[Federal Register Volume 68, Number 120 (Monday, June 23, 2003)]
[Notices]
[Pages 37194-37195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15772]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48032; File No. SR-Phlx-2003-42]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Payment for Order Flow Fees Assessed on 
Registered Options Traders

June 13, 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 May 30, 2003, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed a proposed rule change with the Securities and 
Exchange Commission (``Commission''). The proposed rule change is 
described in Items I, II and III below, which the Phlx has prepared. 
The Phlx has designated this proposal as one establishing or changing a 
due, fee, or other charge imposed by the Exchange under section 
19(b)(3)(A)(ii) of the Act,\3\ which renders the proposal effective 
upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    The text of the proposed rule change is available at the Phlx and 
at the Commission.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend its payment-for order flow fees imposed 
on the transactions of Phlx Registered Options Traders (``ROTs'') for 
the equity options currently ranked two through fifty.\4\ The fees for 
the equity options ranked from two through fifty will decrease from 
$0.50 per contract to $0.40 per contract. The fee for the top-ranked 
equity option will remain at $1.00 and the fee for equity options 
ranked 51 through 120 will remain at $0.00. No other changes to the 
Phlx's payment for order flow program are being made at this time.\5\
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    \4\ The Phlx's payment for order flow fee is assessed on ROTs on 
the top 120 most actively traded equity options in terms of the 
total number of contracts that are traded nationally, based on 
volume statistics provided by the Options Clearing Corporation. The 
measuring periods for the top 120 options are calculated every three 
months. See Securities Exchange Act Release No. 47424 (February 28, 
2003), 68 FR 11168 (March 7, 2003) (SR-Phlx-2003-04). For the 
payment for order flow fees imposed on trades settling on or after 
May 1, 2003 through July 31, 2003, the measuring period for the top 
120 options was based on volume statistics from January, February 
and March 2003. See Securities Exchange Act Release No. 47805 (May 
6, 2003), 68 FR 25669 (May 13, 2003) (SR-Phlx-2003-34).
    \5\ Therefore, the top 120 options currently in effect will 
remain the same through July 31, 2003. No recalculation of the top 
120 options is being done at this time.
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    The Phlx intends to implement the attached payment for order flow 
fees for trades settling June 1, 2003 through July 31, 2003.\6\
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    \6\ The Exchange previously filed a proposed rule change to 
establish the payment for order flow fees for the time period May 1, 
2003 through July 31, 2003. See Securities Exchange Act Release No. 
47805 (May 6, 2003), 68 FR 25669 (May 13, 2003) (SR-Phlx-2003-34). 
This proposal seeks to amend the payment for order flow fees within 
this three-month cycle, specifically for transactions settling on 
June 1, 2003 through July 31, 2003. Thereafter, consistent with the 
Phlx's payment for order flow program, the Phlx will file with the 
Commission a proposed rule change to address any changes to its fee 
schedule for subsequent time periods.
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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 had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Phlx 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 Phlx previously filed a proposed rule change with the 
Commission to reinstate its payment for order flow program.\7\ Pursuant 
to the Phlx's current program, ROTs are assessed a payment for order 
flow fee on the 120 most actively traded equity options, on a per-
contract, per-options issue basis, as set forth on the Phlx's ROT 
Equity Option Payment for Order Flow Charges Schedule.\8\
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    \7\ See Securities Exchange Act Release No. 47090 (December 23, 
2002), 68 FR 141 (January 2, 2003) (SR-Phlx-2002-75).
    \8\ The payment for order flow fee does not apply to 
transactions between: (1) a ROT and a specialist; (2) a ROT and a 
ROT; (3) a ROT and a firm; and (4) a ROT and a broker-dealer. 
Indeed, because the primary focus of the program is to attract order 
flow from customers, the payment for order flow fee is not imposed 
on the above-specified transactions. Also, the payment for order 
flow fee does not apply to index or foreign currency options.
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    The purpose of the proposed rule change is to encourage additional 
volume in the most actively traded equity options ranked two through 
fifty by decreasing the payment for order flow fee assessed on ROTs 
from the current rate of $0.50 per contract to $0.40 per contract. The 
reduced fee, applicable to trades settling from June 1, 2003 through 
July 31, 2003, should promote additional liquidity in those options by 
reducing the ultimate costs incurred by the ROTs in connection with 
trading these options.
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 \9\ 
in general, and furthers the objectives of section 6(b)(4) of the Act 
\10\ in particular, in that it is an equitable allocation of reasonable 
fees among Phlx members.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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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 result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Phlx neither solicited nor received written comments with 
respect to the proposal.

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

    The proposed rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \11\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\12\ because it establishes or changes a due, fee, or other 
charge imposed by the Exchange. At any time within 60 days after 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 purposes of 
the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 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,

[[Page 37195]]

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 number SR-Phlx-2003-42 and should be 
submitted by July 14, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15772 Filed 6-20-03; 8:45 am]
BILLING CODE 8010-01-P