[Federal Register Volume 66, Number 89 (Tuesday, May 8, 2001)]
[Notices]
[Pages 23308-23309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44237; File No. SR-PHLX-2001-43]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Adding QQQ Options to the Exchange's List of the Top 120 
Equity Options

April 30, 2001.
    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 March 30, 2001, the Philadelphia Stock Exchange, Inc. 
(``Phlx'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II, and III below, which 
Items the Phlx has prepared. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to revise its list of the Top 120 Options \3\ by 
adding options on Units of Beneficial Interest in the Nasdaq-100 Trust, 
Series 1, which are widely known as and traded under the symbol 
``QQQ''. Options on the QQQ index will be added to the Phlx's list of 
the Top 120 Options effective April 2, 2001, and will include trades 
that settle on that date.
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    \3\ The Phlx defines a Top 120 Option as one of the 120 most 
actively traded equity options nationwide during a six-month 
measuring period. The Phlx revises its list of the Top 120 Options 
every six months using data that the Options Clearing Corporations 
provides.
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    All of the options on the Phlx's list of Top 120 Options are 
included in the Phlx's payment for order flow program, in which a 
marketing fee (currently $1.00) is imposed on the transactions of 
specialists and ROTs, which the specialists may use to attract order 
flow to Phlx. QQQ options will be included in the marketing fee program 
once they are added to the list of Top 120 Options. The inclusion of 
QQQ options on the list means that there will be 121 Options on the 
Phlx's list of the Top 120 options through June 30, 2001, when the 
current measuring period ends.

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 Phlx has prepared summaries, set forth in Sections 
A, B, and C below, or 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 add QQQ options to the 
Phlx's list of the Top 120 Options. The list of the Top 120 Options 
identifies the 120 most actively traded equity options as measured by 
their trading volume on all U.S. options markets. The list of Top 120 
Options is recalculated every six months, with the measuring periods 
running from January 1 through June 30 and from June 1 through November 
30. The Phlx assembled its current list of Top 120 Options using data 
that the Options Clearing Corporation gathered during the period from 
June 1, 2000 through November 30, 2000.
    The Phlx currently imposes a $1.00 per contract fee on transactions 
of Phlx specialists and Registered Options Traders (``ROTs'') in the 
Top 120 Options, with some exceptions.\4\ Under the program, Phlx 
specialists may use the proceeds raised from the marketing fee to 
attract order flow to the Phlx. Because options on the QQQ index are 
now traded on the Phlx,\5\ the Phlx is proposing to add QQQ options to 
its list of the Top 120 Options during the current measuring period. 
Accordingly, from April 2, 2001, the effective date of this proposal, 
through June 30, 2001, the end of the current measuring period, there 
will be a total of 121 options on the Phlx's list of the Top 120 
Options.
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    \4\ The transactions in Top 120 Options that are currently 
excepted from the $1.00 fee are transactions between: (1) A 
specialist and an ROT; (2) an ROT and an ROT; (3) a specialist and a 
firm; (4) an ROT and a firm; (5) a specialist and a broker-dealer; 
and (6) and ROT and and a broker-dealer. See Securities Exchange Act 
Release Nos. 43177 (Aug. 18, 2000), 65 FR 51889 (Aug. 25, 2000) (SR-
Phlx-00-77); 43480 (Oct. 25, 2000), 65 FR 66275 (Nov. 3, 2000) (SR-
Phlx-00-86 and SR-Phlx-00-87); and 43481 (Oct. 25, 2000), 65 FR 
66277 (Nov. 3, 2000) (SR-Phlx-00-88 and SR-Phlx-00-89),
    \5\ See Securities Exchange Act Release Nos. 43921 (February 2, 
20001), 66 FR 9739 (Feb. 9, 2001) (SR-Phlx-00-107) (amending Phlx 
rules to create listing criteria and trading rules to allow the Phlx 
to list QQQ options); 44054 (Mar. 8, 2001), 66 FR 15314 (Mar. 16, 
2001) (SR-Phlx-01-31) (increasing the automatic execution guarantee 
for QQQ options to 100 contracts); and 44055 (March 8, 2001), 66 FR 
15310 (Mar. 16, 2001) (SR-Phlx-01-32) (amending Phlx rules to create 
a one-point strike price interval for QQQ options and establishing 
the hours of trading for QQQ options).
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2. Statutory Basis
    The inclusion of QQQ options on the Phlx's list of the Top 120 
Options would bring QQQ options into the Phlx's payment for order flow 
program. The Phlx believes that the QQQ specialist unit and the ROTs 
who pay the $1.00 marketing fee should receive the benefits of increase 
order flow, and that the proposed rule change would equitably allocate 
reasonable fees among the Phlx's members. Accordingly, the Phlx--
believes that the proposal is consistent with Section 6(b) of the 
Act,\6\ and in particular furthers the objectives of Sections 6(b)(4) 
and 6(b)(5) of the Act.\7\ Moreover, the Phlx believes that the 
inclusion of QQQ options in its list of Top 120 Options, and the

[[Page 23309]]

corresponding imposition of the $1.00 fee on various transactions in 
QQQ options, should promote just and equitable principles to trade, 
remove impediments to and perfect the mechanism of a free and open 
market, and protect investors and public interest by attracting more 
order flow to the Phlx, which should result in increased liquidity, 
tighter markets, and more competition among exchange members.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Phlx neither solicited nor received any written comments on 
this proposal.

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

    Because the Phlx has designated the proposed rule change as a fee 
change pursuant to Section 19(b)(3)(A) \8\ of the Act and Rule 19b-
4(f)(2),\9\ the proposal has become effective upon filing with the 
Commission.\10\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate the 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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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(2).
    \10\ The Phlx has stated that any change to the category of 
options to which the payment for order flow fee applies will be 
subject of a separate filing with the Commission pursuant to Section 
19(b)(3)(A)(ii) of the Act. See Securities Exchange Act Release No. 
43177 (Aug. 18, 2000), 65 FR 51889 (Aug. 25, 2000) (SR-Phlx-00-77).
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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. 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 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 will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2001-43 and 
should be submitted by May 29, 2001.

    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. 01-11475 Filed 5-7-01; 8:45 am]
BILLING CODE 8010-01-M