[Federal Register Volume 62, Number 57 (Tuesday, March 25, 1997)]
[Notices]
[Pages 14176-14177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7391]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38416; File No. SR-PHLX-97-10]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to a Clarification of the Exemptions From the 
Exchange Examination Fee

March 18, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 28, 1997, the Philadelphia Stock Exchange, Inc. (``PHLX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the PHLX. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PHLX, pursuant to Rule 19b-4 of the Act, proposes to amend one 
of the exemptions to its existing examination fee in order to clarify 
to which firms the fee is applicable. The text of the amendment to the 
fee schedule language is as follows (new text is italicized):
* * * * *
Examination Fee--$1,000 monthly

    This fee is applicable to member/participant organizations for 
which the PHLX is the DEA. The following organizations are exempt: (1) 
inactive organizations; (2) organizations operating from the PHLX 
trading floor which have demonstrated that at least 25% of their income 
as reflected on the most recently submitted FOCUS Report was derived 
from floor activities; (3) organizations for any month where they incur 
transaction or clearing fees charged directly by the Exchange or by its 
registered clearing subsidiary, provided that the fees exceed the 
examination fee for that month; and (4) organizations affiliated with 
an organization exempt from this fee due to the second or third 
category. Affiliation includes an organization that is a wholly owned 
subsidiary of, or controlled by or under common control with, an 
``exempt'' member or participant organization. An inactive organization 
is one which has no securities transaction revenue, as determined by 
semi-annual FOCUS reports, as long as the organization continues to 
have no such revenue each month.

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.

[[Page 14177]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to amend the second 
exemption to the Exchange's $1,000 per month examination fee.\3\ This 
fee was initially adopted to recoup the costs of examining firms, for 
which the Exchange is the Designated Examining Authority (``DEA''), 
which contribute little if any revenue to the Exchange to offset the 
expense of conducting such examinations.\4\ Because this fee was 
intended to pertain to a specific group of members and participants, a 
number of exemptions were carved out for firms which do generate enough 
revenue to the Exchange to offset examining costs or which are 
inactive. One of the exemptions, organizations operating from the PHLX 
trading floor, has proved to be too vague. The Exchange has found that 
a number of member or participant organizations which operate primarily 
or exclusively from off the floor, have entered into arrangements 
whereby they argue that they meet this exemption.\5\ Specifically, a 
floorbroker or Registered Options Trader from another firm which does 
conduct business on the floor becomes dually affiliated with the off-
floor member or participant organization and may or may not ever do any 
business for that firm on the floor. These firms have argued that this 
dual affiliation would qualify them as an organization operating from 
the PHLX trading floor since they now have an affiliated person on the 
trading floor. Under this arrangement, these off-floor firms may still 
not generate revenue to offset the costs of examining them. The 
Exchange believes, however, that the description of the fee's exemption 
for firms operating from the trading floor may have been 
unintentionally vague enough to permit this interpretation and thus 
determined to add an objective measurement.
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    \3\ See Securities Exchange Act Release No. 35091 (Dec. 12, 
1994), 59 FR 65558 (Dec. 20, 1994).
    \4\ In the filing submitted by the Exchange to adopt this fee, 
the Exchange noted that many of these firms are located in other 
geographic regions, thus requiring increased staff time and travel 
expenses to conduct examinations. It was further noted, that many of 
these firms trade products not available on the PHLX, thus requiring 
additional time and money to train and prepare the examiners who 
conduct the exams. Securities Exchange Act Release No. 35091 (Dec. 
12, 1994), 59 FR 65558 (Dec. 20, 1994).
    \5\ Currently 13 firms are subject to the examination fee out of 
approximately 140 firms for which the Exchange is the DEA. Seven of 
the 13 firms made colorable arguments that they were not subject to 
the examination fee under the previous interpretation and the 
Exchange took note of their argument. Therefore, during the time 
prior to filing this proposed rule change, those firms were not 
charged the examination fee. Accordingly, this is a new fee to that 
class of firms that are now subject to the fee by reason of the 25% 
revenue test. Letter from Michele R. Weisbaum, Vice President and 
General Counsel, PHLX to Karl Varner, Office of Market Supervision, 
Division of Market Regulation, SEC, dated March 13, 1997; Letter 
from Michele R. Weisbaum, Vice President and General Counsel, PHLX 
to Karl Varner, Office of Market Supervision, Division of Market 
Regulation, SEC, dated March 17, 1997.
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    Under this new test, any organization which can demonstrate that it 
has derived at least 25% of its revenues in a calendar quarter from 
floor trading activity, will be deemed to have covered the cost of 
examining the firm and will then be exempt from the $1,000 per month 
fee.
    The proposed rule change is consistent with Section 6 of the Act in 
general, and in particular, with Section 6(b)(4), in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among its members and other persons using its facilities in that it 
clarifies which firms are deemed to have paid their share of the cost 
of an examination by setting an objective income test.

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

    The foregoing rule change has become effective on February 28, 
1997, pursuant to Section 19(b)(3)(A) of the Act \6\ and subparagraph 
(e)(2) of Rule 19b-4 thereunder,\7\ because it establishes or changes a 
due, fee, or other charge. 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.
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    \6\ 15 U.S.C. Sec. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(e).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room. Copies of such filing will also 
be available for inspection and copying at the principal office at the 
PHLX. All submissions should refer to File No. SR-PHLX-97-10 and should 
be submitted by April 15, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7391 Filed 3-24-97; 8:45 am]
BILLING CODE 8010-01-M