[Federal Register Volume 66, Number 63 (Monday, April 2, 2001)]
[Notices]
[Pages 17591-17592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8026]
[[Page 17591]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44103; File No. SR-PHLX-01-08]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Concerning Maintenance,
Retention, and Furnishing of Records and Other Information With Respect
to Payment for Order Flow Arrangements
March 26, 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 January 19, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'')
filed with the Securities and Exchange Commission (``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend Phlx Rule 760 to require specifically
that members and member organizations make, keep current, and preserve
records relating to payment for order flow arrangements and make those
records available to the Phlx upon request for inspection and review. A
copy of the proposed Supplementary Material .01 to Rule 760 is
available at the principal office of the Phlx 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 organization 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, 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
The purpose of the proposed rule change is to specify that members
and member organizations make, keep current, preserve, maintain and
make available records relating to payment for order flow arrangements.
The proposed rule change supplements the general recordkeeping
provisions of Phlx Rule 760, which requires every member to make,
maintain, preserve and make available books and records as prescribed
by the Act, the rules and regulations under the Act, and the rules of
the Phlx.
The Phlx began imposing payment for order flow fees on certain
options transactions of specialists and Registered Options Traders
(``ROTs'') as of August 1, 2000. A fee, currently $1.00 per contract,
is imposed on all transactions executed by specialists and ROTs in the
Top 120 Options traded on the Phlx, with various exceptions.\3\ The
specialists make all determinations concerning the amount that is paid
for orders and which order flow providers receive the payments.
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\3\ Transactions in Top 120 Options that are 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) an ROT 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, Phlx-00-87);
and 43481 (Oct. 25, 2000),), 65 FR 66277 (Nov. 3, 2000) (SR-Phlx-00-
88, SR-Phlx-00-89).
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The proposed amendment to Rule 760 requires members and member
organizations that participate in a payment for order flow arrangement
to keep, among other things, records relating to: (a) The amount of
fees received; (b) the transfer of those fees; (c) the final transfer
of those funds to the order flow providers; (d) the names of the order
flow providers; (e) the amount of payments and whether the amount is on
a per-contract or flat-fee basis; and (f) any other records relating to
payment for order flow arrangements.\4\
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\4\ Some of the records that must be kept and maintained for
purposes of the payment for order flow program may also fall under
the recorkeeping provisions of Section 17 of the Act and Rules 17a-3
and 17a-4 thereunder. State and federal tax law and other applicable
laws may also require the maintenance of those records.
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The Phlx believes that the proposed rule change will give Phlx
members and member organizations more specific guidance concerning
their obligations to maintain records relating to payment for order
flow arrangements. The Phlx believes that this, in turn, should help
the Phlx to review and verify, if necessary, that the funds collected
for order flow purposes are not put to improper use.\5\ It is the
Phlx's belief that the proposed amendment to Rule 760 will emphasize
the importance of recordkeeping duties with respect to payment for
order flow, encourage compliance by the membership, and ensure the
proper administration of the payment for order flow program as a whole.
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\5\ In order to facilitate review and verification, the records
should be maintained in such a fashion as to permit the Phlx to
track payments to various order flow providers on an option-by-
option basis, and to view all payments made to each order flow
provider.
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The proposed amendment to Phlx Rule 760 does not enable the Phlx to
become involved directly or indirectly in the decisions of members or
member organizations regarding which order flow providers should be
paid, which options they should be paid for, or how much should be paid
to order flow providers individually or collectively. Those decisions
are committed exclusively to the specialists.
The Phlx believes that the proposed rule change will assist its
efforts to enforce compliance with the rules governing its payment for
order flow program consistent with Section 6(b) \6\ of the Act,
particularly subsection 6(b)(1),\7\ and will promote just and equitable
principles of trade consistent with subsection 6(b)(5).\8\
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(1).
\8\ 15 U.S.C. 78f(b)(5).
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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 comments.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission
might designate up to 90 days of such date if it finds such longer
period to be appropriate and publishes its reasons for so finding, or
(ii) as to which Phlx consents, the Commission will:
(a) by order approve such proposed rule change, or
[[Page 17592]]
(b) institute proceedings to determine whether the proposed rule
change should be disapproved.
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, N.W., Washington, D.C. 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-01-08 and should
be submitted April 23, 2001.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-8026 Filed 3-30-01; 8:45 am]
BILLING CODE 8010-01-M