Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on December 31, 2003, the Philadelphia Stock Exchange, Inc. (“Exchange” or “Phlx”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On January 26, 2004, the Exchange submitted Amendment No. 1 to the proposed rule change. On January 29, 2004, the Exchange submitted Amendment No. 2 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposed rule change, as amended, on an accelerated basis.
17 CFR 240.19b-4.
See letter from Angela Saccomandi Dunn, Counsel, Phlx to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated January 23, 2004. (“Amendment No. 1”). Amendment No. 1 replaced and superceded the original proposed rule change in its entirety.
See letter from Angela Saccomandi Dunn, Counsel, Phlx to Nancy J. Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated January 29, 2004. (“Amendment No. 2”). Amendment No. 2 replaced and superceded Amendment No. 1 in its entirety.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Phlx proposes to extend the Exchange's current one-year pilot program until July 31, 2004, in order to continue to impose its current schedule of dues, fees and charges applicable to execution of Principal Orders (“P Orders”) sent via the Intermarket Options Linkage (the “Linkage”) under the Plan for the Purpose of Creating and Operating an Options Intermarket Linkage (the “Plan”).
See infra note 8.
See Securities Exchange Act Release Nos. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000) (order approving the Plan submitted by American Stock Exchange LLC, Chicago Board Options Exchange, Inc. and International Securities Exchange, Inc.); and 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000) (order approving Phlx as participant in the Plan).
The proposed fee schedule is available at the Exchange and at the Commission.
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 III below. The Exchange 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 extend the Exchange's current pilot program until July 31, 2004, so that the Phlx may continue to impose the transaction charges to Eligible Market Makers who send inbound P Orders to the Exchange pursuant to the Plan. The Commission previously approved such charges, on a pilot basis, scheduled to expire on January 31, 2004.
Eligible Market Maker is defined, with respect to an Eligible Options Class, as a Market Maker that:
(a) Is assigned to, and is providing two-sided quotations in, the Eligible Option Class;
(b) is participating in its market's automatic execution system in such Eligible Option Class; and
(c) is not prohibited from sending Principal Orders in such Eligible Option Class through the Linkage pursuant to Section 8(b)(iii) of the Plan.
See Section 2(7) of the Plan.
Under the Plan and Exchange Rule 1083(k), which tracks the language of the Plan, a “Linkage Order” means an Immediate or Cancel order routed through the Linkage as permitted under the Plan. There are three types of Linkage Orders:
(i) “Principal Acting as Agent (“P/A”) Order,” which is an order for the principal account of a specialist (or equivalent entity on another Participant Exchange that is authorized to represent Public Customer orders), reflecting the terms of a related unexecuted Public Customer order for which the specialist is acting as agent;
(ii) “Principal (“P”) Order,” which is an order for the principal account of an Eligible Market Maker and is not a P/A Order; and
(iii) “Satisfaction Order,” which is an order sent through the Linkage to notify a member of another Participant Exchange of a Trade-Through and to seek satisfaction of the liability arising from that Trade-Through.
See Securities Exchange Act Release No. 47953 (May 30, 2003), 68 FR 34027 (June 6, 2003) (SR-Phlx-2003-16).
The fee schedule is intended to provide that execution of inbound P Orders routed through Linkage would be subject to the same fees as non-Linkage broker-dealer orders that are not subject to automatic execution (“AUTO-X”). The Exchange will not assess any charges for P/A Orders and Satisfaction Orders.
Currently, for non-Linkage off-floor broker-dealer orders sent via the Philadelphia Stock Exchange Automated Options Market (“AUTOM”), which is the Exchange's electronic order delivery, routing, execution and reporting system, the Exchange charges $.45 per contract for trades executed by AUTO-X, the automatic execution feature of AUTOM, and $.35 per contract up to 2,000 contracts, $.25 per contract for 2,001 to 3,000 contracts, and $.20 per contract above 3,000 contracts (with the first 3,000 contracts charged $.25 per contract) to the sending off-floor broker-dealer for non-AUTO-X trades.
2. Statutory Basis
The Exchange believes that its proposal to amend its schedule of dues, fees and charges is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(4) of the Act in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among Eligible Market Makers who submit P Orders to the Exchange through the Linkage.
15 U.S.C. 78f(b)(4).
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
No written comments were either solicited or received.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-Phlx-2003-89. 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, comments should be sent in hardcopy or by e-mail but not by both methods. 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 Exchange. All submissions should be submitted by February 27, 2004.
IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change
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, and, in particular, with the requirements of Section 6(b) of the Act and the rules and regulations thereunder. The Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(4) of the Act, which requires that the rules of the Exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. The Commission believes that the extension of the Phlx's Linkage fee pilot until July 31, 2004 will give the Exchange and the Commission further opportunity to evaluate whether such fees are appropriate.
In approving this rule, the Commission notes that it has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78f(b).
The Commission finds good cause, pursuant to Section 19(b)(2) of the Act, for approving the proposed rule change prior to the thirtieth day after the date of publication of the notice of the filing thereof in the Federal Register. The Commission believes that granting accelerated approval will preserve the Exchange's existing pilot program for Linkage fees without interruption as the Phlx and the Commission further consider the appropriateness of Linkage fees.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change, as amended, (SR-Phlx-2003-89) is hereby approved on an accelerated basis for a pilot period to expire on July 31, 2004.
Id.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.18
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-2553 Filed 2-5-04; 8:45 am]
BILLING CODE 8010-01-P