[Federal Register Volume 72, Number 190 (Tuesday, October 2, 2007)]
[Notices]
[Pages 56117-56120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-19404]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56526; File No. SR-Phlx-2007-67]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change as 
Modified by Amendment No. 1 Thereto Relating to XLE Fees

September 25, 2007.
    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 August 31, 2007, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
the ``Exchange''), filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been substantially prepared by the 
Exchange. On September 20, 2007, Phlx filed Amendment No. 1 to the 
proposed rule change. The Exchange filed the proposed rule change 
pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders it 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\ 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

    Phlx proposes to amend the Exchange's current XLE \5\ Fee Schedule 
to: (1) Adopt definitions for Net Makers of liquidity (``Net Makers'') 
and Net Takers of liquidity (``Net Taker'') on XLE; (2) update the 
current volume tier structure by reducing the volume breakpoints to 
create two new volume pricing tiers; (3) amend the amount of the 
credits or rebates to Net Makers and the fees for Net Takers; and (4) 
make two other minor changes to update the XLE Fee Schedule.
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    \5\ XLE refers to the Exchange's equity trading system. XLE is 
designed to provide the opportunity for entirely automated 
executions to occur within a central matching system accessible by 
Exchange members and member organizations and their Sponsored 
Participants. See Securities Exchange Act Release No. 54538 
(September 28, 2006), 71 FR 59184 (October 6, 2006) (SR-Phlx-2006-
43).
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    The proposed fees will be assessed on Exchange members or member 
organizations, which may include Sponsoring Member Organizations \6\ 
(collectively ``member organizations'').
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    \6\ See Exchange Rules 1(jj) and 1(kk) (defining ``Sponsored 
Participant'' and ``Sponsoring Member Organization'').
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    The changes set forth in this proposal are scheduled to become 
operative beginning with transactions settling on or after September 4, 
2007.
    The text of the proposed rule change is available at Phlx, the 
Commission's Public Reference Room, and www.phlx.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Phlx included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. 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
    In an effort to enhance liquidity on XLE, the Exchange proposes to 
amend the XLE fee schedule to provide economic incentives to help 
attract additional order flow to the Exchange. The proposed amendments 
to the XLE Fee Schedule are discussed in detail below:
i. Adopt Definitions for Net Makers and Net Takers
    An XLE Participant Organization \7\ would qualify as a Net Maker if 
the total volume from providing liquidity for that XLE Participant 
Organization is at least one share greater than the total volume from 
removing liquidity during a single

[[Page 56118]]

billing period.\8\ Additionally, if in one month the total volume from 
providing liquidity is equivalent to the total volume from removing 
liquidity, the XLE Participant Organization would be considered a Net 
Maker for purposes of this proposal.
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    \7\ For purposes of this fee proposal, an XLE Participant 
Organization refers to Sponsored Participants, Sponsoring Member 
Organizations, and member organizations without Sponsored 
participants. See Exchange Rules 1(jj) and 1(kk). Sponsoring Member 
Organizations are responsible for the fees generated by their 
Sponsored Participant(s).
    \8\ Currently, the Exchange assesses fees on a monthly calendar 
basis based on the settlement date of the transactions.
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    For example, for the month of August, if an XLE Participant 
Organization's total volume from providing liquidity is 2 million 
shares executed and for that same month that XLE Participant 
Organization's total volume from removing liquidity was 1.5 million 
shares executed (total executed volume is therefore 3.5 million shares) 
that XLE Participant Organization would qualify as a Net Maker for that 
same month.
    Conversely, an XLE Participant Organization would qualify as a Net 
Taker if the total volume from removing liquidity for that XLE 
Participant Organization is at least one share greater than the total 
volume from providing liquidity during a single billing period. For 
example, for the month of August, if an XLE Participant Organization's 
total volume from removing liquidity is 3 million shares executed and 
for that same month, that XLE Participant Organization's total volume 
from providing liquidity was 2 million shares executed, that XLE 
Participant Organization would qualify as a Net Taker for that same 
month.
    Volume would be calculated based on volume generated from Maker 
(providing liquidity) or Taker (removing liquidity) executions, and 
volume from single-sided odd lot orders \9\ executed on XLE against an 
XLE Participant.\10\ Volume from the following transactions would not 
be included in determining Net Maker and Net Taker volumes: Immediate 
or Cancel (``IOC'') Cross \11\ and Mid-Point Cross Orders \12\ entered 
over technology provided by Phlx,\13\ including odd lot IOC Cross and 
Mid-Point Cross Orders; all other IOC Cross and Mid-Point Cross Orders, 
including all other odd lot IOC Cross and Mid-Point Cross Orders; 
Single-sided odd lot orders executed at an away market; and volume from 
Routed Away Orders, referred to on the XLE Fee Schedule as ``Fee for 
Routing Liquidity (Per Share Executed).''
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    \9\ An odd lot order means an order for less than a round lot, 
which is defined for purposes of XLE as a unit of trading that is 
100 shares. See Exchange Rules 1(w) and 1(gg).
    \10\ All odd lot transactions refer to those orders that are 
initially entered as odd lot orders. Fees for these types of 
transactions are set forth on the Exchange's XLE fee schedule under 
the heading Miscellaneous Transaction fees.
    \11\ See Exchange Rules 185(c) and 185(c)(2).
    \12\ See Exchange Rules 185(c) and 185(c)(1).
    \13\ Phlx provides optional technology to XLE Participants for 
the entry of two-sided orders into XLE.
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    Consistent with current practice, the Net Maker or Net Taker 
calculation will be determined separately per XLE Participant 
Organization. Volume generated from a Sponsored Participant's 
executions will accrete towards that Sponsored Participant's volume to 
determine whether Maker or Taker fees will be assessed, and not towards 
the Sponsoring Member Organization's volume. Once an XLE Participant 
Organization has been designated as a Maker or Taker for a specific 
month, all transactions that month would be subject to the fee that 
corresponds with whether the XLE Participant Organization is a Maker or 
Taker.\14\
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    \14\ Securities executed on XLE with a per share price below 
$1.00 that remove liquidity, will continue to be charged 0.1% (i.e., 
10 basis points) of total dollar value of the transaction. 
Consistent with current practice, there would be no credit for 
providing liquidity for shares with a per share price below $1.00. 
Executed volume in such shares will accrete towards the volume tier 
breakpoint (discussed below) and Maker/Taker category per XLE 
Participant Organization.
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ii. Update the Current Volume Tier Structure by Reducing the Volume 
Breakpoints To Create Two New Volume Pricing Tiers
    The Exchange also proposes to change the aggregate volume 
calculations and lower the current volume-based breakpoints to entice 
XLE Participant Organizations to generate additional trading activity.
    Currently, there are four volume tiers based on monthly shares 
executed. The total of monthly executed shares includes executions 
resulting from removing and providing liquidity on XLE and crosses 
executed on XLE, as well as shares executed when routed via XLE to an 
away trading center and executed on that away trading center. The 
existing fee schedule established four volume breakpoints based on the 
aggregate monthly shares executed with the last two tiers set at 
``greater than 50 million and less than or equal to 200 million shares 
executed'' in one month and ``greater than 200 million shares,'' 
respectively. These levels have proven to be difficult for XLE 
Participant Organizations to reach. Therefore, the Exchange proposes to 
lower the volumes used in the volume-based tiers and to change the 
volume calculation from a monthly one to one based on average daily 
volume.
    The proposed two volume tiers would be as follows: Tier One would 
be comprised of volume of less than one million shares executed 
(average daily volume) and Tier Two would be comprised of volume of 
greater than or equal to one million shares executed (average daily 
volume). The proposed volume tiers would be determined by calculating 
the average daily volume of total shares executed (volume from 
providing liquidity and the volume from removing liquidity) during the 
applicable billing period. Consistent with calculating volume levels 
for Net Maker/Net Taker activity, the tier volume is calculated based 
on volume generated from Maker/Taker executions and volume from single-
sided odd lot orders executed on XLE against an XLE Participant.
    To calculate the average daily shares executed, the total number of 
executed shares (comprised of liquidity provided, liquidity removed, 
and single-sided odd lot orders executed on XLE against an XLE 
Participant during the applicable billing period) would be divided by 
the number of trading days during the applicable billing period. For 
example, for a billing period with 20 trading days, if an XLE 
Participant Organization executed 23 million shares (comprised of 15 
million executed shares from providing liquidity and 8 million shares 
from removing liquidity), the average daily volume is calculated by 
adding the liquidity provided (15 million executed shares), to the 
liquidity removed (8 million executed shares), which totals 23 million 
shares, and then dividing by 20 days (or applicable trading days in the 
month), which equals 1,150,000 average daily shares executed.
    Due to the lower volume tier breakpoint, the following transactions 
would not be included in determining the applicable volume tier 
breakpoints: \15\ IOC Cross and Mid-Point Cross Orders entered over 
technology provided by Phlx, including odd lot IOC Cross and Mid-Point 
Cross Orders; all other IOC Cross and Mid-Point Cross Orders, including 
all other odd lot IOC Cross and Mid-Point Cross Orders; Single-sided 
odd lot orders executed at an away market; and volume from Routed Away 
Orders, referred to on the XLE Fee Schedule as ``Fee for Routing 
Liquidity (Per Share Executed).''
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    \15\ These are the same requirements for determining Net Maker 
and Net Taker volumes. All volume calculations would be based 
settlement dates.
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    Consistent with current practice, the total monthly shares will be 
calculated separately per XLE Participant Organization. Sponsored 
Participant executions will accrete towards that Sponsored 
Participant's volume tier and not towards the Sponsoring Member

[[Page 56119]]

Organization's volume tier. Once a specific tier has been reached in a 
month, all transactions for that month would be subject to the fee that 
corresponds with that volume tier.
iii. Amend the Amount of the Credits or Rebates to Net Makers and the 
Fees for Net Takers
    The Exchange is proposing to amend the Net Maker credits or rebates 
and Net Taker fees in an effort to balance the need to offer liquidity 
Makers sufficient economic incentives to participate on XLE (in the 
form of competitive ``Maker'' credit) and the need to earn sufficient 
transaction revenue from a business standpoint (in the form of 
liquidity taking fees). The Exchange proposes to adopt the following 
fees: (1) For less than one million shares executed (average daily 
volume), the Net Maker fee for removing liquidity would be $0.0030 per 
share executed and the credit for providing liquidity would be $0.0025 
per share executed; the Net Taker fee for removing liquidity would be 
$0.0030 per share executed and the credit for providing liquidity would 
be $0.0022 per share executed; (2) for greater than or equal to one 
million shares executed (average daily volume), the Net Maker fee for 
removing liquidity would be $0.0024 per share executed and the credit 
for providing liquidity would be $0.0028 per share executed; the Net 
Taker fee for removing liquidity would be $0.0026 per share executed 
and the credit for providing liquidity would be $0.0024 per share 
executed.
    Consistent with current practice, the dollar value of the Net Maker 
credits would appear on the member organization's monthly invoice. The 
dollar amount of the excess credits would continue to be carried over 
into subsequent months or rebated to the applicable member organization 
as requested by the member organization.
    The purpose of this proposal is to attract more business by 
enticing Net Makers to the Exchange and by creating financial 
incentives to XLE Participant Organizations to encourage them to send 
additional order flow to the Exchange. The economics of the proposed 
fee schedule are focused around creating financial incentives to 
attract additional order flow to the Exchange while managing the risk 
associated with those financial incentives. The proposed changes to the 
XLE Fee Schedule are intended to stimulate liquidity and generate a 
reasonable return.
iv. Additional Changes to the XLE Fee Schedule
    The Exchange also proposes to make the following two minor changes 
to the XLE fee Schedule: (1) Under Miscellaneous Fees for ``Execution 
Fee for Single-Sided Odd Lot Orders executed on XLE against another XLE 
Participant,'' the Exchange proposes to change the word ``another'' to 
``an'' to clarify that the same XLE Participant could be on both sides 
of the transaction; and (2) delete the reference to Monthly Drop Copy 
Feed Fee.\16\ Although there is no charge for this service, at this 
time the Exchange is not providing a Monthly Drop Copy Feed.
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    \16\ The Drop Copy Feed refers to real-time information 
concerning trades executed by an XLE Participant Organization.
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    The purpose of the two minor changes is to clarify and update the 
XLE fee schedule to more accurately reflect the XLE fees being charged 
by the Exchange.
    The changes set forth in this proposal are scheduled to become 
operative beginning with transactions settling on or after September 4, 
2007.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees is consistent with Section 6(b) of the Act \17\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \18\ in 
particular, in that it is an equitable allocation of reasonable fees 
and other charges among Exchange members. The Exchange believes that 
this proposal is equitable and reasonable in that it is designed to 
create financial incentives for all XLE Participant Organizations to 
encourage them to send additional order flow to the Exchange. This 
additional order flow should, in turn, stimulate additional transaction 
volume and liquidity at the Exchange.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4).
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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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change is subject to Section 
19(b)(3)(A)(ii) of the Act \19\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \20\ because it establishes or changes a due, fee, or other 
charge applicable only to a member imposed by a self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. 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.\21\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \20\ 17 CFR 240.19b-4(f)(2).
    \21\ For purposes of calculating the 60-day period within the 
Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on September 20, 2007, the date on which Phlx filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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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-2007-67 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2007-67. 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

[[Page 56120]]

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, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 am and 3 pm. Copies of such 
filing also will be available for inspection and copying at the 
principal office of 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-2007-67 and should be submitted on or before October 23, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-19404 Filed 10-1-07; 8:45 am]
BILLING CODE 8011-01-P