[Federal Register Volume 69, Number 25 (Friday, February 6, 2004)]
[Notices]
[Pages 5885-5887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2553]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49163; File No. SR-Phlx-2003-89]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendments 
No. 1 and 2 Thereto by the Philadelphia Stock Exchange, Inc. Relating 
to the Extension of a Linkage Fee Pilot Program

January 30, 2004.
    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 31, 2003, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') 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. 
On January 26, 2004, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\3\ On January 29, 2004, the Exchange submitted 
Amendment No. 2 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons and is approving the proposed rule 
change, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Angela Saccomandi Dunn, Counsel, Phlx to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated January 23, 2004. (``Amendment No. 
1''). Amendment No. 1 replaced and superceded the original proposed 
rule change in its entirety.
    \4\ See letter from Angela Saccomandi Dunn, Counsel, Phlx to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated January 29, 2004. (``Amendment No. 
2''). Amendment No. 2 replaced and superceded Amendment No. 1 in its 
entirety.

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[[Page 5886]]

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

    The Phlx proposes to extend the Exchange's current one-year pilot 
program until July 31, 2004, in order to continue to impose its current 
schedule of dues, fees and charges applicable to execution of Principal 
Orders (``P Orders'')\5\ sent via the Intermarket Options Linkage (the 
``Linkage'') under the Plan for the Purpose of Creating and Operating 
an Options Intermarket Linkage (the ``Plan'').\6\
    The proposed fee schedule is available at the Exchange and at the 
Commission.
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    \5\ See infra note 8.
    \6\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000) (order approving the Plan 
submitted by American Stock Exchange LLC, Chicago Board Options 
Exchange, Inc. and International Securities Exchange, Inc.); and 
43573 (November 16, 2000), 65 FR 70851 (November 28, 2000) (order 
approving Phlx as participant in the Plan).
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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 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 extend the Exchange's 
current pilot program until July 31, 2004, so that the Phlx may 
continue to impose the transaction charges to Eligible Market Makers 
\7\ who send inbound P Orders to the Exchange pursuant to the Plan.\8\ 
The Commission previously approved such charges, on a pilot basis, 
scheduled to expire on January 31, 2004.\9\
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    \7\ Eligible Market Maker is defined, with respect to an 
Eligible Options Class, as a Market Maker that:
    (a) Is assigned to, and is providing two-sided quotations in, 
the Eligible Option Class;
    (b) is participating in its market's automatic execution system 
in such Eligible Option Class; and
    (c) is not prohibited from sending Principal Orders in such 
Eligible Option Class through the Linkage pursuant to Section 
8(b)(iii) of the Plan.
    See Section 2(7) of the Plan.
    \8\ 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.
    \9\ See Securities Exchange Act Release No. 47953 (May 30, 
2003), 68 FR 34027 (June 6, 2003) (SR-Phlx-2003-16).
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    The fee schedule is intended to provide that execution of inbound P 
Orders routed through Linkage would be subject to the same fees as non-
Linkage broker-dealer orders that are not subject to automatic 
execution (``AUTO-X'').\10\ The Exchange will not assess any charges 
for P/A Orders and Satisfaction Orders.
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    \10\ 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 $.45 
per contract for trades executed by AUTO-X, the automatic execution 
feature of AUTOM, and $.35 per contract up to 2,000 contracts, $.25 
per contract for 2,001 to 3,000 contracts, and $.20 per contract 
above 3,000 contracts (with the first 3,000 contracts charged $.25 
per contract) to the sending off-floor broker-dealer for non-AUTO-X 
trades.
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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 \11\ 
in general, and furthers the objectives of Section 6(b)(4) of the Act 
\12\ in particular, in that it is an equitable allocation of reasonable 
dues, fees, and other charges among Eligible Market Makers who submit P 
Orders to the Exchange through the Linkage.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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. 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-Phlx-2003-89. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review your comments more efficiently, comments should be 
sent in hardcopy or by e-mail but not by both methods. 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 Exchange. All 
submissions should be submitted by February 27, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder, applicable to a national 
securities exchange,\13\ and, in particular, with the requirements of 
Section 6(b) of the Act \14\ and the rules and regulations thereunder. 
The Commission finds that the proposed rule change, as amended, is 
consistent with Section 6(b)(4) of the Act,\15\ which requires that the 
rules of the Exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and other 
persons using its facilities. The Commission believes that the 
extension of the Phlx's Linkage fee pilot until July

[[Page 5887]]

31, 2004 will give the Exchange and the Commission further opportunity 
to evaluate whether such fees are appropriate.
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    \13\ In approving this rule, the Commission notes that it has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\16\ for approving the proposed rule change prior to the 
thirtieth day after the date of publication of the notice of the filing 
thereof in the Federal Register. The Commission believes that granting 
accelerated approval will preserve the Exchange's existing pilot 
program for Linkage fees without interruption as the Phlx and the 
Commission further consider the appropriateness of Linkage fees.
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    \16\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change, as amended, (SR-Phlx-2003-89) 
is hereby approved on an accelerated basis for a pilot period to expire 
on July 31, 2004.
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    \17\ Id.
    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-2553 Filed 2-5-04; 8:45 am]
BILLING CODE 8010-01-P