[Federal Register Volume 68, Number 21 (Friday, January 31, 2003)]
[Notices]
[Pages 5069-5070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47245; File No. SR-Phlx-2002-88]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Equity Transaction Charge

January 24, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and rule 19b-4 thereunder,\2\ notice 
is hereby given that on December 31, 2002, 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 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 Exchange proposes to amend its schedule of dues, fees and 
charges to clarify the definition of a trade that utilizes the Phlx's 
Automated Communication and Execution System (``PACE'') as it relates 
to the imposition of the Exchange's equity transaction value charge.\3\ 
Currently, the Exchange's equity transaction value charge is assessed 
based on total shares per transaction,\4\ with the exception of 
specialist trades and PACE trades.\5\ The Exchange proposes to define 
with greater specificity a PACE trade in order to clarify the 
imposition of the equity transaction value charge, as it relates to 
PACE trades only.
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    \3\ PACE is the Exchange's order routing, delivery, execution, 
and reporting system for its equity-trading floor. See Exchange 
rules 229, Philadelphia Stock Exchange Automated Communication and 
Execution System, and 229A, Operation of PACE System When Competing 
Specialists Are Trading.
    \4\ See Securities Exchange Act Release No. 46874 (November 21, 
2002), 67 FR 71226 (November 29, 2002).
    \5\ See Securities Exchange Act Release No. 44381 (June 1, 
2001), 66 FR 31264 (June 11, 2001).
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    First, the Exchange proposes to clarify that the equity transaction 
value charge applies in situations where an order, after being 
delivered to the Exchange by the PACE system, is executed by way of an 
outbound Intermarket Trading System (``ITS'') commitment,\6\ when such 
outbound ITS commitment reflects the PACE order's clearing information 
(and not the specialist's clearing information).\7\ In this situation, 
the trade is not considered to be a PACE trade for purposes of the 
equity transaction value charge and thus, becomes subject to this 
charge.
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    \6\ The ITS means the application of the System that permits 
intra-day trading in Eligible Listed Securities between Participant 
markets as set forth in the ITS Plan. See Exchange rule 2001, 
Intermarket Trading System.
    \7\ If the outbound ITS commitment reflects the specialist's 
clearing information, the equity transaction value charge does not 
apply because it does not apply to specialist trades.
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    Secondly, the Exchange proposes to clarify that the equity 
transaction value charge does not apply where a PACE trade was executed 
against an inbound ITS commitment. The execution (on the Phlx) against 
an inbound ITS commitment is considered a PACE trade and therefore, the 
equity transaction value charge does not apply to these transactions.
    Thirdly, the Exchange proposes to rebate to any members who were 
charged an equity transaction value charge for PACE trades that were 
executed against an inbound ITS commitment for the months of September, 
October, November and December 2002.
    Lastly, the Exchange proposes to rename the title of the ``equity 
transaction value charge'' to the ``equity transaction charge,'' 
(hereinafter referred to as ``equity transaction charge'') because it 
is now a share-based charge and not a value-based charge.
    The text of the proposed rule change is available at the principal 
offices of the Phlx and at 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 Exchange included statements 
concerning the purpose of, and the 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 Exchange 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 clarify the 
Exchange's Summary of Equity Charges as it relates to the Exchange's 
equity transaction charge. The Exchange believes that not charging 
members the equity transaction charge for PACE trades that are executed 
against an inbound ITS commitment should encourage greater use of the 
PACE system, which in turn should promote a more active and liquid 
equities market. Also, this clarification should help to avoid any 
member confusion.
    The Exchange believes that, for the purposes of this fee, a PACE 
trade executed by way of an outbound ITS commitment, when such ITS 
commitment reflects the PACE order's clearing information, does not 
receive a PACE execution, and therefore the equity transaction charge 
should apply.\8\
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    \8\ Charging an equity transaction charge for PACE orders sent 
over ITS with the PACE order's clearing information attached is 
consistent with the Exchange's Outbound ITS Fee. See Securities 
Exchange Act Release No. 45388 (February 4, 2002), 67 FR 6310 
(February 11, 2002).
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    Previously, the Exchange's billing system charged an equity 
transaction value charge for PACE trades executed against an inbound 
ITS commitment due to the difficulties in identifying executions of 
orders in this manner. Due to advances in billing, the Exchange can now 
more readily identify PACE trades that are executed against inbound ITS 
commitments. The Exchange believes that by not charging an equity 
transaction value charge and by providing a rebate, as described above, 
for the months of September through

[[Page 5070]]

December 2002 should encourage future use of the PACE system and will 
reimburse members who were charged the equity transaction value charge 
when the application of this charge may not have been clear, as it 
relates to PACE trades and inbound ITS commitments. Also, the Exchange 
believes that going forward, for trades settling on or after January 2, 
2003, there should be no charge for these PACE trades due to the fact 
that the method of execution of these trades is outside of the 
customer's control.
    The purpose of renaming the equity transaction charge is to make 
the title of the charge consistent with recent changes to this fee.\9\
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    \9\ See supra note 4.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\10\ in general, and furthers the 
objectives of section 6(b)(4) of the Act,\11\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among its members.
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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 
result in any burden on competition that is not necessary or 
appropriate in 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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act \12\ and rule 19b-4(f)(2) thereunder,\13\ as 
establishing or changing 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.\14\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
    \14\ See section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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 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-2002-88 and 
should be submitted by February 21, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2257 Filed 1-30-03; 8:45 am]
BILLING CODE 8010-01-P