[Federal Register Volume 65, Number 214 (Friday, November 3, 2000)]
[Notices]
[Pages 66275-66277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43380; File Nos. SR-PHLX-00-86 and SR-PHLX-00-87]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Changes by the Philadelphia Stock 
Exchange, Inc. Relating to an Amendment to the Exchange's Payment for 
Order Flow Fee and a Rebate for Certain Fees Incurred

October 25, 2000.
    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 September 11, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
of the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule changes as described in Items I, II, 
and III below, which Items have been prepared by the Phlx. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes 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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[[Page 66276]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Changes

    In SR-PHLX-00-86, the Phlx proposes to amend its payment for order 
flow program \3\ that imposed a fee, effective, August 1, 2000, of 
$1.00 per contract on transactions by Phlx specialists and Registered 
Options Traders (``ROTs'') in the Top 120 Options \4\ traded on the 
Phlx. The effect of the amendment would be to exclude from the program, 
as of September 1, 2000, any transaction between a Phlx specialist or a 
Phlx ROT and a Phlx member firm trading in its proprietary account. The 
proposed amendment is effective as of September 1, 2000.\5\
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    \3\ See Securities Exchange Act Release No. 43177 (Aug. 18, 
2000), 65 FR 51889 (Aug. 25, 2000).
    \4\ A top 120 Option is defined as one of the 120 most actively 
traded equity options in terms of the total number of contracts that 
were traded on all U.S. options markets for the period January 1, 
2000 through June 30, 2000, based on volume information provided by 
The Options Clearing Corporation. The Phlx will determine the Top 
120 Options every six months, with the next measuring period 
commencing June 1, 2000 and ending on November 30, 2000. The 
proposed fee does not apply to index or currency options.
    \5\ The $1.00 fee is not eligible for the monthly credit of up 
to $1,000 to be applied against certain fees, dues, charges, and 
other amounts that certain members owe to the Exchange. See 
Securities Exchange Act Release No. 42791 (May 16, 2000), 65 FR 
33606 (May 24, 2000).
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    In SR-PHLX-00-87, the Phlx proposes to rebate the fees that the 
Phlx ROTs and Phlx specialists incurred during the period from August 
1, 2000, through August 31, 2000, when they traded with Phlx member 
firms that were effecting trades for their proprietary accounts and not 
on behalf of customers. The text of these proposed rule changes is 
available at the principal offices of the Phlx.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In its filing with the Commission, the Phlx included statement 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments it had received on them. 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 Changes

    The purpose of SR-PHLX-00-86, is to amend the Phlx's payment for 
order flow fee program such that, effective September 1, 2000, the Phlx 
will not assess the $1.00 per contract fee on transactions in which a 
Phlx member firm, trading for its proprietary account, trade with a 
Phlx specialist or Phlx ROT. In SR-PHLX-00-87, the Phlx proposes to 
rebate the fees that Phlx specialists and ROTs incurred in executing 
such transactions with Phlx member firms during the period from August 
1, 2000 through August 31, 2000.
    The purpose of the Phlx's payment for order flow program is to 
generate a source of revenue that specialists may use to attract order 
flow in the Top 120 Options traded on the Phlx. The Phlx's payment for 
order flow program originally imposed a $1.00 fee on all transactions 
of specialists and ROTs in the Top 120 Options, other than ROT-to-ROT 
or specialist-to-ROT transactions. The Phlx believes that it was 
necessary for it to adopt this type of fee in order to maintain and 
enhance its competitive position. Effective September 1, 2000, the 
proposed rule change would exempt from the fee all transactions between 
a specialist or an ROT and a member firm trading for its proprietary 
account.\6\
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    \6\ The Phlx has also filed a proposed rule change to amend its 
payment for order flow program to exclude, effective October 1, 
2000, any transactions between Phlx specialists or ROTs and broker-
dealer orders. See SR-PHLX-00-88 (October 2, 2000). The Phlx also 
proposed to rebate the fees that were imposed upon specialists and 
ROTs for transactions of the type that would be excluded by virtue 
of SR-PHLX-00-88. See SR-PHLX-00-89 (October 4, 2000).
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    The Phlx believes that it would not promote the goals of its 
payment for order flow program to collect the $1.00 fee from ROTs and 
specialists when they engage in transactions with Phlx member firms 
trading for their proprietary accounts. Any funds collected in 
connection with those trades would not be used to make payments to 
member firms for their proprietary order flow, because those are not 
the kind of transactions that the fee is designed to attract. The Phlx 
proposes to rebate to specialists and ROTs any fees that were imposed 
on them for their transactions with respect to the proprietary trading 
of Phlx member firms during the period from August 1, 2000 through 
August 31, 2000.
    In sum, the Phlx's payment for order flow program, as amended by 
SR-PHLX-00-86, would impose the $1.00 fee on all transactions by 
specialists and ROTs in the Top 120 Options, with the exception of: (1) 
Transactions between ROTs; (2) transactions between a specialist and an 
ROT; and (3) transactions between a specialist or an ROT and a member 
firm acting for its proprietary account and not on behalf of a 
customer. The Exchange envisions that the persons who pay the fees will 
also participate in the order flow derived from the plan, amended as 
proposed. The Exchange believes that the plan, amended as proposed, 
will provide for the equitable allocation of reasonable fees among the 
Exchange's members because the specialists and ROTs who pay the fee 
should also receive the benefits of increased order flow. Moreover, the 
Exchange believes that the fee should promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market, and protect investors and the public interest 
by attracting more order flow to the Exchange. In the Exchange's view, 
this should result in increased liquidity, tighter markets, and more 
competition among exchange members. Accordingly, the Exchange believes 
that its proposals are consistent with and further the objectives of 
the Act, including sections 6(b)(4) \7\ and 6(b)(5) \8\ thereof.
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule changes 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 Changes Received From Members, Participants or Others

    The Phlx neither solicited nor received any written comments with 
respect to the proposed rule changes.

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

    Because the Phlx has designated the foregoing proposed rule changes 
as fee changes pursuant to section 19(b)(3)(A) of the Act \9\ and Rule 
19b-4(f)(2) thereunder,\10\ the proposals have taken effect upon filing 
with the Commission. At any time within 60 days of the filing of the 
proposed rule changes, the Commission may summarily abrogate them if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise

[[Page 66277]]

in furtherance of the purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    The Commission invites interested persons to submit written data, 
views, and arguments concerning the foregoing, including whether the 
proposed rules are consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Copies of the submissions, all subsequent amendments, 
all written statements with respect to the proposed rule changes that 
are filed with the Commission, and all written communications between 
the Commission and any person relating to the proposed rule changes, 
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 
filings will also be available for inspection and copying at the 
principal offices of the Phlx. All submissions should refer to File 
Nos. SR-PHLX-00-86 and SR-PHLX-00-87, and should be submitted by 
November 24, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-28224 Filed 11-2-00; 8:45 am]
BILLING CODE 8010-01-M