[Federal Register Volume 70, Number 141 (Monday, July 25, 2005)]
[Notices]
[Pages 42611-42613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3945]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52054; File No. SR-Phlx-2005-40]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto To Impose a New Licensing Fee in Connection 
With the Firm-Related Equity Option and Index Option Fee Cap

July 18, 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 June 7, 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 July 
5, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ 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,\4\ and Rule 
19b-4(f)(2) thereunder,\5\ 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 re-format a defined term and clarify the addition of 
disclaimer language in its $60,000 ``Firm Related'' Equity Option 
and Index Option Cap schedule. The effective date of the original 
proposed rule change is June 7, 2005, and the effective date of 
Amendment No. 1 is July 5, 2005. For purposes of calculating the 60-
day period within which the Commission may summarily abrogate the 
proposed rule change, as amended, under Section 19(b)(3)(C) of the 
Act, the Commission considers such period to commence on July 5, 
2005, the date on which the Exchange filed Amendment No. 1. See 15 
U.S.C. 78s(b)(3)(C).
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \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 adopt a license 
fee of $0.10 for options traded on the following products: \6\ (1) 
iShares S&P 100 Index, traded under the symbol OEF; (2) iShares S&P 
Europe 350, traded under the symbol IEV; (3) iShares S&P Global 100 
Index, traded under the symbol IOO; (4) iShares S&P Global Energy 
Sector Index, traded under the symbol IXC; (5) iShares S&P Global 
Financial Sector Index, traded under the symbol IXG; (6) iShares S&P 
Global Healthcare Sector Index, traded under the symbol IXJ; (7) 
iShares S&P Global Information Technology Sector Index, traded under 
the symbol IXN; (8) iShares S&P Global Telecom Sector Index, traded 
under the symbol IXP; (9) iShares S&P Latin America 40, traded under 
the symbol ILF; (10) iShares S&P MidCap 400, traded under the symbol 
IJH; (11) iShares S&P SmallCap 600, traded under the symbol IJR; (12) 
iShares S&P TOPIX 150, traded under the symbol ITF; (13) iShares S&P 
500, traded under the symbol IVV; (14) S&P Industrial Select Sector 
SPDR, traded under the symbol XLI; (15) S&P Technology Select Sector 
SPDR, traded under the symbol XLK; (16) S&P Utilities Select Sector 
SPDR, traded under the symbol XLU; (17) S&P Consumer Staples Select 
Sector SPDR, traded under the symbol XLP; (18) S&P Energy Select Sector 
SPDR, traded under the symbol XLE; (19) S&P Financial Select Sector 
SPDR, traded under the symbol XLF; (20) S&P Health Care Select Sector 
SPDR, traded under the symbol XLV; (21) S&P Materials Select Sector 
SPDR, traded under the symbol XLB; (22) S&P Consumer Discretionary 
Select Sector SPDR, traded under the symbol XLY; (23) MidCap SPDR, 
traded under the symbol MDY (collectively, the ``S&P products''); and 
(24) WellSpring Bio-Clinical Trials

[[Page 42612]]

Index (``WHC'') \7\ 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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    \6\ The Exchange represents that this fee will be charged only 
to Exchange members. Telephone conversation between Cynthia 
Hoekstra, Director, Phlx, and Edward Cho, Attorney, Division of 
Market Regulation (``Division''), Commission (July 7, 2005).
    \7\ WellSpring Bio-Clinical Trials Index, ``ORCHIDs'' and 
``WellSpring'' are trademarks of WellSpring BioCapital Partners, LLC 
(``WellSpring LLC'') and have been licensed for use by the Exchange. 
WellSpring LLC makes no recommendations concerning the advisability 
of investing in options based on the WellSpring Bio-Clinical Trials 
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, the ``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, the ``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.
    The Exchange proposes to adopt a $0.10 license fee per contract 
side for the S&P products and WHC 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 S&P products and 
WHC, over those trades that were counted in reaching the $60,000 
cap.\12\
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    \10\ The Nasdaq-100[supreg], Nasdaq-100 Index[supreg], 
Nasdaq[supreg], The Nasdaq Stock Market[supreg], 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[supreg] (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 licensed 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[supreg], Trust 
Series 1 (SPY); iShares Lehman 1-3 Year Treasury Bond Fund (SHY); 
iShares Lehman 7-10 Year Treasury Bond Fund (IEF); iShares Lehman 
20+ Treasury Bond Fund (TLT); iShares Lehman Aggregate Bond Fund 
(AGG); iShares Lehman TIPS Bond Fund (TIP); KBW Capital Markets 
Index (KSX); KBW Insurance Index (KIX); and Phlx/KBW Bank Index 
(BKX).
    \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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    In addition, the Exchange proposes to make a technical change to 
its Summary of Index Option and FXI Options Charges (``Options Charge 
Schedule'') to make a footnote, which relates to the $60,000 cap and 
appears in other applicable sections of the Exchange's fee schedule, 
more consistent.\13\ The Exchange also proposes to include non-
substantive disclaimer language relating to the trading of certain 
licensed products on the Exchange in its $60,000 ``Firm Related'' 
Equity Option and Index Option Cap schedule (``$60,000 Cap 
Schedule'').\14\ The fees set forth in this proposal are scheduled to 
become effective for transactions settling on or after June 8, 2005.
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    \13\ Telephone conversation between Cynthia Hoekstra, Director, 
Phlx, and Edward Cho, Attorney, Division, Commission (July 7, 2005).
    \14\ Id.
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    The text of the proposed rule change is available on the Phlx's 
Internet Web site (http://www.phlx.com), at the Phlx's Office of the 
Secretary, and at the Commission's Public Reference Room.

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 S&P products and WHC 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.
    The purpose of making minor technical changes to the Exchange's 
Options Charge Schedule is to make a footnote, which relates to the 
$60,000

[[Page 42613]]

cap and appears in other applicable sections of the Exchange's fee 
schedule, more consistent. In addition, the Exchange proposes to 
include non-substantive disclaimer language relating to the trading of 
certain licensed products on the Exchange in its $60,000 Cap Schedule.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \15\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act \16\ in particular, in 
that it is an equitable allocation of reasonable dues, fees, and other 
charges among Exchange members.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 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, as amended, has been designated 
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \17\ and 
Rule 19b-4(f)(2) \18\ thereunder. Accordingly, the proposal is 
effective upon filing with the Commission. At any time within 60 days 
of the filing of the amended 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.\19\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
    \19\ See supra note 3.
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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-2005-40 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-2005-40. 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 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-2005-40 and should be submitted on or before August 
15, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3945 Filed 7-22-05; 8:45 am]
BILLING CODE 8010-01-P