[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69984-69986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29747]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-43558; File No. SR-Phlx-00-85]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc.
Relating to Equity Option Transaction Charges For Broker-Dealers and
Firms
November 14, 2000.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
3, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the amended proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange.\1\ On October 4, 2000, the Phlx filed the original
proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ See Amendment No. 1 dated November 2, 2000 from Cynthia K.
Hoekstra, Philadelphia Stock Exchange to Madge M. Hamilton, Esq.,
Division of Market Regulation, SEC (``Amendment No. 1''). This
release incorporates all changes made in Amendment No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx, pursuant to Rule 19b-4 of the Act, proposes to adopt a
$.20 equity
[[Page 69985]]
option transaction charge on off-floor members for broker-dealer
transactions, as defined herein, including a related definition of
``firm/proprietary'' for the purpose of the Summary of Equity Option
Charges that appears in the Exchange's schedule of dues, fees and
charges.\2\
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\2\ Equity Option Charges are comprised of the Option Comparison
charge, Option Transaction charge, Option Floor Brokerage Assessment
and the Floor Brokerage Transaction Fee.
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A copy of the text of the Summary of Equity Option Charges may be
obtained from the Exchange or the Commission.
II. Self-Regulatory Organization's Statements 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
section 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
Currently, the Exchange imposes a transaction charge on equity
options transactions executed on the Exchange. The charges vary
depending on whether the transaction involves a firm, 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.\3\ Other exchanges also eliminated
similar customer equity option fees.\4\
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\3\ See Securities Exchange Act Release No. 43343 (SR-Phlx-00-
80) (September 26, 2000), 65 FR 59243 (October 4, 2000).
\4\ See Securities Exchange Act Release No. 42676 (SR-AMEX-00-
15) (April 13, 2000), 65 FR 21223 (April 20, 2000); Securities
Exchange Act Release No. 42850 (SR-CBOE-00-06) (May 30, 2000), 65 FR
36187 (June 7, 2000); and Securities Exchange Act Release No. 43115
(SR-PCX-00-16) (August 3, 2000), 65 FR 49280 (August 11, 2000). See
also Securities Exchange Act Release No. 43020 (SR-PCX-00-14) (July
10, 2000), 65 FR 44558 (July 18, 2000).
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To offset the elimination of the customer equity option transaction
and comparison charges, the Exchange proposes to impose a fee on its
members of $.20 per contract for all off-floor broker-dealer orders
routed to the Exchange. This category would include ROTs who are
trading from off-floor and broker-dealer routing orders through firm,
customer or market maker accounts carried by a member clearing firm,
but not firm/proprietary orders, as defined below. All other equity
option transaction charges will remain unchanged. Thus, the purpose of
the proposal is to offset the recently waived equity option customer
charges.
For purposes of the equity option transaction charge, the term
broker-dealer charge is defined as a charge that is applied to members
for orders, entered from other than the floor of the Exchange, for any
account (i) in which the holder of beneficial interest is a member of
non-member broker-dealer or (ii) in which the holder of beneficial
interest is a person associated with or employed by a member or non-
member broker-dealer. This includes orders for the account of an ROT
entered from off-floor. The Exchange believes the proposed fee is
reasonable and equitable, as the next-highest equity option transaction
charge is $.19 for ROTs ($.16 transaction charge + $.03 comparison
charge) and $.18 per contract for specialists. Thus, the proposed $.20
fee is only slightly higher.
Because the proposed $.20 fee does not apply to firm orders, (which
may otherwise be captured in the proposed broker-dealer definition),
the Exchange proposes a corresponding change to the definition of firm
for purposes of the firm/proprietary comparison and transaction charges
that would now limit these fees to a certain category of firm trades--
firm/proprietary trades. According to the proposal, a firm/proprietary
transaction or comparison charge applies to members for orders for the
proprietary account of any member or non-member broker-dealer that
derives more than 35 percent of its annual, gross revenues from
commissions and principal transactions with customers. Firms will be
required to verify this amount to the Exchange by certifying that they
have reached this threshold and by submitting a copy of their annual
report, which was prepared in accordance with Generally Accepted
Accounting Principles (``GAAP''). In the event that a firm has not been
in business for one year, the most recent quarterly reports, prepared
in accordance with GAAP, will be accepted. This definition applies to
both the option comparison charge and the transaction charge, and would
appear on the summary of equity option charges as a footnote.
Currently, a definition of ``firm'' does not appear on the summary. In
addition, the footnote text that reads ``(Non-clearing firm members'
proprietary transactions are eligible for the ``firm'' rate based upon
submission of a Phlx rebate request form with supportive documentation
within thirty (30) days of invoice date.)'' will be deleted as it is no
longer necessary now that the category of broker-dealer is specifically
included in the option transaction charge.
2. Statutory Basis
The Exchange believes that the proposed rule change 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, by providing for the
equitable allocation of reasonable dues, fees and other charges among
members and other Exchange participants. The Exchange believes that the
proposed increase in the Equity Option transaction charge for broker-
dealers is not unreasonable, as stated above. In addition, the Exchange
notes that members will be charged the same option transaction charge
for trades on behalf of both member and non-member broker-dealers
trading off the floor (including ROTs trading from off-floor) of the
Exchange. The Exchange emphasizes that only members/member
organizations are billed transaction fees, whether for their own
trading or their customers.
B. 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.
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) of the Act and Rule 19b-4(f)(2)
thereunder. Accordingly, the proposal will take effect upon filing of
Amendment No. 1 with the Commission. At any time within 60 days of the
filing of Amendment No. 1, 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.
[[Page 69986]]
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-00-85 and should
be submitted by December 12, 2000.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29747 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M