[Federal Register: August 16, 2006 (Volume 71, Number 158)]
[Notices]
[Page 47280-47282]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16au06-143]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54297; File No. SR-Phlx-2006-47]
Self-Regulatory Organizations; Philadelphia Stock Exchange,
Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to Its Equity Payment for Order Flow Program
August 9, 2006.
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 July 31, 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 Exchange. The Phlx
has designated this proposal as one changing a fee imposed by the 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 increase its payment for order flow fee from
$0.60 per contract to $0.70 per contract for equity options other than
options on the Nasdaq-100 Index Tracking Stock SM traded
under the symbol QQQQ (``QQQQ''),\5\ which would continue to be
assessed a payment for order flow fee of $0.75, and options on the
iShares FTSE/Xinhua China 25 Index (``FXI Options''), which would
continue to not be assessed a payment for order flow fee. The Exchange
represents that other than the rate change described above, no other
changes to the Exchange's current payment for order flow program are
being proposed at this time.
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\5\ The Nasdaq-100 [supreg], Nasdaq-100 Index [supreg], Nasdaq
[supreg], The Nasdaq Stock Market [supreg], Nasdaq-100 Shares
SM, Nasdaq-100 Trust SM, Nasdaq-100 Index
Tracking Stock SM, and QQQ SM are trademarks
or service marks of The Nasdaq Stock Market, Inc. (``Nasdaq'') and
have been licensed for use for certain purposes by the Philadelphia
Stock Exchange pursuant to a License Agreement with Nasdaq. The
Nasdaq-100 Index [supreg] (``Index'') is determined, composed, and
calculated by Nasdaq without regard to the Licensee, the Nasdaq-100
Trust SM, or the beneficial owners of Nasdaq-100 Shares
SM. The Exchange states that Nasdaq has complete control
and sole discretion in determining, comprising, or calculating the
Index or in modifying in any way its method for determining,
comprising, or calculating the Index in the future.
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This proposal would become effective for trades settling on or
after August 1, 2006.\6\
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\6\ The Exchange's payment for order flow program is currently
in effect until May 27, 2007. See Securities Exchange Act Release
No. 53841 (May 19, 2006), 71 FR 30461 (May 26, 2006) (SR-Phlx-2006-
33).
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Below is the text of the proposed rule change. Proposed deletions
are in [brackets]. Proposed additions are italicized.
SUMMARY OF EQUITY OPTION CHARGES (p. 3/6)
* * * * *
EQUITY OPTION PAYMENT FOR ORDER FLOW FEES*
(1) For trades resulting from either Directed or non-Directed
Orders that are delivered electronically and executed on the Exchange:
Assessed on ROTs, specialists and Directed ROTs on those trades when
the specialist unit or Directed ROT elects to participate in the
payment for order flow program.***
(2) No payment for order flow fees will be assessed on trades that
are not delivered electronically.
QQQQ (NASDAQ-100 Index Tracking Stock SM)--$0.75 per
contract.
[[Page 47281]]
Remaining Equity Options, except FXI Options--$0.[6]70 per
contract.
See Appendix A for additional fees.
*Assessed on transactions resulting from customer orders. This
proposal will be in effect for trades settling on or after October 1,
2005 and will remain in effect as a pilot program that is scheduled to
expire on May 27, 2007.
***Any excess payment for order flow funds billed but not utilized
by the specialist or Directed ROT will be carried forward unless the
Directed ROT or specialist elects to have those funds rebated to the
applicable ROT, Directed ROT or specialist on a pro rata basis,
reflected as a credit on the monthly invoices. At the end of each
calendar quarter, the Exchange will calculate the amount of excess
funds from the previous quarter and subsequently rebate excess funds on
a pro-rata basis to the applicable ROT, Directed ROT or specialist who
paid into that pool of funds.
* * * * *
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
Currently, the Exchange assesses a payment for order flow fee of
$0.60 per contract for equity options other than options on QQQQ and
FXI Options. Further, options on QQQQ are assessed $0.75 per contract
and no payment for order flow fee is assessed on FXI Options.
Specialists,\7\ Directed Registered Options Traders (``Directed ROTs'')
and Registered Options Traders (``ROTs'') are assessed a payment for
order flow fee when a customer order is directed to a specialist unit
or Directed ROT who participates in the Exchange's payment for order
flow program.\8\ Trades resulting from either Directed \9\ or non-
Directed Orders that are delivered electronically over AUTOM \10\ and
executed on the Exchange are assessed a payment for order flow fee,
while non-electronically-delivered orders (i.e., represented by a floor
broker) are not assessed a payment for order flow fee.\11\
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\7\ The Exchange uses the terms ``specialist'' and ``specialist
unit'' interchangeably herein.
\8\ The Phlx states that the payment for order flow fee is
assessed, in effect, on equity option transactions between a
customer and a ROT, a customer and a Directed ROT, or a customer and
a specialist when a customer order is directed to a specialist or
Directed ROT who participates in the Exchange's payment for order
flow program.
\9\ The term ``Directed Order'' means any customer order to buy
or sell, which has been directed to a particular specialist, Remote
Streaming Quote Trader or Streaming Quote Trader by an Order Flow
Provider.
\10\ AUTOM is the Exchange's electronic order delivery, routing,
execution and reporting system, which provides for the automatic
entry and routing of equity option and index option orders to the
Exchange trading floor. See Exchange Rules 1014(b)(ii) and 1080.
\11\ Electronically-delivered orders do not include orders
delivered through the Floor Broker Management System pursuant to
Exchange Rule 1063.
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The Phlx states that the purpose of the proposal is to remain
competitive with other options exchanges. The Phlx notes that the
International Securities Exchange, Inc. recently increased its payment
for order flow fee to $0.65 per contract and the Chicago Board Options
Exchange, Incorporated also assesses a payment for order flow fee of
$0.65 per contract.\12\
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\12\ See Securities Exchange Act Release Nos. 54152 (July 14,
2006), 71 FR 41488 (July 21, 2006) (SR-ISE-2006-36); 53969 (June 9,
2006), 71 FR 34973 (June 16, 2006) (SR-CBOE-2006-53); and 53044
(December 30, 2005), 71 FR 957 (January 6, 2006) (SR-CBOE-2005-114).
See also Securities Exchange Act Release Nos. 53341 (February 21,
2006), 71 FR 10085 (February 28, 2006) (SR-Amex-2006-15) and 54042
(June 26, 2006), 71 FR 37626 (June 30, 2006) (SR-Amex-2006-59).
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The Phlx states that the proposal is effective for trades settling
on or after August 1, 2006.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of
Sections 6(b)(4) of the Act \14\ in particular, in that it is an
equitable allocation of reasonable dues, fees, and other charges among
Exchange members.
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\13\ 15 U.S.C. 78f(b).
\14\ 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
No written comments were either solicited or received.
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 \15\ and Rule
19b-4(f)(2) \16\ 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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\15\ 15 U.S.C. 78s(b)(3)(A)(ii).
\16\ 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-2006-47 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-2006-47. 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
[[Page 47282]]
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-2006-47 and should be
submitted on or before September 6, 2006.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
Nancy M. Morris,
Secretary.
[FR Doc. E6-13415 Filed 8-15-06; 8:45 am]
BILLING CODE 8010-01-P