[Federal Register Volume 68, Number 145 (Tuesday, July 29, 2003)]
[Notices]
[Pages 44558-44560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19185]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48207; File No. SR-Phlx-2003-47]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Equity Option Specialist Deficit (Shortfall) 
Fee

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 June 27, 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. 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 amend its schedule of dues, fees and charges 
to amend the Equity Option Specialist Deficit (Shortfall) fee 
(``shortfall fee'') to impose a limit of $10,000 to the specialist \3\ 
on the monthly amount of the shortfall fee for any Top 120 Equity 
Option,\4\ provided that the market share effected on the Phlx for a 
Top 120 Option is equal to or greater than 50 percent of the current 
total national monthly contract volume threshold (``volume threshold'') 
in effect. As of July 1, 2003, the volume threshold is 12 percent in 
most cases.\5\
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    \3\ The Exchange uses the terms ``specialist'' and ``specialist 
unit'' interchangeably herein.
    \4\ 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 OCC.
    \5\ An exception to the volume threshold amount relates to a 
transition period for newly listed options, which is described in 
Footnote 9.

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[[Page 44559]]

    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 14 
percent of the total national monthly contract volume for such Top 120 
Option is not effected on the Exchange in that month.\6\ Effective July 
1, 2003, the Exchange intends to reduce the volume threshold rate to 12 
percent.\7\ Therefore, as of July 1, 2003, for each month, if a 
specialist unit trades an amount equal to or greater than 6 percent of 
the total national market share, the shortfall fee will be imposed, but 
limited to $10,000.\8\
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    \6\ See Securities Exchange Act Release No. 45322 (January 22, 
2002), 67 FR 3927 (January 28, 2002) (SR-Phlx-2001-115).
    \7\ The Exchange recently submitted a proposed rule change to 
the Securities and Exchange Commission to lower the volume threshold 
from the current rate of 14 percent to 12 percent, effective for 
transactions settling on or after July 1, 2003. See SR-Phlx-2003-45.
    \8\ Pursuant to the Exchange's current shortfall fee program, 
the shortfall fee is imposed in stages for newly listed options, 
such that the requisite volume threshold is three percent for the 
first full calendar month of trading and six percent for the second 
full calendar month of trading. Under the current proposal, the 
requisite volume threshold of three percent and six percent would 
remain unchanged, however, the $10,000 limit would apply if at least 
1.5 percent of the total national monthly contract volume was 
reached in the first calendar month of trading and at least three 
percent of the total national monthly contract volume was reached in 
the second full calendar month of trading. See Securities Exchange 
Act Release No. 43201 (August 23, 2000), 65 FR 52465 (August 29, 
2000) (SR-Phlx-00-71).
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    For example:

----------------------------------------------------------------------------------------------------------------
                                                                    Specialist
                                                                   market share   Full shortfall   Shortfall fee
                                                                   for one month    fee at 12%       under new
                                                                   (in percent)                      proposal
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Scenario No. 1..................................................             9.1     \9\ $18,976         $10,000
Scenario No. 2..................................................             8.8          14,851          10,000
Scenario No. 3..................................................             5.6          10,916          10,916
Scenario No. 4..................................................             5.4          21,944          21,944
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    The current rate of $0.35 per contract and other procedures 
relating to the shortfall fee, including the Specialist Deficit 
(Shortfall Fee) Credit, remain unchanged at this time.\10\
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    \9\ For example, the detailed figures for scenario number one 
are as follows: with a hypothetical total volume of 1,886,569 
contracts and total Phlx volume of 172,172 contracts, Phlx target of 
12 percent of total national would equal 226,388 contracts 
(1,886,569 x 12 percent). The volume shortfall in contracts is 
54,216 (226,388 - 172,172). Therefore, the shortfall fee totals 
$18,976 (54,216 x $.35). However, the shortfall fee owed to the 
Exchange by the specialist, pursuant to this proposal, would be 
limited to $10,000 because the specialist reached 9.1 percent, which 
is at least 50 percent (i.e. greater than 6 percent) of the total 
volume threshold of 12 percent.
    \10\ A shortfall credit of $0.35 per contract may be earned 
toward previously-imposed shortfall fees for each contract traded in 
excess of the 14 percent volume threshold during a subsequent 
monthly time period. See Securities Exchange Act Release No. 45322 
(January 22, 2002), 67 FR 3927 (January 28, 2002) (SR-Phlx-2001-
115). The Exchange intends to file a separate proposed rule change 
to eliminate the shortfall credit and to clarify the application of 
the credit while it was in effect.
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    The Exchange intends to implement the monthly shortfall fee limited 
at $10,000, as described above, for transactions settling on or after 
July 1, 2003.\11\
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    \11\ The shortfall fee had heretofore been eligible for a 
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). This credit 
program expired effective May 2003. The Exchange intends to file a 
separate proposed rule change to remove references to the member 
credit throughout the entire schedule of dues, fees and charges.
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    The text of the proposed rule change is available at the Office of 
the Secretary, the Phlx, and the Commission.

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 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 purpose of the proposed rule change is to reduce the burden on 
specialists who are competing for order flow in the national market in 
the Top 120 Options. Limiting the monthly amount of the shortfall fee 
to $10,000, provided that the specialist unit garners at least 50 
percent of the current volume threshold, should encourage specialists 
to continue to compete for market share in the Top 120 Options, while 
reducing the economic burden on specialists and eliminating a potential 
significant liability provided certain lower volume thresholds are 
achieved.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\12\ in general, and furthers the objectives of section 
6(b)(4) of the Act,\13\ in particular, in that it is an equitable 
allocation of reasonable dues, fees and other charges among Exchange 
members.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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

    Because the foregoing rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange, it has become effective 
pursuant to section 19(b)(3)(A)(ii) of the Act \14\ and subparagraph 
(f)(2) of Rule 19b-4 \15\ thereunder. 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 purposes of 
the Act.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).

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[[Page 44560]]

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 also will be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2003-47 and 
should be submitted by August 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-19185 Filed 7-28-03; 8:45 am]
BILLING CODE 8010-01-P