[Federal Register Volume 63, Number 52 (Wednesday, March 18, 1998)]
[Notices]
[Pages 13294-13295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6976]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39744; File No. SR-PHLX-98-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. to Amend its Examination Fees to Pass Through Costs

March 11, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 17, 1998, 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 self-regulatory organization (``SRO''). 
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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange, pursuant to Rule 19b-4,\2\ proposes to amend its 
examination fee to include a provision which will allow the Phlx to 
pass through to a member or participant organization the costs incurred 
from contracting with another SRO to conduct an examination on behalf 
of the Phlx. The text of the proposed rule change is available at the 
Office of the Secretary, the Phlx or at the Commission.
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    \2\ 17 CFR 240.19b-4.
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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 SRO 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 SRO has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 13295]]

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

1. Purpose
    Pursuant to Section 17(b) of the Act,\3\ the Exchange administers 
its examination program, which requires broker-dealers designated to an 
SRO to be examined for compliance with applicable financial 
responsibility rules on a periodic basis. The Exchange conducts reviews 
of organizations for which the Exchange is the Designated Examining 
Authority. The reviews focus on an organization's compliance with 
applicable financial and recordkeeping requirements including net 
capital, books and records maintenance, Regulation T and financial 
reporting requirements. Effective January 1, 1995, the Phlx adopted a 
$1,000 per month examination fee applicable to member and participant 
organizations for which the Phlx acts as a Designated Examining 
Authority.\4\ The fee was adopted due to the substantial expense and 
time involved in conducting a proper examination of the member 
firms.\5\
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    \3\ 15 U.S.C. Sec. 78q(b).
    \4\ See Securities Exchange Act Release No. 35091 (December 12, 
1994), 59 FR 65558 (December 20, 1994) (SR-PHLX-94-66).
    \5\ There are a number of exemptions to the fee including, 
inactive organizations, organizations that operate from the trading 
floors, organizations that incur Phlx or Stock Clearing Corporation 
transaction fees on a monthly basis and organizations affiliated 
with an exempt active organization. Any organization that can 
demonstrate that it has derived at least 25% of its revenues in a 
calendar quarter from floor trading activity will be deemed to be 
``operating from the trading floors'' and therefore, is exempt from 
the $1,000 per month examination fee. See Securities Exchange Act 
Release No. 38416 (March 18, 1997), 62 FR 14176 (March 25, 1997) 
(SR-PHLX-97-10).
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    In the past, the Exchange has entered into agreements with other 
SROs to conduct examinations of firms that are solely members of the 
Phlx.\6\ The Exchange may contract with another SRO to perform an 
examination for various reasons, such as the location of the firm or 
where the type of business in which the firm is engaged may be more 
suited to another SRO's area of expertise. Generally, the Exchange only 
enters into such agreements where the firm designated to the Phlx has a 
retail customer base. Certain SROs have the resources and the expertise 
to examine firms that carry out customer accounts. Therefore, those 
SROs have a higher degree of experience in examination requirements 
pertinent to carrying customer accounts (e.g., sales practices, reserve 
and possession/control requirements).
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    \6\ These agreements are entered into pursuant to Rule 17d-2 
under the Act. 17 CFR 240.17d-2.
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    However, these arrangements typically require that the Phlx pay 2.5 
times the median salary for examiners and supervisors of the contracted 
SRO, resulting in a significant cost to the Exchange. Therefore, in the 
event that the Phlx determines to refer an examination to another SRO, 
the proposal would allow the Exchange to collect its costs directly 
from the member or participant organization. Members who are required 
to pay the pass through costs of an examination would not be required 
to pay the $1,000 examination fee charged to those members for which 
the Exchange conducts the examination.
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(4) \8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among the Exchange's members and other persons using its 
facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change constitutes 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 \9\ and 
subparagraph (e)(2) of Rule 19b-4 thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(e)(2).
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    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, N.W., Washington, D.C. 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 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-98-11 and should 
be submitted by April 8, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 15 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-6976 Filed 3-17-98; 8:45 am]
BILLING CODE 8010-01-M