[Federal Register Volume 68, Number 1 (Thursday, January 2, 2003)]
[Notices]
[Pages 144-146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-33120]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47086; File No. SR-Phlx-2002-81]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Index Option Charges

December 23, 2002.
    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 December 18, 2002, 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 and 
II below, which Items have been prepared by the Exchange. 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 Exchange proposes to amend its schedule of dues, fees and 
charges to increase the Options Floor Brokerage Assessment Fee 
(``Assessment Fee'') from 5% of a firm's monthly net floor brokerage 
income \3\ to a tiered rate ranging from 5.5% to 7.5% of a firm's 
monthly net floor brokerage income, and to institute a monthly $100,000 
cap on such assessment fee.\4\ The revised Assessment Fee is scheduled 
to be implemented respecting transactions settling on or after January 
2, 2003.\5\ The text of the proposed rule change is set forth below. 
New text is in italics. Deleted text is in brackets.
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    \3\ The Floor Brokerage Transaction Fee (for both Equity and 
Index Options) will continue to apply to floor brokers executing 
transactions for their own member firms.
    \4\ See Exchange Rules 714 and 715.
    \5\ The Assessment Fee will continue to be eligible for the 
monthly credit of up to $1,000 to be applied against certain fees, 
dues and charges and other amounts owed to the Exchange by certain 
members. See Securities Exchange Act Release No. 44292 (May 11, 
2001), 66 FR 27715 (May 18, 2001) (SR-Phlx-2001-49).

                    Summary of Equity Option Charges
Option Comparison Charge I
 (applicable to all trades--except
 specialist trades):
    Registered Option Trader........  $.03 per contract.
    Firm/Proprietary \6\............  $.04 per contract.
    Customer Executions.............  No charge.
Option Transaction Charge I:
    Customer Executions.............  No charge.
    Firm/Proprietary \7\............  $.15 per contract.
    Firm/Proprietary Facilitation     $.08 per contract.
     Transaction \8\.
    Registered Option Trader (on-     $.16 per contract.
     floor).
    Specialist......................  $.18 per contract.
    Broker/Dealer \9\...............  $.35 per contract.
Option Floor Brokerage Assessment I
 [5% of net floor brokerage income.]
Monthly Net Floor Brokerage Income:               Assessment
    First $0--$300,000..............  5.5%
    Next $300,001--$500,000.........  6.5% (excess over $300,000).
    Balance--Over $500,001..........  7.5% (excess over $500,000).

[[Page 145]]

 
    Monthly Cap: $100,000...........
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\6\ For the purpose of this Summary of Equity Option Charges, the Firm/
  Proprietary comparison or transaction charge applies to members for
  orders for the proprietary account of any member or non-member broker-
  dealer that derives more than 35% of its annual, gross revenues from
  commissions and principal transactions with customer. Firms will be
  required to verify this amount to the Exchange by certifying that they
  have reached this threshold and by submitting a copy of their annual
  report, which was prepared in accordance with Generally Accepted
  Accounting Principles (``GAAP''). In the event that a firm has not
  been in business for one year, the most recent quarterly reports,
  prepared in accordance with GAAP, will be accepted.
\7\ See supra note 3.
\8\ Equity Option Transaction Charges continue to apply to facilitation
  transactions involving Exchange-traded options subject to licensing
  agreements.
\9\ For the purpose of this Summary of Equity Option Charges, this
  charge applies to members for orders, received from other than the
  floor of the Exchange, for any account (i) in which the holder of
  beneficial interest is a member or non-member broker-dealer or (ii) in
  which the holder of beneficial interest is a person associated with or
  employed by a member or non-member broker-dealer. This includes orders
  for the account of an ROT entered from off-floor.

Floor Brokerage Transaction Fee I

    $.05 per contract, for floor brokers executing transactions for 
their own member firms

Specialist Deficit (Shortfall) Fee I

    $.35 per contract for specialists trading any Top 120 Option if the 
cafollowing total national monthly contract volume for such Top 120 
Option is not effected on the Phlx: 11% for the period January through 
March 2002; 12% for the period April through June 2002; 13% for the 
period July through September 2002; and 14% for the period October 
through December 2002.

Summary of Equity Option Charges

Specialist Deficit (Shortfall) Fee Credit

    A credit of $.35 per contract may be earned by options specialists 
for all contracts traded in excess of the following volume thresholds 
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: 11% for the period January through March 
2002; 12% for the period April through June 2002; 13% for the period 
July through September 2002; and 14% for the period October through 
December 2002.

Real-Time Risk Management Fee I

    $.0025 per contract for firms/members receiving information on a 
real-time basis

See Appendix A for additional fees.
I denotes fee eligible for monthly credit of up to $1,000.

                     Summary of Index Option Charges
Option Comparison Charge I
 (applicable to all trades--except
 specialist trades):
    Registered Option Trader........  $.03 per contract.
    Firm (Proprietary and Customer    $.04 per contract.
     Executions).
Option Transaction Charge I:
    Customer Executions:............  ..................................
        Market value less than $1.00  $.20 per contract.
         \1\.
        Market value $1.00 or over    $.40 per contract.
         \1\.
    Firm \2\........................  $.10 per contract.
    Registered Option Trader and      $.14 per contract.
     Specialist.
Option Floor Brokerage Assessment I
 [5% of net floor brokerage income.]
Monthly Net Floor Brokerage Income:               Assessment
    First $0--$300,000..............  5.5%.
    Next $300,001--$500,000.........  6.5% (excess over $300,000).
    Balance--Over $500,001..........  7.5% (excess over $500,000).
    Monthly Cap: $100,000...........
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Floor Brokerage Transaction Fee I

    $.05 per contract, for floor brokers executing transactions for 
their own member firms.

Real-Time Risk Management Fee I

    $.0025 per contract for firms/members receiving information on a 
real-time basis

See Appendix A for additional fees.
I denotes fee eligible for monthly credit of up to $1,000.
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    \1\ Block transaction for customer executions of 500 to 999 
contracts and 1,000 contracts and more are eligible for a discount 
to such charges of 15% and 25% respectively from the stated rates 
upon submission to the Phlx of a customer option block discount 
request form with supportive documentation within thirty (30) days 
of monthly billing date.
    \2\ Non-clearing firm members' proprietary transactions are 
eligible for the ``firm'' rate based upon submission of a PHLX 
rebate request form with supportive documentation within thirty (30) 
days of invoice date.
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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 Exchange 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 III 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 increase the 
Assessment Fee to generate revenue, which should help offset rising 
Exchange costs. The tiered structure and cap should generate additional 
income without being overly burdensome to the floor brokers. A 
description of the proposal is below:

[[Page 146]]



------------------------------------------------------------------------
 Monthly Net Floor Brokerage Income               Assessment
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First $0--$300,000..................  5.5%.
Next $300,001--$500,000.............  6.5% (excess over $300,000).
Balance Over $500,001...............  7.5% (excess over $500,000).
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    Monthly Cap: $100,000.
    The tiered rate amount is applied to each tier of monthly net floor 
brokerage income separately; for instance, if the monthly net floor 
brokerage income is $400,000, then the first $300,000 is assessed at a 
rate of 5.5%, and the remainder ($99,999) is assessed at the rate of 
the next tier--6.5%.
    The Exchange believes that the proposed tiered Assessment Fee 
structure is reasonable and equitable because the amount a floor broker 
is assessed is directly related to such floor broker's monthly net 
floor brokerage income, which roughly correlates to such floor broker's 
overall activity on the Exchange. Therefore, those floor brokers who 
use a greater percentage of the Exchange's resources are assessed at a 
higher level. In order to balance the increase in the Assessment Fee, 
the Exchange intends to cap such assessment at $100,000 per month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\10\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\11\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 either solicited or received.

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

    The foregoing rule change establishes or changes a due, fee, or 
charge imposed by the Exchange and, therefore, has become effective 
upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act \12\ and 
Rule 19b-4(f)(2) thereunder.\13\ At any time within 60 days of the 
filing of the proposed rule change, 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 purpose of 
the Act.
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    \12\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
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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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-Phlx-2002-81 and 
should be submitted by January 23, 2003.

    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. 02-33120 Filed 12-31-02; 8:45 am]
BILLING CODE 8010-01-P