[Federal Register Volume 66, Number 195 (Tuesday, October 9, 2001)]
[Notices]
[Pages 51485-51487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25239]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44893; File No. SR-Phlx-2001-85]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Elimination of Equity Option Transaction 
Charges for Facilitation Transactions

October 2, 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 August 31, 2001, 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 the Phlx. 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 amend its schedule of dues, fees, and charges 
to eliminate its equity option transaction

[[Page 51486]]

charges for certain off-floor member organizations engaging in 
facilitation transactions.\3\ Facilitation transactions by off-floor 
member firms designated as ``firm/proprietary'' \4\ for purposes of the 
Summary of Equity Option Charges portion of the Exchange's schedule of 
dues, fees, and charges,\5\ would not be subject to the Equity Option 
Transaction Charge.
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    \3\ A facilitation transaction occurs when a Floor Broker holds 
an options order for a public customer and a contra-side order for 
the same option series and, after providing an opportunity for all 
persons in the trading crowd to participate in the transaction, 
executes both orders as a facilitation cross. A Floor Broker 
engaging in a facilitation transaction must announce that he/she 
holds an order subject to facilitation prior to the execution, and 
must market the floor ticket for the public customer's order with 
the legible ``F.'' See Exchange Rule 1064(b).
    \4\ A ``firm/proprietary'' transaction charge applies to orders 
for the proprietary account of any member or non-member broker-
dealer that derives more than 35 percent of its revenues from 
commissions and principal transactions with customers. See 
Securities Exchange Act Release No. 43558 (November 14, 2000), 65 FR 
69984 (November 21, 2000).
    \5\ Equity Option Charges are comprised of the Option Comparison 
Charge, Option Transaction Charge, Option Floor Brokerage Assessment 
and the Floor Brokerage Transaction Fee.
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    The equity option transaction charge will continue to apply to 
facilitation transactions involving Exchange-traded options subject to 
licensing agreements.\6\
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    \6\ For example, lists and trades options overlying the Nasdaq-
100 Index Tracking StockSM (``QQQSM''). The 
Nasdaq-100 , Nasdaq-100 Index , Nasdaq 
, The Nasdaq Stock Market , Nasdaq-100 Shares 
SM, Nasdaq-100 Index Tracking Stock SM, and 
QQQ SM are trademarks or service marks of The Nasdaq 
Stock Market, Inc. (``Nasdaq'') and have been licensed for use for 
certain purposes by the Philadelphia Stock Exchange pursuant to a 
License Agreement with Nasdaq. The Nasdaq-100 Index  
(``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.
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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 Exchange currently imposes a transaction charge on equity 
options transactions executed on the Exchange. The charges vary 
depending on whether the transaction involves a member organization,\7\ 
Registered Options Trader (``ROT''), or specialist. Previously, equity 
option transaction charges were also imposed on customer executions, 
but on August 31, 2000, the Exchange eliminated all equity option 
transaction charges for customer executions.\8\ Other exchanges also 
eliminated similar customer equity option fees.\9\
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    \7\ Telephone conversation between Richard S. Rudolph, Counsel, 
Phlx, and Frank N. Genco, Attorney Advisor, Division of Market 
Regulation, Commission, September 26, 2001 (``Telephone conversation 
with Phlx, September 26, 2001'').
    \8\ See Securities Exchange Act Release No. 43343 (September 26, 
2000), 65 FR 59243 (October 4, 2000).
    \9\ See Securities Exchange Act Release Nos. 42676 (April 13, 
2000), 65 FR 21223 (April 20, 2000); 42850 (May 30, 2000), 65 FR 
36187 (June 7, 2000); and 43115 (August 3, 2000), 65 FR 49280 
(August 11, 2000). See also Securities Exchange Act Release No. 
43020 (July 10, 2000), 65 FR 44558 (July 18, 2000).
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    The Exchange believes that the elimination of the equity option 
transaction charge \10\ in facilitation transactions by off-floor 
member firms designated as ``firm/proprietary'' would encourage member 
firms engaging in facilitation transactions to send such orders to the 
Exchange, thereby adding order flow to and increasing liquidity on the 
Exchange.
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    \10\ The current charge applicable to accounts designated as 
``firm/proprietary'' for transactions in equity options is $.08 per 
contract.
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    The Exchange believes that, absent the equity option transaction 
charge, member firms would be more inclined to facilitate customer 
orders on the Exchange, thereby attracting additional order flow and 
promoting a more liquid market.
    The equity option transaction charge will continue to apply to 
facilitation transactions involving Exchange-traded options subject to 
licensing agreements.
2. Statutory Basis
    The Phlx believes that the proposed rule change is consistent with 
Section 6 of the Act,\11\ in general, and furthers the objectives of 
Sections 6(b)(4) \12\ and 6(b)(5),\13\ in particular, in that the 
Exchange believes that proposed rule change is designed to perfect the 
mechanism of a free and open market and a national market system, to 
protect investors and the public interest, to promote just and 
equitable principles of trade, and to provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and other Exchange participants.\14\ The Exchange believes that 
the proposed elimination of the equity option transactions by off-floor 
member firms designated as ``firm/proprietary'' should foster liquidity 
in the Exchange's markets, and enable the Exchange to remain 
competitive as a marketplace by attracting additional order flow in 
options traded on the Exchange.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ Telephone conversation with Phlx, September 26, 2001.
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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

    No written comments were solicited or received.

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

    The foregoing rule change, which establishes or changes a due, fee, 
or other charge applicable to members of the Exchange, has become 
effective pursuant to Section 19(b)(3)(A) of the Act and subparagraph 
(f)(2) of Rule 19b-4 thereunder. At any time within 60 days of August 
31, 2001, 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.

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

[[Page 51487]]

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-2001-85 and 
should be submitted by October 30, 2001.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25239 Filed 10-5-01; 8:45 am]
BILLING CODE 8010-01-M