[Federal Register Volume 68, Number 63 (Wednesday, April 2, 2003)]
[Notices]
[Pages 16111-16112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7844]



[[Page 16111]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47561; File No. SR-Phlx-2003-16]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, 
Inc. Relating to Charges to Exchange Members for Orders Entered Through 
the Intermarket Options Linkage

March 21, 2003.
    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 18, 2003, 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 Exchange. On March 
21, 2003, Phlx submitted Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Richard S. Rudolph, Director and Counsel, 
Phlx, to Jennifer Lewis, Attorney, Division of Market Regulation, 
Commission, dated March 20, 2003 (``Amendment No. 1''). In Amendment 
No. 1, Phlx proposed a new footnote to its fee schedule to indicate 
that the proposed fees would be subject to a pilot program scheduled 
to expire January 31, 2004.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to amend its schedule of dues, fees and charges to 
adopt charges applicable to Principal Orders (``P Orders'') sent via 
the Intermarket Options Linkage (the ``Linkage'') under the Plan for 
the Purpose of Creating and Operating an Options Intermarket Linkage 
(``Plan'').\4\
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    \4\ See Securities Exchange Act Release Nos. 43573 (November 16, 
2000), 65 FR 70851 (November 28, 2000); and 43086 (July 28, 2000), 
65 FR 48023 (August 4, 2000). The Plan was subsequently amended on 
June 27, 2001, May 30, 2002, January 29, 2003, and January 31, 2003. 
See Securities Exchange Act Release Nos. 44482 (June 27, 2001), 66 
FR 35470 (July 5, 2001); 46001 (May 30, 2002), 67 FR 38687 (June 5, 
2002 ); 47298 (January 31, 2003), 68 FR 6524 (February 7, 2003 ); 
and 47274 (January 29, 2003), 68 FR 5313 (February 3, 2003).
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    The Exchange intends to implement this fee on a pilot basis, ending 
January 31, 2004, for transactions settling on or after the first day 
of the next calendar month following the Commission's approval of the 
proposal.\5\
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    \5\ For example, if the Commission approves the proposal on 
April 20, 2003, the Exchange intends to implement this fee for 
transactions settling on or after May 1, 2003.
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    The text of the proposed rule change is below. Proposed language is 
italicized; deleted language is in brackets.
* * * * *

Summary of Equity Option Charges (p. 1/2)

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, Linkage Orders, Broker-Dealer Orders: No charge
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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.
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Option Transaction Charge I (Other Than Intermarket Option Linkage 
Charges Set Forth Below)

Customer Executions: No charge
Firm/Proprietary \7\: $.15 per contract
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    \7\ See footnote [4] 6.
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Firm/Proprietary Facilitation Transaction\8\: $.08 per contract
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    \8\ Equity Option Transaction Charges continue to apply to 
facilitation transactions involving Exchange-traded options subject 
to licensing agreements.
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Registered Option Trader (on-floor): $.16 per contract
Specialist: $.18 per contract
Broker/Dealer \9\ (non-AUTO-X): $.35 per contract
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    \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.
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Broker/Dealer \10\ (AUTO-X): $.45 per contract
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    \10\ See footnote [8] 9.
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Intermarket Option Linkage Charge I 11
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    \11\ Subject to a pilot program scheduled to expire January 31, 
2004.
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Satisfaction Order: No charge
Principal Acting as Agent (P/A) Orders--Inbound: No charge
Principal Acting as Agent (P/A) Orders--Outbound: No charge
Principal (P) Orders--Inbound: $.35 per contract

Summary of Equity Option Charges (p. 2/2)

Option Floor Brokerage Assessment I

    5% of net floor brokerage income.

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 
following 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.

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.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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. Phlx has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

[[Page 16112]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Phlx represents that the purpose of the proposed rule change is to 
raise revenue for the Exchange by charging Exchange members for 
transactions involving inbound P Orders sent by such members via the 
Linkage pursuant to the Plan.\12\
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    \12\ Under the Plan and Exchange Rule 1083(k), which tracks the 
language of the Plan, a ``Linkage Order'' means an Immediate or 
Cancel order routed through the Linkage as permitted under the Plan. 
There are three types of Linkage Orders:
    (i) ``Principal Acting as Agent (``P/A'') Order,'' which is an 
order for the principal account of a specialist (or equivalent 
entity on another Participant Exchange that is authorized to 
represent Public Customer orders), reflecting the terms of a related 
unexecuted Public Customer order for which the specialist is acting 
as agent;
    (ii) ``Principal (``P'') Order,'' which is an order for the 
principal account of an Eligible Market Maker and is not a P/A 
Order; and
    (iii) ``Satisfaction Order,'' which is an order sent through the 
Linkage to notify a member of another Participant Exchange of a 
Trade-Through and to seek satisfaction of the liability arising from 
that Trade-Through.
    The Exchange will not assess any charges for P/A Orders and 
Satisfaction Orders.
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    The Exchange will charge Exchange members for P Orders sent to the 
Exchange over the Linkage from the floor of another exchange $.35 per 
contract executed.\13\ The Exchange will not charge fees for other 
types of Linkage Orders.\14\
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    \13\ Currently, for non-Linkage off-floor broker-dealer orders 
sent via the Philadelphia Stock Exchange Automated Options Market 
(``AUTOM''), which is the Exchange's electronic order delivery, 
routing, execution and reporting system, the Exchange charges $.35 
per contract to the sending off-floor broker-dealer for non-AUTO-X 
trades, and $.45 per contract for trades executed by AUTO-X, the 
automatic execution feature of AUTOM.
    \14\ See supra note 6.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
dues, fees and charges is consistent with section 6(b) of the Act \15\ 
in general, and furthers the objectives of section 6(b)(4) of the Act 
\16\ in particular, in that it is an equitable allocation of reasonable 
dues, fees, and other charges among Exchange members who avail 
themselves of the Linkage, consistent with other fees charged by the 
Exchange for non-Linkage Orders.\17\
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ See supra note 7.
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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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which Phlx consents, the Commission shall:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2003-16 and should be submitted by April 23, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-7844 Filed 4-1-03; 8:45 am]
BILLING CODE 8010-01-P