[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Notices]
[Pages 55858-55860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2200]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50332; File No. SR-Phlx-2004-49]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the Philadelphia Stock Exchange, Inc. Relating to Fees Applicable to 
the Exchange's Electronic Trading Platform, Phlx XL

September 9, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 29, 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 Items have been prepared by the Phlx. On August 
13, 2004, Phlx submitted an amendment to the proposed rule change.\3\ 
The proposed rule change has been filed by the Phlx as establishing or 
changing a due, fee, or other change, pursuant to Section 
19(b)(3)(A)(ii) of the Act,\4\ and Rule 19b-4(f)(2) \5\ thereunder, 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Richard S. Rudolph, Director and Counsel, 
Phlx, to Deborah Lassman Flynn, Assistant Director, Division of 
Market Regulation, Commission, dated August 12, 2004 (``Amendment 
No. 1''). In Amendment No. 1, the Phlx added a footnote to the text 
of its proposed fee schedule indicating that the 50% pass-through 
charge applicable to those Streaming Quote Traders to whom the 
Exchange supplies Hyperfeed data is subject to a pilot scheduled to 
expire on January 28, 2005. The Phlx also made technical, non-
substantive changes to the proposed rule text.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The Phlx proposes to amend its fee schedule in anticipation of the 
deployment of its electronic trading platform for options, Phlx XL.\6\ 
Specifically, the Exchange proposes: (1) To establish charges 
applicable to Exchange Registered Options Traders (``ROTs'') that 
submit proprietary electronic quotations (``streaming

[[Page 55859]]

quotes''),\7\ and (2) to no longer charge the option specialist for 
listed options currently subject to the Exchange's Specialist Deficit 
(Shortfall) fee (``shortfall fee''),\8\ when that option is offered on 
Phlx XL.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
    \7\ Such ROTs are known as Streaming Quote Traders (``SQTs''). 
See Phlx Rule 1014(b).
    \8\ See Securities Exchange Act Release Nos. 48206 (July 22, 
2003), 68 FR 44555 (July 29, 2004) (SR-Phlx-2003-45); and 48207 
(July 22, 2003), 68 FR 44558 (July 29, 2003) (SR-Phlx-2003-47). The 
Exchange charges a fee of $0.35 per contract for specialists trading 
any Top 120 Option if 12% of the total national monthly contract 
volume for such Top 120 Option is not effected on the Exchange. The 
fee is limited to $10,000 per month per option provided that the 
total monthly market share effected on the Phlx in the Top 120 
Option is equal to or greater than 50% of the volume threshold in 
effect.
---------------------------------------------------------------------------

SQT Fees

    The Phlx has determined to assess SQTs a 50% pass-through charge 
relating to costs borne by the Phlx for data it will provide to SQTs 
who desire to obtain from the Exchange real-time underlying data to 
enable them to price the overlying options (``Hyperfeed'' costs) \9\ in 
addition to any other applicable fees.\10\ The 50% pass-through charge 
will be implemented beginning on the first day of deployment of the 
first option to trade on Phlx XL, and will apply on a pilot basis to 
those SQTs that the Exchange supplies Hyperfeed data for the first 180 
days of deployment of Phlx XL.\11\
---------------------------------------------------------------------------

    \9\ SQTs trading options on Phlx XL will use handheld devices 
for the purpose of streaming quotations in options in which they are 
assigned. The Exchange will not supply the handheld devices; SQTs 
will obtain the handheld devices from one of several Exchange-
approved vendors. Some vendors provide underlying data to the SQT 
who uses their handheld as a service to enable such SQT to price 
overlying options, while other vendors do not. The Exchange will 
provide such underlying data, obtained from a third-party service 
provider, to those SQTs whose vendors do not provide such data as 
part of the service they provide to the SQT. The Hyperfeed fee 
represents a pass-through of 50% of the costs borne by the Exchange 
in obtaining and providing such data to such SQTs.
    \10\ Members who stream proprietary quotations in ``Streaming 
Quote Options'' traded on Phlx XL will also pay any Exchange 
transaction-related fees as well as non transactional-related fees 
and membership-related fees in effect during this time period, when 
applicable, such as trading post/booth, floor facility, shelf space 
and permit fees.
    \11\ The Commission notes that any changes or pilot extensions 
of the Hyperfeed data pass-through charge would require the Phlx to 
file a proposed rule change pursuant to Section 19(b) of the Act.
---------------------------------------------------------------------------

Shortfall Fee

    The shortfall fee is a component of the Exchange's Specialist Fixed 
Fee calculation.\12\ Therefore, for any options specialist that has 
elected the Specialist Fixed Fee and lists an option that was subject 
to the shortfall fee (which was used in calculating the Specialist 
Fixed Fee), the Specialist's Fixed Fee will be reduced by the amount of 
the shortfall fee. The Specialist Fixed Fee calculation and the 
shortfall fee will be pro-rated in the month in which the option is 
deployed on Phlx XL.\13\
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release Nos. 48459 (September 
8, 2003), 68 FR 54034 (September 15, 2003) (SR-Phlx-2003-61); 49467 
(March 24, 2004), 69 FR 17017 (March 31, 2004) (SR-Phlx-2004-17); 
and 49770 (May 25, 2004), 69 FR 31150 (June 2, 2004) (SR-Phlx-2004-
31).
    \13\ The Exchange intends to roll out equity options on the Phlx 
XL in stages. Unlike the Hyperfeed fee, the shortfall fee 
calculation will not be limited to the first 180 calendar days of 
deployment of Phlx XL.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Phlx, at 
the Commission, and on the Commission's Web site, http://www.sec.gov/rules/sro/phlx.shtml.

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, as amended, is to adopt 
fees relating to Phlx XL. With respect to the Hyperfeed fee, the 
purpose is to recoup part of the costs borne by the Exchange for data 
supplied by the Exchange to SQTs in connection with the anticipated 
deployment of Phlx XL. The Exchange believes that the 50% pass-through 
cost should enable ROTs that wish to become SQTs to make the transition 
on a cost-effective basis, with the Exchange effectively absorbing 50% 
of the Hyperfeed costs during the 180 day deployment of Phlx XL. With 
respect to the shortfall fee, the purpose of the proposed rule change, 
as amended, is to address the effect of the shortfall fee calculation 
as it relates to options traded on Phlx XL. The Exchange believes that 
it would be unreasonable to impose a shortfall fee on specialists (once 
there are streaming quotes) when SQTs will be competing for market 
share on a relatively equal basis, as the shortfall fee was designed, 
in part, to create an incentive for specialists to promote the options 
they have been allocated.
2. Statutory Basis
    The Phlx 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 become SQTs.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    The foregoing proposed rule change, as amended, has become 
effective pursuant to Section 19(b)(3)(A)(ii) of the Act,\16\ and Rule 
19b-4(f)(2)\17\ thereunder, because it establishes or changes a due, 
fee, or other charge. At any time within 60 days of the filing of the 
proposed rule change, as amended, 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.\18\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
    \18\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to commence on August 13, 2004, 
the date Phlx filed Amendment No. 1.
---------------------------------------------------------------------------

IV. 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. 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 E-mail to [email protected]. Please include File

[[Page 55860]]

Number SR-Phlx-2004-49 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-2004-49. 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 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-2004-49 and should be submitted on or before October 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2200 Filed 9-15-04; 8:45 am]
BILLING CODE 8010-01-P