[Federal Register: April 7, 2006 (Volume 71, Number 67)]
[Notices]
[Page 17938-17941]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ap06-118]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53584; File No. SR-Phlx-2006-04]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2
Thereto Relating to Dissemination of Index Values
March 31, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 12, 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 Phlx.
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.\3\ 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\ Amendment No. 2 supersedes and replaces the original filing
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Phlx proposes to continue the listing and trading of options on
various stock indices upon making certain changes to the procedures for
dissemination of the values of the indices. Specifically, Phlx has
determined to license the current and closing index values underlying
options currently listed pursuant to Commission approval pursuant to
Rule 19b-4 rule filings, namely, 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''), as well as
values of most of Phlx's other proprietary indexes, to its wholly owned
subsidiary, the Philadelphia Board of Trade (``PBOT''),\4\ for the
purpose of selling, reproducing, and distributing the index values over
PBOT's Market Data Distribution Network (``MDDN'').\5\ The Exchange
proposes that the index values underlying the Approved Index Options
will no longer be disseminated as described in their respective Rule
19b-4 filings and approval orders.\6\ The Exchange is also seeking
approval to cease disseminating the current and closing index values of
all its proprietary indexes over the facilities of the Consolidated
Tape Association (``CTA''), and to disseminate such values solely over
the PBOT's MDDN.\7\ Finally, the Exchange is seeking approval for the
subscriber fees to be charged to market data vendors by PBOT for all
the values of Phlx's proprietary indexes disseminated by PBOT's MDDN.
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\4\ PBOT is a dormant designated contract market regulated by
the Commodity Futures Trading Commission (the ``CFTC''). Until
November 30, 2005, when it became dormant, PBOT listed futures
contracts on a number of foreign currencies. PBOT has applied to the
CFTC for reinstatement for dormancy and expects to launch a new
electronic trading platform, PBOT XL, in the near future.
\5\ Phlx also lists and trades options on a number of other
stock indices whose values will not be disseminated by PBOT. Those
indices will continue to be maintained, and options thereon will
continue to be listed, as they are today. 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).
\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 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 is requesting
approval to do so when and if the Exchange determines that
disseminating these indexes in the same manner as its other
proprietary indexes will be appropriate.
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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. The
text of these
[[Page 17939]]
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 effectuate changes to
index dissemination procedures whereby PBOT will be disseminating index
value information, as described above. Currently, the Exchange realizes
no revenues from the sale of current and closing index values
disseminated over CTA that are not shared with other CTA Plan
participants but wants to going forward.\8\
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\8\ 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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In anticipation of the launch of PBOT XL, the PBOT's fully
electronic matching engine, PBOT has contracted with SAVVIS
Communications to provide extranet services for the distribution of
certain futures market data. This new internet protocol multicast
network is known as the PBOT MDDN.\9\ It is anticipated that PBOT's
MDDN will disseminate quote and trade information regarding futures
contracts executed on the PBOT, but will not disseminate quote and
trade information regarding securities products. Further, as proposed
herein, PBOT's MDDN will disseminate index value information.
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\9\ 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
.
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Additionally, in order to facilitate creation of revenues from the
sale of current and closing values for Phlx proprietary indexes, the
Phlx will remove those values from CTA. At that time, those index
values will not be available from CTA and will be available only
through the PBOT's MDDN.\10\ They will, however, continue to be
disseminated by major market data vendors, as explained below.\11\
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\10\ As noted above, for business reasons the Phlx World Energy
IndexSM and the Phlx Europe SectorSM will not
initially be disseminated over the MDDN but will continue to be
disseminated over the facilities of CTA. See supra note 7.
\11\ PBOT has and will also enter into license agreements with
one or more third party index providers to sell, reproduce, and
distribute index values which underlie other Phlx traded options
listed pursuant to Rule 19b-4(e) under the Act. Those index values
will also be removed from CTA.
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In contemplation of removing the index values from CTA, the
Exchange has entered into a license agreement with PBOT in which the
Exchange granted to PBOT, subject to the terms and conditions set forth
therein, a non-exclusive, fully-paid, royalty-free, worldwide right and
license to sell, offer for sale, perform, display, reproduce and
distribute the current and closing index values derived from the Phlx
proprietary indices to be disseminated over the MDDN.\12\ Phlx 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 so that PBOT may market, sell, and distribute the
values to third parties. The three industry leading market data vendors
will be making the real time market data available to subscribers, as
will several mid-tier vendors.\13\ Finally, the parties acknowledged
and agreed that the goodwill created from PBOT's exercise of its rights
under the agreement would constitute the full consideration for the
grant of licenses therein.
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\12\ The license does not include the right to sublicense,
modify, improve or create derivative works of, the values or the
indices.
\13\ 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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PBOT, in turn, will execute and has executed agreements with
various vendors of market data for the right to receive, store, and
retransmit the current and closing index values transmitted over the
MDDN.\14\ The subscriber fees payable to PBOT by vendors for the use or
resale of these values are set forth in those agreements. Phlx is
proposing that all vendors will be charged, based upon usage by their
subscribers,\15\ a monthly fee of (a) $1.00 per ``Device,'' as defined
in the agreement,\16\ 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, and (b) $.00025 per request for snapshot data, which is
essentially market data that is refreshed no more frequently than once
every 60 seconds, or $1,500 per month for unlimited snapshot data
requests.\17\ The fees are summarized in table format below:
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\14\ 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.
\15\ These fees will be subject to the possibility of a 15%
Administrative Fee deduction as described in footnote 18.
\16\ 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.
\17\ 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.
\18\ All market data vendors which provide market data to
200,000 or more Devices in any month qualify for a 15%
Administrative Fee deduction for that month, to be deducted from the
monthly Subscriber Fees that they collect and are obligated to pay
PBOT under the Vendor/Subvendor Agreement. Phlx also believes that
the fees to be charged by PBOT are consistent with the requirements
of Commission Rule 603, Distribution, consolidation, and display of
information with respect to quotations for and transactions in NMS
stocks, in that the fees are fair and reasonable and not
unreasonably discriminatory.
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Real-time continuous
Fee (per month) market data Delayed only
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Per Device/User ID/Terminal $1.00 per Device*... None.
ID.
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Fee (per month) Snapshot market data Delayed only
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$0.0025 per snapshot None.
request *.
OR................. ....................
[[Page 17940]]
$1,500 per month for None.
unlimited snapshot
requests*.
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* Vendors which provide market data to 200,000 or more Devices in any
month qualify for a 15% Administrative Fee deduction for that
month.\18\
Separate charges will apply for futures market data, which is not
the subject of this proposed rule change. However, the agreements will
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.\19\ Under the agreements and consistent with industry
practice, vendors will be free to assess whatever fees they agree to
with subscribers.
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\19\ The Commission notes that any such fee changes would need
to be submitted under Section 19(b) of the Act.
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In the various 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. The Exchange now proposes to continue the listing and trading of
options on various stock indices upon ceasing the dissemination of
index values over CTA Tape B as described above. However, current index
values will continue to be disseminated as required by Phlx Rule
1100A.\20\ Moreover, the current index values will be widely
disseminated by one or more major market data vendors at least every 15
seconds during trading hours on the Exchange.\21\ Phlx will also
continue to maintain the indexes underlying the Approved Index Options
as described in their respective Rule 19b-4 filings and approval
orders. Phlx anticipates 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. Further, the
Exchange may determine at a later date to remove the Phlx World Energy
Index\SM\ (``XWE'' \SM\) and the Phlx Europe Sector\SM\ (``XEX'' \SM\)
and disseminate their values over PBOT's MDDN, like the other Phlx
proprietary indexes.
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\20\ Phlx Rule 1100A(a) 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.''
\21\ 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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2. Statutory Basis
The Exchange believes that its amended proposal is consistent with
Section 6(b) of the Act \22\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \23\ in particular, in that it is designed
to promote just and equitable principles of trade, 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, by permitting the Exchange to cause the dissemination
of index values in a manner that will enhance the value to the Exchange
of indexes which the Exchange owns, while continuing to maintain the
listing and trading of options on these indices as an investment
alternative available to investors. The Exchange also believes that its
proposal furthers the objectives of Section 6(b)(4) of the Act \24\ in
particular, in that it is an equitable allocation of reasonable fees
among persons using its facilities. The Exchange believes that PBOT's
proposed fee structure is reasonable and equitable, 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. As noted above,
market data vendors which provide market data to 200,000 or more
Devices in any given month qualify for a 15% Administrative Fee for
that month, to be deducted from the monthly subscriber fees that they
collect and are obligated to pay PBOT under the Vendor/Subvendor
Agreement.\25\ The Exchange believes that the 15% Administrative Fee is
equitable because any vendor which provides market data to 200,000 or
more Devices in any given month will qualify for the Administrative
Fee. PBOT is offering the Administrative Fee as an incentive for large
market data vendors to carry the data disseminated by the PBOT network.
Phlx also believes that the fees to be charged by PBOT are consistent
with the requirements of Commission Rule 603, Distribution,
consolidation, and display of information with respect to quotations
for and transactions in NMS stocks, in that the fees are fair and
reasonable and not unreasonably discriminatory.
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\22\ 15 U.S.C. 78f(b).
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78f(b)(4).
\25\ See footnote 18 above.
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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
Although the Exchange received no written comments on the proposed
rule change to continue listing and trading the Approved Index Options
following changes in the index dissemination procedures or the level of
fees to be charged by PBOT, the Exchange did receive one comment on the
Exchange's underlying decision to remove index values from the
consolidated tape and disseminate them over the PBOT MDDN.\26\ While
the commenter did not specify the basis for his conclusion that the
proposed changes would reduce the volume in index options to zero, the
Exchange continues to believe that continued listing and trading of the
Approved Index Options after underlying index values are removed from
the consolidated tape is appropriate, as are the relocation of all Phlx
proprietary index values from the consolidated tape to the PBOT MDDN
and the fees to be assessed by PBOT, and, so long as the values
continue to be widely disseminated by one or more market data vendors,
is consistent with the Act.
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\26\ See e-mail from Brian Schaer to the Exchange dated
Thursday, August 25, 2005.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or
[[Page 17941]]
(ii) as to which the Exchange consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The Commission is considering granting accelerated approval of the
proposed rule change at the end of a 15-day comment period.\27\
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\27\ The Phlx has requested accelerated approval of this
proposed rule change prior to the 30th day after the date of
publication of the notice of the filing thereof, following the
conclusion of a 15-day comment period.
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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 amended
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 No. SR-Phlx-2006-04 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2006-04. 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. 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-2006-04 and should be submitted on or before April
24, 2006.
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E6-5057 Filed 4-6-06; 8:45 am]
BILLING CODE 8010-01-P