[Federal Register Volume 70, Number 82 (Friday, April 29, 2005)]
[Notices]
[Pages 22381-22382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2050]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51596; File No. SR-Phlx-2005-19]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Relating to Fees Relating to Merger Spreads and 
Dividend Spreads

April 21, 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 March 23, 2005, 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. The Phlx 
submitted Amendment No. 1 to the proposal on April 19, 2005.\3\ The 
proposed rule change, as amended, has been filed by the Phlx as 
establishing or changing a due, fee, or other charge, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made clarifying and minor technical changes 
to the text of the proposal and specified that the proposed fee cap 
will be in effect as a pilot program that will expire on September 
1, 2005.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend its schedule of fees to provide a rebate 
for certain trades executed pursuant to a merger spread strategy.\6\ 
Specifically, the Exchange proposes to rebate $0.08 per contract side 
for Registered Options Trader (``ROTs'') executions and $0.07 per 
contract side for specialist executions made pursuant to a merger 
spread strategy on the business day prior to the date on which 
shareholders of record are required to elect their respective form of 
consideration (i.e., cash or stock).
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    \6\ For purposes of this proposal the Exchange defines a 
``merger spread'' transaction as a transaction executed pursuant to 
a merger spread strategy involving the simultaneous purchase and 
sale of options of the same class and expiration date, but different 
strike prices, followed by the exercise of the resulting long 
options position, each executed prior to the date on which 
shareholders of record are required to elect their respective form 
of consideration, i.e., cash or stock.
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    In addition, the Exchange proposes to adopt a fee cap on equity 
option transaction and comparison charges on both dividend spread 
transactions \7\ and merger spread transactions. ROTs' and specialists' 
equity option transaction and comparison charges will be capped at 
$1,750 for transactions effected pursuant to a dividend spread strategy 
or merger spread strategy executed on the same trading day in the same 
options class. The cap will be implemented after any applicable rebates 
are applied to ROT and specialist equity option transaction and 
comparison charges. The proposed rebate and cap would be effective for 
trades settling on or after March 24, 2005.
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    \7\ For purposes of this proposal, a ``dividend spread'' 
transaction is any trade done within a defined time frame pursuant 
to a strategy in which a dividend arbitrage can be achieved between 
any two deep-in-the-money options.
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    The proposed fee cap will be in effect as a pilot program that will 
expire on September 1, 2005.
    The Exchange also proposes to delete a reference from its Summary 
of Equity Option Charges to the Exchange's Specialist Unit Fixed 
Monthly Fee (``fixed monthly fee''), as that fee is no longer in 
effect.\8\
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    \8\ The fixed monthly fee was in effect for transactions 
settling through August 31, 2004. See Securities Exchange Act 
Release Nos. 49467 (March 24, 2004), 69 FR 17017 (March 31, 2004) 
(SR-Phlx-2004-17); 49693 (May 12, 2004), 69 FR 28974 (May 19, 2004) 
(SR-Phlx-2004-30); and 50229 (August 23, 2004), 69 FR 52953 (August 
30, 2004) (SR-Phlx-2004-42). The Exchange previously deleted 
references to the Exchange's fixed monthly fee from its fee 
schedule, but inadvertently omitted this reference. See Securities 
Exchange Act Release No. 50676 (November 16, 2004), 69 FR 68206 
(November 23, 2004) (SR-Phlx-2004-67).
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    The text of the proposed rule change is available on the Phlx's Web 
site (http://www.phlx.com), at the Phlx's Office of the Secretary, 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 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 a 
rebate for contracts executed in trades occurring as part of a merger 
spread strategy to create a cost effective environment for these types 
of transactions to be executed.
    The Exchange provides a rebate for certain contracts executed in 
trades occurring as part of a dividend spread strategy. Specifically, 
for those options contracts executed pursuant to a dividend spread 
strategy, the Exchange rebates $0.08 per contract side for ROTs 
executions and $0.07 per side for specialist executions on the business 
day before the underlying stock's ex-date.\9\ Because the Exchange 
believes that merger spread transactions have similar economic risks 
and are executed in similar ways as dividend spread transactions, the 
Exchange believes that adopting these fees will encourage specialists 
and ROTs to provide liquidity for these types of financial strategies 
and should permit the Exchange to remain competitive.
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    \9\ The ex-date is the date on or after which a security is 
traded without a previously declared dividend or distribution. After 
the ex-date, a stock is said to trade ex-dividend.
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    Similar to the dividend spread strategy rebate process, the 
Exchange's billing system is unable at this time to distinguish between 
merger spread transactions and other types of trades. The Exchange has 
therefore developed a manual procedure to implement the

[[Page 22382]]

proposed rebate. Thus, to qualify a transaction for the rebate process, 
a written rebate request, along with supporting documentation, must be 
submitted to the Exchange.\10\
    The purpose of capping the ROT and specialist transaction and 
comparison fees for merger spread and dividend spread transactions at 
$1,750 is to attract additional liquidity to the Exchange.\11\ The 
purpose of deleting the reference to the fixed monthly fee is to update 
the Exchange's fee schedule to eliminate a reference to a fee that is 
no longer in effect.
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    \10\ Specifically, within 30 calendar days of the billing period 
(i.e., within thirty days from the issue date of the invoice) for 
these transactions, a written request, along with the appropriate 
documentation, must be completed and submitted to the Exchange. 
After the appropriate verification and subsequent acceptance, the 
Exchange would credit the appropriate member's account for the 
amount of the rebate (i.e., either $0.08 or $0.07 per contract side) 
on contracts executed in trades occurring as part of a merger-
acquisition strategy.
    \11\ Similar to the rebate process described above, members who 
wish to benefit from the proposed fee cap will be required to submit 
to the Exchange a written rebate request with supporting 
documentation.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees 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 fees 
among Exchange members.
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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, 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 \14\ and Rule 
19b-4(f)(2) \15\ thereunder, because it changes a fee imposed by the 
Exchange. 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.\16\
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    \14\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculation the 
60-day abrogation period, the Commission considers the period to 
commence on April 19, 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 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-2005-19 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-2005-19. 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 the 
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-2005-19 and should be submitted on or before May 
20, 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. E5-2050 Filed 4-28-05; 8:45 am]
BILLING CODE 8010-01-P