[Federal Register Volume 70, Number 18 (Friday, January 28, 2005)]
[Notices]
[Pages 4178-4180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-323]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51060; File No. SR-Phlx-2005-01]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc., Relating To Imposing a New Licensing Fee in Connection 
With the Firm-Related Equity Option and Index Option Fee Cap

January 19, 2005.
    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 10, 2005, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') 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. 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, pursuant to section 19(b)(1) of the Act and Rule 19b-4 
thereunder, proposes to amend its schedule of fees to adopt a license 
fee of $.10 for options traded on the Standard & Poor's Depositary 
Receipts[reg], Trust Series 1 (``SPDRs''), traded under the symbol SPY 
(``SPY''),\3\ 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). This license fee will 
be imposed only after the Exchange's $60,000 ``firm-related'' equity 
option and index option comparison and transaction charge cap, 
described more fully below, is reached.
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    \3\ ``Standard & Poor's,'' ``S&P[reg],'' ``S&P 500[reg],'' 
``Standard & Poor's 500[reg],'' ``Standard & Poor's Depositary 
Receipts[reg],'' and ``500'' are trademarks of The McGraw-Hill 
Companies, Inc., and have been licensed for use by the Philadelphia 
Stock Exchange, Inc., in connection with the listing and trading of 
SPDRs, on the Phlx. These products are not sponsored, sold or 
endorsed by Standard & Poor's, a division of The McGraw-Hill 
Companies, Inc., and Standard & Poor's makes no representation 
regarding the advisability of investing SPDRs.
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    Currently, the Exchange imposes a cap of $60,000 per member 
organization \4\ on all ``firm-related'' equity option and index option 
comparison and transaction charges combined.\5\ Specifically, ``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''). Thus, such firm-related charges for equity options 
and index options, in the aggregate for one billing month, may not 
exceed $60,000 per month per member organization.
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    \4\ 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 are 
required to verify this amount to the Exchange by certifying that 
they have reached this threshold and 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).
    \5\ See Securities Exchange Act Release No. 51024 (January 11, 
2005), 70 FR 3088 (January 19, 2005) (File No. SR-Phlx-2004-94).
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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 Stocksm,\6\ traded under the symbol

[[Page 4179]]

QQQQ (``QQQ''), and certain other licensed products \7\ (collectively, 
``licensed product'') after the $60,000 cap, as described above, is 
reached. Therefore, when a member organization exceeds the $60,000 cap 
(comprised of combined firm-related charges), the member organization 
is charged $60,000, plus license fees of $0.10 per contract side for 
any applicable licensed product trades (if any) over those that were 
included in reaching the $60,000 cap. In other words, once the cap is 
reached, the $0.10 license fee is imposed on all subsequent firm-
related transactions; these license fees are charged in addition to the 
$60,000 cap.
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    \6\ The Nasdaq-100[reg], Nasdaq-100 Index[reg], Nasdaq[reg], The 
Nasdaq Stock Market[reg], Nasdaq-100 SharesSM, Nasdaq-100 
TrustSM, Nasdaq-100 Index Tracking StockSM, 
and QQQSM 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] (``Index'') is determined, 
composed, and calculated by Nasdaq without regard to the Licensee, 
the Nasdaq-100 TrustSM, or the beneficial owners of 
Nasdaq-100 SharesSM. 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.
    \7\ In addition to the QQQs, the following products are assessed 
a $.10 license fee per contract side after the $60,000 cap is 
reached: Russell 1000 Growth iShares (``IWF''); Russell 2000 iShares 
(``IWM''); Russell 2000 Value iShares (``IWN''): Russell 2000 Growth 
iShares (``IWO''); Russell Midcap Growth iShares (``IWP''); Russell 
Midcap Value iShares (``IWS''); NYSE Composite Index (``NYC''); and 
NYSE U.S. 100 Index (``NY'').
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    The Exchange proposes to adopt a $.10 license fee per contract side 
for the SPY for equity option firm transactions, which will be imposed 
after the $60,000 cap is reached in the same way the current licensed 
product fees are assessed. Thus, when a member organization exceeds the 
$60,000 cap, the member organization will be charged $60,000 plus any 
applicable license fees for trades of licensed products, including the 
SPY, over those trades that were counted in reaching the $60,000 
cap.\8\
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    \8\ Consistent with current practice, when calculating the 
$60,000 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 $60,000 cap is reached. See 
Securities Exchange Act Release No. 50836 (December 10, 2004), 69 FR 
75584 (December 17, 2004) (SR-Phlx-2004-70).
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    The fees set forth in this proposal are scheduled to become 
effective for transactions settling on or after January 10, 2005.
    The Exchange also proposes to make a minor change to its $60,000 
Firm Related Equity Option and Index Option Cap Schedule by changing 
the reference to ``$50,000'' to read ``$60,000.'' Although other 
references to $50,000 were changed to $60,000 in SR-Phlx-2004-94, this 
reference was inadvertently omitted.
    A copy of the applicable portions of the Exchange's Summary of 
Equity Options Charges and the Exchange's $60,000 ``Firm Related'' 
Equity Option and Index Option Cap Schedule is available on Phlx's Web 
site (http://www.phlx.com/exchange/phlx_rule_fil.html), at Phlx's 
Office of the Secretary, 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, the Exchange 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 Exchange 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 assessing the SPY license fee of $.10 per contract 
side after reaching the $60,000 cap as described in this proposal is to 
help defray licensing costs associated with the trading of this 
product, while still capping member organizations' fees enough to 
attract volume from other exchanges. The cap operates this way in order 
to offer an incentive for additional volume without leaving the 
Exchange with out-of-pocket costs.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b)(4) of the Act,\9\ in that it provides for the equitable allocation 
of reasonable dues, fees and other charges among its members and other 
persons using its facilities.
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    \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 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 solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing rule change establishes or changes a due, fee 
or other charge imposed by the Exchange, it has become effective 
pursuant to section 19(b)(3)(A)(ii) of the Act \10\ and Rule 19b-
4(f)(2) \11\ thereunder. 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 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 No. SR-Phlx-2005-01 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-2005-01. 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

[[Page 4180]]

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-2005-01 and should be 
submitted on or before February 18, 2005.

    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. E5-323 Filed 1-27-05; 8:45 am]
BILLING CODE 8010-01-P