[Federal Register Volume 69, Number 25 (Friday, February 6, 2004)]
[Notices]
[Pages 5883-5885]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2552]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49157; File No. SR-Phlx-2004-02]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Philadelphia Stock Exchange, Inc. Relating to Post-Demutualization 
Fees

January 30, 2004.
    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 7, 2004, 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 the Phlx has prepared. On January 20, 2004, the 
Exchange submitted Amendment No. 1 to the proposed rule change.\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\ See Letter from Edith Halihan, Deputy General Counsel, Phlx, 
to Nancy Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated January 16, 2004 (``Amendment No. 1''). In 
Amendment No. 1, the Phlx made minor changes to the section of the 
proposed rule change describing its text to clarify the fee 
obligations for members associated with more than one member 
organization.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend its schedule of dues, fees and charges 
to adopt permit fees in connection with the Exchange's proposed 
demutualization.\4\ The fees relating to the issuance of Series A-1 
Permits will

[[Page 5884]]

be assessed based on how each permit is used.
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    \4\ In its proposed demutualization, the Phlx is seeking to 
convert from a non-stock corporation into a stock corporation. The 
Exchange has submitted a separate proposed rule change relating to 
the proposed demutualization. See Securities Exchange Act Release 
No. 48847 (November 26, 2003), 68 FR 67720 (December 3, 2003) (SR-
Phlx-2003-73). The Commission notes that it approved the 
demutualization in Securities Exchange Act Release No. 49098 
(January 16, 2004) (SR-Phlx 2003-73). As part of the 
demutualization, the Exchange intends to eliminate existing Exchange 
memberships; following demutualization, access to trading on the 
Exchange will be pursuant to permits rather than by ownership or 
leasing of Phlx memberships. The only class or series of permits to 
be outstanding initially will be denominated as ``Series A-1 
Permits.'' Until such time (if ever) as additional classes or series 
of permits are issued, the Series A-1 Permits will be referred to as 
``permits'' on the Exchange's fee schedule.
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    The Exchange proposes the following fees:

Order Flow Provider Permit Fee \5\
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    \5\ This fee applies to a permit held by a permit holder who 
does not have physical access to the Exchange's trading floor, is 
not registered as a Floor Broker, Specialist or ROT (on any trading 
floor) or Off-Floor Trader, and whose member organization submits 
orders to the Exchange. See Phlx Rule 620.
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    a. Permits used only to submit orders to the equity, foreign 
currency options or options trading floor (one floor only)--$200 per 
month.
    b. Permits used only to submit orders to more than one trading 
floor--$300 per month.

Floor Broker, Specialist or ROT (on any trading floor) or Off-Floor 
Trader Permit Fee

a. First permit--$1,200 per month.
b. Additional permits for members in the same organization--$1,000 per 
month.

    Any member who is associated with one or more member organizations 
and uses a permit in more than one category will pay the higher of the 
applicable fees for such permit.\6\
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    \6\ For example, if a member organization with only one permit 
was an order flow provider and the permit holder associated with the 
member organization then registered as a floor broker on the 
Exchange for that or another member organization, that permit would 
be subject to a permit fee of $1,200 (the higher of $200 and $1,200, 
but not both fees).
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    In light of the proposed demutualization, the Exchange also 
proposes to make other necessary changes to Appendix A of the fee 
schedule.\7\ Specifically, the following charges will be deleted from 
Appendix A: (1) Membership dues;\8\ (2) charges relating to equity 
trading permits (``ETPs'');\9\ (3) the Foreign Currency Options 
Participations (``FCOP'') Fee of $166.67 per month; (4) the technology 
fee for Exchange members;\10\ (5) the Technology Fee of $150 per month 
assessed on Foreign Currency Options Participants who do not hold legal 
title to a Phlx membership; and (6) the capital funding fee of $1500 
per month. Also, the notation ``I,'' which appears on the Exchange's 
fee schedule, including Appendix A, and denotes that a fee qualified 
for a monthly credit of up to $1,000, will be deleted.\11\ In addition, 
the following changes will be made to Appendix A: (1) The Foreign 
Currency User Fee will increase from $166.67 per month to $1,200 per 
month; and (2) the Transfer Fee of $500 will be clarified to reflect 
that FCOP \12\ transfers will continue to be charged a Transfer Fee of 
$500.\13\
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    \7\ The other sections of the fee schedule will continue to 
apply, including transaction fees.
    \8\ Currently, Membership Dues are $166.67 per month.
    \9\ The Exchange intends to terminate ETPs at the time of the 
demutualization. See Securities Exchange Act Release No. 48847 
(November 26, 2003), 68 FR 67720 (December 3, 2003).
    \10\ Currently, members are assessed a technology fee of $950. 
See Securities Exchange Act Release No. 48034 (June 16, 2003), 68 FR 
37192 (June 23, 2003) (SR-Phlx-2003-41).
    \11\ The monthly capital funding fee and monthly credit were 
previously in effect for an aggregate period of 36 months, which 
expired in May 2003. See Securities Exchange Act Release Nos. 42993 
(June 29, 2000), 65 FR 42415 (July 10, 2001) (SR-Phlx-99-51); and 
44292 (May 11, 2001), 66 FR 27715 (May 18, 2001) (SR-Phlx-2001-49).
    \12\ See current Phlx By-Law Article I, Section 1-1(m).
    \13\ Pursuant to the Exchange's proposed demutualization, 
permits may not be transferred from one Exchange member organization 
to another, thus a Transfer Fee is inapplicable for permits. In 
addition, the Exchange does not intend, at this time, to charge a 
Transfer Fee for permit transfers within a member organization under 
the limited circumstances under which such transfers will be 
permitted under the Exchange's proposed rules.
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    The Exchange also intends to make other minor technical amendments 
to its fee schedule relating to the renumbering of its footnotes to 
reflect that certain footnotes marked as ``reserved'' have now been 
deleted.
    The proposed changes are to become effective upon the issuance of 
permits when the Exchange's proposed demutualization becomes 
effective.\14\
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    \14\ The Exchange anticipates that this will occur in mid to 
late January 2004. However, should the closing occur other than on 
the last day of a month, in order to avoid double charging then 
current members and member organizations or increasing fees for 
foreign currency option participants (``participants'') and 
participant organizations (collectively referred to as ``current 
members''), mid-month for membership/participant-related fees that 
are currently in effect, permit fees, as well as other fees that 
take effect post-demutualization, the demutualization fee changes 
scheduled to be implemented for then current members upon the 
issuance of permits will be implemented the first day of the next 
full calendar month after the closing of the demutualization occurs 
(and permits are issued). Therefore, if permits are issued in mid-
January, the post-demutualization fee changes for then current 
members will be implemented beginning February 2004. That is, 
current membership/participant-related fees, dues, and other charges 
will remain in effect for the full month in which closing occurs and 
permit fees and other post-demutualization fee changes will take 
effect as of the first day of the following month. Similarly, in 
this example, if demutualization becomes effective in January, 
permit fees will be assessed that month for anyone who is not a 
current member prior to demutualization.
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    The text of the proposed rule change is available at the Commission 
and at the Phlx.

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 had 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 the 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 amend Appendix A of 
the Exchange's schedule of dues, fees, and charges to incorporate 
changes that are to become effective in connection with the Exchange's 
proposed demutualization. Specifically, the Exchange is adopting a 
permit fee structure and deleting certain other fees discussed above to 
accommodate trading on the Exchange post-demutualization. The Exchange 
also intends to make changes to its fees relating to FCOPs to generate 
revenue for the Exchange in order to enable it to continue to provide a 
marketplace for its foreign currency options and to simplify and 
clarify the billing for FCOPs. In addition, the Exchange proposes to 
delete the capital funding fee, which appears in Appendix A, and the 
references to the monthly credit of up to $1,000 that appear throughout 
the Exchange's schedule of dues, fees, and charges, as this fee is no 
longer imposed and the credit is no longer offered, by the 
Exchange.\15\ The Exchange intends to renumber the footnotes that 
appear on its schedule of dues, fees, and charges to reflect that 
certain footnotes designated as ``reserved'' have now been deleted to 
avoid member confusion.
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    \15\ See supra note 11.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
dues, fees and charges is consistent with Section 6(b) of the Act \16\ 
in general, and furthers the objectives of Section 6(b)(4) of the Act 
\17\ in particular, in that it is an equitable allocation of reasonable 
dues, fees, and other charges among Exchange members. The Exchange 
believes that the proposed permit fee structure is reasonable, because 
$1,000-$1,200 per month per permit holder approximates the membership-
related fees currently charged by the Exchange for most members ($950 
technology fee

[[Page 5885]]

plus approximately $167 for membership dues). Moreover, the Exchange 
believes that charging $200 more for the first permit in each member 
organization is reasonable and equitable, in light of the 
administration of a member organization's registration; the first 
``membership'' or permit qualifies a member organization, which 
requires certain registration, filing and processing by the 
Exchange.\18\ The Exchange believes that the $200-$300 monthly fee for 
order flow providers should attract order flow providers as well as 
reflect their limited, order entry access.\19\ Order flow providers 
will not take up space and resources on the Phlx trading floor or use 
floor services to the same extent as Phlx floor-based members. The 
Exchange believes that this proposal to impose permit fees depending on 
how a permit is used is both reasonable and equitable, similar to its 
current ETP structure.\20\ The Exchange also believes that the proposed 
increased Foreign Currency User Fee is reasonable and equitable 
because, although the fee will increase substantially from current 
membership fees for FCOPs who do not also hold legal title to a Phlx 
membership,\21\ it will be more closely aligned with permit fees, such 
that access to Phlx products will be similarly priced.\22\
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ Similarly, the Exchange's current fee schedule reflects 
that ETP fees are discounted for multiple memberships. The fee 
respecting ETPs is $3,500 per month per ETP (``Regular ETP''), 
however a Regular ETP 3-Seat Fee of $1,350 per month per ETP is 
charged for Regular ETP holders and ETP organizations in lieu of the 
Regular ETP Fee if the ETP organization has at all times at least 
three associated persons who are members of the Exchange by virtue 
of a membership, whether owned or leased. See Securities Exchange 
Act Release No. 45480 (February 26, 2002), 67 FR 10029 (March 5, 
2002) (SR-Phlx-2002-10).
    \19\ This is similar to the current Off-Floor ETP fee of $500 
per month per ETP, which is charged to Off-Floor ETP holders, while 
Regular ETPs are $3,500 per month per ETP, the Regular ETP 3-Seat 
Fee is $1,350 per month per ETP and the Regular ETP RS Fee is $1,000 
per month per ETP. See Securities Exchange Act Release Nos. 45480 
(February 26, 2002), 67 FR 10029 (March 5, 2002) (SR-Phlx-2002-10) 
and 48925 (December 15, 2003), 68 FR 70855 (December 19, 2003) (SR-
Phlx-2003-78).
    \20\ Id.
    \21\ In terms of membership-type fees, currently, FCOPs who do 
not hold legal title to a Phlx membership are assessed a technology 
fee of $150 monthly in lieu of the $950 monthly technology fee. In 
addition, they are assessed a Foreign Currency User fee of $166.67 
and a FCOP fee of $166.67 per month. Of course, as stated above, 
other non-membership fees, such as transaction fees, may apply to 
FCOPs.
    \22\ FCOPs may, of course, determine to dispose of their FCOP 
and apply for a permit instead.
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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

    The Phlx neither solicited nor received written comments on this 
proposal.

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 \23\ and Rule 
19b-4(f)(2) thereunder.\24\ Accordingly, the proposal has taken effect 
upon filing with the Commission. At any time within 60 days after the 
filing of the proposed rule change, the Commission may summarily 
abrogate the 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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    \23\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \24\ 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-Phlx-2004-02. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review your comments more efficiently, comments should be 
sent in hardcopy or by e-mail but not by both methods. 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-2004-02, and should be 
submitted by February 27, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-2552 Filed 2-5-04; 8:45 am]
BILLING CODE 8010-01-P