[Federal Register Volume 66, Number 195 (Tuesday, October 9, 2001)]
[Notices]
[Pages 51487-51488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25240]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44892; File No. SR-Phlx-2001-83)


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Credits for Options Specialist Shortfall 
Fees

October 1, 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 Phildelphia 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 currently imposes a ``shortfall fee'' of $0.35 per 
contract upon a specialist in a ``Top 120 Option'' for each contract in 
which trading on the Exchange for a month's time period falls below 10% 
of the total monthly contract volume in that option nationwide (``10% 
volume threshold'').\3\ The Exchange proposes to amend its schedule of 
dues, fees, and charges to provide for an options specialist to earn a 
credit of $0.35 per contract toward previously imposed ``shortfall 
fees'' in eligible issues for each contract traded in excess of the 10% 
volume threshold during a subsequent monthly time period commencing 
September 1, 2001. Such a credit may be applied against shortfall fees 
imposed within the preceding six months for the same issue, provided 
that, in the month the deficit occurred, the issue traded in excess of 
ten million contracts nationwide.\4\
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    \3\ See Securities Exchange Act Release No. 43201 (August 23, 
2000), 65 FR 56363 (August 29, 2000). A Top 120 Option is defined as 
an option that was one of the top 120 most actively traded equity 
options in terms of the total number of contracts that were traded 
nationally for a specified month and which was listed after January 
1, 1997.
    \4\ Nationwide trading figures are based on the national monthly 
contract volume reflected by the Options Clearing Corporation. 
Telephone conversation between Murray L. Ross, Secretary, Phlx, and 
Frank N. Genco, Attorney Advisor, Division of Market Regulation 
(``Division''), Commission, September 28, 2001.
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    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *

OPTIONS SPECIALIST 10% DEFICIT (Shortfall) FEE CREDIT

    A credit of $0.35 per contract may be earned by options specialists 
for all contracts traded in excess of the 10% volume threshold in 
eligible issues for the monthly periods commencing September 1, 2001. 
These credits may be applied against previously imposed ``shortfall 
fees'' for the preceding six months for issues that in the month the 
deficit occurred, the equity option traded in excess of 10 million 
contracts per month.
* * * * *

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 provide a credit 
earning opportunity, under specified circumstances, for options 
specialists in Top 120 Options when trading in their issues falls below 
the 10% volume threshold in one month, and exceeds the threshold in a 
subsequent month.
    This proposal recognizes the difficulty in attracting order flow in 
an intensely competitive trading environment and provides further 
incentive to maximize performance in attracting order flow in such 
issues to the Exchange. Credits may be earned offsetting previously 
imposed shortfall fees only to the extend they may be owed, due, or 
paid within the previous six months, and solely in eligible issues.\5\
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    \5\ Telephone conversation between Murray L. Ross, Secretary, 
Phlx; and Ira L. Brandriss, Special Counsel, Division, Commission, 
and Frank N. Genco, Attorney Advisor, Division, Commission, 
September 21, 2001.
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    While the proposed credit is potentially a zero sum financial 
measure for the eligible issues over the previous six month period, the 
Phlx believes that it is important to recognize that it will be 
perceived as a more competitive factor in the marketplace, as the 
performance in excess of the 10% volume threshold reflects positively 
on the abilities of the Exchange, its option specialists, and 
registered options traders to compete for and draw order flow.
    The Exchange believes it is necessary to continue to attract order 
flow to the Exchange in order to remain competitive. The Phlx believes 
that the proposed credit earning opportunity should further encourage 
options specialists to vigorously compete for order flow, which not 
only enhances the specialist's role, but also provides potential 
additional revenues to the Exchange. Moreover, the Exchange expects the 
specialists efforts to exceed the 10% volume threshold should 
contribute the deeper, more liquid markets and tighter spreads, thereby 
enhancing competition and important auction market principles.
2. Statutory Basis
    The Phlx believes that the proposed rule change is consistent with 
Section 6 of the Act,\6\ in general, and furthers the

[[Page 51488]]

objectives of Sections 6(b)(4) \7\ and 6(b)(5),\8\ in particular, in 
that the Exchange believes that the proposed rule change is an 
equitable allocation of reasonable fees among the Exchange's members, 
as the amount credited is solely against previously imposed fees in a 
particular issue meeting certain eligibility criteria. The Phlx also 
believes that the credit is intended to promote just and equitable 
principles of trade and protect investors and the public interest by 
attracting more order flow to the Exchange, which should result in 
increased liquidity and tighter markets.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Reviewed 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 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-2001-83 and 
should be submitted by October 30, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25240 Filed 10-5-01; 8:45 am]
BILLING CODE 8010-01-M