[Federal Register: August 29, 2008 (Volume 73, Number 169)]
[Notices]
[Page 51035-51038]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au08-145]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58420; File No. SR-Phlx-2008-62]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to the Exchange's Fee Schedule Concerning
Complex Orders
August 25, 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 August 22, 2008, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Phlx. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx, pursuant to section 19(b)(1) of the Act \3\ and Rule 19b-
4 thereunder,\4\ proposes to amend its option fee schedule by
establishing that certain fees would not be assessed on contracts that
are executed electronically as part of a Complex Order \5\ on the
Exchange's electronic trading platform for options, Phlx XL,\6\ and
that contract volume thresholds applicable to certain
[[Page 51036]]
Exchange subsidies, volume bonuses and discounts would not include
contracts that are executed electronically as part of a Complex Order.
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\The Exchange recently filed, and the Commission approved, a
proposed rule change with the Commission to automate the process for
handling and executing complex orders. See Securities Exchange Act
Release No. 58361 (August 14, 2008) (SR-Phlx-2008-50) (``Approval
Order''). A Complex Order is composed of two or more option
components and is priced as a single order (a ``Complex Order
Strategy'') on a net debit or net credit basis.
\6\ See Securities Exchange Act Release No. 50100 (July 27,
2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59).
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This proposal is effective upon filing and will be implemented
beginning with the rollout of the automated Complex Order system on the
Exchange on August 22, 2008. The rollout date will be posted on the
Exchange's Web site at http://www.phlx.com/index.aspx.
The text of the proposed rule change is available on the Exchange's
Web site at http://www.phlx.com/regulatory/reg_rulefilings.aspx.
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 proposed rule change. The
text of these 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 revise the Exchange's
fee schedule in order to launch the Exchange's automated Complex Order
system, and to compete for and encourage the submission of electronic
Complex Order flow to the Exchange. Pursuant to this proposal, the
Exchange intends to amend the Exchange's: (i) Summary of Equity Option,
and MNX, NDX, RUT and RMN Charges; (ii) Summary of Index Option
Charges; (iii) Summary of U.S. Dollar-Settled Foreign Currency Option
Charges; (iv) Market Access Provider Subsidy; and (v) Options Floor
Broker Subsidy, as described in detail below.
Summary of Equity Option, and MNX, NDX, RUT and RMN Charges
Currently, the Exchange assesses various option transaction charges
for equity options, depending on such factors as the category of
person(s) submitting orders for execution (e.g., customers,
specialists, broker-dealers, Registered Options Traders (``ROTs'') \7\
and Firms are all charged differently, on a per contract basis, ranging
from $0.00 per contract to $0.45 per contract) and the manner in which
the order is delivered to the Exchange. For example, broker-dealer
orders submitted electronically to the Exchange's systems are charged
$0.45 per contract, whereas broker-dealer orders submitted through
means other than the Exchange's electronic system are charged $0.25 per
contract. Customers submitting orders in equity options are generally
not charged transaction fees \8\ whereas ROTs and Firms are charged.
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\7\ ROT equity option transaction charges are referred to on the
Exchange's fee schedule as ``Registered Option Trader (on floor).''
This charge applies to ROTs, Streaming Quote Traders (``SQTs''), and
Remote Streaming Quote Traders (``RSQTs''). SQTs and RSQTs are
considered to be ROTs pursuant to Exchange Rule 1014. ROT
transactions entered from off-floor would continue to be included in
the broker-dealer equity option transaction charges for billing
purposes, as set forth in footnote 3 of the Exchange's Summary of
Equity Option, and MNX, NDX, RUT and RMN Charges fee schedule.
\8\ Customers are charged $0.12 per contract for executions in
MNX and NDX options.
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The Exchange also assesses an option comparison charge of $0.03 per
contract for ROTs and $0.04 per contract for Firms that submit
proprietary orders. Customers and broker-dealers are not charged.
The Exchange currently provides a discount for ROTs (on-floor) and
specialists that exceed 4.5 million contracts in a given month (the
``Volume Threshold'') by assessing $0.01 per contract on contract
volume above the Volume Threshold instead of the applicable options
transaction charge and option comparison charge described in the
Summary of Equity Option, and MNX, NDX, RUT and RMN Charges. Complex
Order volume will not be used in calculating the Volume Threshold.
In order to compete for order flow respecting Complex Orders in
equity options, the Exchange proposes to amend the fee schedule to
clarify that the option comparison charge and the option transaction
charge will not be assessed on contracts in equity options that are
executed electronically as part of a Complex Order.
Summary of Index Option Charges
The Exchange currently assesses an option comparison charge and an
option transaction charge for index option transactions, as described
in the Exchange's Summary of Index Option Charges. The Exchange
proposes to amend the fee schedule to clarify that the option
comparison charge and the option transaction charge will not be
assessed on contracts in Index Options that are executed electronically
as part of a Complex Order.
Summary of U.S Dollar-Settled Foreign Currency Option Charges
The Exchange currently assesses an option comparison charge and an
option transaction charge for transactions in options overlying U.S.
dollar-settled foreign currencies, as described in the Exchange's
Summary of U.S Dollar-Settled Foreign Currency Option Charges. The
Exchange proposes to amend the fee schedule to clarify that the option
comparison charge and the option transaction charge will not be
assessed on contracts in U.S dollar-settled foreign currency options
that are executed electronically as part of a Complex Order.
Market Access Provider Subsidy
In August 2007, the Exchange amended its fee schedule to provide a
per contract subsidy (the ``Subsidy'') for certain Exchange members
known as Market Access Providers (``MAPs'').\9\ A MAP is an Exchange
member organization that offers to customers automated order routing
systems and electronic market access to U.S. options markets. The
Exchange pays a per-contract MAP Subsidy to any Exchange member
organization that qualifies as a MAP (an ``Eligible MAP,'' as described
in footnote 5(b) of the Market Access Provider Subsidy section of the
Exchange's fee schedule). The Subsidy is paid on contract volume that
exceeds the ``Baseline Order Flow'' in ``Eligible Contracts'' as
described in the MAP Subsidy section. The Exchange also pays a monthly
Volume Bonus to MAPs that exceed certain volume thresholds in Eligible
Contracts in a given month.
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\9\ See Securities Exchange Act Release No. 56274 (August 16,
2007), 72 FR 48720 (August 24, 2007) (SR-Phlx-2007-54).
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The Exchange proposes to amend the Market Access Provider Subsidy
section of the fee schedule by clarifying that volume in Complex Orders
that is submitted and executed electronically on Phlx XL will not be
counted towards the MAP's Baseline Order Flow and that the Exchange
will not use Complex Order volume to determine eligibility for the
Monthly MAP Volume Bonus. The Exchange proposes to state in the MAP
Subsidy section of the fee schedule that contracts executed
electronically on Phlx XL as part of a Complex Order would not be
considered to be ``Eligible Contracts,'' and thus will not be included
in the Exchange's calculation of Baseline Order Flow and will not be
included in its calculation of monthly volume in determining a MAP's
eligibility for the Monthly Volume Bonus.
[[Page 51037]]
Options Floor Broker Subsidy
The Exchange currently pays an Options Floor Broker Subsidy to
member organizations with registered Floor Brokers based on two volume
thresholds. In order to be eligible for the Options Floor Broker
Subsidy, the member organization must have an average daily volume in a
particular calendar month in excess of 75,000 contracts, and must have
40,000 executed contracts or more per day for at least 8 trading days
during that same month.
The Exchange proposes to amend the Options Floor Broker Subsidy
section of the fee schedule by establishing that only the largest
component of a complex order (i.e., the component that includes the
greatest number of contracts) will be included in the calculation of
the two above-mentioned volume thresholds, and that, while the largest
component's volume will count towards the volume threshold, the
Exchange will not pay the Options Floor Broker Subsidy for any
contracts that are executed electronically as part of a Complex Order.
Cancellation Fees
The Exchange currently charges a cancellation fee of $1.10 per
order for each order (in equity, index and U.S. dollar-settled foreign
currency options) that is delivered electronically that exceeds the
number of orders executed on the Exchange by a member organization in a
given month. The cancellation fee is not assessed in a month in which
fewer than 500 electronically delivered orders are cancelled. For
example, if a member organization delivers 1700 orders in a given
month, and 700 of those orders are executed on the Exchange but the
member organization cancels 1,000 of those orders in a given month, the
Exchange will assess a cancellation fee of $330.00 ($1.10 x 300 orders
cancelled in excess of the 700 executed orders). The cancellation fee
will not apply to Complex Orders that are submitted electronically in
equity, index and U.S. dollar-settled foreign currency options.
Miscellaneous Fees and Charges
There are several current charges that will continue to be assessed
for contracts executed electronically as part of a Complex Order, and
thus are not proposed to be amended.
First, the Exchange charges a real-time risk management fee in
equity and index options of $.0025 per contract for firms receiving
information on a real-time basis. The real-time risk management fee
will apply to Complex Orders that are executed electronically as part
of a Complex Order in equity and index options.
Secondly, the Exchange assesses per-contract payment for order flow
fees on transactions resulting from customer orders in equity options
as described in the Equity Option, and MNX, NDX, RUT and RMN Charges.
Such fees, if applicable, will apply to Complex Orders that are
executed electronically as part of a Complex Order in equity options.
Third, the Exchange charges a specialist deficit (shortfall) fee of
$0.35 per contract for specialists trading any Top 120 equity option if
12% of the total national monthly contract volume (volume threshold) is
not affected on the Exchange. The Exchange will include contracts
executed electronically as part of a Complex Order in its calculation
of the volume threshold.
Finally, the Exchange currently ``caps'' the specialist deficit
(shortfall) fee for any Top 120 equity option listed after February
2004 and for any Top 120 equity option acquired by a new specialist
unit \10\ within the first 60 days of operations, by establishing
increasing volume thresholds (beginning at 0% for the first month of
operations, ramping up to 12% in the fifth month of operations and
thereafter). The Exchange will include contracts executed
electronically as part of a Complex Order in its calculation of the
``new specialist unit'' volume threshold.
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\10\ A ``new specialist unit'' is one that is approved to
operate as a specialist unit by the Exchange's Options Allocation,
Evaluation and Securities Committee on or after February 1, 2004.
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2. Statutory Basis
The Exchange believes that its proposal to amend its schedule of
fees is consistent with section 6(b) of the Act \11\ in general, and
furthers the objectives of section 6(b)(4) of the Act \12\ in
particular, in that it is an equitable allocation of reasonable fees
and other charges among Exchange members. Specifically, the Exchange
believes that this proposal is equitable because it generally should
result in the effective waiver of comparison and transaction charges
that would otherwise be assessed to specialists, ROTs, SQTs, RSQTs and
Floor Brokers submitting Complex Orders to the Exchange, thus
encouraging the submission of electronic Complex Orders to the Exchange
for execution.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(4).
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The Exchange further believes that the inclusion of contract volume
executed electronically as part of Complex Orders in its calculation of
certain volume thresholds relating to the various volume discounts and
volume bonuses enumerated above is equitable because it generally
applies to all market participants that qualify for such volume bonuses
and discounts. The Exchange also believes that the exclusion of Complex
Orders and contract volume executed electronically as part of Complex
Orders from certain fees should create incentives for member
organizations to submit electronic Complex Orders to the Exchange, thus
enhancing the depth and liquidity of the Exchange's markets.
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 either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act \13\ and paragraph (f)(2) of Rule 19b-4\14\
thereunder. 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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\13\ 15 U.S.C. 78s(b)(3)(A)(ii).
\14\ 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 rule-comments@sec.gov. Please include
File Number SR-Phlx-2008-62 on the subject line.
[[Page 51038]]
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2008-62. 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 the filing will also be available for
inspection and copying at the principal office of the self-regulatory
organization. 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-2008-62 and should be submitted on or before September 19, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20140 Filed 8-28-08; 8:45 am]
BILLING CODE 8010-01-P