[Federal Register Volume 69, Number 150 (Thursday, August 5, 2004)]
[Notices]
[Pages 47479-47480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17871]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50125; File No. SR-Phlx-2004-44]


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

July 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 July 9, 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 and 
II below, which Items have been prepared by the Exchange. On July 27, 
2004, Phlx filed Amendment No. 1 to the proposed rule change.\3\ 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 Richard S. Rudolph, Counsel, Phlx, to 
Jennifer Colihan, Special Counsel, Commission, dated July 27, 2004 
(``Amendment No. 1''). In Amendment No. 1, the Exchange proposes to 
make technical corrections to the Summary of Equity Option Charges 
of the Exchange's schedule of dues, fees, and charges, originally 
submitted as Exhibit 2 to the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its schedule of dues, fees and 
charges to adopt new charges applicable to Principal (``P'') Orders 
sent via the Intermarket Options Linkage (``Linkage'') under the Plan 
for the Purpose of Creating and Operating an Options Intermarket 
Linkage (``Plan'').\4\
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    \4\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000); 43573 (November 16, 2000), 65 
FR 70851 (November 28, 2000) (order approving Phlx as participant in 
the Plan); and 44482 (June 27, 2001), 66 FR 35470 (July 5, 2001) 
(amendment conforming the Plan to the requirements of the Act Rule 
11Ac1-7).
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    The Exchange intends to implement this fee on a pilot basis, ending 
July 31, 2005, for transactions settling on or after the first day 
following the Commission's approval of the proposal.\5\
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    \5\ For example, if the Commission approves the proposal on July 
31, 2004, the Exchange intends to implement this fee for 
transactions settling on or after August 1, 2004.
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    The proposed fee schedule is available at the principal office of 
the Exchange and at the Commission's Public Reference Room.

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

    In its filing with the Commission, 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. 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 raise revenue for the 
Exchange by charging Exchange members for transactions involving 
inbound P Orders sent by such members via the Linkage pursuant to the 
Plan.\6\
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    \6\ Under section 2(16) of 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.
    The Exchange will not assess any charges for P/A Orders and 
Satisfaction Orders.
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    Currently, the Exchange's schedule of dues, fees and charges 
includes the following charges applicable to Linkage P Orders on a 
pilot basis (``pilot''),\7\ scheduled to expire on July 31, 2004:

    \7\ The Commission originally approved the pilot on May 30, 
2003. See Securities Exchange Act Release No. 47953, 68 FR 34027 
(June 6, 2003) (SR-Phlx-2003-16). This pilot expired on January 31, 
2004. On January 30, 2004, the Commission approved the Exchange's 
proposal to extend the pilot through July 31, 2004. See Securities 
Exchange Act Release No. 49163, 69 FR 5885 (February 6, 2004) (SR-
Phlx-2003-89).
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Up to 2,000 contracts--$.35 per contract.
Between 2,001 and 3,000 contracts--$.25 per contract (for all 
contracts).
Residual above 3,000 contracts--$.20 per contract above 3,000 contracts 
(with the first 3,000 contracts charged $.25 per contract).

    The Exchange has represented that its fees applicable to Linkage P 
Orders are consistent with other fees charged by the Exchange for non-
Linkage Orders for the proprietary account(s) of off-floor

[[Page 47480]]

broker-dealers \8\ delivered to the Exchange.\9\
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    \8\ The term ``off-floor broker-dealer'' is defined as a broker-
dealer that delivers orders from off the floor of the Exchange for 
the proprietary account(s) of such broker-dealer, including a market 
maker located on an exchange or trading floor other than the 
Exchange's trading floor who elects to deliver orders via AUTOM for 
the proprietary account(s) of such market maker. See Exchange Rule 
1080(b)(i)(C).
    \9\ See supra note 6.
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    However, since the implementation of the pilot, the Exchange has 
amended its fees applicable to non-Linkage off-floor broker-dealer 
orders sent to the Exchange via AUTOM, the Exchange's electronic order 
delivery, routing, execution and reporting system.\10\ Specifically, 
AUTOM-delivered non-Linkage off-floor broker-dealer orders are now 
charged $.45 per contract for all contracts executed.\11\ The proposed 
amendment to the Exchange's fee schedule would impose the same $.45 per 
contract charge on Linkage participants who send P Orders to the 
Exchange on a pilot basis through July 31, 2005.\12\ The Exchange will 
not charge fees for other types of Linkage Orders.\13\
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    \10\ See Securities Exchange Act Release No. 49751 (May 21, 
2004), 69 FR 30735 (May 28, 2004) (SR-Phlx-2004-25).
    \11\ Previously, these orders were charged under the $.35/$.25/
$.20 schedule listed above.
    \12\ The Exchange represents that Linkage Orders are delivered 
to the Exchange via AUTOM. Telephone conversation between Richard S. 
Rudolph, Counsel, Phlx, and Jennifer Colihan, Special Counsel, and 
Molly M. Kim, Attorney, Division of Market Regulation, Commission, 
on July 22, 2004.
    \13\ See supra note 5.
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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 \14\ 
in general, and furthers the objectives of section 6(b)(4) of the Act 
\15\ in particular, in that it is an equitable allocation of reasonable 
dues, fees, and other charges among Exchange members who avail 
themselves of the Linkage, consistent with other fees charged by the 
Exchange for non-Linkage Orders.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 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-2004-44 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-2004-44. 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. Copies of such filing also will be 
available for inspection and copying at the principal offices of the 
Exchange. 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-2004-44 and should be submitted on or before August 26, 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 is consistent with the requirements of the Act and the 
rules and regulations thereunder, applicable to a national securities 
exchange,\16\ and, in particular, with the requirements of section 6(b) 
of the Act \17\ 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,\18\ which requires that the 
rules of the Exchange provide for the equitable allocation or 
reasonable dues, fees and other charges among its members and other 
persons using its facilities. The Commission believes that approving 
the amended Linkage fee pilot to adopt new charges applicable to P 
Orders until July 31, 2005 will give the Exchange and the Commission 
further opportunity to evaluate whether such fees are appropriate.
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    \16\ 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).
    \17\ 15 U.S.C. 78f(b).
    \18\ 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,\19\ for approving the proposed rule change, as amended, 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 pilot 
program for Linkage fees without interruption as Phlx and the 
Commission further consider the appropriateness of Linkage fees.
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    \19\ 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 
\20\ that the proposed rule change, as amended, (SR-Phlx-2004-44) is 
hereby approved on an accelerated basis for a pilot period to expire on 
July 31, 2005.
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    \20\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17871 Filed 8-4-04; 8:45 am]
BILLING CODE 8010-01-P