[Federal Register Volume 67, Number 38 (Tuesday, February 26, 2002)]
[Notices]
[Pages 8831-8832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45456; File No. SR-Phlx-2002-08]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Extension of Its Pilot Program to 
Implement its Existing Fee Schedule for Electronic Communication 
Networks

February 19, 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 January 28, 2002, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to extend its one-year pilot program for an 
additional one-year period, in order to continue to impose a $2,500 
monthly fee for Electronic Communications Networks (``ECNs'') that are 
member organizations and send order flow to the Exchange's equity 
trading floor.\3\ The Exchange believes that the original pilot program 
was due to expire on January 31, 2002.\4\
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    \3\ As stated in the Phlx fee schedule, the term ECN shall mean 
any electronic system that widely disseminates to third parties 
orders entered therein by an Exchange market maker or over-the-
counter (``OTC'') market maker, and permits such orders to be 
executed against in whole or in part. The term ECN shall not 
include: any system that crosses multiple orders at one or more 
specified times at a specified price set by the ECN, algorithm, or 
by any derivative pricing mechanism and does not allow orders to be 
crossed or executed against directly by participants outside of such 
times; or any system operated by or on behalf of an OTC market maker 
or exchange market maker as principal, other than riskless 
principal.
    \4\ See Exchange Act Release No. 44155 (April 5, 2001), 66 FR 
19274 (April 13, 2001).
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    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 extend the Exchange's 
current ECN pilot program until January 31, 2003, thereby continuing to 
impose a $2,500 monthly fee for ECNs that are member organizations and 
send order flow to the Exchange's equity trading floor.\5\ According to 
the Exchange, the continuation of the $2,500 fee is intended to attract 
equity order flow from ECNs to the Exchange by continuing to substitute 
a fixed monthly fee, in light of the potential for high volumes of 
order flow from ECNs.\6\
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    \5\ The $2,500 monthly fee will apply regardless of the ECN's 
average daily Phlx equity volume.
    \6\ In order to recoup costs due from the Exchange to the 
Commission pursuant to Section 31(b) of the Act, the Exchange 
intends to continue to apply such fee to ECNs, as the current fee 
schedule reflects. This fee is currently $15 per $1,000,000 of the 
aggregate dollar amount of the sale of securities.
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    The monthly fee will continue to apply to ECN order flow to the 
Exchange's equity trading floor, including from ECNs that either became 
members or began sending order flow after the commencement of the 
program. The $2,500 fee would continue to apply to trades where the ECN 
was not acting as a Phlx specialist or floor broker.\7\
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    \7\ An ECN would continue to incur specialist or floor brokerage 
transaction fees if it acts as a Phlx specialist or floor broker.
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    Currently, no ECN operates from the Exchange's equity trading floor 
as a floor broker or specialist unit. If, however, an ECN did operate 
from the equity trading floor, it would be subject to various floor-
related fees respecting its floor operation.\8\ In addition, an ECN's 
transactions as a floor broker would be subject to the equity 
transaction value charge, and its specialist trades would be subject to 
other charges.\9\ Even if the ECN was acting as a floor broker or 
specialist with

[[Page 8832]]

respect to some trades, those trades for which it was not acting as a 
floor broker or specialist, but rather an ECN, would be subject only to 
the flat monthly fee and not other transaction charges.
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    \8\ These include the Trading Post/Booth Fee, Trading Post w/
Kiosk Fee, Controller Space Fee, Floor Facility Fee, Shelf Space on 
Equity Option Trading Floor Fee, Computer Equipment Services, 
Repairs or Replacements Fee and Computer Relocation Requests Fee. 
Certain communications fees could also apply, such as the Direct 
Wire to the Floor Fee, Telephone System Line Extensions, Wireless 
Telephone System, Tether Initial Connectivity Fee, Tether Monthly 
Service Fee, Execution Services/Communication Charge, Stock 
Execution Machine Registration Fee (Equity Floor), Equity, Option, 
or FCO Transmission Charge, FCO Pricing Tape, Option Report Service 
Fee, Quotron Equipment Fee, Instinet, Reuters Equipment Pass-Through 
Fee and the Option Mailgram Service Fee.
    \9\ The PACE Specialist Charge is a fee imposed on specialist 
transactions only and the Equity Floor Brokerage Assessment and 
Equity Floor Brokerage Transaction Fee apply to floor brokerage 
activity.
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    An ECN that only operates as a specialist or floor broker would not 
have to pay the monthly fee, because it would, instead, be paying the 
normal transaction charges applicable to floor brokers and specialists.
    An ECN would also continue to be subject to, if applicable, the 
following membership-related fees: Membership dues or Foreign Currency 
User Fees, Foreign Currency Option Participation Fee, Capital Funding 
Fee, Application Fee, Initiation Fee, Transfer Fee, Phlx CCH Guide Fee, 
Examinations Fee, Technology Fee, Review/Process Subordinated Loans 
Fee, Registered Representative Registration Fees, and Off-Floor Trader 
Initial Registration Fee and Annual Fee.
    Because the $2,500 fee is a flat monthly fee as opposed to a per-
transaction fee, it is intended to encourage ECN volume. Currently, the 
equity transaction value charge (that would otherwise apply to an ECN's 
equity trades) ranges from $.015 to $.14 per $1,000 of transaction 
value, with a $50 maximum fee per trade side, and various other 
applicable discounts. Thus, many variables determine whether the 
proposed monthly $2,500 fee is generally more favorable than the equity 
transaction value charge, depending upon the number of trades, size of 
the trade and type (i.e., PACE). As a general matter, the Exchange 
believes that $2,500 would be more favorable to the ECN because it is a 
fixed amount.
    The Exchange believes that the monthly ECN fee provides competitive 
fees with appropriate incentives, thus providing a reasonable method to 
attract large order flow providers such as ECNs to the Exchange. 
Additional order flow should enhance liquidity, and improve the 
Exchange's competitive position in equity trading. The Exchange 
believes that structuring this fee for ECNs is appropriate, as ECNs are 
unique in their role as order flow providers to the Exchange. 
Specifically, ECNs operate a unique electronic agency business, similar 
to a securities exchange, as opposed to directly executing orders for 
their own customers as principal or agent.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act,\10\ in general, and section 6(b)(4) of the Act,\11\ in 
particular, because it provides for the equitable allocation of 
reasonable dues, fees and other charges among its members and other 
persons using its facilities. The Exchange notes the unique character 
of ECNs, and believes that the fixed monthly fee is a reasonable method 
of attracting a new form of order flow to the Exchange.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 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 burden on competition.

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

    Written comments were neither solicited nor 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) of the Act \12\ and subparagraph (f)(2) 
of Rule 19b-4 \13\ 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(2).
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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-2002-08 and should 
be submitted by March 19, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-4475 Filed 2-25-02; 8:45 am]
BILLING CODE 8010-01-P