[Federal Register Volume 68, Number 145 (Tuesday, July 29, 2003)]
[Notices]
[Pages 44557-44558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19184]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48205; File No. SR-Phlx-2003-50]


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 for the Top 
120 Options

July 22, 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 July 11, 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 the Phlx has prepared. 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 proposes to establish its options payment for order flow 
fees imposed on the transactions of Phlx Registered Options Traders 
(``ROTs'') for the period from August through October 2003 for the top 
120 options based on volume statistics from April, May, and June 
2003,\3\ as set forth in the ROT Equity Option Payment for Order Flow 
Charges Schedule \4\ and subject to certain exceptions listed below. 
The Phlx intends to implement the payment for order flow fees for 
trades settling on or after August 1, 2003 through October 31, 2003. 
The rate levels would not change: The top-ranked equity option would be 
charged a fee of $1.00 per contract; the next 49 equity options would 
be charged a fee of $.40 per contract; \5\ and no fee would be imposed 
for the remaining equity options in the top 120. The ROT Equity Option 
Payment for Order Flow Charges Schedule is available at the Phlx and at 
the Commission.
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    \3\ The Exchange's payment for order flow fee is imposed on 
transactions in 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 period for the top 120 options 
encompasses three months, and the Phlx files a separate proposed 
rule change for each three-month trading period. With respect to the 
payment for order flow fees imposed on trades settling on or after 
May 1, 2003 through July 31, 2003, for example, 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). 
For the payment for order flow fees imposed on trades settling on or 
after August 1, 2003 through October 31, 2003, as set forth in this 
proposal, the measuring period for the top 120 options is based on 
volume statistics from April, May, and June 2003.
    \4\ To avoid confusion, the ROT Equity Option Payment for Order 
Flow Charges Schedule reflects only those options being charged more 
than $0.00.
    \5\ The fees for the equity options ranked from two through 
fifty recently decreased from $0.50 per contract to $0.40 per 
contract. See Securities Exchange Act Release No. 48032 (June 13, 
2003), 68 FR 37194 (June 23, 2003) (SR-Phlx-2003-42).

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[[Page 44558]]

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 the statements.

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

    The Phlx recently reinstated its payment for order flow program.\6\ 
Under the program, the Phlx charges ROTs a per-contract fee with 
respect to their transactions in the top 120 most actively traded 
equity options issues, subject to certain exceptions.\7\ The fees are 
set forth in the Phlx's ROT Equity Option Payment for Order Flow 
Charges Schedule.
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    \6\ See Securities Exchange Act Release No. 47090 (December 23, 
2002), 68 FR 141 (January 2, 2003) (SR-Phlx-2002-75).
    \7\ The payment for order flow fee does not apply to specialist 
transactions or 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. According to the Phlx, the fee is not imposed with 
respect to the above-specified transactions because the primary 
focus of the payment for order flow program is to attract order flow 
from customers. The payment for order flow fee also does not apply 
to index or foreign currency options.
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1. Purpose
    The purpose of the proposed rule change is to establish the 
applicable payment for order flow fees for the top 120 options for 
trades settling on or after August 1, 2003 through October 31, 2003. 
The Phlx will file with the Commission a proposed rule change to 
address changes to the fee schedule for subsequent time periods. The 
Phlx is not making any other changes to its payment for order flow 
program at this time.
2. Statutory Basis
    The Exchange believes that this proposal to amend its schedule of 
dues, fees and charges would be an equitable allocation of reasonable 
fees among Phlx members, and that the proposal is consistent with 
section 6(b) of the Act \8\ and furthers the objectives of section 
6(b)(4) of the Act.\9\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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

    The Phlx neither solicited nor received written comments on this 
proposal.

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

    The foregoing proposed rule change has been designated as a fee 
change pursuant to section 19(b)(3)(A)(ii) of the Act \10\ and Rule 
19b-4(f)(2) thereunder.\11\ Accordingly, the proposal has taken effect 
upon filing with the Commission. At any time within 60 days after the 
filing of the proposed rule change, the Commission may summarily 
abrogate the 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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    \10\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \11\ 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 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-2003-50 and 
should be submitted by August 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-19184 Filed 7-28-03; 8:45 am]
BILLING CODE 8010-01-P