[Federal Register Volume 73, Number 34 (Wednesday, February 20, 2008)]
[Notices]
[Pages 9398-9399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-3037]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57313; File No. SR-Phlx-2008-10]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Payment for Order Flow and Linkage P/A Orders

February 12, 2008.
    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 January 31, 2008, 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 substantially prepared by the 
Exchange. Phlx has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by Phlx under section 
19(b)(3)(A)(ii) 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)(ii).
    \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 the Exchange's payment for order flow 
program to eliminate the payment for order flow fee on transactions 
executed on the Exchange that correspond with an outbound Linkage 
Principal Acting as Agent (``P/A'') order.
    This proposal is scheduled to become effective for transactions 
settling on or after February 1, 2008. Also, the Exchange notes that 
consistent with its current payment for order flow program, this 
proposal would remain in effect as a pilot program that is scheduled to 
expire on the same date as the one-year pilot program in effect in 
connection with the provisions of Exchange Rule 1080(l) relating to 
Directed Orders.\5\ The current pilot program is scheduled to expire on 
May 27, 2008.
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    \5\ See Securities Exchange Act Release No. 55803 (May 23, 
2007), 72 FR 30413 (May 31, 2007) (SR-Phlx-2007-37).
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    The text of the proposed rule change is available at the Exchange, 
the Commission's Public Reference Room, and http://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, the Exchange 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
    Currently, the following payment for order flow fees are in effect 
at the Exchange: \6\ (1) Equity options (other than those equity 
options that trade as part of the Exchange's Penny Pilot Program) \7\ 
and options on the Russell 2000[reg] Index \8\ traded under the symbol 
RUT, and options on the one-tenth value Russell 2000[supreg] Index 
traded under the symbol RMN, are all assessed $0.70 per contract; and 
(2) equity options that trade as part of the Exchange's Penny Pilot 
Program are assessed $0.25 per contract. Trades resulting from either 
Directed or non-Directed Orders that are delivered electronically and 
executed on the Exchange are assessed a payment for order flow fee,\9\ 
while non-electronically-delivered orders (i.e., represented by a floor 
broker) are not assessed a payment for order flow fee.\10\
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    \6\ See Securities Exchange Act Release Nos. 53841 (May 19, 
2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-33); 54297 (August 
9, 2006), 71 FR 47280 (August 16, 2006) (SR-Phlx-2006-47); 54485 
(September 22, 2006), 71 FR 57017 (September 28, 2006) (SR-Phlx-
2006-56); 55290 (February 13, 2007), 72 FR 8051 (February 22, 2007) 
(SR-Phlx-2007-05); 55473 (March 14, 2007), 72 FR 13338 (March 21, 
2007) (SR-Phlx-2007-12); and 55891 (June 11, 2007), 72 FR 33271 
(June 15, 2007) (SR-Phlx-2007-39).
    \7\ The current Penny Pilot Program, in effect through March 27, 
2009, permits certain options series to be quoted and traded in 
increments of $0.01. See Securities Exchange Act Release No. 56563 
(September 27, 2007), 72 FR 56429 (October 3, 2007) (SR-Phlx-2007-
62).
    \8\ The Exchange states that Russell 2000[supreg] is a trademark 
and service mark of the Frank Russell Company, used under license. 
Neither Frank Russell Company's publication of the Russell Indexes 
nor its licensing of its trademarks for use in connection with 
securities or other financial products derived from a Russell Index 
in any way suggests or implies a representation or opinion by Frank 
Russell Company as to the attractiveness of investment in any 
securities or other financial products based upon or derived from 
any Russell Index. Frank Russell Company is not the issuer of any 
such securities or other financial products and makes no express or 
implied warranties of merchantability or fitness for any particular 
purpose with respect to any Russell Index or any data included or 
reflected therein, nor as to results to be obtained by any person or 
any entity from the use of the Russell Index or any data included or 
reflected therein.
    \9\ Specialists and Directed ROTs who participate in the 
Exchange's payment for order flow program are assessed a payment for 
order flow fee, in addition to ROTs. Therefore, the payment for 
order flow fee is assessed, in effect, on equity option transactions 
between a customer and an ROT, a customer and a Directed ROT, or a 
customer and a specialist.
    \10\ Electronically-delivered orders do not include orders 
delivered through the Floor Broker Management System pursuant to 
Exchange Rule 1063.
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    Presently, a payment for order flow fee is charged in connection 
with Linkage P/A orders. For example, if there is an order resting on 
the Exchange's options limit order book, which is part of the 
Exchange's trading system, Phlx XL, and a better price is posted at an 
away market or the requisite volume is available at an away market, 
that order will be sent through Linkage as a P/A order. When the 
specialist receives confirmation that the order has been executed, that 
specialist then completes the transaction by filling the order of the 
requesting customer. When such order is filled in this way, the 
specialist must pay a payment for order flow fee.\11\
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    \11\ For example, if an order is sent to the Exchange and an 
away market is displaying a better price, that order would be sent 
to the away market for execution. Specifically, that order would be 
sent through Linkage as a P/A order. Under the Exchange's current 
payment for order flow program, no payment for order flow fee would 
be assessed on this transaction. However, after confirmation is 
received that the order has been executed, the order of the 
requesting customer would be filled. Currently, the Exchange states 
that it would assess the specialist a payment for order flow fee 
when the customer order is filled; however, this proposal seeks to 
eliminate the payment for order flow fee for such transaction. See 
E-mail from Cynthia K. Hoekstra, Vice President, Exchange, to Michou 
Nguyen, Special Counsel, Division of Trading and Markets, 
Commission, on February 7, 2008.

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[[Page 9399]]

    The Exchange states that the purpose of this proposal is to 
eliminate an undue financial burden that is placed on the specialists 
as a result of these transactions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \12\ in general, and furthers the 
objectives of section 6(b)(4) of the Act \13\ in particular, in that it 
is an equitable allocation of reasonable fees and other charges among 
Exchange members. The Exchange believes, at this time, that the 
specialists should not pay a payment for order flow fee on these 
transactions as they are merely facilitating this order and they 
receive little benefit from this order.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 \14\ and Rule 
19b-4(f)(2) \15\ thereunder, because it establishes or changes a due, 
fee, or other charge imposed by the Exchange. Accordingly, the proposal 
will take effect upon filing with the Commission. At any time within 60 
days of the filing of such 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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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 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-2008-10 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-2008-10. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. 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-2008-10 and should be 
submitted on or before March 12, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-3037 Filed 2-19-08; 8:45 am]
BILLING CODE 8011-01-P