[Federal Register Volume 71, Number 67 (Friday, April 7, 2006)]
[Notices]
[Pages 17938-17941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-5057]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53584; File No. SR-Phlx-2006-04]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2 
Thereto Relating to Dissemination of Index Values

March 31, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on January 12, 2006, 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 Phlx. 
The Phlx filed Amendment No. 1 to the proposed rule change on March 23, 
2006 and submitted notification of withdrawal of Amendment No. 1 on 
March 24, 2006. On March 24, 2006, the Phlx filed Amendment No. 2 to 
the proposed rule change.\3\ 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\ Amendment No. 2 supersedes and replaces the original filing 
in its entirety.
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 I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to continue the listing and trading of options on 
various stock indices upon making certain changes to the procedures for 
dissemination of the values of the indices. Specifically, Phlx has 
determined to license the current and closing index values underlying 
options currently listed pursuant to Commission approval pursuant to 
Rule 19b-4 rule filings, namely, the Phlx Gold/Silver Sector\SM\ 
(``XAU\SM\''), Phlx Oil Service Sector\SM\ (``OSX\SM\''), Phlx 
Semiconductor Sector (``SOX\SM\''), and the Phlx Utility Sector\SM\ 
(``UTY\SM\'') (together, the ``Approved Index Options''), as well as 
values of most of Phlx's other proprietary indexes, to its wholly owned 
subsidiary, the Philadelphia Board of Trade (``PBOT''),\4\ for the 
purpose of selling, reproducing, and distributing the index values over 
PBOT's Market Data Distribution Network (``MDDN'').\5\ The Exchange 
proposes that the index values underlying the Approved Index Options 
will no longer be disseminated as described in their respective Rule 
19b-4 filings and approval orders.\6\ The Exchange is also seeking 
approval to cease disseminating the current and closing index values of 
all its proprietary indexes over the facilities of the Consolidated 
Tape Association (``CTA''), and to disseminate such values solely over 
the PBOT's MDDN.\7\ Finally, the Exchange is seeking approval for the 
subscriber fees to be charged to market data vendors by PBOT for all 
the values of Phlx's proprietary indexes disseminated by PBOT's MDDN.
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    \4\ PBOT is a dormant designated contract market regulated by 
the Commodity Futures Trading Commission (the ``CFTC''). Until 
November 30, 2005, when it became dormant, PBOT listed futures 
contracts on a number of foreign currencies. PBOT has applied to the 
CFTC for reinstatement for dormancy and expects to launch a new 
electronic trading platform, PBOT XL, in the near future.
    \5\ Phlx also lists and trades options on a number of other 
stock indices whose values will not be disseminated by PBOT. Those 
indices will continue to be maintained, and options thereon will 
continue to be listed, as they are today. PBOT has, however, secured 
a similar license from one other index provider, and Phlx 
anticipates that PBOT will enter into similar license agreements 
with proprietors of other indexes underlying options traded on the 
Phlx.
    \6\ See Securities Exchange Act Release Nos. 20437 (December 2, 
1983), 48 FR 55229 (December 9, 1983) (XAU); 38207 (January 27, 
1997), 62 FR 5268 (February 4, 1997) (OSX); 34546 (August 18, 1994), 
59 FR 43881 (August 25, 1994) (SOX); 24889 (September 9, 1987), 52 
FR 35021 (September 16, 1987) (UTY).
    \7\ Phlx's proprietary indexes are, in addition to the indexes 
underlying the Approved Index Options, the Phlx Defense Sector\SM\, 
Phlx Drug Sector\SM\, Phlx Europe Sector\SM\, Phlx Housing 
Sector\SM\, and the Phlx World Energy Index\SM\, all of which were 
listed pursuant to Phlx Rule 1009A(b), the Exchange's generic index 
option listing standard rule. Phlx's proprietary indexes are owned 
and maintained by Phlx. The Exchange has determined not to remove 
the Phlx World Energy Index\SM\ (``XWE''\SM\) and the Phlx Europe 
Sector\SM\ (``XEX''\SM\) from CTA immediately, but is requesting 
approval to do so when and if the Exchange determines that 
disseminating these indexes in the same manner as its other 
proprietary indexes will be appropriate.
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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. The 
text of these

[[Page 17939]]

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 is to effectuate changes to 
index dissemination procedures whereby PBOT will be disseminating index 
value information, as described above. Currently, the Exchange realizes 
no revenues from the sale of current and closing index values 
disseminated over CTA that are not shared with other CTA Plan 
participants but wants to going forward.\8\
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    \8\ Currently, market data vendors pay a $200.00 monthly fee to 
CTA for the right to redistribute current and closing index values 
on a real time basis, together with delayed last sale data.
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    In anticipation of the launch of PBOT XL, the PBOT's fully 
electronic matching engine, PBOT has contracted with SAVVIS 
Communications to provide extranet services for the distribution of 
certain futures market data. This new internet protocol multicast 
network is known as the PBOT MDDN.\9\ It is anticipated that PBOT's 
MDDN will disseminate quote and trade information regarding futures 
contracts executed on the PBOT, but will not disseminate quote and 
trade information regarding securities products. Further, as proposed 
herein, PBOT's MDDN will disseminate index value information.
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    \9\ Additional information regarding the PBOT MDDN can be found 
on the Exchange's Web site at http://www.phlx.com/pbot/Market_Data/mktdata.html.
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    Additionally, in order to facilitate creation of revenues from the 
sale of current and closing values for Phlx proprietary indexes, the 
Phlx will remove those values from CTA. At that time, those index 
values will not be available from CTA and will be available only 
through the PBOT's MDDN.\10\ They will, however, continue to be 
disseminated by major market data vendors, as explained below.\11\
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    \10\ As noted above, for business reasons the Phlx World Energy 
IndexSM and the Phlx Europe SectorSM will not 
initially be disseminated over the MDDN but will continue to be 
disseminated over the facilities of CTA. See supra note 7.
    \11\ PBOT has and will also enter into license agreements with 
one or more third party index providers to sell, reproduce, and 
distribute index values which underlie other Phlx traded options 
listed pursuant to Rule 19b-4(e) under the Act. Those index values 
will also be removed from CTA.
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    In contemplation of removing the index values from CTA, the 
Exchange has entered into a license agreement with PBOT in which the 
Exchange granted to PBOT, subject to the terms and conditions set forth 
therein, a non-exclusive, fully-paid, royalty-free, worldwide right and 
license to sell, offer for sale, perform, display, reproduce and 
distribute the current and closing index values derived from the Phlx 
proprietary indices to be disseminated over the MDDN.\12\ Phlx or its 
third party designee will objectively calculate and make available to 
PBOT every 15 seconds real time current and closing index values on 
each trading day so that PBOT may market, sell, and distribute the 
values to third parties. The three industry leading market data vendors 
will be making the real time market data available to subscribers, as 
will several mid-tier vendors.\13\ Finally, the parties acknowledged 
and agreed that the goodwill created from PBOT's exercise of its rights 
under the agreement would constitute the full consideration for the 
grant of licenses therein.
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    \12\ The license does not include the right to sublicense, 
modify, improve or create derivative works of, the values or the 
indices.
    \13\ The term ``vendors'' as used herein includes subvendors 
which receive the market data feed from vendors rather than directly 
from PBOT, but which execute the same agreement with PBOT that 
vendors execute and pay the same subscriber fees.
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    PBOT, in turn, will execute and has executed agreements with 
various vendors of market data for the right to receive, store, and 
retransmit the current and closing index values transmitted over the 
MDDN.\14\ The subscriber fees payable to PBOT by vendors for the use or 
resale of these values are set forth in those agreements. Phlx is 
proposing that all vendors will be charged, based upon usage by their 
subscribers,\15\ a monthly fee of (a) $1.00 per ``Device,'' as defined 
in the agreement,\16\ that is used by vendors and their subscribers to 
receive and re-transmit Phlx proprietary sector index current and 
settlement values on a real time basis and disseminated every 15 
seconds, and (b) $.00025 per request for snapshot data, which is 
essentially market data that is refreshed no more frequently than once 
every 60 seconds, or $1,500 per month for unlimited snapshot data 
requests.\17\ The fees are summarized in table format below:
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    \14\ Approximately 25 vendors, including for example Bloomberg 
L.P., Telekurs Financial Information Ltd. and Thomson Financial, 
have already entered into such market data agreements with PBOT. At 
least three of the vendors have elected to offer only the continuous 
real-time market data and will not offer snapshot or delayed data. 
The fees described in this proposed rule change cover values of all 
the indexes disseminated over the MDDN.
    \15\ These fees will be subject to the possibility of a 15% 
Administrative Fee deduction as described in footnote 18.
    \16\ The definition of ``Device'' in the agreement is complex 
and incorporates a number of other defined terms. The agreement 
provides that ``Device'' shall mean, in case of each Subscriber and 
in such Subscriber's discretion, either any Terminal or any End 
User. For the avoidance of doubt, a Subscriber's Device may be 
exclusively Terminals, exclusively End Users or a combination of 
Terminals or End Users and shall be reported in a manner that is 
consistent with the way the Vendor identifies such Subscriber's 
access to Vendor's data.
    By way of further explanation, an ``End User'' is an individual 
authorized or allowed by a vendor or a Subscriber to access and 
display real time market data that distributed by PBOT over the 
MDDN; and a ``Terminal'' is any type of equipment (fixed or 
portable) that accesses and displays such market data. For example, 
a vendor whose Subscribers collectively may access the index values 
on a real-time basis through 10,000 Devices would be assessed a 
monthly fee of $10,000. A vendor which makes available unlimited 
snapshot data to its customers would be assessed a monthly fee of 
$1500.00 regardless of the number of End Users or Devices involved.
    \17\ The index values may also be made available by vendors on a 
delayed basis (i.e., no sooner than twenty minutes following receipt 
of the data by vendors) at no charge. The Exchange also notes that 
devices used in customer service areas or for purposes such as 
quality control, software programming, sales demonstrations, or 
promotions are not subject to any fees.
    \18\ All market data vendors which provide market data to 
200,000 or more Devices in any month qualify for a 15% 
Administrative Fee deduction for that month, to be deducted from the 
monthly Subscriber Fees that they collect and are obligated to pay 
PBOT under the Vendor/Subvendor Agreement. Phlx also believes that 
the fees to be charged by PBOT are consistent with the requirements 
of Commission Rule 603, Distribution, consolidation, and display of 
information with respect to quotations for and transactions in NMS 
stocks, in that the fees are fair and reasonable and not 
unreasonably discriminatory.

------------------------------------------------------------------------
                              Real-time continuous
       Fee (per month)             market data          Delayed only
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Per Device/User ID/Terminal   $1.00 per Device*...  None.
 ID.
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       Fee (per month)        Snapshot market data      Delayed only
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                              $0.0025 per snapshot  None.
                               request *.
                               OR.................  ....................

[[Page 17940]]

 
                              $1,500 per month for  None.
                               unlimited snapshot
                               requests*.
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* Vendors which provide market data to 200,000 or more Devices in any
  month qualify for a 15% Administrative Fee deduction for that
  month.\18\

    Separate charges will apply for futures market data, which is not 
the subject of this proposed rule change. However, the agreements will 
provide that PBOT may change any of the fees enumerated in the 
agreement by giving the vendor or subvendor advance written notice of 
such changes.\19\ Under the agreements and consistent with industry 
practice, vendors will be free to assess whatever fees they agree to 
with subscribers.
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    \19\ The Commission notes that any such fee changes would need 
to be submitted under Section 19(b) of the Act.
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    In the various proposed rule changes filed by the Exchange seeking 
Commission approval for the listing and trading of the Approved Index 
Options, the Exchange made certain representations regarding the manner 
in which index values would be disseminated. The Commission's approval 
orders also described the index value dissemination procedures in some 
cases. The Exchange now proposes to continue the listing and trading of 
options on various stock indices upon ceasing the dissemination of 
index values over CTA Tape B as described above. However, current index 
values will continue to be disseminated as required by Phlx Rule 
1100A.\20\ Moreover, the current index values will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during trading hours on the Exchange.\21\ Phlx will also 
continue to maintain the indexes underlying the Approved Index Options 
as described in their respective Rule 19b-4 filings and approval 
orders. Phlx anticipates that it may list options on new Phlx 
proprietary indexes in the future, in which event the underlying 
current and closing values of those new indexes will also be 
disseminated over the PBOT MDDN and not over CTA Tape B. Further, the 
Exchange may determine at a later date to remove the Phlx World Energy 
Index\SM\ (``XWE'' \SM\) and the Phlx Europe Sector\SM\ (``XEX'' \SM\) 
and disseminate their values over PBOT's MDDN, like the other Phlx 
proprietary indexes.
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    \20\ Phlx Rule 1100A(a) provides that ``[t]he Exchange shall 
disseminate or shall assure that the closing index value is 
disseminated after the close of business and the current index value 
is disseminated from time-to-time on days on which transactions in 
index options are made on the Exchange.''
    \21\ Current underlying index values for narrow-based index 
options trading pursuant to Phlx Rule 1009A(b) and Rule 19b-4(e) 
under the Act are also reported at least once every 15 seconds 
during the time the index options are traded on the Exchange 
pursuant to Phlx Rule 1009A(b)(10).
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2. Statutory Basis
    The Exchange believes that its amended proposal is consistent with 
Section 6(b) of the Act \22\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \23\ in particular, in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest, by permitting the Exchange to cause the dissemination 
of index values in a manner that will enhance the value to the Exchange 
of indexes which the Exchange owns, while continuing to maintain the 
listing and trading of options on these indices as an investment 
alternative available to investors. The Exchange also believes that its 
proposal furthers the objectives of Section 6(b)(4) of the Act \24\ in 
particular, in that it is an equitable allocation of reasonable fees 
among persons using its facilities. The Exchange believes that PBOT's 
proposed fee structure is reasonable and equitable, as it is based on 
the type of data received (real-time, delayed and snapshot), which is, 
in turn, generally based on the timeliness of the data. As noted above, 
market data vendors which provide market data to 200,000 or more 
Devices in any given month qualify for a 15% Administrative Fee for 
that month, to be deducted from the monthly subscriber fees that they 
collect and are obligated to pay PBOT under the Vendor/Subvendor 
Agreement.\25\ The Exchange believes that the 15% Administrative Fee is 
equitable because any vendor which provides market data to 200,000 or 
more Devices in any given month will qualify for the Administrative 
Fee. PBOT is offering the Administrative Fee as an incentive for large 
market data vendors to carry the data disseminated by the PBOT network. 
Phlx also believes that the fees to be charged by PBOT are consistent 
with the requirements of Commission Rule 603, Distribution, 
consolidation, and display of information with respect to quotations 
for and transactions in NMS stocks, in that the fees are fair and 
reasonable and not unreasonably discriminatory.
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    \22\ 15 U.S.C. 78f(b).
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(4).
    \25\ See footnote 18 above.
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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 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

    Although the Exchange received no written comments on the proposed 
rule change to continue listing and trading the Approved Index Options 
following changes in the index dissemination procedures or the level of 
fees to be charged by PBOT, the Exchange did receive one comment on the 
Exchange's underlying decision to remove index values from the 
consolidated tape and disseminate them over the PBOT MDDN.\26\ While 
the commenter did not specify the basis for his conclusion that the 
proposed changes would reduce the volume in index options to zero, the 
Exchange continues to believe that continued listing and trading of the 
Approved Index Options after underlying index values are removed from 
the consolidated tape is appropriate, as are the relocation of all Phlx 
proprietary index values from the consolidated tape to the PBOT MDDN 
and the fees to be assessed by PBOT, and, so long as the values 
continue to be widely disseminated by one or more market data vendors, 
is consistent with the Act.
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    \26\ See e-mail from Brian Schaer to the Exchange dated 
Thursday, August 25, 2005.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or

[[Page 17941]]

(ii) as to which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Commission is considering granting accelerated approval of the 
proposed rule change at the end of a 15-day comment period.\27\
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    \27\ The Phlx has requested accelerated approval of this 
proposed rule change prior to the 30th day after the date of 
publication of the notice of the filing thereof, following the 
conclusion of a 15-day comment period.
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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 amended 
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 No. SR-Phlx-2006-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2006-04. 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 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-2006-04 and should be submitted on or before April 
24, 2006.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).

Nancy M. Morris,
Secretary.
[FR Doc. E6-5057 Filed 4-6-06; 8:45 am]
BILLING CODE 8010-01-P