[Federal Register Volume 68, Number 121 (Tuesday, June 24, 2003)]
[Notices]
[Pages 37597-37598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15836]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48052; File No. SR-Phlx-2003-33]


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 Eliminate and Refund a 
Specialist Transaction Fee

June 17, 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 April 23, 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, II, and III below, which Items have been prepared by the 
Exchange. The Exchange amended the proposal on June 5, 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 June 5, 2003, the Exchange filed a Form 19b-4, which 
completely replaced and superceded the original filing in its 
entirety (``Amendment No. 1''). In Amendment No. 1, the Exchange 
amended the proposal to designate the proposed rule change as filed 
under Section 19(b)(3)(A)(ii), rather than Section 19(b)(2), of the 
Act. For purposes of calculating the 60-day abrogation period, the 
Commission considers the period to have commenced on June 5, 2003, 
the date the Exchange filed Amendment No. 1. 15 U.S.C. 78s(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 (1) eliminate the Nasdaq-100 Index 
Tracking Stock (``QQQ'') SM \4\ specialist transaction fee 
of $0.002 per share, retroactive to its implementation date;\5\ and (2) 
refund the amounts that were billed to and collected from the Phlx QQQ 
specialist unit \6\ during the time period in which the QQQ specialist 
$0.002 per share transaction fee was in effect.\7\
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    \4\ The Nasdaq-100 [reg], Nasdaq-100 Index [reg], Nasdaq [reg], 
The Nasdaq Stock Market[reg], Nasdaq-100 Shares SM, 
Nasdaq-100 Trust SM, Nasdaq-100 Index Tracking Stock 
SM, and QQQ SM are trademarks or service marks 
of The Nasdaq Stock Market, Inc. (Nasdaq) and have been licensed for 
use for certain purposes by the Phlx pursuant to a License Agreement 
with Nasdaq. The Nasdaq-100 Index[reg] (the Index) is determined, 
composed, and calculated by Nasdaq without regard to the Licensee, 
the Nasdaq-100 Trust SM, or the beneficial owners of 
Nasdaq-100 Shares SM. Nasdaq has complete control and 
sole discretion in determining, comprising, or calculating the Index 
or in modifying in any way its method for determining, comprising, 
or calculating the Index in the future.
    \5\ See Securities Exchange Act Release No. 43776 (December 28, 
2000), 66 FR 1166 (January 5, 2001) (SR-Phlx-00-103) (imposing, 
among other things, a QQQ specialist $0.002 per share transaction 
fee, with a maximum charge of $50.00 per trade). On January 31, 
2003, the Phlx filed a proposed rule change which eliminated the QQQ 
specialist $0.002 per share transaction fee for transactions 
settling on or after February 3, 2003. See Securities Exchange Act 
Release No. 47385 (February 20, 2003), 68 FR 10295 (March 4, 2003) 
(SR-Phlx-2003-06). The instant proposal seeks to eliminate this fee 
from on or after December 15, 2000, the date of implementation, 
through February 2, 2003.
    \6\ The Exchange uses the terms ``specialist'' and ``specialist 
unit'' interchangeably herein.
    \7\ During the time period during which this fee was in effect, 
there was only one Phlx specialist unit that traded the QQQ.
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    On December 8, 2000, the Phlx filed a proposed rule change with the 
Commission to amend its fee schedule to accommodate the trading of the 
QQQ.\8\ Pursuant to that filing, the Exchange was to assess no charge 
to members for customer trades entered through the Phlx Automated 
Communication and Execution System (``PACE''),\9\ but was to impose a 
fee of $1.00 per transaction to customers for non-PACE trades.\10\ 
Specialists were to be charged a fee of $0.002 per share, with a 
maximum charge of $50.00 per trade, whether or not the QQQ trade took 
place on PACE.
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    \8\ See Securities Exchange Act Release No. 43776 (December 28, 
2000), 66 FR 1166 (January 5, 2001) (SR-Phlx-00-103).
    \9\ PACE is the Phlx's order routing, delivery, execution and 
reporting system for its equity trading floor. See Phlx Rules 229 
and 229A.
    \10\ The customer, non-PACE per trade fee was amended on January 
31, 2003. See Securities Exchange Act Release No. 47385 (February 
20, 2003), 68 FR 10295 (March 4, 2003) (SR-Phlx-2003-06).
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    Due to a programming error, the QQQ specialist $0.002 per share 
transaction fee was programmed for non-PACE trades only, thereby 
erroneously excluding PACE trades from it.\11\

[[Page 37598]]

Thereafter, the Phlx eliminated the QQQ specialist $0.002 per share 
transaction fee for transactions settling on or after February 3, 
2003.\12\ The Phlx now seeks to eliminate the QQQ specialist 
transaction fee of $0.002 per share retroactive to its implementation 
date through February 2, 2003, and to refund the amounts billed to and 
collected from the Phlx QQQ specialist unit during the time period in 
which the QQQ specialist $0.002 per share transaction fee was in 
effect.
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    \11\ It is not uncommon for the Exchange to distinguish between 
PACE and non-PACE trades in its fee structure. For instance, the 
Exchange charges QQQ customer non-PACE transaction charges, but does 
not charge for customer PACE transactions. See Securities Exchange 
Act Release Nos. 47385 (February 20, 2003), 68 FR 10295 (March 4, 
2003) (SR-Phlx-2003-06), and 43776 (December 28, 2000), 66 FR 1166 
(January 5, 2001) (SR-Phlx-00-103). However, the Exchange notes that 
the QQQ specialist $0.002 per share transaction fee, as filed, 
treated PACE and non-PACE trades the same.
    \12\ See Securities Exchange Act Release No. 47385 (February 20, 
2003), 68 FR 10295 (March 4, 2003) (SR-Phlx-2003-06).
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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 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 rectify the effects 
of a programming error that occurred in connection with the billing of 
the QQQ specialist $0.002 per share transaction fee. The QQQ specialist 
$0.002 per share transaction fee had been programmed for non-PACE 
trades only, thereby erroneously excluding PACE trades from it. The 
Exchange believes that, had the fee been billed as originally filed, 
the Exchange would have amended or terminated the fee in order to 
remain competitive in its charges to specialists trading the QQQ 
product.\13\
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    \13\ Moreover, had the fee been billed correctly, it would have 
been potentially unduly burdensome to the specialist trading the 
QQQ, especially in light of decimal trading.
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    This proposal corrects the billing error by eliminating the QQQ 
specialist fee retroactive to its implementation date and refunding to 
the Phlx specialist the QQQ specialist $0.002 per share transaction 
fees that were billed and collected, specifically as applied to non-
PACE QQQ trades, during the time period that the fee was in effect.
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, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members. The effect of correcting the QQQ specialist 
transaction fee billing error in the manner described above will be 
that the $0.002 per share charges to the specialist for both QQQ PACE 
and non-PACE transaction fees would not have been charged at all. The 
Exchange believes that waiving the QQQ specialist transaction fee and 
refunding any amounts collected should provide for an equitable way in 
which to resolve this billing error and minimize confusion by resulting 
in a situation whereby the fee, in effect, was never implemented.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 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 \16\ and 
Rule 19b-4(f)(2) thereunder.\17\ 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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    \16\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \17\ 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-2003-33 and should be submitted by July 15, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15836 Filed 6-23-03; 8:45 am]
BILLING CODE 8010-01-P