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Notice

Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Extending the Dividend, Merger, and Short Stock Interest Strategies Fee Cap Program

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Start Preamble February 27, 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 21, 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. Phlx has designated this proposal as one establishing or changing a due, fee, or other charge imposed by a self-regulatory organization pursuant to Section 19(b)(3)(A)(ii) of the Act [3] and Rule 19b-4(f)(2) thereunder,[4] which Start Printed Page 9829renders the proposal effective upon filing with the Commission. 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

Phlx proposes to extend for a period of one year, until March 1, 2008, the pilot programs for: (1) The $1,000 and $25,000 fee caps on equity option transaction and comparison charges on dividend,[5] merger,[6] and short stock interest [7] strategies; and (2) the license fee of $0.05 per contract side imposed on dividend and short stock interest strategies, as described below. The current fee caps and $0.05 per contract side license fee are in effect as a pilot program that is scheduled to expire on March 1, 2007.[8] Other than extending the pilot program for an additional one-year period until March 1, 2008, no other changes to the Exchange's current dividend, merger and short stock interest strategy program, which includes the $0.05 per contract side license fee, are being proposed at this time.

The text of the proposed rule change is available on the Exchange's Web site (http://www.phlx.com/​exchange/​phlx_​rule_​fil.html), at the Exchange's principal office, 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

Currently, the Exchange imposes a fee cap on equity option transaction and comparison charges on dividend, merger, and short stock interest strategies executed on the same trading day in the same options class. Specifically, Registered Options Trader (“ROT”) and specialist net equity option transaction and comparison charges are capped at $1,000 for dividend, merger, and short stock interest strategies executed on the same trading day in the same options class.[9] In addition, there is a $25,000 per member organization fee cap on equity option transaction and comparison charges incurred in one month for dividend, merger, and short stock interest strategies combined. The $1,000 and $25,000 fee caps are implemented after any applicable rebates are applied to ROT and specialist equity option transaction and comparison charges occurring as part of a dividend, merger, or short stock interest strategy.[10]

In addition, the Exchange assesses a license fee of $0.05 per contract side for dividend and short stock interest strategies in connection with certain products that carry license fees, if applicable.[11] The applicable license fee is assessed on every transaction and is not subject to the $1,000 or $25,000 fee caps described above, nor does it count towards reaching the $1,000 or $25,000 fee caps.

The Exchange represents that the purpose of extending the pilot program for the fee caps on equity option transaction and comparison charges on dividend, merger, and short stock interest strategies and the $0.05 per contract fee imposed on dividend and short stock interest strategies until March 1, 2008 is to continue to attract additional liquidity to the Exchange and to remain competitive with other options exchanges in connection with these types of options strategies. In addition, the Exchange also represents that the purpose of extending the pilot is to recoup the license fees owed in connection with the trading of products that carry license fees. Even with the assessment of the $0.05 license fee per contract side, the Exchange believes that the fee caps and rebates should continue to encourage specialists and ROTs to provide liquidity for these types of options strategies.

This proposal is scheduled to become effective for trades settling on or after March 1, 2007 and will remain in effect as a pilot program until March 1, 2008.

2. Statutory Basis

The Exchange believes that its proposal to amend its schedule of fees is consistent with Section 6(b) of the Act,[12] in general, and furthers the objectives of Section 6(b)(4) of the Act,[13] in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members.

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 become effective pursuant to Section 19(b)(3)(A)(ii) of the Act [14] and Rule 19b-4(f)(2) thereunder [15] because it establishes or changes a due, fee, or other charge imposed by the Exchange. 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.

Start Printed Page 9830

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

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-2007-14. 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 Commissions 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 the filing also will be available for inspection and copying at the principal office of 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-2007-14 and should be submitted on or before March 26, 2007.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[16]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(ii).

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5.  For purposes of this proposal, the Exchange defines a “ dividend strategy” as transactions done to achieve a dividend arbitrage involving the purchase, sale, and exercise of in-the-money options of the same class, executed prior to the date on which the underlying stock goes ex-dividend. See, e.g., Securities Exchange Act Release No. 54174 (July 19, 2006), 71 FR 42156 (July 25, 2006) (SR-Phlx-2006-40).

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6.  For purposes of this proposal, the Exchange defines a “ merger strategy” as transactions done to achieve a merger arbitrage involving the purchase, sale and exercise of options of the same class and expiration date, executed prior to the date on which shareholders of record are required to elect their respective form of consideration, i.e., cash or stock. Id.

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7.  For purposes of this proposal, the Exchange defines a “short stock interest strategy” as transactions done to achieve a short stock interest arbitrage involving the purchase, sale and exercise of in-the-money options of the same class. Id.

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8.  See Securities Exchange Act Release Nos. 54381 (August 29, 2006), 71 FR 52598 (September 6, 2006) (SR-Phlx-2006-50) and 54424 (September 11, 2006), 71 FR 54699 (September 18, 2006) (SR-Phlx-2006-55).

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9.  See Securities Exchange Act Release No. 54424 (September 11, 2006), 71 FR 54699 (September 18, 2006) (SR-Phlx-2006-55).

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10.  Currently, the Exchange rebates $0.08 per contract side for ROT executions and $0.07 per contract side for trades occurring as part of a dividend, merger, or short stock interest strategy.

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11.  For a complete list of these product symbols, see the Exchange's $60,000 Firm-Related Equity Option and Index Option Cap Fee Schedule.

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14.  15 U.S.C. 78s(b)(3)(A)(ii).

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15.  17 CFR 19b-4(f)(2).

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[FR Doc. E7-3763 Filed 3-2-07; 8:45 am]

BILLING CODE 8010-01-P