[Federal Register Volume 70, Number 65 (Wednesday, April 6, 2005)]
[Notices]
[Pages 17495-17498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1553]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51453; File No. SR-Phlx-2005-16]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Streaming Quote Trader Fees

March 30, 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 28, 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 30, 
2005, Phlx filed Amendment No. 1 to the proposed rule change.\3\ The 
Exchange filed the proposed rule change pursuant to section 19(b)(3)(A) 
of the

[[Page 17496]]

Act \4\ 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 SQT fees in response 
to comments received from Commission staff.
    \4\ 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 a fee schedule 
for Streaming Quote Traders (``SQTs'').\5\ 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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    \5\ A SQT is a Registered Options Trader (``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. See Exchange Rule 1014(b)(ii). In July 
2004, the Exchange began trading equity options on Phlx XL, the 
Exchange's electronic trading platform for options, followed by 
index options in December 2004.
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    SQT fees and credits would apply as follows: \6\
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    \6\ A member organization will be assessed an SQT fee based on 
the aggregate amount of equity options and index options traded by 
the SQTs in that member organization.


Category I......................................  No Charge.
    SQT is eligible to trade: \6\
         Up to 200 equity and index
         options issues.
         Not eligible for a permit
         credit.
Category II.....................................  $2200.00 per calendar month.
    SQT is eligible to trade:
         Up to 400 equity and index
         options issues.
         Maximum permit credit is
         $2200.00 per calendar month.
Category III....................................  $3200.00 per calendar month.
    SQT is eligible to trade:
         Up to 600 equity and index
         options issues.
         Maximum permit credit is
         $3200.00 per calendar month.
Category IV.....................................  $4200.00 per calendar month.
    SQT is eligible to trade:
         Up to 800 equity and index
         options issues.
         Maximum permit credit is
         $4200.00 per calendar month.
Category V......................................  $5200.00 per calendar month.
    SQT is eligible to trade:
         Up to 1000 equity and index
         options issues.
         Maximum permit credit is
         $5200.00 per calendar month.
Category VI.....................................  $6200.00 per calendar month.
    SQT is eligible to trade:
         Up to 1200 equity and index
         options issues.
         Maximum permit credit is
         $6200.00 per calendar month.
Category VII....................................  $7200.00 per calendar month.
    SQT is eligible to trade:
         All listed equity and index
         options.
         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 SQTs in order to 
provide competitive fees for SQTs. The Exchange believes that the 
proposed SQT fee schedule creates an incentive for SQTs to remain on 
the Exchange's options floor, thereby providing the necessary liquidity 
for floor-brokered orders traded in-crowd. Currently, all Phlx listed 
equity options and index options trade on Phlx XL, and SQTs have had 
the opportunity to acclimate themselves to the electronic trading 
environment. Thus, the Exchange believes that it is now appropriate to 
assess the proposed SQT fees.
    Each member organization will be assessed per month a SQT fee based 
on the total number of options in which all SQTs in the same member 
organization are assigned. A member organization will be assessed a SQT 
fee based on the aggregate amount of equity options and index options 
traded by the SQTs in that member organization. However, credits may be 
earned to offset the amount of the SQT fee assessed on the member 
organization. The amount of credit that can be earned by each member 
organization on a monthly basis is based on the number of permit 
holders, who are also SQTs, per member organization, subject to a 
maximum allowable permit credit applicable to each SQT category.\7\ 
Thus, the member

[[Page 17497]]

organization will be eligible to receive credit against the SQT fee for 
the number of actual permits issued to the member organization that are 
utilized by an SQT, resulting in a reduced SQT fee.
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    \7\ The amount of the credit is based on $1200 for the first ROT 
(acting as a SQT) permit and $1000 for each additional ROT (acting 
as a SQT) permit, subject to the maximum permit credit allowed for 
each category. For example, if a member organization is assessed a 
monthly Category II SQT fee of $2200.00 per calendar month, that 
member organization would be eligible to receive a permit credit 
against the $2200.00 SQT fee depending on the number of permits held 
by ROTs acting as SQTs within that member organization. Thus, if the 
member organization only had one SQT, it would receive a credit of 
$1200 per calendar month and would be assessed a reduced SQT fee of 
$1000.00 for that calendar month. However, if the member 
organization had two SQTs within its organization, it would receive 
a total credit of $2200.00 per calendar month ($1200 for the first 
ROT acting as a SQT and $1000 for the second ROT acting as a SQT) 
and would be charged a reduced SQT fee of $0.00 for that calendar 
month. A member organization may receive credit only for an ROT 
permit fee when such ROT is acting as a SQT because the Exchange has 
determined, based on current permit statistics, that member 
organizations with ROT permits do not apply for other types of 
permits, unlike the Remote Streaming Quote Trader (``RSQT'') fee and 
corresponding credit. See Securities Exchange Act Release No. 51428 
(March 24, 2005), 70 FR 16325 (March 30, 2005) (SR-Phlx-2005-12).
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    The proposed SQT fees and corresponding credits will be assessed on 
a monthly basis. The highest applicable SQT fee will be assessed based 
on the highest SQT category level in which the SQT was qualified at any 
time during a particular calendar month. For example, if a SQT is 
eligible to trade at any time in a given calendar month as a Category I 
SQT, and sometime during that same calendar month becomes qualified and 
eligible to trade as a Category II SQT, the SQT member organization 
will be assessed the fee applicable to a Category II SQT, regardless of 
when such SQT became eligible to trade at the Category II level, and 
regardless if, during that same calendar month, the SQT resumed 
eligibility as a Category I SQT.\8\
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    \8\ For example, if a member organization's SQT is eligible to 
trade up to 200 equity and index options issues at any time in a 
given month, and is thus qualified as a Category I SQT, and sometime 
during that month becomes eligible to trade up to 400 equity and 
index options issues during that same month, and is thus qualified 
as a Category II SQT, the member organization employing that SQT 
will be assessed the fee applicable to a Category II SQT, regardless 
of when, during that month, the SQT became eligible to trade at the 
Category II level.
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    SQTs are assigned to trade options by the Exchange's Options 
Allocation, Evaluation, and Securities Committee (``OAESC'').\9\ Once 
assigned in an option by the OAESC, the Exchange's Financial Automation 
Department \10\ activates the connections necessary for access to the 
Exchange's systems respecting the option symbol(s) assigned to the SQT. 
Thus, a SQT could not trade options in which it is not assigned, and 
could not thereby function as a SQT in a higher category level without 
being assessed the appropriate SQT fee.
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    \9\ See Exchange Rule 507. The OAESC 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 Exchange By-Law Article X, Section 10-7.
    \10\ 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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    All other applicable Exchange fees will continue to apply, such as 
transaction and comparison charges. The proposed SQT fees are scheduled 
to become effective for transactions settling on or after March 1, 
2005.
    The Exchange is also proposing to make minor technical changes to 
renumber certain footnotes. The purpose of renumbering the footnotes is 
to update the fee schedule to reflect certain footnotes that were 
recently added to the exchange's fee schedule.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with section 6 of the Act,\11\ in general, and 
furthers the objectives of section 6(b)(4) of the Act,\12\ in 
particular, in that it provides for the equitable allocation of 
reasonable fees among its members. The proposed SQT fees are lower than 
RSQT fees \13\ because SQTs have more out-of-pocket costs associated 
with their streaming quote systems. For example, 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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
    \13\ A RSQT is an Exchange 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 AUTOM in eligible options 
to 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 Exchange Rule 1014(b)(ii)(B). See 
Securities Exchange Act Release Nos. 51126 (February 2, 2005), 70 FR 
6915 (February 9, 2005) (SR-Phlx-2004-90) and 51428 (March 24, 
2005), 70 FR 16325 (March 30, 2005) (SR-Phlx-2005-12).
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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 has been designated as a fee 
change pursuant to section 19(b)(3)(A)(ii) of the Act \14\ and 
subparagraph (f)(2) of Rule 19b-4 thereunder.\15\ Accordingly, the 
proposal will take effect upon filing with the Commission. 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the proposal to have been filed on March 
30, 2005, the date the Phlx filed Amendment No. 1.
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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-2005-16 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-2005-16. 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

[[Page 17498]]

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-2005-16 and should be 
submitted on or before April 27, 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. E5-1553 Filed 4-5-05; 8:45 am]
BILLING CODE 8010-01-P