[Federal Register Volume 69, Number 27 (Tuesday, February 10, 2004)]
[Notices]
[Pages 6357-6358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2809]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49170; File No. SR-Phlx-2004-05]


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

February 2, 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 January 22, 2004, 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 equity options payment for order 
flow fees imposed on the transactions of Phlx Registered Options 
Traders (``ROTs'') for the period from February 2004 through April 2004 
for the top 120 equity options based on volume statistics from October, 
November and December 2003,\3\ as set forth on 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 February 1, 2004 
through April 30, 2004. 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; and 
no fee would be imposed for the remaining equity options in the top 
120.\5\ The Exchange's 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 equity options 
encompasses three months and the Exchange 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 
November 1, 2003 through January 31, 2004, for example, the 
measuring period for the top 120 equity options was based on volume 
statistics from July, August and September 2003. See Securities 
Exchange Act Release No. 48688 (October 24, 2003), 68 FR 61845 
(October 30, 2003) (SR-Phlx-2003-70). For the payment for order flow 
fees imposed on trades settling on or after February 1, 2004 through 
April 30, 2004, as set forth in this proposal, the measuring period 
for the top 120 equity options is based on volume statistics from 
October, November, and December 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\ Under the Exchange's payment for order flow program, a 500 
contract cap per individual cleared side of a transaction is 
imposed. Thus, the applicable payment for order flow fee would be 
imposed only on the first 500 contracts per individual cleared side 
of a transaction. For example, if a transaction consists of 750 
contracts by one ROT, the applicable payment for order flow fee 
would be applied to, and capped at, 500 contracts for that 
transaction. Also, if a transaction consists of 600 contracts, but 
is divided equally among three ROTs, the 500 contract cap would not 
apply to any such ROT and each ROT would be assessed the applicable 
payment for order flow fee on 200 contracts, as the payment for 
order flow fee is assessed on a per ROT, per transaction basis. See 
Securities Exchange Act Release No. 47958 (May 30, 2003), 68 FR 
34026 (June 6, 2003) (proposing SR-Phlx-2002-87) and Securities 
Exchange Act Release No. 48166 (July 11, 2003), 68 FR 42540 (July 
17, 2003) (approving SR-Phlx-2002-87).
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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

    The Phlx has 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 on 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 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 payment 
for order flow fees for the top 120 equity options for trades settling 
on or after February 1, 2004 through April 30, 2004. 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.

[[Page 6358]]

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) \11\ thereunder. 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. 78s(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. Comments may also be submitted 
electronically at the following e-mail address: [email protected]. 
All comment letters should refer to File No. SR-Phlx-2004-05. 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 hard copy or by e-mail, but not by both 
methods. 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-2004-05 and should be submitted by March 2, 
2004.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-2809 Filed 2-9-04; 8:45 am]
BILLING CODE 8010-01-P