03-19182. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to Specialist Deficit (Shortfall) Fee Credit

July 22, 2003.

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 July 1, 2003, 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 Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Phlx proposes to amend its schedule of dues, fees and charges to: (1) Eliminate the Exchange's Equity Option Specialist Deficit (Shortfall) fee credit (“shortfall credit”); and (2) clarify the application of the shortfall credit during the time period during which it was in effect.

Pursuant to the shortfall credit, a credit of $.35 per contract could be earned by options specialists for all contracts traded in excess of 14 percent of the total national monthly contract volume.^[3] The credits could be applied against previously imposed Equity Option Specialist Deficit (Shortfall) fees for the preceding six months for issues that, in the month the deficit occurred, the equity option traded in excess of 10 million contracts per month.^[4] The Exchange proposes to clarify that a specialist may earn a shortfall credit of $.35 per contract for all contracts traded in excess of 14 percent for previously imposed shortfall fees for the preceding six months for issues that, in the month the deficit occurred, the equity option traded in excess of 10 million contract sides per month.^[5]

The Exchange intends to eliminate the shortfall credit for all transactions settling on or after July 1, 2003.

The text of the proposed rule change is available at the Office of the Secretary, the Phlx, and 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 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 purpose of the proposed rule change is to eliminate the Exchange's shortfall credit due to recent revisions to the Exchange's Specialist Deficit (Shortfall) fee program.^[6] The Exchange no longer wishes to allow for a shortfall credit due to these recent changes. However, the Exchange also seeks to clarify the application of the shortfall credit during the time period during which it was in effect in order to minimize member confusion.

2. Statutory Basis

The Exchange believes that its proposal is consistent with section 6(b) of the Act,^[7] in general, and furthers the objectives of section 6(b)(4) of the Act,^[8] in particular, in that it is an equitable allocation of reasonable dues, fees and other charges among Exchange members.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Phlx does not believe that the proposed rule change will impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

No written comments were either solicited or received.

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

Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to section 19(b)(3)(A)(ii) of the Act ^[9] and subparagraph (f)(2) of Rule 19b-4 ^[10] thereunder. 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying at 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 submissions should refer to File No. SR-Phlx-2003-48 and should be submitted by August 19, 2003.

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

Jill M. Peterson,

Assistant Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 45322 (January 22, 2002), 67 FR 3927 (January 28, 2002) (SR-Phlx-2001-115).

4.  The contract volume reflects the total number of contracts in an option that were traded nationally for a specified month, based on volume reflected by The Options Clearing Corporation.

5.  See Securities Exchange Act Release No. 44892 (October 1, 2001), 66 FR 51487 (October 9, 2001) (SR-Phlx-2001-83). In the proposed rule change submitted in connection with the shortfall credit, the word “sides” was inadvertently excluded from the proposal. The shortfall credit is more easily attainable if the threshold calculation is based on contract sides. For example, 10 million contracts equal 20 million contract sides.

6.  See SR-Phlx-2003-45, submitted on June 25, 2003 and SR-Phlx-2003-47, submitted on June 27, 2003. These filings revised the shortfall fee by decreasing the total national monthly contract volume threshold from 14 percent to 12 percent for specialists trading any Top 120 Option and imposed a limit of $10,000 to the specialist on the monthly amount of the shortfall fee for any Top 120 Option, provided certain conditions are met.

7.  15 U.S.C. 78f(b).

8.  15 U.S.C. 78f(b)(4).

9.  15 U.S.C. 78s(b)(3)(A)(ii).

10.  17 CFR 240.19b-4(f)(2).

11.  17 CFR 200.30-3(a)(12).