[Federal Register Volume 70, Number 90 (Wednesday, May 11, 2005)]
[Notices]
[Pages 24851-24852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2306]



[[Page 24851]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51657; File No. SR-Phlx-2005-22]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendments No. 1 and No. 2 Relating to a Dividend Spread 
Transaction Fee Cap

May 5, 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 31, 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 Amendments No. 1 and No. 2 to the proposal on April 27, 
2005,\3\ and May 4, 2005, respectively.\4\ The proposed rule change 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 \5\ and Rule 
19b-4(f)(2) \6\ 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.
    \4\ Amendment No. 2 included the expiration date of the pilot 
program regarding the Exchange's fee caps for dividend and merger 
spread transactions as part of the text of its fee schedule. See 
also Securities Exchange Act Release No. 51596 (April 21, 2005), 70 
FR 22381 (April 29, 2005) (SR-Phlx-2005-19).
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 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 amend its fee 
cap on equity option transaction and comparison charges on dividend 
spread transactions \7\ for a security with a declared dividend or 
distribution of less than $0.25. For these transactions, the Registered 
Options Trader (``ROT'') and specialist equity option transaction and 
comparison fees will be capped at $1,000 per dividend spread 
transaction effected pursuant to a dividend spread strategy executed on 
the same trading day in the same options class. The fee cap will be 
implemented after any applicable rebates are applied to ROT and 
specialist equity option transaction and comparison charges.\8\ The 
proposed fee cap would be effective for trades settling on or after 
April 1, 2005. The proposed fee cap will be in effect as a pilot 
program that will expire on September 1, 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.
    \8\ The Exchange provides a rebate for certain contracts 
executed in connection with transactions 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 ROT executions and $0.07 per 
side for specialist executions on the business day before the 
underlying stock's ex-date. 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. See Securities Exchange Act Release No. 48983 (December 
23, 2003), 68 FR 75703 (December 31, 2003) (SR-Phlx-2003-80).
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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 Exchange imposes a fee cap of $1,750 on ROT and specialist 
equity option transaction and comparison charges on dividend spread 
transactions and merger spread transactions.\9\ The purpose of capping 
at $1,000 the ROT and specialist transaction and comparison charges for 
dividend spread transactions for a security with a declared dividend or 
distribution of less than $0.25 is to attract additional liquidity to 
the Exchange.\10\ In addition, the fee cap should provide an 
opportunity for specialists and ROTs to engage in additional dividend 
opportunities in lower dividend distributions at a reduced rate, 
whereas the $1,750 current fee cap may not be economically beneficial 
because as the dividend distribution amount declines, the opportunity 
for a profitable strategy also declines. Thus, a lower cap should 
provide additional dividend strategy opportunities and additional 
business to the Exchange.
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    \9\ 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. See Securities Exchange Act 
Release No. 51596 (April 21, 2005) (SR-Phlx-2005-19).
    \10\ Similar to the Exchange's current rebate process, 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,\11\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act,\12\ in 
particular, in that it is an equitable allocation of reasonable fees 
among Exchange members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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 has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act \13\ and Rule 19b-4(f)(2) \14\ 
thereunder, because it changes a fee imposed by the Exchange. 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,

[[Page 24852]]

or otherwise in furtherance of the purposes of the Act.\15\
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    \13\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
    \15\ 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 May 4, 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 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-2005-22 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-2005-22. 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-2005-22 and should be submitted on or before June 
1, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Margaret H. McFarland,
Deputy Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-2306 Filed 5-10-05; 8:45 am]
BILLING CODE 8010-01-P