via FBMS 
and is then executed via Linkage as a P/A Order would not be included 
in the Volume Threshold calculation. In addition, currently, the 
Exchange does not assess ROT equity option transaction and comparison 
charges and specialist equity option transaction charges on additional 
qualifying transactions on

[[Page 48002]]

option contracts that number greater than 14,000, calculated per day: 
(1) per equity option overlying the same underlying security; (2) per 
RUT option; (3) per RMN option; (4) per MNX option; and (5) per NDX 
option (``14,000 cap''). The contract volume above the 14,000 cap 
described above would not be included in the Volume Threshold 
calculations. Therefore, per day, up to 14,000 contracts that meet the 
criteria above would be included in the Volume Threshold. The purpose 
of excluding this volume is because it is already subject to different 
fee caps or fee credits.
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    \10\ An ROT's or a specialist's monthly contract volume is 
determined at the member organization affiliation level, e.g., if 
five ROTs are affiliated with member organization ABC as reflected 
by Exchange records for the entire month, all of the volume from 
those five ROTs counts towards member organization ABC's Volume 
Threshold for that month.
    \11\ The current equity option comparison and transaction caps 
of $1,000 and $25,000 that are imposed in connection with dividend, 
merger and short stock interest strategies would continue to apply.
    \12\ See Exchange Rule 1080.
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    The Exchange also proposes to delete the $0.08 per contract side 
rebate for ROTs and $0.07 per contract side rebate for specialists in 
connection with trades occurring as part of a dividend, merger, and 
short stock interest strategy. The Exchange believes that at this time 
the rebate is no longer necessary. The Exchange believes that the 
current $1,000 and $25,000 fee caps that will remain unchanged are 
sufficient incentives to encourage this type of business at the 
Exchange.
    The purpose of SR-Phlx-2008-59, Amendment No. 1 is to clarify the 
application of the proposed reduction of the equity option transaction 
charge to $0.01 per contract.
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 designed to provide for the equitable 
allocation of reasonable dues, fees, and other charges among Exchange 
members. The Exchange believes that this proposal is equitable because 
it generally should result in a reduction in fees for ROTs and 
specialists who meet the Volume Threshold, which should, in turn, 
increase order flow to the Exchange. Specifically, the Exchange 
believes that it is equitable to reduce fees for specialists and ROTs, 
which includes SQTs and RSQTs, as opposed to other broker-dealers and 
ROTs entering transactions from off-floor because specialists and ROTs 
have continuous quoting and affirmative market making obligations.\15\
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ For billing purposes, ROTs entering transactions from off-
floor will continue to be charged the broker/dealer equity option 
transaction charge because those transactions generally are 
considered to be not the core part of their continuous quoting and 
affirmative market making obligations.
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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 either solicited or received.

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

    The foregoing proposed rule change is effective upon filing 
pursuant to Section 19(b)(3)(A)(ii) of the Act \16\ and paragraph 
(f)(2) of Rule 19b-4 \17\ thereunder, because it establishes or changes 
a due, fee, or other charge applicable only to a member imposed by the 
Exchange. 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.
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    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 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-2008-59 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2008-59. 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, on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing will 
also 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 No. SR-Phlx-
2008-59 and should be submitted on or before September 5, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18855 Filed 8-14-08; 8:45 am]

BILLING CODE 8010-01-P