[Federal Register: May 17, 2006 (Volume 71, Number 95)]
[Notices]
[Page 28738-28740]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my06-99]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53790; File No. SR-Phlx-2006-04]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval of Proposed Rule Change and Amendment No. 2
Thereto Relating to Dissemination of Index Values
May 11, 2006.
I. Introduction
On January 12, 2006, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposal to license the current and closing index
values underlying the Exchange's proprietary options to its wholly
owned subsidiary, the Philadelphia Board of Trade (``PBOT''), and to
allow PBOT to collect subscriber fees from market data vendors. 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. The proposed rule change, as amended, was
published for comment in the Federal Register on April 7, 2006.\3\ The
Commission received no comments regarding the proposal.\4\ This order
approves the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 53584 (March 31,
2006), 71 FR 17938.
\4\ Although the Commission received no written comments on the
proposed rule change, the Exchange did receive one comment opposing
the Exchange's underlying decision to remove index values from the
consolidated tape and disseminate them through PBOT. See e-mail from
Brian Schaer to the Exchange dated Thursday, August 25, 2005. The
Exchange believes that the continued listing and trading of the
Approved Index Options, the relocation of Phlx proprietary index
values from the consolidated tape to PBOT, and the fees to be
assessed by PBOT after underlying index values are removed from the
consolidated tape are appropriate and consistent with the Act so
long as the index values continue to be widely disseminated by one
or more market data vendors.
---------------------------------------------------------------------------
II. Description of the Proposal
A. Dissemination of Index Values
The Phlx proposes to license the current and closing index values
underlying most of the Phlx's proprietary indexes including the
following options to PBOT for the purpose of selling, reproducing, and
distributing the index values over PBOT's Market Data Distribution
Network (``MDDN'') \5\: 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''). The Exchange
proposes that the index values underlying the Approved Index Options no
longer be disseminated as described in their respective Rule 19b-4
filings and approval orders.\6\
---------------------------------------------------------------------------
\5\ 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
.
Phlx also lists and trades options on a number of other stock
indices whose values will not be disseminated by PBOT. Phlx
represents that those indices will continue to be maintained, and
options thereon will continue to be listed, as they are today. Phlx
further represents that 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). In the 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.
---------------------------------------------------------------------------
[[Page 28739]]
The Exchange proposes to cease disseminating the current and
closing index values of certain of its proprietary indexes \7\ over the
facilities of the Consolidated Tape Association (``CTA''). The Exchange
states that it has entered into a license agreement with PBOT pursuant
to which PBOT will disseminate such values solely over the PBOT's
MDDN.\8\ The Exchange 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. The three industry
leading market data vendors would make the real time market data widely
available to subscribers, as would several mid-tier vendors.\9\
---------------------------------------------------------------------------
\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 represents that it 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
proposes to move these index values to the PBOT MDDN at a future
date.
\8\ The MDDN is a new internet protocol multicast network
developed by PBOT and SAVVIS Communications. The Exchange states
that its licensing agreement grants PBOT the exclusive, royalty-
free, worldwide right to sell, offer for sale, perform, display,
reproduce and distribute the current and closing index values
derived from the Exchange's proprietary indices. Phlx represents
that the license does not include the right to sublicense, modify,
improve or create derivative works of, the values or the indices.
Phlx also states 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.
\9\ 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.
---------------------------------------------------------------------------
B. Subscriber Fees
The Exchange also proposes to allow PBOT to charge subscriber fees
to vendors of market data for all the values of Phlx's proprietary
indexes disseminated by PBOT's MDDN. The subscriber fees are set out in
agreements that PBOT would execute and has executed with various market
data vendors for the right to receive, store, and retransmit the
current and closing index values transmitted over the MDDN.\10\ Phlx
proposes that all vendors will be charged, based upon usage by their
subscribers, a monthly fee of $1.00 per ``Device,'' as defined in the
agreement,\11\ 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. This
monthly fee would be reduced by 15% for those vendors which provide
market data to 200,000 or more Devices in any month (``15 Percent
Administrative Fee Deduction''). For snapshot data, which is
essentially market data that is refreshed no more frequently than once
every 60 seconds, Phlx proposes that vendors will be charged $.00025
per request or $1,500 per month for unlimited snapshot data
requests.\12\
---------------------------------------------------------------------------
\10\ The Exchange represents that 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.
\11\ 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.
\12\ 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.
---------------------------------------------------------------------------
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange \13\ and, in particular, the requirements of
section 6 of the Act.\14\ Specifically, as discussed in detail below,
the Commission finds that the proposed rule change is consistent with
section 6(b)(5) of the Act,\15\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, and processing
information with respect to, and facilitating transactions in
securities, 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. In addition, the Commission
believes that the proposal is consistent with section 6(b)(4) of the
Act,\16\ in that the proposed rule change provides for the equitable
allocation of reasonable dues, fees, and other charges among the
Exchange's members and issuers and other persons using its facilities
as described below. The subscriber fees are also consistent with Rule
603 under the Act.\17\
---------------------------------------------------------------------------
\13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f.
\15\ 15 U.S.C. 78f(b)(5).
\16\ 15 U.S.C. 78f(b)(4).
\17\ 17 CFR 242.603.
---------------------------------------------------------------------------
A. Dissemination of Index Values
The Commission believes that the Exchange's proposal to disseminate
the index values of its proprietary index options through PBOT is
consistent with the Commission's requirement that the index values
underlying exchange traded options and other products be frequently and
widely disseminated.\18\ The Exchange has represented that under its
proposal current index values for the Phlx proprietary indexes would be
widely disseminated by one or more major market data vendors at least
every 15 seconds during Exchange trading hours and that closing index
values would be promptly disseminated.\19\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release Nos. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998), at 70960; 52572 (October 7,
2005), 70 FR 60125 (October 14, 2005) (SR-Phlx-2005-57) (amending
the listing standards for Trust Shares and Index Fund Shares to
provide that the current value of the underlying index must be
widely disseminated by one or more market data vendors every 15
seconds); and 51748 (May 26, 2005), 70 FR 32684 (June 3, 2005) (SR-
NASD-2005-024) (revising the listing standards for Portfolio
Depository Receipts and Index Fund Shares to provide that the
current value of the underlying index must be widely disseminated by
one or more major market data vendors at least every 15 seconds);
51868 (June 17, 2005), 70 FR 36672 (June 24, 2005) (SR-Amex-2005-
044).
\19\ This is consistent with Phlx Rule 1100A(a), which 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.''
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).
---------------------------------------------------------------------------
[[Page 28740]]
The Commission notes that, apart from changing the mechanism by
which index values are disseminated, the Exchange represents that it
will continue to maintain the indexes underlying the Approved Index
Options as described in their respective Rule 19b-4 filings and
approval orders. Thus, the Commission believes the proposal will
continue to provide investors with the pricing information necessary
for the orderly trading of options and derivative securities based on
these indexes.
B. Subscriber Fees
The Exchange represents that the fees to be charged by PBOT are
consistent with the requirements of Rule 603 under the Act in that the
fees are fair and reasonable and not unreasonably discriminatory.\20\
The Commission believes that PBOT's proposed fee structure is
reasonable 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.\21\
---------------------------------------------------------------------------
\20\ 17 CFR 242.603 (Distribution, consolidation, and display of
information with respect to quotations for and transactions in NMS
stocks). The Exchange represents that the Vendor/Subvendor
Agreements between PBOT and the market data vendors 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. The Commission notes that any such fee changes would need
to be submitted to the Commission under section 19(b) of the Act.
\21\ The Exchange represents that it does not presently realize
any revenue from the sale of current and closing index values
disseminated over CTA that are not shared with other CTA Plan
participants. 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.
---------------------------------------------------------------------------
With regard to the 15 percent Administrative Fee Deduction proposed
by the Exchange, the Commission does not believe it to be unreasonably
discriminatory. As proposed by the Exchange, vendors which provide
market data to 200,000 or more Devices in any given month would receive
a credit against the fees charged and collected by PBOT pursuant to the
vendor agreement. Any vendor that meets the 200,000 Device standard
will qualify for and receive the 15 Percent Administrative Fee
Deduction. The Exchange represents that PBOT is offering the 15 Percent
Administrative Fee Deduction as an incentive for large market data
vendors to carry the data disseminated by the PBOT network. The
Commission recognizes that volume-based discounts of fees are not
uncommon, and where the discount can be applied objectively, it is
consistent with Rule 603. For the same reasons noted above, the
Commission believes that the fee structure meets the standard in
section 6(b)(4) of the Act \22\ in that the proposed rule change
provides for the equitable allocation of reasonable dues, fees, and
other charges among the Exchange's members and issuers and other
persons using its facilities.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\23\ that the proposed rule change (SR-Phlx-2006-04), as amended,
is hereby approved.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-7464 Filed 5-16-06; 8:45 am]
BILLING CODE 8010-01-P