regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.,

[Federal Register: October 9, 2001 (Volume 66, Number 195)]

[Notices]

[Page 51485-51487]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr09oc01-155]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44893; File No. SR-Phlx-2001-85]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the Elimination of Equity Option Transaction Charges for Facilitation Transactions

October 2, 2001.

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 31, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or ``Exchange'') filedwith 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

1. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

   The Phlx proposes to amend its schedule of dues, fees, and charges to eliminate its equity option transaction

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   charges for certain off-floor member organizations engaging in facilitation transactions.\3\ Facilitation transactions by off-floor member firms designated as ``firm/proprietary'' \4\ for purposes of the Summary of Equity Option Charges portion of the Exchange's schedule of dues, fees, and charges,\5\ would not be subject to the Equity Option Transaction Charge.

   \3\ A facilitation transaction occurs when a Floor Broker holds an options order for a public customer and a contra-side order for the same option series and, after providing an opportunity for all persons in the trading crowd to participate in the transaction, executes both orders as a facilitation cross. A Floor Broker engaging in a facilitation transaction must announce that he/she holds an order subject to facilitation prior to the execution, and must market the floor ticket for the public customer's order with the legible ``F.'' See Exchange Rule 1064(b).

   \4\ A ``firm/proprietary'' transaction charge applies to orders for the proprietary account of any member or non-member broker- dealer that derives more than 35 percent of its revenues from commissions and principal transactions with customers. See Securities Exchange Act Release No. 43558 (November 14, 2000), 65 FR 69984 (November 21, 2000).

   \5\ Equity Option Charges are comprised of the Option Comparison Charge, Option Transaction Charge, Option Floor Brokerage Assessment and the Floor Brokerage Transaction Fee.

   The equity option transaction charge will continue to apply to facilitation transactions involving Exchange-traded options subject to licensing agreements.\6\

   \6\ For example, lists and trades options overlying the Nasdaq- 100 Index Tracking StockSM(``QQQSM''). The Nasdaq-100 , Nasdaq-100 Index , Nasdaq , The Nasdaq Stock Market , Nasdaq-100 Shares SM, Nasdaq-100 Index Tracking Stock SM, and QQQ SMare 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 (``Index'') is determined, composed, and calculated by Nasdaq without regard to the Licensee, the Nasdaq-100 TrustSM, or the beneficial owners of Nasdaq-100 SharesSM. 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.

2. 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 Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

   1. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

      1. Purpose

      The Exchange currently imposes a transaction charge on equity options transactions executed on the Exchange. The charges vary depending on whether the transaction involves a member organization,\7\ Registered Options Trader (``ROT''), or specialist. Previously, equity option transaction charges were also imposed on customer executions, but on August 31, 2000, the Exchange eliminated all equity option transaction charges for customer executions.\8\ Other exchanges also eliminated similar customer equity option fees.\9\

      \7\ Telephone conversation between Richard S. Rudolph, Counsel, Phlx, and Frank N. Genco, Attorney Advisor, Division of Market Regulation, Commission, September 26, 2001 (``Telephone conversation with Phlx, September 26, 2001'').

      \8\ See Securities Exchange Act Release No. 43343 (September 26, 2000), 65 FR 59243 (October 4, 2000).

      \9\ See Securities Exchange Act Release Nos. 42676 (April 13, 2000), 65 FR 21223 (April 20, 2000); 42850 (May 30, 2000), 65 FR 36187 (June 7, 2000); and 43115 (August 3, 2000), 65 FR 49280 (August 11, 2000). See also Securities Exchange Act Release No. 43020 (July 10, 2000), 65 FR 44558 (July 18, 2000).

      The Exchange believes that the elimination of the equity option transaction charge \10\ in facilitation transactions by off-floor member firms designated as ``firm/proprietary'' would encourage member firms engaging in facilitation transactions to send such orders to the Exchange, thereby adding order flow to and increasing liquidity on the Exchange.

      \10\ The current charge applicable to accounts designated as ``firm/proprietary'' for transactions in equity options is $.08 per contract.

      The Exchange believes that, absent the equity option transaction charge, member firms would be more inclined to facilitate customer orders on the Exchange, thereby attracting additional order flow and promoting a more liquid market.

      The equity option transaction charge will continue to apply to facilitation transactions involving Exchange-traded options subject to licensing agreements. 2. Statutory Basis

      The Phlx believes that the proposed rule change is consistent with Section 6 of the Act,\11\ in general, and furthers the objectives of Sections 6(b)(4) \12\ and 6(b)(5),\13\ in particular, in that the Exchange believes that proposed rule change is designed to perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest, to promote just and equitable principles of trade, and to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other Exchange participants.\14\ The Exchange believes that the proposed elimination of the equity option transactions by off-floor member firms designated as ``firm/proprietary'' should foster liquidity in the Exchange's markets, and enable the Exchange to remain competitive as a marketplace by attracting additional order flow in options traded on the Exchange.

      \11\ 15 U.S.C. 78f.

      \12\ 15 U.S.C. 78f(b)(4).

      \13\ 15 U.S.C. 78f(b)(5).

      \14\ Telephone conversation with Phlx, September 26, 2001.

   2. Self-Regulatory Organization's Statement on Burden on Competition

      The Phlx does not believe that the proposed rule change will impose any inappropriate burden on competition.

   3. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

      No written comments were solicited or received.

3. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

   The foregoing rule change, which establishes or changes a due, fee, or other charge applicable to members of the Exchange, has become effective pursuant to Section 19(b)(3)(A) of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder. At any time within 60 days of August 31, 2001, 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.

4. 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 filedwith the

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   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-2001-85 and should be submitted by October 30, 2001.

   For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\15\

   \15\ 17 CFR 200.30-3(a)(12).

   Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 01-25239Filed10-5-01; 8:45 am]

   BILLING CODE 8010-01-M