This petition for rulemaking was in response to a Jan. 24 letter from SEC Chairman Harvey L. Pitt calling for the elimination of exchange-sponsored options payment for order flow programs by individual exchanges.
"We strongly agree with Chairman Pitt that exchange-sponsored payment for order flow programs are deleterious to the options markets. However, the SEC, which effectively condoned this practice by failing to abrogate exchange filings establishing payment for order flow fees, should now take responsibility for eliminating it," said Frucher.
In response to Pitt's letter, PHLX Chairman Meyer "Sandy" Frucher said the PHLX would be willing to discontinue its options payment for order flow program but stressed that it would be unfair to require the PHLX to do so unless all the other exchanges were also required to terminate their programs. In submitting this petition, Frucher is now asking the Commission to take action to ban these programs through rulemaking.
"We have long felt, and we have long made it known, that the Philadelphia Stock Exchange opposes options payment for order flow programs that are administered by exchanges. These programs have put unfair burdens on market makers and place exchanges, which are self regulatory organizations, in the uncomfortable position of administering payment arrangements between specialists and order flow providers," Frucher said.
Attached are the cover letter and petition to Chairman Pitt.to Chairman Pitt.
