[Federal Register Volume 69, Number 242 (Friday, December 17, 2004)]
[Notices]
[Pages 75584-75586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3709]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50836; File No. SR-Phlx-2004-70]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto To Impose New License Fees and To Modify 
the Calculation of the Firm-Related Equity Option and Index Option Fee 
Cap

December 10, 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 November 1, 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 Exchange. On 
December 9, 2004, Phlx filed Amendment 1 to the proposed rule 
change.\3\ Phlx filed this proposal pursuant to Section 19(b)(3)(A)(ii) 
\4\ of the Act and Rule 19b-4(f)(2) \5\ thereunder as a proposal 
establishing or changing a due, fee, or other charge imposed by the 
self-regulatory organization, which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Phlx made minor technical changes; 
clarified the calculation of the $50,000 cap (described below), 
specifically as it relates to the firm-related equity option and 
index option comparison and transaction charges for products without 
license fees and with license fees; and further clarified that 
applicable firm-related charges for the QCX, QCE, and FXI will not 
be counted towards the $50,000 cap. For purpose of calculating the 
60-day period within which the Commission may summarily abrogate the 
proposed rule change under Section 19(b)(3)(C) of the Act, the 
Commission considers that period to commence on December 9, 2004, 
the date that the Phlx filed Amendment No. 1.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).

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[[Page 75585]]

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

    The Phlx proposes to adopt various license fees to be assessed per 
contract side for equity option ``firm'' transactions (comprised of 
equity option firm/proprietary comparison transactions, equity option 
firm/proprietary transactions and firm/proprietary facilitation 
transactions). These license fees will be imposed after the Exchange's 
$50,000 ``firm-related'' equity option and index option comparison and 
transaction fee cap, described more fully below, is reached. In 
addition, the Exchange proposes to impose the normal (not fixed) firm-
related equity option and index option comparison and transaction fees, 
if applicable, for certain options, which would not be subject to the 
$50,000 cap. The Exchange also proposes to make a minor change to its 
Summary of Equity Option Charges fee schedule.
    The text of the proposed rule change is available at Phlx and at 
the Commission.

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 its proposal and discussed any 
comments it received on the proposal. 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
Current Fee Structure
    Currently, the Exchange imposes a cap of $50,000 per member 
organization \6\ on all ``firm-related'' equity option and index option 
comparison and transaction charges combined. Specifically, such ``firm-
related'' charges include equity option firm/proprietary comparison 
charges, equity option firm/proprietary transaction charges, equity 
option firm/proprietary facilitation transaction charges, index option 
firm (proprietary and customer executions) comparison charges, index 
option firm/proprietary transaction charges, and index option firm/
proprietary facilitation transaction charges (collectively ``firm-
related charges'').\7\ Thus, such firm-related charges for equity 
options and index options, in the aggregate for one billing month, may 
not exceed $50,000 per month per member organization.
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    \6\ The firm/proprietary comparison or transaction charge 
applies to member organizations for orders for the proprietary 
account of any member or non-member broker-dealer that derives more 
than 35% of its annual, gross revenues from commissions and 
principal transactions with customers. Member organizations will be 
required to verify this amount to the Exchange by certifying that 
they have reached this threshold by submitting a copy of their 
annual report, which was prepared in accordance with Generally 
Accepted Accounting Principles (``GAAP''). In the event that a 
member organization has not been in business for one year, the most 
recent quarterly reports, prepared in accordance with GAAP, will be 
accepted. See Securities Exchange Act Release No. 43558 (November 
14, 2000), 65 FR 69984 (November 21, 2000) (SR-Phlx-00-85).
    \7\ On October 28, 2004, the Exchange submitted a proposed rule 
change to the Securities and Exchange Commission (``Commission'') to 
delineate two separate ``firm'' charges on the Summary of Index 
Option and FXI Option Charges fee schedule: firm/proprietary and 
firm/proprietary facilitation, to be more consistent with the 
reference to the firm transaction charges on the Exchange's Summary 
of Equity Option Charges. See Securities Exchange Act Release No. 
50679 (November 16, 2004), 69 FR 68208 (November 23, 2004) (SR-Phlx-
2004-69).
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    The Exchange also imposes a license fee of $0.10 per contract side 
for equity option ``firm'' transactions on options on Nasdaq-100 Index 
Tracking Stock \sm\ \8\ traded under the symbol QQQ (``QQQ'') after the 
$50,000 cap, as described above, is reached. Therefore, when a member 
organization exceeds the $50,000 cap (comprised of combined firm-
related charges), the member organization is charged $50,000, plus the 
QQQ license fee of $0.10 per contract side for any QQQ trades (if any) 
over those that were included in reaching the $50,000 cap. In other 
words, the $0.10 license fee is imposed in addition to the $50,000 cap, 
if the cap is reached, on firm-related transactions.
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    \8\ The Nasdaq-100 [reg], Nasdaq-100 Index [reg], Nasdaq [reg], 
The Nasdaq Stock Market [reg], Nasdaq-100 Shares \SM\, Nasdaq-100 
Trust \SM\, Nasdaq-100 Index Tracking Stock \SM\, and QQQ \SM\ are 
trademarks or service marks of The Nasdaq Stock Market, Inc. 
(``Nasdaq'') and have been licensed for use for certain purposes by 
the Phlx pursuant to a License Agreement with Nasdaq. The Nasdaq-100 
Index [reg] (the ``Index'') is determined, composed, and calculated 
by Nasdaq without regard to the Licensee, the Nasdaq-100 Trust \SM\, 
or the beneficial owners of Nasdaq-100 Shares \SM\. Nasdaq has 
complete control and sole discretion in determining, comprising, or 
calculating the Index or in modifying in any way its method for 
determining, comprising, or calculating the Index in the future.
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Proposed Changes to the $50,000 Firm Related Equity Option and Index 
Option Cap Proposed Fixed Fee Program
    The Exchange proposes to adopt the specific license fees per 
contract side for the following products for equity option firm 
transactions, which will be imposed after the $50,000 cap is reached:

------------------------------------------------------------------------
                                                             License fee
                          Product                           per contract
                                                                side
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Russell 1000 Growth iShares (``IWF'').....................         $0.10
Russell 2000 iShares (``IWM'')............................          0.10
Russell 2000 Value iShares (``IWN'')......................          0.10
Russell 2000 Growth iShares (``IWO'').....................          0.10
Russell Midcap Growth iShares (``IWP'')...................          0.10
Russell Midcap Value iShares (``IWS'')....................          0.10
NYSE Composite Index (``NYC'')............................          0.10
NYSE U.S. 100 Index (``NY'')..............................          0.10
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    Thus, when a member organization exceeds the $50,000 cap, the 
member organization will be charged $50,000 plus any applicable license 
fees listed above (as well as QQQ license fees) for any trades over 
those trades that were included in reaching the $50,000 cap.\9\
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    \9\ Consistent with current practice, when calculating the 
$50,000 cap, the Exchange first calculates all equity option and 
index option transaction and comparison charges for products without 
license fees and then equity option transaction and comparison 
charges for products with license fees (i.e., QQQ license fees) that 
are assessed by the Exchange after the $50,000 cap is reached. See 
Securities Exchange Act Release No. 48459 (September 8, 2003), 68 FR 
54034 (September 15, 2003) (SR-Phlx-2003-61, Exhibit 3).
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    In addition, the Exchange proposes to impose the normal (not fixed) 
firm-related charges for the following three options: Full-size index 
options (``QCX'') and Mini index options (``QCE'') on the Nasdaq 
Composite Index, Inc.[reg] \10\ and options listed on the iShares FTSE/
Xinhua China 25 Index Fund (``FXI Options''),\11\ an exchange-traded 
fund. Thus, a member organization will be charged the applicable firm-
related charges for the QCX, QCE or FXI, regardless of whether the 
$50,000 cap described above is reached, and these charges will not be 
counted towards the $50,000 cap.
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    \10\ The Nasdaq Composite Index [reg] is a registered trademark 
of The Nasdaq Stock Market, Inc., and is licensed for use by Phlx.
    \11\ The Exchange began listing FXI Options, a product that is 
an equity option, on October 19, 2004, but are assessed fees 
pursuant to the Summary of Index Option and FXI Options Charges. See 
Securities Exchange Act Release No. 50676 (November 16, 2004), 69 FR 
38206 (November 23, 2004) (SR-Phlx-2004-67).
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    The fees set forth in this proposal are scheduled to become 
effective for transactions settling on or after November 1, 2004.
    The purpose of assessing the various license fees per contract side 
after

[[Page 75586]]

reaching the $50,000 cap as described in this proposal is to help 
defray licensing costs associated with the trading of these products, 
while still capping member organizations' fees enough to attract volume 
from other exchanges. The purpose of allowing the QCE, QCX and FXI 
products to be charged the normal (not fixed) firm-related charges is 
to generate revenue (that was previously capped) because these are not 
the products in which the Exchange is seeking to attract firm-related 
volume from other exchanges.
    In addition to the foregoing, the Exchange proposes to make a minor 
change to its Summary of Equity Option Charges to delete the word 
``transaction'' from the reference to the firm/proprietary facilitation 
option transaction charge and to delete reference to the QQQ license 
fees of $0.10 per contract side from the Summary of Index Option and 
FXI Options Charges, as this language is unnecessary.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \12\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \13\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members and issuers and other persons using its 
facilities.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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 proposal has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \14\ and Rule 19b-4(f)(2) \15\ thereunder as 
a proposal establishing or changing a due, fee, or other charge imposed 
by the self-regulatory organization. At any time within 60 days of the 
filing of the proposed rule change, 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ See supra note 3.
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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, 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 an e-mail to [email protected]. Please include 
File Number SR-Phlx-2004-70 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-2004-70. 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 Room. 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-2004-70 and should be submitted on or before 
January 7, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3709 Filed 12-16-04; 8:45 am]
BILLING CODE 8010-01-P