[Federal Register Volume 70, Number 60 (Wednesday, March 30, 2005)]
[Notices]
[Pages 16325-16327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1394]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51428; File No. SR-Phlx-2005-12]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto Relating to Fees Applicable to 
Remote Streaming Quote Traders

March 24, 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 February 11, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') submitted to 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 March 15, 
2005, Phlx filed Amendment No. 1 to the proposed rule change.\3\ On 
March 22, 2005, Phlx filed Amendment No. 2 to the proposed rule 
change.\4\ The Exchange filed the proposed rule change pursuant to 
Section 19(b)(3)(A) of the Act \5\ which renders it 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\ Amendment No. 1 clarified the proposed RSQT fees in response 
to comments received from Commission staff.
    \4\ Amendment No. 2 made further clarifications to the proposed 
RSQT fees in response to comments received from Commission staff.
    \5\ 15 U.S.C. 78s(b)(3)(A).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to amend its schedule of fees to adopt fees 
applicable to Remote Streaming Quote Traders (``RSQTs'').\6\ The 
complete text of the proposed rule change is available on Phlx's Web 
site (http://www.phlx.com), at the Phlx's principal office, and at the 
Commission's Public Reference Room.
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    \6\ A RSQT is an Exchange Registered Options Trader (``ROT'') 
that is a member or member organization of the Exchange with no 
physical trading floor presence who has received permission from the 
Exchange to generate and submit option quotations electronically 
through the Exchange's Automated Options Market in eligible options 
in which such RSQT has been assigned. A RSQT may only submit such 
quotations electronically from off the floor of the Exchange. A RSQT 
may only trade in a market making capacity in classes of options in 
which he is assigned. See Phlx Rule 1014(b)(ii)(B).
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    Fees and credits under the proposal would apply as follows:
Category I: $1700.00 per Calendar Month
    RSQT is eligible to trade:
     1 issue selected from the top 5 national volume leaders.
     1 issue selected from the 6th to 10th national volume 
leaders.
     3 issues selected from the 11th to 25th national volume 
leaders.
     4 issues selected from the 26th to 50th national volume 
leaders.
     1 index issue.
     190 other issues.
    Maximum permit credit is $1200 per calendar month.
Category II: $3200.00 per Calendar Month
    RSQT is eligible to trade:
     2 issues selected from the top 5 national volume leaders.
     2 issues selected from the 6th to 10th national volume 
leaders.
     6 issues selected from the 11th to 25th national volume 
leaders.
     8 issues selected from the 26th to 50th national volume 
leaders.
     2 index issues.
     380 other issues.
    Maximum permit credit is $2200.00 per calendar month.
Category III: $4700.00 per Calendar Month
    RSQT is eligible to trade:
     3 issues selected from the top 5 national volume leaders.
     3 issues selected from the 6th to 10th national volume 
leaders.
     9 issues selected from the 11th to 25th national volume 
leaders.
     12 issues selected from the 26th to 50th national volume 
leaders.
     3 index issues.
     570 other issues.
    Maximum permit credit is $3200.00 per calendar month.
Category IV: $6200.00 per Calendar Month
    RSQT is eligible to trade:
     4 issues selected from the top 5 national volume leaders.
     4 issues selected from the 6th to 10th national volume 
leaders.
     12 issues selected from the 11th to 25th national volume 
leaders.
     16 issues selected from the 26th to 50th national volume 
leaders.
     5 index issues.
     759 other issues.
    Maximum permit credit is $4200.00 per calendar month.
Category V: $7700.00 per Calendar Month
    RSQT is eligible to trade:

[[Page 16326]]

     5 issues selected from the top 5 national volume leaders.
     5 issues selected from the 6th to 10th national volume 
leaders.
     15 issues selected from the 11th to 25th national volume 
leaders.
     20 issues selected from the 26th to 50th national volume 
leaders.
     7 index issues.
     948 other issues.
    Maximum permit credit is $5200.00 per calendar month.
Category VI: $9200.00 per Calendar Month
    RSQT is eligible to trade:
     5 issues selected from the top 5 national volume leaders.
     5 issues selected from the 6th to 10th national volume 
leaders.
     15 issues selected from the 11th to 25th national volume 
leaders.
     25 issues selected from the 26th to 50th national volume 
leaders.
     9 index issues.
     1141 other issues.
    Maximum permit credit is $6200.00 per calendar month.
Category VII: $10,700.00 per Calendar Month
    RSQT is eligible to trade all equity option and index option 
issues.
    Maximum permit credit is $7200.00 per calendar month.

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 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 Exchange proposes to adopt a fee schedule for RSQTs. Each RSQT 
will be assessed an RSQT fee based on the number and type of option 
issues (as described below) in which an RSQT is assigned. Credit will 
be given to RSQTs based on the total number of permits \7\ held by the 
RSQT in a particular calendar month. Thus, the proposed fees and 
credits would be assessed on a monthly basis. If a member or member 
organization functions as an RSQT at any time during a particular 
calendar month, the fees and credits would be applied to such member or 
member organization for that entire calendar month.
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    \7\ Appendix A of the Exchange's fee schedule establishes the 
following permit fees, which may be credited against the RSQT fee:
    Order Flow Provider Permit Fee.
    a. Permits used only to submit orders to the equity, foreign 
currency options, or options trading floor (one floor only): $200.00 
per month.
    b. Permits used only to submit orders to more than one trading 
floor: $300.00 per month.
    Floor Broker, Specialist, or ROT (on any trading floor) or Off-
Floor Trader Permit Fee.
    a. First Permit: $1,200.00 per month.
    b. Additional permits for members in the same organization: 
$1,000.00 per month.
    Excess Permit Holders: $200.00 per month.
    Other Permit Holders: $200.00 per month.
    In applying the permit credit against a member organization's 
RSQT fee, a member organization may only apply the credit for a ROT 
permit (together with other applicable permit credits) when such ROT 
is acting as an RSQT or as a Non-SQT ROT (as defined in Rule 
1014(b)(ii)(C)).
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RSQT Fees
    The proposal would establish seven categories that, based on the 
number and type of options in which an RSQT is assigned, result in 
concomitant, progressively higher fees and possible credits as the 
number of options in which such RSQT is assigned increases. For 
example, a fee of $1,700 per calendar month will apply to an RSQT 
assigned in a maximum of one issue selected from the top five national 
volume leaders (as calculated by the Exchange); \8\ one issue selected 
from the 6th through 10th national volume leaders, three issues 
selected from the 11th through 25th national volume leaders; four 
issues selected from the 26th through 50th national volume leaders; one 
index option; and 190 other equity option issues ranked lower than the 
50th most actively traded option. This is known as a Category I RSQT. 
Each additional category would establish a higher fee for an RSQT to 
submit quotations from off the floor of the Exchange in a progressively 
greater number of options in each aforementioned national volume 
grouping and in a greater number of index options. Accordingly, in 
order to submit electronic quotations from off the floor of the 
Exchange in all options traded on the Exchange, an RSQT would be 
required to pay fees applicable to a Category VII RSQT. The full 
schedule of fees applicable to the seven categories of RSQTs is 
described in the proposed rule text.\9\
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    \8\ For purposes of this fee, the Exchange will calculate the 
national volume for equity options and options overlying Exchange-
Traded Fund Shares every six months, effective from January 1 
through June 30, and again from July 1 through December 31. The 
January-June national volume rankings will be based on the total 
national volume for a particular option traded during the previous 
month of October, as determined by the Options Clearing Corporation 
(``OCC''); the July-December national volume rankings will be based 
on the total national volume for a particular option traded during 
the previous month of May, as determined by the OCC.
    \9\ The Exchange notes that it has filed separately with the 
Commission to adopt a fee schedule applicable to on-floor Streaming 
Quote Traders (``SQTs''). See SR-Phlx-2005-16. An SQT is defined in 
Exchange Rule 1014(b)(ii)(A) as a ROT who has received permission 
from the Exchange to generate and submit option quotations 
electronically through an electronic interface with the Exchange's 
automated options market (``AUTOM'') via an Exchange approved 
proprietary electronic quoting device in eligible options to which 
the SQT is assigned. The proposed SQT fees are lower than the 
proposed RSQT fees because SQTs have more out-of-pocket costs 
associated with their streaming quote systems. For example, among 
other things, SQTs generally have to purchase additional software 
programs and hardware from outside vendors to support their 
streaming quote systems, in addition to incurring additional costs 
associated with market data (known as Hyperfeed) to enable them to 
price options within their particular options pricing model. The 
amendments to the fee schedule proposed in this filing does not 
reflect the SQT fees included in SR-Phlx-2005-16 or other fees that 
have been filed with the Commission subsequent to the original 
filing of the instant fee change.
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    The RSQT fee will be assessed on a monthly basis. The highest 
applicable RSQT fee will be assessed based on the highest RSQT category 
level in which the RSQT was qualified to trade at any time during a 
particular calendar month. For example, if an RSQT is eligible to trade 
at any time in a given calendar month as a Category I RSQT, and 
sometime during that calendar month becomes qualified and eligible to 
trade as a Category II RSQT, the RSQT will be assessed the fee 
applicable to a Category II RSQT, regardless of when such RSQT became 
eligible to trade at the Category II level, and regardless of whether 
or not, during that calendar month, the RSQT resumed eligibility as a 
Category I RSQT.
    RSQTs are assigned to trade options by the Exchange's Option 
Allocation, Evaluation, and Securities Committee (``OAESC'').\10\ Once 
an RSQT is assigned in an option by the OAESC, the Exchange's Financial 
Automation Department \11\ activates the connections

[[Page 16327]]

necessary for access to the Exchange's systems with respect to the 
option symbol(s) assigned to the RSQT. Thus, an RSQT could not trade 
options in which it is not assigned, and could not thereby function as 
an RSQT in a higher category level without having paid the appropriate 
RSQT fee.
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    \10\ See Exchange Rule 507. The Options Allocation, Evaluation, 
and Securities Committee has jurisdiction over the allocation, 
retention, and transfer of the privileges to deal in all options to, 
by, and among members on the options and foreign currency options 
trading floors. See also Exchange By-Law Article X, Section 10-7.
    \11\ The Exchange's Financial Automation Department is 
responsible for the design, development, implementation, testing, 
and maintenance of the Exchange's automated trading systems, 
surveillance systems, and back office systems, and for monitoring 
the quality of performance and operational readiness of such 
systems, in addition to user training and validation of user 
technology as it pertains to such users' interfacing with the 
Exchange's systems.
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Credits
    The RSQT's fees would be subject to credits, based on the amount of 
permit fees \12\ applicable to the RSQT, subject to maximum allowable 
credit applicable to each RSQT category. Thus, for example, a Category 
III RSQT would be assessed a monthly RSQT fee of $4,700, and would be 
eligible to receive a permit credit against the $4,700 RSQT fee, 
depending on the number and type of permits held by the member RSQT. 
For example, if there is one ROT trading permit held within a member 
organization, the member organization would receive a permit credit of 
$1,200 (the cost of the first ROT permit purchased) against the $4,700 
RSQT fee. If there are two ROT trading permits held within the member 
organization, the member organization would receive a permit credit of 
$2,200 ($1,200 for the first permit + $1,000 for the second permit) 
against the $4,700 RSQT fee. If the member organization holds two ROT 
trading permits and one Order Flow Provider permit (allowing the member 
organization to submit orders to the option trading floor), the member 
organization would receive a permit credit of $2,400 ($1,200 for the 
first permit + $1,000 for the second permit + $200 for the Order Flow 
Provider permit), etc.\13\ The maximum allowable permit credit for a 
Category III RSQT would be $3,200, regardless of the number and type of 
permits held within the member organization.
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    \12\ See supra note 6.
    \13\ See supra note 7.
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    The maximum allowable credit for each category of RSQT is 
progressively larger, similar to the progressively higher RSQT fees 
included in the fee schedule. The highest RSQT fee category, therefore, 
would receive the highest maximum allowable permit credit.
    In addition to the above fees, RSQTs would be subject to the 
current transaction and other fees applicable to ROTs, as set forth in 
the Exchange's schedule of fees and charges.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6 of the Act,\14\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\15\ in 
particular, in that it provides for the equitable allocation of 
reasonable fees among its members.
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    \14\ 15 U.S.C. 78f.
    \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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change establishes or changes a due, 
fee, or other charge imposed by the Exchange and therefore has become 
effective pursuant to Section 19(b)(3)(A) of the Act\16\ and 
subparagraph (f)(2) of Rule 19b-4 thereunder.\17\ At any time within 60 
days of the filing of such 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 purpose of 
the Act.\18\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(2).
    \18\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the proposal to have been filed on March 
22, 2005, the date the Phlx filed Amendment No. 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, 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-2005-12 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-2005-12. 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-2005-12 and should be submitted on or before April 
20, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1394 Filed 3-29-05; 8:45 am]
BILLING CODE 8010-01-P