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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Adding QQQ Options to the Exchange's List of the Top 120 Equity Options

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Start Preamble April 30, 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 March 30, 2001, the Philadelphia Stock Exchange, Inc. (“Phlx”) filed with the Securities and Exchange Commission the proposed rule change as described in Items I, II, and III below, which Items the Phlx has prepared. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Phlx proposes to revise its list of the Top 120 Options [3] by adding options on Units of Beneficial Interest in the Nasdaq-100 Trust, Series 1, which are widely known as and traded under the symbol “QQQ”. Options on the QQQ index will be added to the Phlx's list of the Top 120 Options effective April 2, 2001, and will include trades that settle on that date.

All of the options on the Phlx's list of Top 120 Options are included in the Phlx's payment for order flow program, in which a marketing fee (currently $1.00) is imposed on the transactions of specialists and ROTs, which the specialists may use to attract order flow to Phlx. QQQ options will be included in the marketing fee program once they are added to the list of Top 120 Options. The inclusion of QQQ options on the list means that there will be 121 Options on the Phlx's list of the Top 120 options through June 30, 2001, when the current measuring period ends.

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 IV below. The Phlx has prepared summaries, set forth in Sections A, B, and C below, or 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 add QQQ options to the Phlx's list of the Top 120 Options. The list of the Top 120 Options identifies the 120 most actively traded equity options as measured by their trading volume on all U.S. options markets. The list of Top 120 Options is recalculated every six months, with the measuring periods running from January 1 through June 30 and from June 1 through November 30. The Phlx assembled its current list of Top 120 Options using data that the Options Clearing Corporation gathered during the period from June 1, 2000 through November 30, 2000.

The Phlx currently imposes a $1.00 per contract fee on transactions of Phlx specialists and Registered Options Traders (“ROTs”) in the Top 120 Options, with some exceptions.[4] Under the program, Phlx specialists may use the proceeds raised from the marketing fee to attract order flow to the Phlx. Because options on the QQQ index are now traded on the Phlx,[5] the Phlx is proposing to add QQQ options to its list of the Top 120 Options during the current measuring period. Accordingly, from April 2, 2001, the effective date of this proposal, through June 30, 2001, the end of the current measuring period, there will be a total of 121 options on the Phlx's list of the Top 120 Options.

2. Statutory Basis

The inclusion of QQQ options on the Phlx's list of the Top 120 Options would bring QQQ options into the Phlx's payment for order flow program. The Phlx believes that the QQQ specialist unit and the ROTs who pay the $1.00 marketing fee should receive the benefits of increase order flow, and that the proposed rule change would equitably allocate reasonable fees among the Phlx's members. Accordingly, the Phlx—believes that the proposal is consistent with Section 6(b) of the Act,[6] and in particular furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act.[7] Moreover, the Phlx believes that the inclusion of QQQ options in its list of Top 120 Options, and the Start Printed Page 23309corresponding imposition of the $1.00 fee on various transactions in QQQ options, should promote just and equitable principles to trade, remove impediments to and perfect the mechanism of a free and open market, and protect investors and public interest by attracting more order flow to the Phlx, which should result in increased liquidity, tighter markets, and more competition among exchange members.

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

The Phlx neither solicited nor received any written comments on this proposal.

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

Because the Phlx has designated the proposed rule change as a fee change pursuant to Section 19(b)(3)(A) [8] of the Act and Rule 19b-4(f)(2),[9] the proposal has become effective upon filing with the Commission.[10] At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the 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. 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-2001-43 and should be submitted by May 29, 2001.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  The Phlx defines a Top 120 Option as one of the 120 most actively traded equity options nationwide during a six-month measuring period. The Phlx revises its list of the Top 120 Options every six months using data that the Options Clearing Corporations provides.

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4.  The transactions in Top 120 Options that are currently excepted from the $1.00 fee are transactions between: (1) A specialist and an ROT; (2) an ROT and an ROT; (3) a specialist and a firm; (4) an ROT and a firm; (5) a specialist and a broker-dealer; and (6) and ROT and and a broker-dealer. See Securities Exchange Act Release Nos. 43177 (Aug. 18, 2000), 65 FR 51889 (Aug. 25, 2000) (SR-Phlx-00-77); 43480 (Oct. 25, 2000), 65 FR 66275 (Nov. 3, 2000) (SR-Phlx-00-86 and SR-Phlx-00-87); and 43481 (Oct. 25, 2000), 65 FR 66277 (Nov. 3, 2000) (SR-Phlx-00-88 and SR-Phlx-00-89),

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5.  See Securities Exchange Act Release Nos. 43921 (February 2, 20001), 66 FR 9739 (Feb. 9, 2001) (SR-Phlx-00-107) (amending Phlx rules to create listing criteria and trading rules to allow the Phlx to list QQQ options); 44054 (Mar. 8, 2001), 66 FR 15314 (Mar. 16, 2001) (SR-Phlx-01-31) (increasing the automatic execution guarantee for QQQ options to 100 contracts); and 44055 (March 8, 2001), 66 FR 15310 (Mar. 16, 2001) (SR-Phlx-01-32) (amending Phlx rules to create a one-point strike price interval for QQQ options and establishing the hours of trading for QQQ options).

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7.  15 U.S.C. 78f(b)(4) and (5).

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10.  The Phlx has stated that any change to the category of options to which the payment for order flow fee applies will be subject of a separate filing with the Commission pursuant to Section 19(b)(3)(A)(ii) of the Act. See Securities Exchange Act Release No. 43177 (Aug. 18, 2000), 65 FR 51889 (Aug. 25, 2000) (SR-Phlx-00-77).

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[FR Doc. 01-11475 Filed 5-7-01; 8:45 am]

BILLING CODE 8010-01-M