[Federal Register Volume 68, Number 66 (Monday, April 7, 2003)]
[Notices]
[Pages 16850-16852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8388]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47605; File No. SR-Phlx-2003-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Philadelphia Stock Exchange, Inc. To Adopt a License Fee for 
Transactions in Standard & Poor's Depository Receipts[reg]

April 1, 2003.
    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 March 17, 2003, 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 and II below, which Items have been prepared by the Exchange. 
The Exchange amended the proposal on March 28, 2003.\3\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On March 28, 2003, the Exchange filed a Form 19b-4, which 
completely replaced and superceded the original filing in its 
entirety (``Amendment No. 1''). For purposes of calculating the 60-
day abrogation period, the Commission considers the period to have 
commenced on March 28, 2003, the date the Exchange filed Amendment 
No. 1. 15 U.S.C. 78(s)(b)(3)(C).
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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 Summary of Equity Charges to 
adopt a license fee of $0.00025 per share per trade side for sides 
greater than 500 shares, with no maximum fee per trade side charged to 
Non-PACE Customers \4\ and Electronic Communications Networks 
(``ECNs''),\5\ and a license fee

[[Page 16851]]

of $0.00035 per share per trade side, with no maximum fee per trade 
side charged to specialists for transactions on the Phlx in Standard & 
Poor's Depository Receipts[reg] (``SPDRs'').\6\ The Exchange 
also proposes to make minor, technical changes to its equity fee 
schedule to make corresponding references to the proposed fees. All 
other equity charges currently assessed by the Phlx will be imposed 
where applicable.\7\
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    \4\ PACE is the acronym for the Exchange's Automated 
Communication and Execution System, which is the Exchange's order 
routing, delivery, execution and reporting system for its equity 
trading floor. See Exchange Rules 229 and 229A.
    \5\ ECNs 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; except that 
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 derivation 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 on 
behalf of an OTC market-maker or exchange market-maker that executes 
customer orders primarily against the account of such market maker 
as principal, other than riskless principal.
    \6\ Standard & Poor's[reg], ``S&P 
500[reg],'' ``Standard & Poor's 500[reg],'' 
and ``500'' are trademarks of The McGraw-Hill Companies, Inc., and 
have been licensed for use by the Phlx, in connection with the 
listing and trading of SPDRs, on the Phlx. These products are not 
sponsored, sold or endorsed by Standard & Poor's (``S&P''), a 
division of The McGraw-Hill Companies, Inc., and S&P makes no 
representation regarding the advisability of investing in SPDRs.
    \7\ These charges may include equity transaction charges, an 
equity floor brokerage assessment, an equity floor brokerage 
transaction fee, an off-Exchange trade information fee, an SEC fee, 
a remote information access fee, an Electronic Communications 
Network fee, an outbound Inter-Market Trading System (``ITS'') fee 
and a net inbound ITS credit. Additionally, the PACE Specialist 
charge does not apply because specialists are not eligible for 
further PACE volume discounts. See Securities Exchange Act No. 44259 
(May 4, 2001), 66 FR 23962 (May 10, 2001) (SR-Phlx-200-41). The 
proposals also codifies that the PACE Specialist Charge does not 
apply to QQQ transactions. This charge has not previously applied to 
Nasdaq-100 Tracking Stock Index (``QQQ'') trades, as evidenced by 
the separate QQQ fee schedule. See also Securities Exchange Act 
Release No. 43776 (December 28, 2000), 66 FR 1166 (January 5, 2001) 
(SR-Phlx-2000-103). Nevertheless when adding a footnote that this 
charge does not apply to SPDRs, the Exchange determined, to avoid 
confusion, to refer to both products.
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    The Exchange proposes to implement this fee as of March 17, 2003, 
the date that it began trading in the SPDRs. Text of the proposed rule 
change is set forth below. New text is in italics. Deleted text is in 
brackets.

              Summary of Equity Charges (p 1/[2]3[hairsp])*
------------------------------------------------------------------------
 
------------------------------------------------------------------------
 
                       EQUITY TRANSACTION CHARGE I
 
 
 Based on total shares per transaction with the exception of specialist
                       trades and PACE trades.\1\
                  Monthly Transaction Value                    Rate per
                                                                 share
First 500 shares............................................     $0.00
Next 2,000 shares...........................................     $0.0075
Next 7,500 shares...........................................     $0.005
Remaining shares............................................     $0.004
$50 maximum fee per trade side.
------------------------------------------------------------------------

License Fee
SPDRs, Standard & Poor's Depositary Receipts[hairsp]**
Customer Non-PACE and Electronic Communications 
Network[hairsp]E
(``ECN'') License Fee
    $0.00025 per share per trade side for sides greater than 500 shares
    No maximum fee per trade side
Specialist License Fee
    $0.00035 per share per trade side
    No maximum fee per trade side
Pace Specialist Charge[hairsp]\2\ I
    $.20 per PHLX Specialist Trade against PACE Executions (Not 
applicable to PACE trades on the opening)
    See Appendix A for additional fees.
------------
    I denotes fee eligible for monthly credit of up to $1,000.


    * not applicable to transactions in Nasdaq-100 Index Tracking 
StockSM (see page [3]4 for fees).
Summary of Equity Charges (p 2/[2]3)[hairsp]*
Equity Floor Brokerage Assessment I
    $250 monthly charge[2]3
Equity Floor Brokerage Transaction Fee I
    $.05 per 100 shares or fraction thereof, for floor broker executing 
transactions for their own member firms.
Sec Fee
    The amount shall be determined by Section 31 of the Securities 
Exchange Act of 1934.
Off-Exchange Trade Information Fee I
    $.10 per DOT trade
Remote Information Access Fee I
    $300.00 per month
Electronic Communications Network[hairsp]E (``ECN'') Fee
    $2,500.00 per month (in lieu of equity transaction charges)
Outbound ITS Fee I (also applicable to transactions in Nasdaq-100 Index 
Tracking StockSM)[3]4
For PACE orders sent over ITS with the customer information 
attached:
    500 shares or less--$0.60 per 100 shares
    501 to 4,999 shares--$0.30 per 100 shares
Net Inbound ITS Credit (also applicable to transactions in Nasdaq-100 
Index Tracking Stock[hairsp]SM)[hairsp][4]5
    $0.30 per 100 shares on the excess, if any, of the number of 
inbound ITS shares executed over the number of outbound ITS shares sent 
and executed on a monthly basis.

Summary of Equity Charges (p 3/3)

    See Appendix A for additional fees.

    I denotes fee eligible for monthly credit of up to $1,000.
    * not applicable to transactions in Nasdaq-100 Index Tracking 
Stock[hairsp]SM (see next page for fees).
    E ECNs 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; except that 
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 that executes 
customer orders primarily against the account of such market maker 
as principal, other than riskless principal.
    Any fees, credits, discounts and other charges in the Exchange's 
fee schedule which are based upon an equity specialist's specialist 
activity apply to competing specialists.
    ** Standard & Poor's[reg],'' ``S&P[reg],'' ``S&P 500[reg],'' 
``Standard & Poor's 500[reg]'', and ``500'' are trademarks of The 
McGraw-Hill Companies, Inc., and have been licensed for use by the 
Philadelphia Stock Exchange, Inc., in connection with the listing 
and trading of SPDRs, on the Phlx. These products are not sponsored, 
sold or endorsed by S&P, a division of The McGraw-Hill Companies, 
Inc., and S&P makes no representation regarding the advisability of 
investing SPDRs.
    \1\ However, this charge applies where an order, after being 
delivered to the Exchange by the PACE system is executed by the 
specialist by way of an outbound commitment, when such outbound ITS 
commitment reflects the PACE order's clearing information, but does 
not apply where a PACE trade was executed against an inbound ITS 
commitment.
    \2\ This charge does not apply to transactions in Nasdaq-100 
Index Tracking Stock[hairsp]SM and SPDRs.
    [2]3 Applies to each member who derives at 
least 80% of gross income generated from Phlx floor based activities 
from his/her floor brokerage business conducted on the Exchange. 
Floor brokerage business conducted on the Exchange includes orders 
that are received on the Phlx, even if those orders are executed on 
an exchange other than the Phlx. The 5% floor brokerage assessment 
is waived until Dec 31, 2003 and is scheduled to be reinstated Jan 
1, 2004.
    [3]4 This fee will only apply when the 
specialist sends an order received over PACE to ITS and receives an 
execution, if the specialist used the PACE customer's clearing 
information on the outbound ITS commitment.
    [4]5 This credit will include all inbound 
and outbound ITS executions, including both

[[Page 16852]]

PACE and non-PACE and both proprietary and customer commitments.

* * * * *

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 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 III 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 adopt a license fee 
that will apply to trading SPDRs on the Exchange. The Exchange recently 
determined to begin trading SPDRs. The license fees should help off-set 
licensing fees payable to Standard & Poor's \8\ associated with the 
trading of these products on the Exchange.
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    \8\ See supra note 6.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\9\ in general, and furthers the 
objectives of section 6(b)(4) of the Act,\10\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members. The Exchange believes that charging members 
that trade these products a licensing fee is an equitable means of 
recovering a portion of the licensing fees incurred by the 
Exchange.\11\
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ With regard to the distinction between Customer PACE and 
Non-PACE license fees, the Exchange states that it is consistent 
with its current practice to not impose customer charges for equity 
transactions delivered through PACE, but to impose customer charges 
for Non-PACE executions. See, e.g., Securities Exchange Act Release 
Nos. 47385 (February 20, 2003), 68 FR 10295 (March 4, 2003) (SR-
Phlx-2003-06); 44381 (June 1, 2001), 66 FR 31264 (June 11, 2001) 
(SR-Phlx-2001-57); and 43776 (December 28, 2000), 66 FR 1166 
(January 5, 2001) (SR-Phlx-00-103). Also, consistent with its 
current practice, the Exchange charges customer transaction fees and 
specialist transaction fees at different rates. See, e.g., 
Securities Exchange Act Release Nos. 44381 (June 1, 2001), 66 FR 
31264 (June 11, 2001) (SR-Phlx-2001-57); 47109 (December 30, 2002), 
68 FR 841 (January 7, 2003) (SR-Phlx-2002-78); and 42332 (January 
12, 2000), 65 FR 3517 (January 21, 2000) (SR-Phlx-00-59).
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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

    No written comments were either solicited or received.

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

    The foregoing rule change establishes or changes a due, fee, or 
charge imposed by the Exchange and, therefore, has become effective 
upon filing pursuant to section 19(b)(3)(A)(ii) of the Act \12\ and 
Rule 19b-4(f)(2) thereunder.\13\ 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 purpose of 
the Act.
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    \12\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \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, as amended, 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 will also be available for inspection and copying at the 
principal office of the Exchange. All submissions should refer to File 
No. SR-Phlx-2003-17 and should be submitted by April 28, 2003.

    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. 03-8388 Filed 4-4-03; 8:45 am]
BILLING CODE 8010-01-P