Notices. SECURITIES AND EXCHANGE COMMISSION
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BILLING CODE 7905-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50469; File No. SR-CBOE-2004-61] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Board Options Exchange, Incorporated Relating to Reduction of Customer Transaction Fees for Options on Exchange-Traded Funds and Holding Company Depositary Receipts September 29, 2004. 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 September 23, 2004, the Chicago Board Options Exchange, Incorporated (“CBOE” 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 prepared by the CBOE.
On September 28, 2004, CBOE submitted Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* letter from Jamie Galvin, Attorney II, Legal Division, CBOE, to Ira Brandriss, Assistant Director, Division of Market Regulation, Commission, dated September 27, 2004 (“Amendment No. 1”). In Amendment No. 1, the CBOE converted the original proposed rule change from a proposal filed pursuant to Section 19(b)(3)(A)(ii) of th eAct and Rule 19b-4(f)(2) thereunder to a “non-controversial” proposal filed pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder, and requested waiver of the 30-day pre-operative period and pre-filing notice requirement for “non-controversial” proposals.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to amend its Fee Schedule to reduce the fees charged to public customers for transactions in options on exchange-traded funds (“ETFs”) and Holding Company Depositary Receipts (“HOLDRs”). The text of the proposed rule change is available at the Office of the Secretary, CBOE, 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 CBOE 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 CBOE 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 CBOE currently assesses public customer transactions in options on ETFs and HOLDRs the customer transaction fees that apply to index options. 4 Specifically, public customer transactions in these products are assessed transaction fees of $.45 if the premium is greater than or equal to $1 and $.25 if the premium is less than $1.
The Exchange proposes to reduce the transaction fees charged to public customers for transactions in all options on ETFs and HOLDRs to $.15, regardless of premium, except for options on Dow Jones DIAMONDS (DIA). 5 Options on Dow Jones DIAMONDS will continue to be assessed at current index option customer transaction rates. 4 Except for options on the Nasdaq-100 Index Tracking Stock
(QQQ)which are assessed no customer transaction fees. 5 A $.04 floor brokerage fee will continue to be charged to executing brokers if a broker executes a customer order in these products. The Exchange believes this fee reduction will help the Exchange to compete more effectively for order flow in these products. The Exchange intends to begin assessing the reduced fees on October 1, 2004. The Exchange will reassess the fee reduction as appropriate, and will file any modification to these transaction fees with the Commission pursuant to Section 19(b) of the Act. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act, 6 in general, and furthers the objectives of Section 6(b)(4) of the Act 7 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members and other persons using its facilities. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(4). 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 solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change has been designated by the CBOE as a “non-controversial” rule change pursuant to Section 19(b)(3)(A) of the Act 8 and subparagraph (f)(6) of Rule 19b-4 thereunder. 9 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b-4(f)(6)(i)-(ii). The foregoing rule change:
(1)Does not significantly affect the protection of investors or the public interest,
(2)does not impose any significant burden on competition, and
(3)by its terms does not become operative for 30 days after the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. The CBOE has requested that the Commission waive the 30-day pre-operative period and the five-day pre-filing notice requirement for “non-controversial” proposals and accelerate the operative date of the filing to October 1, 2004, to allow public customers to benefit from the reduced transaction fees in the subject options classes effective on that date. The Commission has determined to waive the five-day notice and the 30-day operative period as requested to permit public customers to benefit from the fee reduction without delay. 10 Consequently, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b-4(f)(6) thereunder, with an operative date of October 1, 2004. 12 10 For the purposes only of waiving the 30-day pre-operative period, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(6). 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 No. SR-CBOE-2004-61 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File No. SR-CBOE-2004-61. 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the CBOE. 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 No. SR-CBOE-2004-61 and should be submitted on or before October 26, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2491 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50403A; File No. SR-NASD-2004-110] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Divestiture of American Stock Exchange; Correction September 29, 2004. In FR Doc. E4-2354, issued on September 23, 2004, 1 the Commission notes that the proposed rule text in subsection
(cc)on page 57120, column 3 should state as follows below. Proposed new language is in italics; proposed deletions are in brackets. 1 *See* Exchange Act Release No. 50403 (September 16, 2004), 69 FR 57119. “(cc) “Non-Industry Governor” or “Non-Industry committee member” means a Governor (excluding the Chief Executive Officer and any other officer of the NASD, the President of NASD Regulation)[, any Floor Governor, and the Chief Executive Officer of Amex)] or committee member who is:
(1)A Public Governor or committee member;
(2)an officer or employee of an issuer of securities listed on [Nasdaq or Amex, or] *a market for which NASD provides regulation;
(3)an officer or employee of an issuer of unlisted securities that are* traded in the over-the-counter market; or ([3] *4* ) any other individual who would not be an Industry Governor or committee member;” In the corresponding paragraph describing the proposed rule text, appearing on page 57124, beginning in column 1, the first, second and third complete sentences in column 2 should read as follows: “Under the proposed amendments, the “Industry Governor” definition will include persons with a consulting or employment relationship with “a market for which NASD provides regulation,” a term that embraces both markets with which NASD has entered a contract to provide regulatory services, and those in which NASD has an ownership interest. Because NASD has entered into a regulatory services agreement with Amex, and continues both to maintain an ownership interest in and to provide regulatory services to Nasdaq, the amended definition of “Industry Governor” will continue to encompass individuals who have a consulting or employment relationship with Amex or Nasdaq. NASD believes that, given the difficulty and expense involved in amending the NASD By-Laws when regulatory clients are added or deleted, substituting “a market for which NASD provides regulation” is preferable to identifying such clients by name in the By-Laws.” For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 2 2 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2487 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50468; File No. SR-NASD-2004-144] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change by the National Association of Securities Dealers, Inc., Relating to the Listing and Trading of Theravance, Inc., Common Stock September 29, 2004. 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 September 24, 2004, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by Nasdaq. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to grant accelerated approval to the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to list and trade the common stock (“Common Stock”) of Theravance, Inc. (“Theravance”). The Common Stock includes call and put rights. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq 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 III below. Nasdaq 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 Nasdaq proposes to list and trade the Common Stock under the NASD rules that generally apply to the listing, designation for the Nasdaq National Market, and trading of the first class of common stock. 3 As described more fully below, the Common Stock currently includes an unusual feature, call and put rights. Nasdaq believes that the call and put rights make it desirable to apply certain additional requirements in connection with the listing of the Common Stock. Pursuant to its authority under NASD Rule 4300, “Qualification Requirements for Nasdaq Stock Market Securities,” to apply additional or more stringent criteria for the initial or continued inclusion of particular securities, Nasdaq proposes to apply to the Common Stock certain requirements of NASD Rule 4420(f), “Other Securities,” in addition to all of the other requirements normally applicable to common stock. Under NASD Rule 4420(f), Nasdaq may approve for listing and trading innovative securities that cannot be readily categorized under traditional listing guidelines. 4 3 *See* the 4300 and 4400 series of the NASD's rules. 4 *See* Securities Exchange Act Release No. 32988 (September 29, 1993); 58 FR 52124 (October 6, 1993) (File No. SR-NASD-93-15) (order approving listing standards for hybrid securities products) (“1993 Order”). Theravance has entered into an agreement with GlaxoSmithKline (“GSK”), whereby GSK has the right to require Theravance to redeem 50% of the Common Stock held by each holder of Common Stock. Upon notice of such a redemption, each stockholder will automatically be deemed to have submitted for redemption 50% of the Common Stock held by the stockholder at $54.25 per share. This right is referred to as the “call.” If GSK does not exercise this right, each holder of Common Stock has the right in August 2007 to require Theravance to redeem up to 50% of the holder's Common Stock at $19.375 per share. This right is referred to as the “put.” In either case, GSK is contractually obligated to pay Theravance the funds necessary to redeem the shares of Common Stock from Theravance's stockholders. However, GSK's maximum obligation for the shares of Common Stock subject to the put is $525 million. As described in the registration statement filed by Theravance, 5 if GSK elects to exercise its call right, it must provide written notice to Theravance between June 1, 2007, and July 1, 2007, and must provide adequate funds in cash to pay the aggregate redemption price of the shares of Common Stock to be called. GSK must specify the date that the call will occur, which must be no later than July 31, 2007. Upon receipt of notice from GSK to effect the call, Theravance must provide notice by mail of the proposed call to holders of record of Common Stock between ten and 30 days prior to the call date specified by GSK. 5 *See* File No. 333-116384. If GSK does not exercise its call right, each holder of Common Stock may exercise the put right described above during the period beginning on August 1, 2007, and ending on the 30th business day thereafter or as may be required under the Act or under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“Hart-Scott-Rodino Act”). 6 6 15 U.S.C. 18a. As set forth in the registration statement, 7 prior to the expiration of the put period, the existence of the put right will likely be influential in determining the market price at which the Common Stock will trade. However, the market price of the Common Stock is not guaranteed and may be adversely affected in the event that the ability of Common Stock holders to exercise the put right or to receive proceeds upon exercise of the call right is impaired or diminished. After the expiration of the put period, the market price of the Common Stock, to the extent still outstanding, may decline significantly. Although shareholders are granted the option to exercise their put rights of Common Stock during the period described above, provided that GSK has opted not to exercise its call right, there are no price protections after that period. 7 7 See note 5, supra. After September 1, 2012, GSK will have no restrictions on its ability to sell or transfer the Common Stock in the open market, in privately negotiated transactions or otherwise, and these sales or transfers could create a substantial decline in the price of the outstanding shares of Common Stock or, if these sales or transfers are made to a single buyer or group of buyers, could transfer control of the Common Stock to a third party. In addition, the existence of the call right may limit the Common Stock from trading much above the call price of $54.25 per share even if Theravance's future growth and/or market conditions were to otherwise warrant a per share valuation in excess of that price. If the call right is exercised, the holders of Common Stock would participate in this increased valuation only to the extent of the $54.25 per share Common Stock redemption price for 50% of their shares. Upon the occurrence of a triggering event (an insolvency event as described in the registration statement), the right of Theravance's shareholders to exercise the put with respect to 50% of their Common Stock will accelerate and commence immediately and continue for the 65 business days after such event or until a later date as required under the Act or under the Hart-Scott-Rodino Act. In the event the put notification is accelerated due to an insolvency event, GSK remains obligated to provide Theravance the funds necessary to effect the redemption of all shares of the Common Stock that are properly put or elect and arrange to purchase the Common Stock at the expiration of the period in which the put can be exercised, in compliance with applicable law. 8 8 8 Nasdaq clarified two minor typographical errors in this sentence. Telephone conversation between Alex Kogan, Associate General Counsel, Nasdaq, and Yvonne Fraticelli, Special Counsel, Office of Market Supervision, Division of Market Regulation, Commission, on September 28, 2004. In addition to all of the requirements normally applicable under Nasdaq rules to the listing and trading of common stock, the Common Stock initially will be made subject to certain additional listing criteria, which are essentially the listing criteria for “other securities” under NASD Rule 4420(f). Specifically, under NASD Rule 4420(f)(1):
(A)The issuer shall have assets in excess of $100 million and stockholders' equity of at least $10 million. In the case of an issuer which is unable to satisfy the income criteria set forth in paragraph (a)(1), Nasdaq generally will require the issuer to have the following:
(i)assets in excess of $200 million and stockholders' equity of at least $10 million; or
(ii)assets in excess of $100 million and stockholders' equity of at least $20 million;
(B)There must be a minimum of 400 holders of the security, provided, however, that if the instrument is traded in $1,000 denominations, there must be a minimum of 100 holders;
(C)For equity securities designated pursuant to this paragraph, there must be a minimum public distribution of 1,000,000 trading units; and
(D)The aggregate market value/principal amount of the security will be at least $4 million. As envisioned in NASD Rule 4420(f)(3), prior to the commencement of trading of the Common Stock, Nasdaq will distribute a circular to members providing guidance regarding the features of the Common Stock and members' responsibilities, including suitability recommendations, when handling transactions and highlighting the characteristics and risks of the Common Stock. In particular, Nasdaq will inform members that customer confirmations involving the Common Stock should identify the security as a callable and puttable instrument and that a customer may contact the member for more information concerning the security. 9 9 9 *See* IM-2110-6, “Confirmation of Callable Common Stock.” Furthermore, given the put and call features of the Common Stock, the circular will indicate that Nasdaq suggests that transactions in the Common Stock be recommended only to investors whose accounts have been approved for options trading. If a customer has not been approved for options trading, or does not wish to open an options account, the member should ascertain whether the Common Stock is suitable for the customer. Pursuant to NASD Rule 2310, “Recommendations to Customers (Suitability),” and IM-2310-2, “Fair Dealing with Customers,” members must have reasonable grounds for believing that a recommendation to a customer regarding the purchase, sale or exchange of any security is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs. In addition, members recommending a transaction in the Common Stock must, among other things, have a reasonable basis for believing that the customer can evaluate the special characteristics of, and is able to bear the financial risks of, such transaction. The circular will identify the following specific risks associated with the Common Stock. The circular will note that members should inform their customers that the price at which the Common Stock will trade may be influenced, prior to the expiration of the put period, by the existence of the put right. The circular will also note that the final rate of return on the Common Stock may be less than the market price of the Common Stock, and that after the expiration of the put period the market price of the Common Stock may decline significantly. Furthermore, customers should be aware that after September 1, 2012, GSK will have no restrictions on its ability to sell or transfer the Common Stock in the open market, in privately negotiated transactions or otherwise, and that these sales or transfers could create a substantial decline in the price of the outstanding shares of the Common Stock or, if these sales or transfers were made to a single buyer or group of buyers, could transfer control of the Common Stock to a third party. The Common Stock will be subject to all of the initial and continued listing requirements otherwise applicable to the first class of common stock designated for the Nasdaq National Market under NASD Rule 4420(a),
(b)or (c), including, but not limited to, all otherwise applicable corporate governance requirements. 10 The Common Stock will be subject to all applicable fees set forth in NASD Rule 4310, “Qualification Requirements for Domestic and Canadian Securities.” 11 Nasdaq will rely on its current surveillance procedures governing equity securities, and it represents that its surveillance procedures are adequate to properly monitor the trading of the Common Stock. 10 Pursuant to Rule 10A-3 under the Act, 17 CFR 240.10A-3, and Section 3 of the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002), Nasdaq will prohibit the initial or continued listing of any security of an issuer that is not in compliance with the requirements set forth therein. 11 Because the Common Stock is not being designated under NASD Rule 4420(f), it will not be subject to the fee schedule for “other securities” contained in NASD Rule 4530, “Other Securities.” 2. Statutory Basis Nasdaq believes the proposal is consistent with the provisions of Section 15A of the Act, 12 in general, and with Section 15A(b)(6) of the Act, 13 in particular, in that the proposal is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. Nasdaq believes that the callable and puttable feature of the Common Stock justify the additional listing requirements described in the proposal, and that investors will benefit from the application of the requirements. 12 15 U.S.C. 78o-3. 13 15 U.S.C. 78o-3(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq 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 solicited or received. III. 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-NASD-2004-144 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NASD-2004-144. 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. 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-NASD-2004-144 and should be submitted on or before October 26, 2004. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change Nasdaq has asked the Commission to approve the proposal on an accelerated basis to enable Nasdaq to accommodate the timetable for listing the Common Stock. In addition, Nasdaq believes that the proposal raises no new or novel issues. In this regard, Nasdaq notes that a national securities exchange previously has listed and traded callable puttable common stock. 14 Nasdaq also states that it previously has listed callable puttable common stock and callable common stock. 15 14 According to Nasdaq, Genentech, Inc. callable puttable common stock was listed on the New York Stock Exchange, Inc. (“NYSE”) from October 1995 through July 2000. 15 According to Nasdaq, Dreyer's Grand Ice Cream Holding, Inc. callable puttable common stock was listed on Nasdaq in February 2003; Genomic Solutions callable common stock was listed on Nasdaq in May 2000; Spiros Development Company, Inc. units, consisting of one warrant and one share of callable common stock, were listed on Nasdaq in December 1997; Aramed, Inc. units, consisting of one warrant and one share of callable common stock, were listed on Nasdaq from October 1993 through November 1995; SciGenics, Inc. units, consisting of one warrant and one share of callable common stock, were listed on Nasdaq from September 1991 through December 1995; and Neozyme Corporation units, consisting of one warrant and one share of callable common stock, were listed on Nasdaq from January 1991 through December 1993. In addition, AT&T Canada, Inc. callable Deposit Receipts were listed on Nasdaq in June 1999. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association and, in particular, with the requirements of Section 15A(b)(6) of the Act 16 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. 17 16 15 U.S.C. 78o-3(b)(6). 17 In approving the proposed rule, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). The Commission notes that the Common Stock has both call and put features. In particular, as described more fully above, GSK has the right to require Theravance to redeem 50% of the Common Stock held by each stockholder at $54.25 per share. If GSK elects to exercise its call right, it must provide written notice of its election to Theravance between June 1, 2007, and July 1, 2007, and the call must occur no later than July 31, 2007. If GSK declines to exercise its call right, each holder of Common Stock has the right to require Theravance to redeem up to 50% of the holder's Common Stock at $19.375 per share. Upon the occurrence of an insolvency event, as described in the registration statement filed by Theravance, 18 the put rights of the holders of Common Stock will accelerate and commence immediately. 18 *See* note 5, *supra.* The listing and trading of a non-traditional equity security like the Common Stock raises several regulatory issues. For the reasons discussed below, the Commission believes that Nasdaq's proposal adequately addresses the concerns raised by the listing and trading of the Common Stock. As noted above, in addition to being subject to the Nasdaq rules applicable to the initial and continued listing and trading of common stock, the Common Stock initially also will be subject to certain listing criteria applicable to “other securities” under NASD Rule 4420(f). The Commission notes that the protections of NASD Rule 4420(f) were designed to address the concerns attendant to the trading of innovative securities like the Common Stock. 19 By imposing the listing criteria and compliance requirements described above, as well as heightened suitability for recommendations, 20 the Commission believes that Nasdaq has adequately addressed the potential issues that could arise from the listing and trading of the Common Stock. 19 *See* 1993 Order, *supra* note 4. *See also* Securities Exchange Act Release No. 47350 (February 11, 2003), 68 FR 8061 (February 19, 2003) (File No. SR-NASD-2003-16) (order approving the listing standards applicable to Dreyer's Grand Ice Cream Holdings, Inc. callable puttable common stock) (“2003 Order”). 20 As discussed above, Nasdaq will advise members and employees thereof recommending a transaction in the Common Stock to:
(1)determine that the transaction is suitable for the customer; and
(2)have a reasonable basis for believing that the customer can evaluate the special characteristics of, and is able to bear the financial risks of, the transaction. The Commission notes that Nasdaq will distribute a circular to its members that provides guidance regarding members' compliance responsibilities and requirements, including heightened suitability recommendations, when handling transactions in callable puttable common stock, and that highlights the special risks and characteristics associated with the Common Stock. Specifically, among other things, the circular will inform members that customer confirmations involving the Common Stock should identify the security as a callable and puttable instrument and that a customer may contact the member for more information concerning the security. Nasdaq represents that the circular also will indicate that, given the put and call features of the Common Stock, Nasdaq will suggest that transactions in the Common Stock be recommended only to investors whose accounts have been approved for options trading. Nasdaq further represents that, if a customer has not been approved for options trading, or does not wish to open an options account, the member should ascertain whether the Common Stock is suitable for the customer pursuant to NASD Rule 2310 and IM-2310-2. The Commission believes that the distribution of the circular should help to ensure that only customers with an understanding of the risks attendant to the trading of the Common Stock and who are able to bear the financial risks associated with transactions in the Common Stock will acquire and trade the Common Stock. As noted above, Nasdaq represents that the circular will identify certain specific risks associated with the Common Stock. Specifically, the circular will note that members should inform their customers that the price at which the Common Stock will trade may be influenced by the existence of the put right prior to the expiration of the put period. The circular also will note that the final rate of return on the Common Stock may be less than the market price of the Common Stock, and that after the expiration of the put period the market price of the Common Stock may decline significantly. In addition, customers should be aware that after September 1, 2012, GSK will have no restrictions on its ability to sell or transfer the Common Stock in the open market, in privately negotiated transactions or otherwise, and that these sales or transfers could create a substantial decline in the price of the outstanding shares of the Common Stock or, if these sales or transfers are made to a single buyer or group of buyers, could transfer control of the Common Stock to a third party. The Commission believes that, to some extent, the financial risks associated with the Common Stock could be minimized by the proposed listing criteria. In this regard, the Commission notes that in addition to satisfying the initial and continued listing requirements for the first class of common stock designated for the Nasdaq National Market under NASD Rule 4420(a), (b), or (c), including all otherwise applicable corporate governance requirements, the Common Stock also must meet the additional initial asset, equity, and distribution requirements described above. The Commission notes that Nasdaq intends to rely on its current surveillance procedures governing equity securities to monitor trading in the Common Stock. Nasdaq represents that its surveillance procedures are adequate to properly monitor the trading of the Common Stock. The Commission finds good cause for approving the proposal prior to the thirtieth day after the date of publication of notice thereof in the **Federal Register** . The Commission believes that approving the proposal on an accelerated basis will accommodate the proposed timetable for listing the Common Stock. In addition, as described more fully above, the Commission notes that common stock with put and call features has been listed and traded on the NYSE and Nasdaq, and that the compliance and suitability requirements for the Common Stock are similar to those that Nasdaq adopted previously for a common stock with put and call features. 21 Accordingly, the Commission believes that good cause exists, consistent with Sections 15A(b)(6) and 19(b)(2) of the Act, 22 to approve the proposal on an accelerated basis. 21 *See* 2003 Order, *supra* note 19. 22 15 U.S.C. 78o-3(b)(6) and 78s(b)(2). V. Conclusion For the foregoing reasons, the Commission finds that the proposal is consistent with the requirements of the Act and rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 23 that the proposed rule change (SR-NASD-2004-144) is approved on an accelerated basis. 23 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 24 24 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2488 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50466; File No. SR-OCC-2004-11] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Yield-Based Treasury Options September 29, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on June 8, 2004, The Options Clearing Corporation (“OCC”) 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 prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would update two sections of OCC's By-Laws pertaining to yield-based Treasury options. The proposed changes would conform those sections to the corresponding By-Law provisions governing index options. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of such statements. 2 2 The Commission has modified parts of these statements.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Article XVI, Section 3(c) of OCC's By-Laws currently provides OCC with the authority to adjust outstanding options in a class of yield-based Treasury options in the event that an exchange decreases the multiplier. The proposed changes to Section 3(c) would simply provide for the possibility that an exchange might increase rather than decrease the multiplier and would grant OCC the flexibility to adjust any outstanding options accordingly. The proposed rule change is similar to a previously approved OCC rule change pertaining to the adjustment of index option contracts. 3 3 Securities Exchange Act Release No. 44184 (April 16, 2001), 66 FR 20342 (April 20, 2001) [File No. SR-OCC-99-12]. Article XVI, Section 4 of OCC's By-Laws currently provides OCC with the authority to fix the exercise settlement amount for exercised yield-based Treasury option contracts “in accordance with the best information available as to the correct settlement value of the underlying yield” if OCC determines that the settlement value of the underlying yield is unreported or otherwise unavailable for purposes of calculating the settlement amount for exercised contracts. Until recently, the Chicago Board Options Exchange (“CBOE”), on which yield-based Treasury options are traded, had a rule setting forth a specific method for determining the settlement value of the yield in the event the reporting authority failed to supply a settlement value. The CBOE rule setting forth that method, a random poll of a minimum of ten primary government bond dealers, was eliminated on December 2, 2003, when the Commission accepted for immediate effectiveness a CBOE rule filing deleting it. In that filing, CBOE adopted a provision stating that the settlement value would be determined in accordance with OCC's By-Laws and Rules. 4 4 Securities Exchange Act Release No. 48865 (December 2, 2003), 68 FR 68676 (December 9, 2003) [File No. SR-CBOE-2003-48]. The repeal of the CBOE rule prompted OCC to review its own rules governing the setting of exercise settlement values for yield-based Treasury options. OCC now proposes to amend Article XVI, Section 4 to give OCC substantially the same discretion in fixing exercise settlement values for yield-based Treasury options as it has under Article XVII, Section 4 governing index options. 5 As noted in the order approving OCC's rule change for index options, OCC's authority to fix exercise settlement values in unusual market conditions should be sufficiently broad to ensure that such values are consistent with the settlement values established for related products in other markets whenever that result is deemed to be in the best interest of investors. 6 While Article VI, Section 4(a)(2) as currently drafted is also broad, OCC believes that its authority should be expressed in language parallel to other By-Laws provisions that expressly acknowledge that a settlement price may be fixed based either on the last reported price before a market disruption or the next reported price following the disruption or by some other method. 5 A draft supplement to the Options Disclosure Document (“ODD”) that describes the substance of the By-Laws changes proposed herein will be filed with the Commission pursuant to Rule 9b-1 under the Act. Implementation of this rule change will be coordinated with the distribution of the related ODD supplement. 6 Securities Exchange Act Release No. 47418 (February 27, 2003), 68 FR 11439 (March 10, 2003) [File No. SR-OCC-2002-09]. As with index options, under Revised Article XVI, Section 4(a)(2) the settlement value of yield-based Treasury options would be fixed by an adjustment panel consisting of representatives of the exchange or exchanges on which the affected series of options is traded. Additionally, under Section 4(a)(3), in the event the adjustment panel delays fixing a settlement value beyond the expiration date of the affected series, the normal exercise by exception procedures would not apply. Instead, options that are in the money by one dollar or more would be deemed to have been irrevocably exercised prior to the expiration time. OCC believes that the proposed rule change is consistent with the purposes and requirements of Section 17A of the Act, as amended, because it is designed to promote the prompt and accurate clearance and settlement of securities transactions, foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions, remove impediments to the mechanisms of a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect investors and the public interest. The proposed changes promote these objectives by providing OCC with flexibility in responding to unanticipated events.
(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty five days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to ninety 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 the self-regulatory organization consents, the Commission will:
(a)by order approve the proposed rule change or
(b)institute proceedings to determine whether the proposed rule change should be disapproved. VI. 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-OCC-2004-11 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-OCC-2004-11. 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at *http://www.optionsclearing.com* . 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-OCC-2004-11 and should be submitted on or before October 26, 2004. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2486 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50470; File No. SR-PCX-2004-88] Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend its Schedule of Fees and Charges for Exchange Services by Increasing its Broker Dealer Surcharge September 29, 2004. 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 September 23, 2004, the Pacific Exchange, Inc. (“PCX” 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 prepared by PCX. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change PCX proposes to amend its Schedule of Fees and Charges For Exchange Services in order to increase the Broker Dealer Surcharge by $.05 to $.25 per contract. The text of the proposed rule change is available at the Office of the Secretary, PCX, 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, PCX 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. PCX 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 proposed rule change is to increase the Broker Dealer Surcharge by $.05 per contract from $.20 to $.25 per contract. PCX states that the rate increase is necessary to help narrow the gap in trading costs between PCX market makers and Broker Dealers as well as to help offset the costs associated with trading system enhancements that will allow for higher levels of transparency to Broker Dealers accessing the PCX markets. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act, 3 in general, and furthers the objectives of Section 6(b)(4) of the Act, 4 in particular, in that it provides for the equitable allocation of dues, fees and other charges among its Options Trading Permit Holders and other persons using its facilities for the purpose of trading option contracts. 3 15 U.S.C. 78f(b). 4 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition PCX 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, as amended. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, and, therefore, has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 5 and subparagraph (f)(2) of Rule 19b-4 thereunder. 6 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. 5 15 U.S.C. 78s(b)(3)(A)(ii). 6 17 CFR 240.19b-4(f)(2). 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 No. SR-PCX-2004-88 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File No. SR-PCX-2004-88. 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of PCX. 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 No. SR-PCX-2004-88 and should be submitted on or before October 26, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2490 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50471; File No. SR-PHLX-2004-60] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to its Equity Options Payment for Order Flow Program September 29, 2004. 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 September 22, 2004, 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 prepared by the Exchange. The Phlx has designated this proposal as one changing a fee imposed by the Phlx 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 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 proposes to amend its schedule of dues, fees, and charges to revise its equity options payment for order flow program. Equity Options Payment for Order Flow Program Prior to September 22, 2004 The Exchange recently amended its equity options payment for order flow program. 5 Pursuant to that program, for trades settling on or after August 2, 2004, the Exchange assessed a payment for order flow fee as follows when Registered Options Traders (“ROTs”) traded against a customer order:
(1)$1.00 per contract for options on the Nasdaq-100 Index Tracking Stock SM traded under the symbol QQQ; 6 and
(2)$0.35 per contract for all other equity options. The ROT payment for order flow fee is not assessed on transactions between:
(1)A specialist and a ROT;
(2)a ROT and a ROT;
(3)a ROT and a firm; 7 and
(4)a ROT and a broker-dealer. 8 The ROT payment for order flow fee does not apply to index options or foreign currency options. Accordingly, the ROT payment for order flow fee applies, in effect, to equity option transactions between a ROT and a customer. In addition, a 500 contract cap per individual cleared side of a transaction is imposed. 9 5 *See* SR-Phlx-2004-50 and SR-Phlx-2004-56. *See infra* note 19 for a discussion of the status of these filings. 6 QQQ is currently the most actively-traded equity option. The Nasdaq-100®, Nasdaq-100 Index®, Nasdaq®, The Nasdaq Stock Market®, Nasdaq-100 Shares SM , Nasdaq-100 Trust SM , Nasdaq-100 Index Tracking Stock SM , and QQQ SM are trademarks or service marks of The Nasdaq Stock Market, Inc. (“Nasdaq”) and have been licensed for use for certain purposes by the Phlx pursuant to a License Agreement with Nasdaq. The Nasdaq-100 Index® (“Index”) is determined, composed, and calculated by Nasdaq without regard to the Licensee, the Nasdaq-100 Trust SM , or the beneficial owners of Nasdaq-100 Shares SM . Nasdaq has complete control and sole discretion in determining, comprising, or calculating the Index or in modifying in any way its method for determining, comprising, or calculating the Index in the future. 7 For the purposes of the equity options payment for order flow program, a firm is defined as a proprietary account of a member firm, and not the account of an individual member. 8 For purposes of the equity options payment for order flow program, broker-dealer orders are orders, entered from other than the floor of the Exchange, for any account
(i)in which the holder of beneficial interest is a member or 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-the-floor. 9 Under the Exchange's equity options payment for order flow program, a 500 contract cap per individual cleared side of a transaction is imposed. Thus, the applicable payment for order flow fee is imposed only on the first 500 contracts, per individual cleared side of a transaction. For example, if a transaction consists of 750 contracts by one ROT, the applicable payment for order flow fee would be applied to, and capped at, 500 contracts for that transaction. Also, if a transaction consists of 600 contracts, but is equally divided among three ROTs, the 500 contract cap would not apply to any such ROT and each ROT would be assessed the applicable payment for order flow fee on 200 contracts, as the payment for order flow fee is assessed on a per ROT, per transaction basis. *See* Securities Exchange Act Release Nos. 47958 (May 30, 2003), 68 FR 34026 (June 6, 2003) (proposing SR-Phlx-2002-87); and 48166 (July 11, 2003), 68 FR 42450 (July 17, 2003) (approving SR-Phlx-2002-87). *See also* SR-Phlx-2004-50. Specialist units 10 elect to participate or not to participate in the program in all options in which they are acting as a specialist by notifying the Exchange in writing no later than five business days prior to the start of the month. 11 If electing not to participate in the program, the specialist unit waives its right to any reimbursement of payment for order flow funds for the month(s) during which it elected to opt out of the program. 12 10 The terms “specialist” and “specialist unit” are used interchangeably herein. 11 A specialist unit must notify the Exchange in writing to either elect to participate or not to participate in the program. Once a specialist unit has either elected to participate or not to participate in the Exchange's equity options payment for order flow program in a particular month, it is not required to notify the Exchange in a subsequent month, as described above, if it does not intend to change its participation status. For example, if a specialist unit elected to participate in the program and provided the Exchange with the appropriate notice, that specialist unit would not be required to notify the Exchange in the subsequent month(s) if it intends to continue to participate in the program. However, if it elects not to participate (a change from its current status), it would need to notify the Exchange in accordance with the requirements stated above. 12 For any month (or part of a month where an option is allocated mid-month) the specialist unit has elected to opt out of the program, no ROT payment for order flow fee will apply. Specialist units may opt out entirely from the equity options payment for order flow program, as long as they notify the Exchange in writing by the 15th of the month. 13 If a specialist unit opts out of the program by the 15th of the month, no payment for order flow charges will be incurred for either the specialist unit or ROTs for transactions in the affected options for that month. 13 If the 15th of the month is not a business day, the specialist unit may notify the Exchange of its desire to opt out of the program by the next business day. If a specialist unit opts into the program, and does not request reimbursement of at least 50% of the total amount of payment for order flow funds collected from ROTs in the options for which that specialist unit is acting as the specialist, then that specialist unit will be required to pay payment for order flow fees for that month at the same rate as the ROTs. The Exchange bills the ROTs and collects the payment for order flow fees from the ROTs on a monthly basis. 14 The collected funds will be used by each specialist unit to reimburse it for monies expended to attract options orders to the Phlx by making payments to order flow providers who provide order flow to the Exchange. Each specialist will establish the amounts that will be paid to order flow providers. Specialists receive their respective funds only after submitting an Exchange certification form identifying the amount of the requested funds. 15 Because the specialists are not being charged the payment for order flow fee for their own transactions, they may not request reimbursement for order flow funds in connection with any transactions to which they were a party. 16 14 Originally, in filing SR-Phlx-2004-50, the Exchange proposed that the collected payment for order flow fees be combined in one account to form a “pool.” If, after taking into account all requests for reimbursement in a given month, the amount in the pool would be insufficient to satisfy all such requests, then the reimbursement requests would be reduced on a proportionate basis among the requesting specialists for that month based on contracts executed by ROTs in the specialists' respective options. The amount by which the requests exceed the proportionate reimbursement may not be recovered in future months (and would not carry forward as claims against the pool). If there were any excess funds after monthly reimbursements, those funds would carry forward to be used for future requests. The Exchange subsequently proposed to amend this aspect of its equity options payment for order flow program. For the month of August 2004, the Exchange has proposed to require specialists to request reimbursement for payment for order flow funds on an option-by-option basis and that any excess payment for order flow funds collected but not reimbursed to specialists would be rebated back to the affected ROTs on an option-by-option basis. *See* SR-Phlx-2004-61. 15 While all determinations concerning the amount that will be paid for orders and which order flow providers shall receive these payments will be made by the specialists, the specialists will provide to the Exchange on an Exchange form certain information, such as what firms they paid for order flow, the amount of the payment and the price paid per contract. The purpose of the form, in part, is to assist the Exchange in determining the effectiveness of the proposed fee and to account for and track the funds transferred to specialists, consistent with normal bookkeeping and auditing practices. In addition, certain administrative duties will be provided by the Exchange to assist the specialists. 16 The amount a specialist may receive in reimbursement is limited to the percentage of ROT monthly volume to total specialist and ROT monthly volume in the equity options payment for order flow program. The Exchange may audit a specialist's payments to payment-accepting firms to verify the use and accuracy of the payment for order flow funds remitted to the specialists based on their certification. 17 17 *See* Exchange Rule 760. The Exchange also continues to implement a quality of execution program. 18 18 *See, e.g.* , Securities Exchange Act Release No. 43436 (October 11, 2000), 65 FR 63281 (October 23, 2000) (SR-Phlx-2000-83). The above referenced program was in effect for trades settling on or after August 2, 2004. 19 19 *See* SR-Phlx-2004-50 and SR-Phlx-2004-56, originally filed with the Commission on July 29, 2004 (subsequently amended on August 16, 2004) and August 16, 2004, respectively. These proposed rule changes were in effect until the Commission issued an abrogation order on September 22, 2004, which effectively rescinded the proposed rule changes as of the date of abrogation. *See* Securities Exchange Act Release No. 50420 (September 22, 2004). In addition, on August 31, 2004, the Exchange filed SR-Phlx-2004-58 with the Commission, which proposed to increase the payment for order flow fee of $0.35 per contract to $0.40 per contract for all equity options, other than options on the QQQ, to be effective for trades settling on or after September 1, 2004. On September 22, 2004, the Exchange withdrew SR-Phlx-2004-58 and filed with the Commission SR-Phlx-2004-60 and SR-Phlx-2004-61, which are intended to address payment for order flow fees imposed on trades settling on or after September 1, 2004. In SR-Phlx-2004-50, the Phlx also made a technical update to a footnote on the first page of the Exchange's Summary of Equity Option Charges by deleting a page reference and inserting a reference to a section header in its place. Proposed Equity Options Payment for Order Flow Program Commencing September 22, 2004 The Exchange proposes to charge a payment for order flow fee on transactions by Phlx ROTs of $1.00 per contract for options on the QQQ, currently the most actively traded equity option, and $0.40 per contract for the remaining top 150 equity options, other than the QQQ. 20 The payment for order flow fee will continue to apply to customer orders. 21 In addition, the 500 contract cap per individual cleared side of a transaction will continue to be imposed. 22 20 The top 150 options will be calculated based on the most actively traded equity options in terms of the total number of contracts that are traded nationally, based on volume statistics provided by the Options Clearing Corporation (“OCC”) and that are also traded on the Exchange. For example, if two of the most actively traded equity options, based on volume statistics provided by the OCC are not traded on the Exchange, then the next two most actively traded equity options that are traded on the Exchange will be selected. (For example, if the list of the top 150 options includes two options that are not traded on the Exchange, then the options ranked 151 and 152 will be included in the Exchange's top 150, assuming those options are traded on the Exchange). The measuring periods for the top 150 options will be calculated every three months. For example, for trade months September, October and November, the measuring period to determine the top 150 options will be based on volume statistics from May, June and July. This cycle will continue every three months. Members will be notified of the top 150 options approximately two weeks before the beginning of a new three-month trading period. As discussed below, the payment for order flow fees are incurred only when the specialist elects to participate in the equity options payment for order flow program. The Exchange's fee schedule will reflect the fee of $1.00 for options on the QQQ and $0.40 for the remaining top 150 equity options, other than the QQQ. Any change to the rate at which the payment for order flow fee is assessed would be the subject of a separate proposed rule change filed with the Commission. 21 Thus, consistent with current practice, the ROT payment for order flow fee is not assessed on transactions between:
(1)A specialist and a ROT;
(2)a ROT and a ROT;
(3)a ROT and a firm; and
(4)a ROT and a broker-dealer. The ROT payment for order flow fee does not apply to index options or foreign currency options. Accordingly, the ROT payment for order flow fees applies, in effect, to equity option transactions between a ROT and a customer. 22 *See supra* note 9. The payment for order flow fee will be billed and collected on a monthly basis. Because the specialists are not being charged the payment for order flow fee for their own transactions, they may not request reimbursement for order flow funds in connection with any transactions to which they were a party. 23 23 The amount a specialist may receive in reimbursement is limited to the percentage of ROT monthly volume to total specialist and ROT monthly volume in the equity options payment for order flow program. For example, if a specialist unit has a payment for order flow arrangement with an order flow provider to pay that order flow provider $0.70 per contract for order flow routed to the Exchange and that order flow provider sends 90,000 customer contracts to the Exchange in one month for one option, then the specialist would be required, pursuant to its agreement with the order flow provider, to pay the order flow provider $63,000 for that month. Assuming that the 90,000 represents 30,000 specialist transactions, 20,000 ROT transactions and 40,000 transactions from firms, broker-dealers and other customers, the specialist may request reimbursement of up to 40% (20,000/50,000) of the amount paid ($63,000 x 40%=$25,200). However, because the ROTs will have paid $8,000 into the payment for order flow fund for that month, the specialist may collect only $8,000 (20,000 contracts x $0.40 per contract) of its $25,200 reimbursement request plus, if applicable, any excess funds for that particular option carried over from a prior month up to the specialist's $25,200 reimbursement request. Specialists will request payment for order flow reimbursements on an option-by-option basis. The collected funds will be used by each specialist unit to reimburse it for monies expended to attract options orders to the Exchange by making payments to order flow providers who provide order flow to the Exchange. They will receive their respective funds only after submitting an Exchange certification form identifying the amount of the requested funds. 24 Each specialist unit will establish the amounts that will be paid to order flow providers. 24 *See supra* note 15. Any excess payment for order flow funds will be carried forward to the next month by option and may not be applied retroactively to past deficits, which may be incurred when the specialist requests more than the amount collected. 25 Thus, excess funds will not be rebated to ROTs except in the limited situation discussed below, nor will deficits carry forward to subsequent months. ROTs may, however, receive a rebate of excess funds in a particular option for a particular month if the specialist unit does not request reimbursement by option of at least 50% of the total amount of payment for order flow funds billed to and collected from ROTs for each option in which that specialist unit is acting as specialist, as more fully described below. The Exchange will periodically review its equity options payment for order flow program to determine whether a cap on the amount collected for each option should be imposed in the future. 26 25 Specialists may not receive more than the payment for order flow amount billed and collected in a given month; however, the amounts specialists receive may include excesses, if any, for that option, carried forward from prior months, up to the payment for order flow amount billed and collected in such month. Telephone conversation between Cynthia K. Hoekstra, Counsel, Phlx, and David Liu, Attorney, Division of Market Regulation, Commission, on September 24, 2004. 26 Any such cap would have to be filed with the Commission as a proposed rule change under Section 19(b)(1) of the Act. 26 Consistent with the Exchange's current equity options payment for order flow program, specialists units may opt out entirely from the program as long as they notify the Exchange in writing by the 15th of the month, or the next business day if the 15th of the month is not a business day. If a specialist unit opts out of the program by the 15th of the month, no payment for order flow charges will be incurred for either the specialist unit or ROTs for transactions in the affected options for that month. In addition to opting out entirely from the program, specialists may opt out of the program on an option-by-option basis if they notify the Exchange in writing no later than three business days after the end of the month (which is before the payment for order flow fee is billed). If a specialist unit opts out of an option at the end of the month then no payment for order flow fees will be assessed on the applicable ROT(s) for that option. If a specialist unit opts out of the program in a particular option more than two times in a six-month period, it will be precluded from entering into the equity options payment for order flow program for that option for the next three months. If a specialist unit opts into the program (and does not opt out of the program entirely by the 15th day of the month or by option by the third business day after the end of the month) and does not request reimbursement by option of at least 50% of the total amount of payment for order flow funds billed to and collected from ROTs for each option in which that specialist unit is acting as the specialist, then any excess payment for order flow funds remaining after the specialist has been reimbursed will be rebated, on a pro rata basis, to the affected ROTs for those particular options in which the 50% threshold was not met. 27 27 For example, if a specialist unit requests $10,000 in reimbursement for one option and the total amount billed and collected from the ROTS was $30,000, then the specialist unit did not satisfy the 50% threshold, given the fact that it did not request reimbursement of at least $15,000. Therefore, the remaining amount of $20,000 will be rebated to the ROTs on a pro rata basis. If ROT A was assessed $15,000 in payment for order flow fees, he would receive a rebate of $10,000 ($15,000/$30,000 = 50% and 50% of $20,000 is $10,000). If ROT B was assessed $8,000 in payment for order flow fees, it would receive $5,333.33, which represents 26.67% ($8,000/$30,000) of $20,000. If ROT C was assessed $7,000 in payment for order flow fees, it would receive $4,666.67, which represents 23.33% ($7,000/$30,000) of $20,000. Consistent with current practice, the Exchange may audit a specialist's payments to payment-accepting firms to verify the use and accuracy of the payment for order flow funds remitted to the specialists based on their certification. 28 28 *See* Exchange Rule 760. The Exchange will also continue to implement a quality of execution program. 29 Other aspects of the Exchange's equity options payment for order flow program will remain unchanged. 30 29 *See, e.g.* , Securities Exchange Act Release No. 43436 (October 11, 2000), 65 FR 63281 (October 23, 2000) (SR-Phlx-2000-83). 30 For example, specialists will elect to participate or not to participate in all options in which they are acting as a specialist by notifying the Exchange in writing no later than five business days prior to the start of the month. Once a specialist unit elects to participate or not to participate in the program, the specialist does not have to notify the Exchange in a subsequent month if it does not intend to change its participation status. ( *See supra* note 11). Specialists will waive the right to reimbursement of payment for order flow funds for the month(s) during which it elected to opt out of the program. The payment for order flow fees as set forth in this proposal would be in effect for trades settling on or after September 22, 2004. 31 31 Because SR-Phlx-2004-50 has no legal effect as of the date of its abrogation, the Exchange's Summary of Equity Option Charges reflects changes that were proposed in SR-Phlx-2004-50. The Exchange has also filed a separate proposed rule change to implement the payment for order flow fee, as outlined in this proposal, to be in effect for trades settling on or after September 1, 2004 through September 21, 2004. See SR-Phlx-2004-61. Below is the text of the proposed rule change. Proposed new language is in *italics* ; deletions are in [brackets]. SUMMARY OF EQUITY OPTION CHARGES (p. 1/[3] 3 ) OPTION COMPARISON CHARGE (applicable to all trades—except specialist trades) + Subject to a maximum fee of $50,000, except for QQQ license fees of $0.10 per contract side—see [$50,000 “Firm Related” Equity Option and Index Option Cap.] *$50,000 “Firm Related” Equity Option and Index Option Cap.* ^ Specialists may also elect to pay a fixed fee monthly charge, see Specialist Unit Fixed Monthly Fee described below. * ROTs are eligible for a $.08/contract side rebate and specialists who have not elected the fixed monthly fee are eligible for a $.07/contract side rebate for trades occurring as part of a dividend spread strategy. ⊕ These fees are waived from May 1, 2004 until August 31, 2004 for transactions in equity options that begin trading on the Exchange between January 1, 2004 and June 30, 2004. Footnotes 9-13—no change. SUMMARY OF EQUITY OPTION CHARGES (p. 2/[3] 3 ) [SUMMARY OF EQUITY OPTION CHARGES (p. 3/3)] [EQUITY OPTION PAYMENT FOR ORDER FLOW FEES*] [Registered Option Trader (on-floor): ** + QQQ (NASDAQ-100 Index Tracking Stock SM ) $1.00 per contract. Remaining equity options subject to charge $0.35 per contract. * Assessed on transactions resulting from customer orders ** Subject to a 500-contract cap, per individual cleared side of a transaction. + Only incurred when the specialist elects to participate in the payment for order flow program] *SUMMARY OF EQUITY OPTION CHARGES (p. 3/3)* EQUITY OPTION PAYMENT FOR ORDER FLOW FEES * Registered Option Trader (on-floor) ** + QQQ (NASDAQ-100 Index Tracking Stock SM ) $1.00 per contract. Remaining Top 150 Equity Options $0.40 per contract. * *Assessed on transactions resulting from customer orders, subject to a 500-contract cap, per individual cleared side of a transaction* ** *Any excess payment for order flow funds will be carried forward to the next month by option and will not be rebated to ROTs. ROTs may, however, receive a rebate of any excess funds in a particular option for a particular month if the specialist unit does not request reimbursement by option of at least 50% of the total amount of payment for order flow funds billed and collected from ROTs for each option in which that specialist unit is acting as specialist.* +Only incurred when the specialist elects to participate in the payment for order flow program 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, 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 Exchange represents that the purpose of the proposed rule change is to adopt a more competitive equity options payment for order flow program. Equity options payment for order flow programs are in place at each of the other options exchanges. The Exchanges states that the revenue generated by the $1.00 or $0.40 payment for order flow fees, as outlined in this proposal, is intended to be used by specialist units to compete for order flow in equity options listed for trading on the Exchange. The Exchange believes that, in today's competitive environment, changing its equity options payment for order flow program to compete more directly with other options exchanges is important and appropriate. The Phlx states that the purpose of imposing the 50% threshold is to encourage specialists to have payment for order flow arrangements in place before electing to participate in the Exchange's equity options payment for order flow program. 2. Basis The Exchange believes that its proposal to amend its schedule of dues, fees and charges is consistent with Section 6(b) of the Act 32 in general, and furthers the objectives of Sections 6(b)(4) of the Act 33 in particular, in that it is an equitable allocation of reasonable fees among Phlx members and that it is designed to enable the Exchange to compete with other markets in attracting customer order flow. Because the payment for order flow fees are collected only from member organizations respecting customer transactions, the Phlx believes that there is a direct and fair correlation between those members who fund the equity options payment for order flow fee program and those who receive the benefits of the program. The Exchange states that ROTs also potentially benefit from additional customer order flow. In addition, the Phlx believes that the proposed payment for order flow fees would serve to enhance the competitiveness of the Phlx and its members and that this proposal therefore is consistent with and furthers the objectives of the Act, including Section 6(b)(5) thereof, 34 which requires the rules of exchanges to be designed to promote just and equitable principles of trade, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. The Phlx believes that attracting more order flow to the Exchange should, in turn, result in increased liquidity, tighter markets and more competition among exchange members. 32 15 U.S.C. 78f(b). 33 15 U.S.C. 78f(b)(4). 34 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange 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. 35 35 Previously, in connection with SR-Phlx-2004-50, the Exchange received one written comment letter dated August 10, 2004, which was forwarded to the Commission on August 20, 2004. 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 36 and Rule 19b-4(f)(2) 37 thereunder, 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. At any time within 60 days of the filing of such 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. 36 15 U.S.C. 78s(b)(A)(ii). 37 17 CFR 240.19b-4(f)(2). 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-2004-60 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-PHLX-2004-60. 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-2004-60 and should be submitted on or before October 26, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 38 38 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2489 Filed 10-4-04; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION Declaration of Disaster #3624; State of Alabama (Amendment #1) In accordance with a notice received from the Department of Homeland Security—Federal Emergency Management Agency—effective September 23, 2004, the above numbered declaration is hereby amended to include Autauga, Barbour, Bibb, Blount, Bullock, Calhoun, Chilton, Choctaw, Clay, Coosa, Cullman, Dallas, Dale, Elmore, Etowah, Fayette, Franklin, Greene, Hale, Jefferson, Lamar, Lawrence, Lee, Lowndes, Macon, Marengo, Marshall, Marion, Montgomery, Perry, Pickens, Pike, Shelby, St. Clair, Sumter, Talladega, Tallapoosa, Tuscaloosa, Walker, Wilcox, and Winston as disaster areas due to damages caused by Hurricane Ivan occurring on September 13, 2004 and continuing. In addition, applications for economic injury loans from small businesses located in the contiguous counties of Chambers, Cherokee, Cleburne, Colbert, DeKalb, Henry, Jackson, Lauderdale, Limestone, Madison, Morgan, Randolph, and Russell in the State of Alabama; Clay, Harris, Muscogee, Quitman, and Stewart in the State of Georgia; and Clarke, Itawamba, Kemper, Lauderdale, Lowndes, Monroe, Noxubee, and Tishomingo in the State of Mississippi may be filed until the specified date at the previously designated location. All other counties contiguous to the above named primary counties have previously been declared. The economic injury number assigned to Georgia is 9AA500. All other information remains the same, *i.e.* , the deadline for filing applications for physical damage is November 15, 2004 and for economic injury the deadline is June 15, 2005. (Catalog of Federal Domestic Assistance Program Nos. 59002 and 59008) Dated: September 27, 2004. Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. 04-22291 Filed 10-4-04; 8:45 am]
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U.S. Code
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- National securities exchanges§ 78f
- Definitions and application§ 78c
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Premerger notification and waiting period§ 18a
- Registered securities associations§ 78o–3
3 references not yet in our index
- 17 CFR 240.19
- 17 CFR 240.10
- Pub. L. 107-204
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SECURITIES AND EXCHANGE COMMISSION
Cite17 CFR 240.19
Cite17 CFR 240.10
Pub. L.Pub. L. 107-204
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