

[Federal Register: March 21, 2007 (Volume 72, Number 54)]
[Notices]               
[Page 13338-13340]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr07-108]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55473; File No. SR-Phlx-2007-12]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to Fees for Full Value Russell 
Index and Reduced Value Russell Index

March 14, 2007.
    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 February 16, 2007, 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 substantially prepared by the 
Exchange. On March 8, 2007, the Phlx submitted Amendment No. 1 to the 
proposed rule change. The Phlx has designated this proposal as one 
changing a due, fee, or other charge under Section 19(b)(3)(A)(ii) of 
the Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the 
proposal effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

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

    The Phlx, pursuant to Section 19(b)(1) of the Act \5\ and Rule 19b-
4 thereunder,\6\ proposes to assess equity option charges, as opposed 
to index option charges on: (1) Options on the Russell 2000[supreg] 
Index \7\ traded under the symbol

[[Page 13339]]

RUT (the ``Full Value Russell Index''); and (2) options on the one-
tenth value Russell 2000[supreg] Index traded under the symbol RMN (the 
``Reduced Value Russell Index'')(the Full Value and the Reduced Value 
Russell Indexes together are referred to herein as the ``Russell 
Products'').\8\ Therefore, the Exchange proposes to charge the Russell 
Products, which are index options, in the same manner that it charges 
for equity options.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(1).
    \6\ 17 CFR 240.19b-4.
    \7\ Russell 2000[supreg] is a trademark and service mark of the 
Frank Russell Company, used under license. Neither Frank Russell 
Company's publication of the Russell Indexes nor its licensing of 
its trademarks for use in connection with securities or other 
financial products derived from a Russell Index in any way suggests 
or implies a representation or opinion by Frank Russell Company as 
to the attractiveness of investment in any securities or other 
financial products based upon or derived from any Russell Index. 
Frank Russell Company is not the issuer of any such securities or 
other financial products and makes no express or implied warranties 
of merchantability or fitness for any particular purpose with 
respect to any Russell Index or any data included or reflected 
therein, nor as to results to be obtained by any person or any 
entity from the use of the Russell Index or any data included or 
reflected therein.
    \8\ See Securities Exchange Act Release No. 55305 (February 15, 
2007), 72 FR 8240 (February 23, 2007) (SR-Phlx-2006-65) (order 
approving listing and trading equity and FLEX options on the Russell 
Products, and LEAPS on the Full Value Russell Index). FLEX options 
are customized or flexible index and equity options and LEAPS are 
Long-term Equity Anticipation Securities or long term options 
series. See Phlx Rules 1079, 1012 and 1101A.
---------------------------------------------------------------------------

    In addition, the Exchange proposes to adopt a $0.15 per side 
license fee on ``firm-related'' comparison and transaction charges.\9\ 
This license fee will be imposed only after the Exchange's $60,000 
``firm-related'' equity option and index option comparison and 
transaction charge cap is reached.\10\
---------------------------------------------------------------------------

    \9\ Specifically, ``firm-related'' charges include equity option 
firm/proprietary comparison charges, equity option firm/proprietary 
transaction charges, equity option firm/proprietary facilitation 
transaction charges, index option firm (proprietary and customer 
executions) comparison charges, index option firm/proprietary 
transaction charges, and index option firm/proprietary facilitation 
transaction charges (collectively, the ``firm-related charges'').
    \10\ The Exchange currently imposes a license fee of $0.10 per 
contract side for equity option and index option ``firm'' 
transactions on certain licensed products (collectively, ``licensed 
products'') after the $60,000 cap per member organization on all 
``firm-related'' equity option and index option comparison and 
transaction charges combined is reached. Therefore, when a member 
organization exceeds the $60,000 cap (comprised of combined firm-
related charges), the member organization is charged $60,000, plus 
the applicable license fee per contract side for any contracts in 
licensed products (if any) over those that were included in reaching 
the $60,000 cap. Thus, such firm-related charges in the aggregate 
for one billing month may not exceed $60,000 per month per member 
organization. For a complete list of the licensed products that are 
assessed a $0.10 license fee per contract side after the $60,000 cap 
is reached, see $60,000 ``Firm Related'' Equity Option and Index 
Option Cap on the Exchange's fee schedule. Consistent with current 
practice, when calculating the $60,000 cap, the Exchange first 
calculates all equity option and index option transaction and 
comparison charges for products without license fees and then equity 
option and index option transaction and comparison charges for 
products with license fees that are assessed by the Exchange after 
the $60,000 cap is reached. See Securities Exchange Act Release No. 
50836 (December 10, 2004), 69 FR 75584 (December 17, 2004) (SR-Phlx-
2004-70); and see e.g., Securities Exchange Act Release No. 53287 
(February 14, 2006), 71 FR 9186 (February 22, 2006) (SR-Phlx-2006-
10).
---------------------------------------------------------------------------

    The Exchange also proposes to amend its Summary of Equity Option 
Charges to reflect that a $0.15 license fee on the Russell Products 
will be assessed in connection with the Exchange's current cap on 
Registered Options Traders (``ROT'') comparison charges and ROT and 
specialist transaction charges \11\ on non-AUTOM delivered equity 
option contracts \12\ when an ROT or specialist executes over 14,000 
contracts calculated on a daily basis. These terms apply only to 
transactions when an ROT or specialist is the contra-party to a 
customer order.\13\ Therefore, after the 14,000 non-AUTOM delivered 
contract level is reached in a specific option, additional comparison 
and transaction charges are not assessed on subsequent option contracts 
in excess of 14,000 that are executed on that day in that specific 
option when the ROT or specialist is the contra-party to a customer 
order. Even when the 14,000 cap is reached, the license fee of $0.10 
per contract side (or $0.15 per contract side for each of the Russell 
Products) will be imposed on applicable ROTs and specialists for equity 
option transactions on those licensed products that carry a license 
fee.\14\
---------------------------------------------------------------------------

    \11\ The Exchange does not currently assess a comparison charge 
on specialist transactions. Therefore, the proposed cap will apply 
to ROT comparison and transaction charges combined and separately to 
specialist transaction charges.
    \12\ For purposes of this fee, orders delivered via the Floor 
Broker Management System shall be deemed to be non-AUTOM delivered 
orders. See Phlx Rule 1063.
    \13\ See Securities Exchange Act Release No. 54659 (October 27, 
2006), 71 FR 64603 (November 2, 2006) (SR-Phlx-2006-67) (capping ROT 
comparison charges and ROT and specialist transaction charges when 
certain requirements are met. For equity options, ROT transaction 
and comparison charges and specialist transaction charges are not 
assessed on additional qualifying transactions on option contracts 
that number greater than 14,000, calculated per day per equity 
option overlying the same underlying security).
    \14\ For a complete list of the licensed products that will be 
assessed a license fee per contract side after the 14,000 equity 
option contract cap is reached, see $60,000 ``Firm Related'' Equity 
Option and Index Option Cap on the Exchange's fee schedule.
---------------------------------------------------------------------------

    This proposal is scheduled to become effective for transactions 
settling on or after February 20, 2007.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.Phlx.com, at the Phlx, and at the Commission's 

Public Reference Room.

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 Exchange 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.

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

1. Purpose
    The purpose of this proposal is to assess equity option charges, 
including payment for order flow charges, which are competitive with 
charges assessed on these same products by other exchanges.\15\ Thus, 
the Russell Products will not be assessed customer comparison or 
transaction charges in accordance with the Exchange's equity option fee 
schedule.
---------------------------------------------------------------------------

    \15\ See e.g., Securities Exchange Act Release No. 51858 (June 
16, 2005), 70 FR 36218 (June 22, 2005) (SR-ISE-2005-26) 
(establishing fees for transactions in options on RUT and RMN).
---------------------------------------------------------------------------

    The purpose of assessing the Russell Products a license fee of 
$0.15 per contract side after reaching the $60,000 cap and the 14,000 
cap as described in this proposal is to help defray licensing costs 
associated with the trading of these products, while still capping 
member organizations' fees enough to attract volume from other 
exchanges.\16\ The caps operate this way in order to offer an incentive 
for additional volume without leaving the Exchange with significant 
out-of-pocket costs.
---------------------------------------------------------------------------

    \16\ See e.g., Securities Exchange Act Release Nos. 55099 
(January 12, 2007), 72 FR 2720 (January 22, 2007) (SR-NYSEArca-2006-
91) (adopting a $0.15 per contract Royalty Fee on options traded on 
RUT); 55000 (December 21, 2006), 71 FR 78479 (December 29, 2006) 
(SR-BSE-2006-47) (establishing a $0.15 surcharge fee for 
transactions in options on RUT); 53968 (June 9, 2006), 71 FR 34971 
(June 16, 2006) (SR-Amex-2006-56) (adopting a per contract licensing 
fee for the orders of specialists, registered options traders, 
firms, non-member market makers, and broker-dealers in connection 
with options transactions on the RUT); and 51858 (June 16, 2005), 70 
FR 36218 (June 22, 2005) (SR-ISE-2005-26) (adopting a surcharge fee 
of $0.10 per contract for trading in RUT and RMN).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
dues, fees and charges is consistent with

[[Page 13340]]

Section 6(b) of the Act,\17\ in general, and furthers the objectives of 
Section 6(b)(4) of the Act,\18\ in particular, in that it is an 
equitable allocation of reasonable dues, fees and other charges among 
Exchange members and issuers and other persons using its 
facilities.\19\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4).
    \19\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on March 8, 2007, the date on which the Phlx filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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 \20\ and Rule 
19b-4(f)(2) thereunder,\21\ because it establishes or changes a due, 
fee or other charge imposed by the Exchange. Accordingly, the proposal 
will take effect upon filing with the Commission.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \21\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change 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.

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. 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 Number SR-Phlx-2007-12 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-2007-12. 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-2007-12 and should be submitted on or before April 
11, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5060 Filed 3-20-07; 8:45 am]

BILLING CODE 8010-01-P
