[Federal Register Volume 71, Number 95 (Wednesday, May 17, 2006)]
[Notices]
[Pages 28738-28740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-7464]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53790; File No. SR-Phlx-2006-04]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change and Amendment No. 2 
Thereto Relating to Dissemination of Index Values

May 11, 2006.

I. Introduction

    On January 12, 2006, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to license the current and closing index 
values underlying the Exchange's proprietary options to its wholly 
owned subsidiary, the Philadelphia Board of Trade (``PBOT''), and to 
allow PBOT to collect subscriber fees from market data vendors. 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. The proposed rule change, as amended, was 
published for comment in the Federal Register on April 7, 2006.\3\ The 
Commission received no comments regarding the proposal.\4\ This order 
approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 53584 (March 31, 
2006), 71 FR 17938.
    \4\ Although the Commission received no written comments on the 
proposed rule change, the Exchange did receive one comment opposing 
the Exchange's underlying decision to remove index values from the 
consolidated tape and disseminate them through PBOT. See e-mail from 
Brian Schaer to the Exchange dated Thursday, August 25, 2005. The 
Exchange believes that the continued listing and trading of the 
Approved Index Options, the relocation of Phlx proprietary index 
values from the consolidated tape to PBOT, and the fees to be 
assessed by PBOT after underlying index values are removed from the 
consolidated tape are appropriate and consistent with the Act so 
long as the index values continue to be widely disseminated by one 
or more market data vendors.
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II. Description of the Proposal

A. Dissemination of Index Values

    The Phlx proposes to license the current and closing index values 
underlying most of the Phlx's proprietary indexes including the 
following options to PBOT for the purpose of selling, reproducing, and 
distributing the index values over PBOT's Market Data Distribution 
Network (``MDDN'') \5\: 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''). The Exchange 
proposes that the index values underlying the Approved Index Options no 
longer be disseminated as described in their respective Rule 19b-4 
filings and approval orders.\6\
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    \5\ 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.
    Phlx also lists and trades options on a number of other stock 
indices whose values will not be disseminated by PBOT. Phlx 
represents that those indices will continue to be maintained, and 
options thereon will continue to be listed, as they are today. Phlx 
further represents that 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). In the 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.

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[[Page 28739]]

    The Exchange proposes to cease disseminating the current and 
closing index values of certain of its proprietary indexes \7\ over the 
facilities of the Consolidated Tape Association (``CTA''). The Exchange 
states that it has entered into a license agreement with PBOT pursuant 
to which PBOT will disseminate such values solely over the PBOT's 
MDDN.\8\ The Exchange 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. The three industry 
leading market data vendors would make the real time market data widely 
available to subscribers, as would several mid-tier vendors.\9\
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    \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 represents that it 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 
proposes to move these index values to the PBOT MDDN at a future 
date.
    \8\ The MDDN is a new internet protocol multicast network 
developed by PBOT and SAVVIS Communications. The Exchange states 
that its licensing agreement grants PBOT the exclusive, royalty-
free, worldwide right to sell, offer for sale, perform, display, 
reproduce and distribute the current and closing index values 
derived from the Exchange's proprietary indices. Phlx represents 
that the license does not include the right to sublicense, modify, 
improve or create derivative works of, the values or the indices. 
Phlx also states 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.
    \9\ 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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B. Subscriber Fees

    The Exchange also proposes to allow PBOT to charge subscriber fees 
to vendors of market data for all the values of Phlx's proprietary 
indexes disseminated by PBOT's MDDN. The subscriber fees are set out in 
agreements that PBOT would execute and has executed with various market 
data vendors for the right to receive, store, and retransmit the 
current and closing index values transmitted over the MDDN.\10\ Phlx 
proposes that all vendors will be charged, based upon usage by their 
subscribers, a monthly fee of $1.00 per ``Device,'' as defined in the 
agreement,\11\ 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. This 
monthly fee would be reduced by 15% for those vendors which provide 
market data to 200,000 or more Devices in any month (``15 Percent 
Administrative Fee Deduction''). For snapshot data, which is 
essentially market data that is refreshed no more frequently than once 
every 60 seconds, Phlx proposes that vendors will be charged $.00025 
per request or $1,500 per month for unlimited snapshot data 
requests.\12\
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    \10\ The Exchange represents that 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.
    \11\ 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.
    \12\ 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.
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III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange \13\ and, in particular, the requirements of 
section 6 of the Act.\14\ Specifically, as discussed in detail below, 
the Commission finds that the proposed rule change is consistent with 
section 6(b)(5) of the Act,\15\ which requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, and processing 
information with respect to, and facilitating transactions in 
securities, 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. In addition, the Commission 
believes that the proposal is consistent with section 6(b)(4) of the 
Act,\16\ in that the proposed rule change provides for the equitable 
allocation of reasonable dues, fees, and other charges among the 
Exchange's members and issuers and other persons using its facilities 
as described below. The subscriber fees are also consistent with Rule 
603 under the Act.\17\
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 17 CFR 242.603.
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A. Dissemination of Index Values

    The Commission believes that the Exchange's proposal to disseminate 
the index values of its proprietary index options through PBOT is 
consistent with the Commission's requirement that the index values 
underlying exchange traded options and other products be frequently and 
widely disseminated.\18\ The Exchange has represented that under its 
proposal current index values for the Phlx proprietary indexes would be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during Exchange trading hours and that closing index 
values would be promptly disseminated.\19\
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    \18\ See Securities Exchange Act Release Nos. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998), at 70960; 52572 (October 7, 
2005), 70 FR 60125 (October 14, 2005) (SR-Phlx-2005-57) (amending 
the listing standards for Trust Shares and Index Fund Shares to 
provide that the current value of the underlying index must be 
widely disseminated by one or more market data vendors every 15 
seconds); and 51748 (May 26, 2005), 70 FR 32684 (June 3, 2005) (SR-
NASD-2005-024) (revising the listing standards for Portfolio 
Depository Receipts and Index Fund Shares to provide that the 
current value of the underlying index must be widely disseminated by 
one or more major market data vendors at least every 15 seconds); 
51868 (June 17, 2005), 70 FR 36672 (June 24, 2005) (SR-Amex-2005-
044).
    \19\ This is consistent with Phlx Rule 1100A(a), which 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.'' 
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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[[Page 28740]]

    The Commission notes that, apart from changing the mechanism by 
which index values are disseminated, the Exchange represents that it 
will continue to maintain the indexes underlying the Approved Index 
Options as described in their respective Rule 19b-4 filings and 
approval orders. Thus, the Commission believes the proposal will 
continue to provide investors with the pricing information necessary 
for the orderly trading of options and derivative securities based on 
these indexes.

B. Subscriber Fees

    The Exchange represents that the fees to be charged by PBOT are 
consistent with the requirements of Rule 603 under the Act in that the 
fees are fair and reasonable and not unreasonably discriminatory.\20\ 
The Commission believes that PBOT's proposed fee structure is 
reasonable 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.\21\
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    \20\ 17 CFR 242.603 (Distribution, consolidation, and display of 
information with respect to quotations for and transactions in NMS 
stocks). The Exchange represents that the Vendor/Subvendor 
Agreements between PBOT and the market data vendors 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. The Commission notes that any such fee changes would need 
to be submitted to the Commission under section 19(b) of the Act.
    \21\ The Exchange represents that it does not presently realize 
any revenue from the sale of current and closing index values 
disseminated over CTA that are not shared with other CTA Plan 
participants. 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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    With regard to the 15 percent Administrative Fee Deduction proposed 
by the Exchange, the Commission does not believe it to be unreasonably 
discriminatory. As proposed by the Exchange, vendors which provide 
market data to 200,000 or more Devices in any given month would receive 
a credit against the fees charged and collected by PBOT pursuant to the 
vendor agreement. Any vendor that meets the 200,000 Device standard 
will qualify for and receive the 15 Percent Administrative Fee 
Deduction. The Exchange represents that PBOT is offering the 15 Percent 
Administrative Fee Deduction as an incentive for large market data 
vendors to carry the data disseminated by the PBOT network. The 
Commission recognizes that volume-based discounts of fees are not 
uncommon, and where the discount can be applied objectively, it is 
consistent with Rule 603. For the same reasons noted above, the 
Commission believes that the fee structure meets the standard in 
section 6(b)(4) of the Act \22\ in that the proposed rule change 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among the Exchange's members and issuers and other 
persons using its facilities.
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    \22\ 15 U.S.C. 78f(b)(4).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Phlx-2006-04), as amended, 
is hereby approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-7464 Filed 5-16-06; 8:45 am]
BILLING CODE 8010-01-P