[Federal Register Volume 70, Number 154 (Thursday, August 11, 2005)]
[Notices]
[Pages 46899-46901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52220; File No. SR-Phlx-2005-49]


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

August 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 July 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. 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,\3\ and Rule 19b-4(f)(2) thereunder,\4\ 
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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 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: \5\ (1) 
Keefe, Bruyette & Woods Regional Banking Index or the KBW Regional 
Banking Index, traded under the symbol KRX, and (2) Keefe, Bruyette & 
Woods Mortgage Finance Index or the KBW Mortgage Finance Index, traded 
under the symbol MFX (collectively ``KBW products''), to be assessed 
per contract side for index option ``firm'' transactions (comprised of 
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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    \5\ This fee will be charged to Exchange members.
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    Currently, the Exchange imposes a cap of $60,000 per member 
organization \6\ on all ``firm-related'' equity option and index option 
comparison and transaction charges combined.\7\ 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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    \6\ 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).
    \7\ See Securities Exchange Act Release No. 51024 (January 11, 
2005), 70 FR 3088 (January 19, 2005) (SR-Phlx-2004-94).

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[[Page 46900]]

    The Exchange also imposes a license fee of $0.10 per contract side 
for equity option and index option ``firm'' transactions on certain 
licensed products (collectively ``licensed products'') after the 
$60,000 cap, as described above, is reached.\8\ 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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    \8\ For a complete list of licensed products, see $60,000 ``Firm 
Related'' Equity Option and Index Option Cap on the Exchange's fee 
schedule. See also, Securities Exchange Act Release No. 52054 (July 
18, 2005), 70 FR 42611 (July 25, 2005) (SR-Phlx-2005-40).
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    The Exchange proposes to adopt a $0.10 license fee per contract 
side for the KBW products for 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 KBW products, over those trades that were 
counted in reaching the $60,000 cap.\9\
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    \9\ 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 (e.g., 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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    The fees set forth in this proposal are scheduled to become 
effective for transactions settling on or after August 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 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 \10\ in general, and furthers the 
objectives of section 6(b)(4) of the Act \11\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 \12\ and Rule 
19b-4(f)(2) \13\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(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-2005-49 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-2005-49. 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-2005-49 and should be submitted on or before 
September 1, 2005.


[[Page 46901]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4352 Filed 8-10-05; 8:45 am]
BILLING CODE 8010-01-P