[Federal Register Volume 67, Number 167 (Wednesday, August 28, 2002)]
[Notices]
[Pages 55294-55296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21959]



[[Page 55294]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46392; File No. SR-Phlx-2002-45]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change Regarding Fees for Remote 
Competing Specialists

August 21, 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 August 6, 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 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

    Phlx proposes to amend its schedule of dues, fees and charges to 
adopt a number of new fees applicable to members and member 
organizations in connection with their remote competing specialist 
operations, and to amend the existing exemption of certain member 
organizations operating on the Exchange's trading floor from the 
Exchange's Examinations Fee in light of the commencement of the remote 
competing specialist program.\3\
---------------------------------------------------------------------------

    \3\ See Phlx Rule 461, PACE Remote Specialist, and Securities 
Exchange Act Release No. 45184 (December 21, 2001), 67 FR 622 
(January 4, 2002) (approving SR-Phlx-2001-98).
---------------------------------------------------------------------------

    In order to be a remote competing specialist, a member organization 
will require PACE terminals (``Remote Workstations'') and related 
equipment which are furnished and installed by the Exchange. \4\ The 
following new fees and charges relate to Remote Workstations and 
related equipment, as well as communications requirements.
---------------------------------------------------------------------------

    \4\ PACE is the electronic order routing, delivery execution and 
reporting system used to access the Phlx Equity Floor. See Phlx 
Rules 229, Philadelphia Stock Exchange Automated Communication and 
Execution System (PACE) and 229A, Operation of PACE System When 
Competing Specialists are Trading.
---------------------------------------------------------------------------

    Remote Specialist Equipment Installation Fee. The Exchange is 
proposing to charge a one-time fee of $500 to install Remote 
Workstations at a remote competing specialist facility. This fee will 
be billed upon the completion of the installation and is not variable 
based upon the number of Remote Workstations installed at that 
facility.
    Remote Specialist Equipment Rental Fee. The Exchange is proposing 
to charge a fee of $355 per month for the first two Remote Workstations 
at any one remote facility, and an additional fee of $144 per month for 
each Remote Workstation in excess of two at any one remote facility.\5\ 
For example, the fee for two Remote Workstations at two different sites 
would be $710 per month. This fee will be assessed for each month in 
which a Remote Workstation is available for use at a remote competing 
specialist facility one or more days of the month, regardless of the 
extent to which it is actually used in trading that month and 
regardless of the date of installation or removal of the equipment.
---------------------------------------------------------------------------

    \5\ Payment for a minimum of two Remote Workstations will be 
required for each remote location.
---------------------------------------------------------------------------

    Remote Specialist System Fee. The Exchange is proposing to 
establish a Remote Specialist System Fee in the amount of $250 per 
month per Remote Workstation.\6\ This fee will also be assessed for 
each month in which a Remote Workstation is available for use at a 
remote competing specialist facility one or more days of that month, 
regardless of the extent to which it is actually used in trading that 
month and regardless of the date of installation or removal of the 
Remote Workstation.
---------------------------------------------------------------------------

    \6\ Id.
---------------------------------------------------------------------------

    Remote Specialist Security Routing Fee. The Exchange is proposing 
to establish a Security Routing Fee in the amount of $250 per month per 
individual registered specialist trading for any part of the month from 
a remote facility.
    Remote Specialist Telecommunications Installation Fee. The Exchange 
proposes to establish a fee for remote competing specialists electing 
to use the Phlx wide area network (the ``Phlx WAN''), as described 
below. The cost of establishing initial connectivity to the Phlx WAN 
will be rebilled at Phlx's cost paid to a vendor. This fee will be 
billed upon the completion of the installation.
    Remote Specialist Telecommunications Fee. Remote competing 
specialists will be able to connect to the Phlx in one of two ways, 
both of which require a TCP/IP line with 256kbs bandwidth per 
workstation. First, remote competing specialists may connect through a 
Member Firm Interface (MFI). Alternatively, remote competing 
specialists may elect to be connected to the Phlx WAN. This Phlx WAN 
connection is made through a third party with whom the Phlx has 
contracted. For each remote competing specialist connecting to the Phlx 
WAN (rather than connecting through a MFI), Phlx will charge a Remote 
Specialist Telecommunications Fee. This fee will vary based upon the 
number of Remote Workstations provided at a particular remote facility, 
as follows:\7\
---------------------------------------------------------------------------

    \7\ Id.

------------------------------------------------------------------------
                                                               Monthly
                   Number of Workstations                       Charge
------------------------------------------------------------------------
2..........................................................       $2,800
3..........................................................       $3,600
4..........................................................       $4,000
5..........................................................       $4,700
6..........................................................       $5,100
7..........................................................       $5,875
8..........................................................       $6,275
9..........................................................       $7,535
10.........................................................       $7,935
11.........................................................       $8,335
12.........................................................       $8,735
------------------------------------------------------------------------

    This fee will be assessed for each month in which a Phlx WAN 
connection is available for use at a remote competing specialist 
facility one or more days of that month, regardless of the extent to 
which it is actually used in trading that month and regardless of the 
date of installation or removal of the Phlx WAN connection.
    The Exchange also proposes to modify the application of its 
Examination Fee to organizations that are remote competing specialists 
as follows:
    Amendment to Examinations Fee. The Exchange proposes to amend the 
existing Examinations Fee by extending an exemption to the fee which is 
currently in place. Specifically, member organizations would be exempt 
from the fee if they operate from the PHLX trading floor or as remote 
competing specialists and have demonstrated that at least 25% of their 
income as reflected on the most recently submitted FOCUS Report was 
derived from floor activities or remote competing specialist 
activities.\8\
---------------------------------------------------------------------------

    \8\ The Exchange notes that for most purposes under its rules a 
remote competing specialist is considered to be transacting business 
on the floor. For example, Rule 461(f) provides that ``All rule, by-
law and Certificate of Incorporation references pertaining to the 
trading floor of the Exchange shall be deemed to include any bids, 
offers, orders and trading done remotely, and all such bids, offers, 
orders and trades shall be deemed to be Phlx bids, offers, orders 
and executions on the Exchange.'' In addition, Phlx represents that 
Remote Specialists will be subject to the jurisdiction of the Floor 
Procedure Committee in the same manner they would if their 
operations were conducted on the physical trading floor, and that 
Remote Specialists will be eligible to serve on the Board of 
Governors and in committee positions reserved for persons associated 
with member organizations primarily engaged in business on the 
Exchange's Equity Floor. Telephone call between Carla Behnfeldt, 
Director, Legal Department New Product Development Group, Phlx, and 
Jennifer Lewis, Attorney, Division of Market Regulation, Commission, 
on August 20, 2002.

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

[[Page 55295]]

    The Exchange designates the Remote Specialist System Fee and the 
Remote Specialist Security Routing Fee (but not the other new fees 
described in this filing) as eligible for the Monthly Member Credit.\9\
---------------------------------------------------------------------------

    \9\ 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 monthly 
credit of up to $1,000 to be applied against fees, dues, charges and 
other such amounts.
---------------------------------------------------------------------------

    A copy of Appendix A to the Exchange's Schedule of Dues, Fees and 
Charges, as proposed to be amended, is available at the principal 
office of the Exchange and at the Commission's Public Reference Room as 
described in Item III below.

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

    In its filing with the Commission, 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. 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
    On December 21, 2001, the Commission approved a proposed rule 
change relating to the Exchange's plans to implement a remote competing 
specialist program.\10\ Competing specialists have been operating on 
the Exchange's physical trading floor since February 2002. Under the 
remote competing specialist program as currently in effect, competing 
specialists (but not primary specialists) will be eligible to trade as 
specialists from locations other than the Phlx equity floor. The 
Exchange anticipates commencing its remote competing specialist program 
in the near future.
---------------------------------------------------------------------------

    \10\ See supra note 3.
---------------------------------------------------------------------------

    The purpose of the proposed rule change is to generate revenue for 
the Exchange, based upon the specialist trading activities of remote 
competing specialists, which will enhance the Exchange's ability to 
provide a marketplace for its remote competing specialists and other 
members. The Exchange notes that certain of its current dues, fees and 
charges are assessed for privileges the Exchange extends with respect 
to, and services it provides on, the physical equity trading floor. 
These fees include the Trading Post/Booth Fee; Trading Post with Kiosk 
Fee; the Kiosk Construction Fee; the Controller Space Fee; the Floor 
Facility Fees; the Direct Wire to the Floor Fee; the Telephone System 
Line Extensions Fee; the Quotron Equipment Fee; the Instinet, Reuters 
Equipment Fee; the Trading Floor Personnel Registration Fee; the 
Computer Equipment Services, Repairs or Replacements Fee and the 
Computer Relocation Requests Fee.\11\ Because the Exchange will not 
charge these fees to remote competing specialists, the Exchange 
believes the new fees proposed herein to be paid by members and member 
organizations based on their remote competing specialist trading 
activity are a reasonable and equitable way for the Exchange to raise 
revenues to defray costs of providing a marketplace for its specialists 
and other members, whether floor-based or remote. Additionally, the 
Exchange believes that by amending the exemption to the Examinations 
Fee, it preserves one of the original purposes of the Examinations Fee, 
which was to compensate for the extensive staff time and costs 
associated with examining off-floor firms who are not active 
participants in Phlx markets.\12\ Although they will operate remotely, 
the Exchange anticipates that remote competing specialists will be 
active participants in Phlx markets. \13\
---------------------------------------------------------------------------

    \11\ The Exchange notes that the Remote Information Access Fee 
does not apply to information provided to a remote competing 
specialist on his or her Remote Workstation. However, the fee could 
apply to a firm that wishes to use the Remote Information Access 
service at a different site than that from which the remote 
competing specialists are trading to obtain information from the 
Exchange on the remote competing specialists' trading activities. If 
a member organization wishes to use this service to access trading 
information concerning both floor-based and remote competing 
specialists, it will be charged a single fee to access information 
from both sources. Except as described herein, all fees, dues, 
discounts, credits and charges applicable to Phlx floor-based 
competing specialists (including the PACE Specialist Charge of $.20 
per trade against PACE executions excluding PACE trades on the 
opening) will also apply to Phlx remote competing specialists.
    \12\ See Securities Exchange Act Release No. 35091 (December 12, 
1994), 59 FR 65558 (December 20, 1994).
    \13\ See supra note 8. The Exchange also notes that Phlx remote 
competing specialists are considered specialists as envisioned by 
Section 11 of the Act and are subject to a number of obligations as 
such under Section 11(b) of the Act and Exchange rules.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\14\ in general and furthers the 
objectives of section 6(b)(4) of the Act,\15\ in particular, by 
providing for the equitable allocation of reasonable dues, fees and 
other charges among its members and issuers and other persons using its 
facilities. The Exchange also believes that the application of the 
fees, dues and charges proposed herein is consistent with the 
requirement of section 6(b)(5) of the Act,\16\ which requires that the 
rules of the Exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers or dealers. The Exchange represents 
that the proposal is designed to raise revenue to enable the Exchange 
to provide a competitive marketplace for its members. Additionally, the 
Exchange believes that the new fees proposed herein are fair and 
equitable because the members and member organizations which will pay 
the new fees will have the benefits of trading as competing specialists 
from remote locations.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 proposed rule change has been designated as a fee 
change pursuant to section 19(b)(3)(A)(ii) of the Act \17\ and Rule 
19b-4(f)(2) thereunder.\18\ Accordingly, the proposal will take effect 
upon filing with the Commission. 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).

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

[[Page 55296]]

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 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-2002-45 and 
should be submitted by September 28, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\19\

    \19\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21959 Filed 8-27-02; 8:45 am]
BILLING CODE 8010-01-P