[Federal Register Volume 67, Number 28 (Monday, February 11, 2002)]
[Notices]
[Pages 6310-6312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3233]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45388; File No. SR-Phlx-2001-121]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Amending its Fee Schedule for the Use of the Intermarket 
Trading System

February 4, 2002.
    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 December 31, 2001, 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 Phlx. 
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

    The Exchange proposes to revise its fee schedule by establishing a 
fee charged to equity specialists. According to the Exchange, the 
proposed fees are based on the use of the Intermarket Trading System 
(``ITS'') to execute certain sized customer orders received over the 
Philadelphia Stock Exchange Automated Communication and Execution 
(``PACE'') \3\ system, and sent outbound over ITS with the customer's 
clearing information. The Exchange also proposes to create a credit to 
equity specialists for net inbound shares executed over ITS.
---------------------------------------------------------------------------

    \3\ PACE is the electronic order routing, delivery, execution 
and reporting system used to access the Phlx Equity Floor.
---------------------------------------------------------------------------

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B and C below, of the most significant aspects of such 
statements.

[[Page 6311]]

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 establish a fee 
charged to Exchange equity specialists for their use of ITS to execute 
certain sized customer orders received over the PACE system, and create 
a credit given to equity specialists for net inbound shares executed 
over ITS. The Exchange proposes to charge equity specialists $0.60 per 
100 shares on customer orders received over the PACE system of 500 
shares or less that the equity specialist sends away as an ITS 
commitment marked with the customer's clearing information, to the 
extent that the order is executed over ITS. Additionally, the Exchange 
proposes to charge equity specialists $0.30 per 100 shares on customer 
orders received over the PACE system of 501 to 4,999 shares that the 
equity specialist sends away as an ITS commitment marked with the 
customer's clearing information, to the extent that the order is 
executed over ITS.\4\ The Exchange designates this fee as eligible for 
the Monthly Member Credit.\5\
---------------------------------------------------------------------------

    \4\ The Exchange represents that equity specialists will not be 
charged a fee on customer orders received over the PACE system of 
5,000 or greater shares that the equity specialist chooses not to 
execute on the Exchange, but to send and execute away an ITS 
commitment marked with the customer's clearing information. 
Additionally, equity specialists will not be charged a fee on non-
PACE customer orders of any size that the equity specialist sends 
and executes away through ITS. Finally, the basis for the fee will 
be on the number of shares executed away over ITS, not on the size 
of the original customer order.
    \5\ See Securities Exchange Act Release No. 44292 (May 11, 
2001), 66 FR 27715 (May 18, 2001) (approving SR-Phlx-2001-49). The 
Monthly Member Credit allows Exchange members to receive a montly 
credit of up to $1,000 to be applied against fees, dues, charges and 
other such amounts.
---------------------------------------------------------------------------

    The Exchange also proposes that equity specialists receive a credit 
of $0.30 per 100 shares on the excess, if any, of the number of inbound 
ITS shares executed by the equity specialist over the number of 
outbound ITS shares sent by the equity specialist and executed away in 
the same calendar month.\6\ The Exchange proposes to begin charging 
this fee and applying this credit on trades settling on January 2, 
2002. The Exchange proposes to begin chagrining this fee and applying 
this credit on trades settling on February 1, 2002.\7\
---------------------------------------------------------------------------

    \6\ The Exchange represents that no credit will be applied if 
the number of the inbound ITS shares executed by the equity 
specialist is equal to or less than the number of outbound ITS 
shares sent by the equity specialist and executed away.
    \7\ February 1, 2002 telephone conversation between Edith 
Hallahan, Phlx, and Katherine England, Assistant Director, Division 
of Market Regulation (``Division''), Commission.
---------------------------------------------------------------------------

    According to the Exchange, equity specialists receiving customer 
orders over the PACE system may, among other things, choose to execute 
the order pursuant to Phlx Rule 229, or send an outbound ITS commitment 
marked with the customer's clearing information for execution at 
another exchange, pursuant to Phlx Rule 2000, et seq. The Exchange 
represents that members sending customer orders would pay no PACE fees 
when they route orders to the Exchange through PACE, however, they 
would incur fees when the specialist chooses to send away an ITS 
commitment marked with the customer's clearing information.
    The Exchange believes that the proposed fee schedule should create 
an incentive for equity specialists to either execute customer orders 
under 5,000 shares received over the PACE system and not send an 
outbound ITS commitment marked with the customer's clearing information 
for execution at another exchange, or send the order as an outbound ITS 
commitment marked with the equity specialist's clearing information.\8\ 
According to the Exchange, when equity specialists send outbound ITS 
commitments with their own clearing information, customers will not be 
charged a PACE fee.\9\ Therefore, the Exchange believes that customers 
will benefit from a reduced number of orders sent via ITS marked with 
the customer's clearing information.
---------------------------------------------------------------------------

    \8\ The Exchange notes that equity specialists who send and 
execute away an ITS commitment marked with the equity specialist's 
clearing information, as opposed to the customer's clearing 
information, will not be charged the proposed fee.
    \9\ The Phlx represents that this reference to a PACE fee is an 
existing fee that is not impacted or altered by this proposed rule 
change. February 1, 2002 telephone conversation between John Dayton, 
Assistant Secretary and Counsel, Phlx, and Katherine England, 
Assistant Director, Division, Commission.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed credit to equity 
specialists for net inbound shares executed over ITS should encourage 
equity specialists to act as net ``liquidity providers'' (by executing 
more inbound ITS shares than they send away for execution), rather than 
acting as net ``liquidity takers.''
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act in general, \10\ and Sections 6(b)(4) \11\ 
and 6(b)(5) \12\ of the Act in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
its members and other persons using its facilities; and it promotes 
just and equitable principles of trade, and protects investors and the 
public interest.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange believes that the proposed fee change will not impose 
any burden on competition that is not necessary or appropriate in the 
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

    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

    Because the foregoing proposed rule change establishes or changes a 
due, fee or charge imposed by the Phlx, it has become effective upon 
filing pursuant to Rule 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(2) thereunder.\14\ 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.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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. 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

[[Page 6312]]

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 will also be available for inspection and copying at the 
principal office of the Phlx.
    All submissions should refer to File No. SR-Phlx-2001-121 and 
should be submitted by March 4, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-2(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3233 Filed 2-8-02; 8:45 am]
BILLING CODE 8010-01-P