[Federal Register Volume 67, Number 36 (Friday, February 22, 2002)]
[Notices]
[Pages 8330-8331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4232]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45442; File No. SR-Phlx-2001-115]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval to a Proposed Rule Change by the Philadelphia Stock Exchange, 
Inc. Relating to the Volume Thresholds for the Options Specialist 
Shortfall Fee and Corresponding Shortfall Credit

February 13, 2002.

I. Introduction

    On December 20, 2001, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its schedule of dues, 
fees and charges to increase the requisite volume thresholds associated 
with the options specialist 10 percent deficit fee (``shortfall fee'') 
and corresponding options specialist 10 percent shortfall credit 
(``shortfall credit''). The Exchange also proposed to amend the 
definition of a Top 120 Option, clarify who is eligible to receive the 
shortfall credit and make other minor, technical amendments to its fee 
schedule. On January 15, 2002, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Cynthia K. Hoekstra, Counsel, Phlx, to Kelly 
Riley, Senior Special Counsel, Division of Market Regulation, 
Commission, dated January 14, 2002 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange expanded the statutory basis of the 
proposed rule change to include section 6(b)(4) of the Act. In 
addition, the Exchange requested that the proposed rule change be 
filed pursuant to section 19(b)(2), rather than section 
19(b)(3)(A)(ii), of the Act. Finally, the Exchange requested that 
the proposed fee be approved as of January 2, 2002, and that the 
proposed rule change be approved on an accelerated basis in order to 
permit the Exchange to invoice its January fees in a timely manner 
by the middle of February.
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    The proposed rule change, as amended by Amendment No. 1, was 
published for comment in the Federal Register on January 28, 2002.\4\ 
The comment period was for fifteen days and expired on February 12, 
2002. No comments were received regarding the proposed rule change, as 
amended. This order approves the proposed rule change, as amended, on 
an accelerated basis.
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    \4\ See Securities Exchange Act Release No. 45322 (January 22, 
2002), 67 FR 3927.

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[[Page 8331]]

II. Description of the Proposed Rule Change

    The Exchange proposes to increase the volume thresholds related to 
the options specialist shortfall fee \5\ and corresponding shortfall 
credit.\6\ Currently, the Exchange imposes a fee of $0.35 per contract 
to be paid by the specialist trading any Top 120 Option if at least 10 
percent of the total national monthly contract volume (``total 
volume'') for such Top 120 Option is not affected on the Exchange in 
that month.\7\ The Exchange proposes to increase the requisite volume 
thresholds by 1 percent per quarter over each quarter of 2002. Thus, 
the minimum trading volume requirements for total volume in the Top 120 
Options would be in excess of: 11 percent for the period January 
through March 2002; 12 percent for the period April through June 2002; 
13 percent for the period July through September 2002; and 14 percent 
for the period October through December 2002.
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    \5\ See Securities Exchange Act Release No. 43201 (August 23, 
2000), 65 FR 52465 (August 29, 2000) (SR-Phlx-00-71).
    \6\ See Securities Exchange Act Release No. 44892 (October 1, 
2001), 66 FR 51487 (October 9, 2001) (SR-Phlx-2001-83).
    \7\ The Exchange states that at present a Top 120 Option is 
defined as one of the 120 most actively traded equity options in 
terms of the total number of contracts in that option that were 
traded nationally for a specified month based on volume reflected by 
The Options Clearing Corporation (``OCC'') and which was listed on 
the Exchange after January 1, 1997. The Exchange proposes to amend 
the definition of a Top 120 Option to include the top 120 most 
actively traded equity options in terms of the total number of 
contracts in that option that were traded nationally for a specified 
month based in volume reflected by OCC. The Phlx intends to continue 
to divide by two the total volume reported by OCC, which reflects 
both sides of an executed transaction, thus avoiding one trade being 
counted twice for purposes of determining overall volume. See 
Securities Exchange Act Release No. 43201 (August 23, 2000), 65 FR 
52465 (August 29, 2000) (SR-Phlx-00-71).
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    In addition, the Exchange permits a corresponding shortfall credit 
of $0.35 per contract to be earned toward previously imposed shortfall 
fee for each contract traded in excess of the current 10 percent volume 
threshold during a subsequent monthly time period.\8\ The specialist 
may apply for the shortfall credit when trading in an issue falls below 
the 10 percent volume threshold in one month and exceeds the threshold 
in a subsequent month. The Exchange also proposes to amend the related 
shortfall credit to correspond with the volume thresholds described 
above. Therefore, in order to qualify for the shortfall credit, 
specialists/specialist units must have total volume in the Top 120 
Options (that otherwise qualify based on the 10 million contract volume 
requirement) in excess of: 11 percent for the period January through 
March 2002; 12 percent for the period April through June 2002; 13 
percent for the period July through September 2002; and 14 percent for 
the period October through December 2002.
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    \8\ To be eligible for the shortfall credit, the option must 
trade in excess of 10 million contracts nationwide during the month 
in which the deficit occurs.
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III. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of section 6 of the Act \9\ and the 
rules and regulations thereunder applicable to a national securities 
exchanges.\10\ The Commission finds specifically that the proposed rule 
change is consistent with section 6(b)(4) of the Act,\11\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities. Further, the Commission 
believes that the proposed fee may enhance inter-market competition by 
encouraging Phlx specialists to compete for order flow. In addition, 
Phlx specialists' efforts to maintain the requisite volume thresholds 
as outlined above may contribute to deeper, more liquid markets and 
narrower spreads.
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    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(4).
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    The Exchange proposed to implement the proposed fees as of January 
2, 2002. The Commission believes that it is reasonable for the Phlx to 
implement these fees retroactively to coincide with the New Year. 
Further, the Commission notes that it did not receive any comments on 
the proposed retroactive application of the fee and credit.
    Furthermore, the Commission finds good cause for approving the 
proposed rule change and Amendment No. 1 prior to the thirtieth day 
after notice of the publication in the Federal Register. Accelerated 
approval will permit the Exchange to invoice its January fees in a 
timely manner by the middle of February. In addition, the Commission 
received no comments on the proposed rule change and Amendment No. 1. 
Accordingly, the Commission finds good cause, consistent with section 
19(b)(2) of the Act \12\ to approve the proposed rule change, as 
amended, on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposal, 
as amended, is consistent with the requirements of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-2001-1115), as amended, 
is approved on an accelerated basis.
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    \13\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)((12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4232 Filed 2-21-02; 8:45 am]
BILLING CODE 8010-01-M