[Federal Register Volume 70, Number 117 (Monday, June 20, 2005)]
[Notices]
[Pages 35490-35491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3155]



[[Page 35490]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51838; File No. SR-Phlx-2005-30]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto To Impose a New Licensing Fee in 
Connection With the Firm-Related Equity Option and Index Option Fee Cap

June 14, 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 April 28, 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. On April 
29, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ On June 6, 2005, the Exchange filed Amendment No. 2 to the 
proposed rule change.\4\ Phlx has designated this proposal as one 
establishing or changing a due, fee, or other charge imposed by a self-
regulatory organization pursuant to Section 19(b)(3)(A) of the Act,\5\ 
and Rule 19b-4(f)(2) thereunder,\6\ which renders the proposal 
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\ In Amendment No. 1, the Exchange made non-substantive 
changes to the text of the proposed rule change.
    \4\ In Amendment No. 2, the Exchange modified the text of the 
proposed rule change and clarified the basis of the proposal.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \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 adopt a license 
fee of $0.10 for options traded on the following products: (1) iShares 
Lehman 1-3 Year Treasury Bond Fund, traded under the symbol SHY 
(``SHY); (2) iShares Lehman 7-10 Year Treasury Bond Fund, traded under 
the symbol IEF (``IEF''); (3) iShares Lehman 20+ Treasury Bond Fund, 
traded under the symbol TLT (``TLT''); (4) iShares Lehman Aggregate 
Bond Fund, traded under the symbol AGG (``AGG''); (5) iShares Lehman 
TIPS Bond Fund, traded under the symbol TIP (``TIP'') (collectively 
``iShares Lehman products''); (6) KBW Capital Markets Index, traded 
under the symbol KSX (``KSX''); \7\ (7) KBW Insurance Index, traded 
under the symbol KIX (``KIX''); and (8) Phlx/KBW Bank Index, traded 
under the symbol (``BKX'') (collectively ``KBW products'') to be 
assessed per contract side for equity option and index option ``firm'' 
transactions (comprised of equity option firm/proprietary comparison 
transactions, equity option firm/proprietary transactions, equity 
option firm/proprietary facilitation transactions, index option firm/
proprietary comparison transactions, index option firm/proprietary 
transactions and index option 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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    \7\ ``KBW,'' ``Keefe, Bruyette & Woods Capital Markets Index,'' 
and ``KBW Capital Markets Index'' are trademarks of Keefe, Bruyette 
& Woods, Inc. and have been licensed for use by the Philadelphia 
Stock Exchange, Inc. Keefe, Bruyette & Woods, Inc. makes no 
recommendations concerning the advisability of investing in options 
based on the KBW Capital Markets Index.
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    Currently, the Exchange imposes a cap of $60,000 per member 
organization \8\ on all ``firm-related'' equity option and index option 
comparison and transaction charges combined.\9\ 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 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 in the aggregate for one billing month may not 
exceed $60,000 per month per member organization.
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    \8\ 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 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, are 
accepted. See Securities Exchange Act Release No. 43558 (November 
14, 2000), 65 FR 69984 (November 21, 2000) (SR-Phlx-2000-85).
    \9\ See Securities Exchange Act Release No. 51024 (January 11, 
2005), 70 FR 3088 (January 19, 2005) (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 \10\ traded under the symbol QQQQ (``QQQ'') 
and certain other licensed products (collectively ``licensed 
products'') \11\ 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 contracts in licensed products (if any) over those that were 
included in reaching the $60,000 cap. In other words, if the cap is 
reached, the $0.10 license fee is imposed on all subsequent equity 
option and index option firm transactions; these license fees are 
charged in addition to the $60,000 cap.
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    \10\ 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] (the 
``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.
    \11\ In addition to the QQQs, the following products are 
assessed a $0.10 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''); NYSE U.S. 100 Index (``NY''); and Standard & Poor's 
Depositary Receipts[reg], Trust Series 1 (``SPY'').
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    The Exchange proposes to adopt a $0.10 license fee per contract 
side for the iShares Lehman products and the KBW products for equity 
option and index option firm transactions, which will be imposed after 
the $60,000 cap is reached in the same way as 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 
iShares Lehman products and KBW products, over those trades that were 
counted in reaching the $60,000 cap.\12\
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    \12\ 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 and index 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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[[Page 35491]]

    The fees set forth in this proposal are scheduled to become 
effective for transactions settling on or after May 1, 2005.
    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's Public Reference Section.

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 proposal. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of assessing the iShares Lehman products and the KBW 
products license fee of $0.10 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 these products, 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 significant out-of-
pocket costs.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \13\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act \14\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx believes that the proposed rule change would impose no 
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

    The Exchange did not solicit or receive any written comments with 
respect to the proposal.

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 \15\ and Rule 
19b-4(f)(2) \16\ thereunder. Accordingly, the proposal is effective 
upon filing with the Commission. 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ See 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 
60-day abrogation period, the Commission considers the period to 
commence on June 6, 2005, the date the Phlx filed Amendment No. 2. 
The effective date of the original proposed rule change is April 28, 
2005, the effective date of Amendment No. 1 is April 29, 2005, and 
the effective date of Amendment No. 2 is June 6, 2005.
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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-2005-30 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Phlx-2005-30. 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 Section. Copies of 
such filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-2005-30 and should be submitted on or before July 
11, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3155 Filed 6-17-05; 8:45 am]
BILLING CODE 8010-01-P