[Federal Register Volume 69, Number 92 (Wednesday, May 12, 2004)]
[Notices]
[Pages 26424-26425]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10761]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49661; File No. SR-Phlx-2004-28]


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

May 6, 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 April 23, 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 May 2004 through July 2004 for 
the top 120 equity options based on volume statistics from January, 
February and March 2004,\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 May 1, 2004 through 
July 31, 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 text 
of the proposed rule change is set forth below. Proposed new language 
is in italics; proposed deletions are in [brackets].
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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 
February 1, 2004 through April 30, 2004, for example, the measuring 
period for the top 120 equity options was based on volume statistics 
from October, November and December 2003. See Securities Exchange 
Act Release No. 49170 (February 2, 2004), 69 FR 6357 (February 10, 
2004) (SR-Phlx-2004-05). For the payment for order flow fees imposed 
on trades settling on or after May 1, 2004 through July 31, 2004, as 
set forth in this proposal, the measuring period for the top 120 
equity options is based on volume statistics from January, February, 
and March 2004.
    \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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* * * * *

      Exchange's ROT Equity Option Payment for Order Flow Charges*
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      Underlying symbol                    Company                 Rate
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AMAT........................  Applied Materials, Inc...........     $.40
AMD.........................  Advanced Micro Devices, Inc......     0.40
AMGN........................  Amgen, Inc.......................     0.40
AMZN........................  Amazon.com, Inc..................     0.40
AMR.........................  AMR Corporation..................     0.40
AWE.........................  AT&T Wireless Services Inc.......     0.40
BAC.........................  Bank of America Corporation......     0.40
[BBY........................  Best Buy Company Inc.............    0.40]
[BMY........................  Bristol-Meyers Squibb Company....    0.40]
BRCM........................  Broadcom Corporation.............     0.40
[BSX........................  Boston Scientific Corporation....    0.40]
C...........................  Citigroup, Inc...................     0.40
[CE.........................  Concord E F S Inc................    0.40]
CPN.........................  Calpine Corporation..............     0.40
CSCO........................  Cisco Systems, Inc...............     0.40
DELL........................  Dell Computer Corp...............     0.40
DIS.........................  The Walt Disney Company..........     0.40
EBAY........................  eBay, Inc........................     0.40
ELN.........................  Elan Corporation PLC.............     0.40
EMC.........................  EMC Corp.........................     0.40
F...........................  Ford Motor Company...............     0.40
GE..........................  General Electric Company.........     0.40
[GM.........................  General Motors Corporation.......    0.40]
HPQ.........................  Hewlett-Packard Company..........     0.40
IBM.........................  International Business Machines       0.40
                               Corporation.
INTC........................  Intel Corporation................     0.40
IWM.........................  iShares Russell 200 Index Fund...     0.40
JDSU........................  Juniper Networks, Inc............     0.40
[JNJ........................  Johnson & Johnson................    0.40]
JNPR........................  Juniper Networks, Inc............     0.40
JPM.........................  Morgan & Chase Co. (J.P.)             0.40
[KLAC.......................  KLA-Tencor Corporation...........    0.40]
LU..........................  Lucent Technologies, Inc.........     0.40
MO..........................  Philip Morris Companies, Inc.....     0.40
MOT.........................  Motorola, Inc....................     0.40
[MRK........................  Merck & Co., Inc.................    0.40]
MSFT........................  Microsoft Corporation............     0.40
MU..........................  Micron Technology, Inc...........     0.40
NEM.........................  Newmont Mining Corp..............     0.40
NOK.........................  Nokia Corporation................     0.40
NT..........................  Nortel Networks Corporation......     0.40
[NXTL.......................  Nextel Communications Inc., Class    0.40]
                               A.
ORCL........................  Oracle Corporation...............     0.40
PFE.........................  Pfizer, Inc......................     0.40
PSFT........................  PeopleSoft, Inc..................     0.40
QCOM........................  QUALCOMM, Inc....................     0.40
QQQ.........................  NASDAQ-100 Index Tracking Stock..     1.00
RIMM........................  Research in Motion Ltd...........     0.40
RMBS........................  Rambus, Inc......................     0.40
SBC.........................  SBC Communications, Inc..........     0.40
SMH.........................  Semiconductor HOLDRs.............     0.40
SNDK........................  SanDisk Corporation..............     0.40
SUNW........................  Sun Microsystems, Inc............     0.40
TWX.........................  Time Warner, Inc.................     0.40
TXN.........................  Texas Instruments, Inc...........     0.40
[TYC........................  Tyco International Ltd...........    0.40]
[UPS........................  United Parcel Service, Inc.......    0.40]
VZ..........................  Verizon Communications...........     0.40
WMT.........................  Wal-Mart Stores, Inc.............     0.40
XMSR........................  XM Satellite Radio Holdings, Inc.     0.40
[XOM........................  Exxon Mobil Corporation..........    0.40]
YHOO........................  Yahoo!, Inc......................    0.40
------------------------------------------------------------------------
*Subject to a 500 contract cap, per individual cleared side of a
  transaction.

* * * * *

[[Page 26425]]

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

    According to the Phlx, the Exchange reinstated its payment for 
order flow program in November, 2002.\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 May 1, 2004 through July 31, 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.

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. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Phlx-2004-28 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Phlx-2004-28. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Copies of such filing also will 
be available for inspection and copying at the principal office of the 
Phlx. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2004-28 and should be submitted on or before June 2, 2004. 
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
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pursuant to delegated authority.\12\

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-10761 Filed 5-11-04; 8:45 am]
BILLING CODE 8010-01-P