[Federal Register: October 30, 2003 (Volume 68, Number 210)]
[Notices]
[Page 61845-61846]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc03-112]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48688; File No. SR-Phlx-2003-70]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to the Payment for Order Flow Fees for the Top
120 Options
October 24, 2003.
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 October 10, 2003, 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 the Phlx has prepared. 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 proposes to establish its equity options payment for order
flow fees imposed on the transactions of Phlx Registered Options
Traders (``ROTs'') for the period from November 2003 through January
2004 for the top 120 equity options based on volume statistics from
July, August and September 2003,\3\ as
[[Page 61846]]
set forth on the ROT Equity Option Payment for Order Flow Charges
Schedule \4\ and subject to certain exceptions listed below. The Phlx
intends to implement the payment for order flow fees for trades
settling on or after November 1, 2003 through January 31, 2004. The
rate levels would not change: the top-ranked equity option would be
charged a fee of $1.00 per contract; the next 49 equity options would
be charged a fee of $.40 per contract; and no fee would be imposed for
the remaining equity options in the top 120.\5\ The Exchange's ROT
Equity Option Payment for Order Flow Charges Schedule is available at
the Phlx and at the Commission.
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\3\ The Exchange's payment for order flow fee is imposed on
transactions in the top 120 most actively traded equity options in
terms of the total number of contracts that are traded nationally,
based on volume statistics provided by the Options Clearing
Corporation. The measuring period for the top 120 equity options
encompasses three months and the Exchange files a separate proposed
rule change for each three-month trading period. With respect to the
payment for order flow fees imposed on trades settling on or after
August 1, 2003 through October 31, 2003, for example, the measuring
period for the top 120 equity options was based on volume statistics
from April, May and June 2003. See Securities Exchange Act Release
No. 48205 (July 22, 2003), 68 FR 44557 (July 29, 2003) (SR-Phlx-
2003-50). For the payment for order flow fees imposed on trades
settling on or after November 1, 2003 through January 31, 2004, as
set forth in this proposal, the measuring period for the top 120
equity options is based on volume statistics from July, August, and
September 2003.
\4\ To avoid confusion, the ROT Equity Option Payment for Order
Flow Charges Schedule reflects only those options being charged more
than $0.00.
\5\ Under the Exchange's payment for order flow program, a 500
contract cap per individual cleared side of a transaction is
imposed. Thus, the applicable payment for order flow fee would be
imposed only on the first 500 contracts per individual cleared side
of a transaction. For example, if a transaction consists of 750
contracts by one ROT, the applicable payment for order flow fee
would be applied to, and capped at, 500 contracts for that
transaction. Also, if a transaction consists of 600 contracts, but
is divided equally among three ROTs, the 500 contract cap would not
apply to any such ROT and each ROT would be assessed the applicable
payment for order flow fee on 200 contracts, as the payment for
order flow fee is assessed on a per ROT, per transaction basis. See
Securities Exchange Act Release No. 47958 (May 30, 2003), 68 FR
34026 (June 6, 2003) (proposing SR-Phlx-2002-87) and Securities
Exchange Act Release No. 48166 (July 11, 2003), 68 FR 42540 (July
17, 2003) (approving SR-Phlx-2002-87).
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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 and
discussed any comments it had 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
The Phlx has reinstated its payment for order flow program.\6\
Under the program, the Phlx charges ROTs a per-contract fee with
respect to their transactions in the top 120 most actively traded
equity options issues, subject to certain exceptions.\7\ The fees are
set forth on the Phlx's ROT Equity Option Payment for Order Flow
Charges Schedule.
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\6\ See Securities Exchange Act Release No. 47090 (December 23,
2002), 68 FR 141 (January 2, 2003) (SR-Phlx-2002-75).
\7\ The payment for order flow fee does not apply to specialist
transactions or to transactions between: (1) A ROT and a specialist;
(2) a ROT and a ROT; (3) a ROT and a firm; and (4) a ROT and a
broker-dealer. According to the Phlx, the fee is not imposed with
respect to the above-specified transactions because the primary
focus of the program is to attract order flow from customers. The
payment for order flow fee also does not apply to index or foreign
currency options.
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1. Purpose
The purpose of the proposed rule change is to establish the payment
for order flow fees for the top 120 equity options for trades settling
on or after November 1, 2003 through January 31, 2004. The Phlx will
file with the Commission a proposed rule change to address changes to
the fee schedule for subsequent time periods. The Phlx is not making
any other changes to its payment for order flow program at this time.
2. Statutory Basis
The Exchange believes that this proposal to amend its schedule of
dues, fees and charges would be an equitable allocation of reasonable
fees among Phlx members, and that the proposal is consistent with
Section 6(b) of the Act \8\ and furthers the objectives of Section
6(b)(4) of the Act.\9\
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\8\ 15 U.S.C. 78f(b).
\9\ 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 inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Phlx neither solicited nor received written comments on this
proposal.
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 \10\ and Rule
19b-4(f)(2) \11\ thereunder. Accordingly, the proposal has taken effect
upon filing with the Commission. At any time within 60 days after the
filing of the proposed rule change, the Commission may summarily
abrogate the 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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\10\ 15 U.S.C. 78s(b)(3)(A)(ii).
\11\ 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
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 will also be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-2003-70 and
should be submitted by November 20, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27345 Filed 10-29-03; 8:45 am]
BILLING CODE 8010-01-P