[Federal Register Volume 69, Number 118 (Monday, June 21, 2004)]
[Notices]
[Pages 34411-34413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13969]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49856; File No. SR-Phlx-2004-32]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change, and Amendment Nos. 1 and 2 
Thereto, by the Philadelphia Stock Exchange, Inc. Relating to Permit 
Holder Fees

June 15, 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 May 3, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx'' or the 
``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 Phlx. 
On June 3, 2004, the Phlx submitted an amendment to the proposed rule 
change.\3\ On June 14, 2004, the Phlx submitted via facsimile a second 
amendment to the proposed rule change.\4\ The proposed rule change, as 
amended, has been filed by the Phlx as establishing or changing a due, 
fee, or other charge, pursuant to section 19(b)(3)(A)(ii) of the Act 
\5\ and Rule 19b-4(f)(2) \6\ thereunder, which renders the proposal 
effective upon filing with the Commission. 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 Murray Ross, Phlx, to Nancy J. Sanow, 
Assistant Director, Division of Market Regulation (``Division''), 
Commission, dated June 2, 2004 (``Amendment No. 1''). Amendment No. 
1 superseded and replaced the proposed rule change in its entirety.
    \4\ See facsimile from Murray Ross, Phlx, to Nancy J. Sanow, 
Assistant Director, Division, Commission, dated June 14, 2004 
(``Amendment No. 2''). In Amendment No. 2, the Exchange clarified 
the categories of permit holders to which the proposed new permit 
fee category would be applicable. Amendment No. 2 superseded and 
replaced Amendment No. 1 in its entirety.
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-4(f)(2).
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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 fees and charges to 
adopt a new category of permit holders for billing purposes to address 
situations where permit holders do not fall under one of the existing 
permit fee categories. These permit holders, delineated as ``other'', 
will be assessed a fee of $200 per month. The text of the proposed rule 
change is available at the Exchange and at the Commission.

Current Permit Fees

    Monthly permit fees are assessed based on how each permit is used. 
Current permit fees are as follows: \7\
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    \7\ See Securities Exchange Act Release No. 49157 (January 30, 
2004), 69 FR 5883 (February 6, 2004) (SR-Phlx-2004-02).
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    Order Flow Provider Permit Fee: \8\
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    \8\ 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 Registered Options 
Trader (``ROT'') (on any trading floor) or Off-Floor Trader, and 
whose member organization submits orders to the Exchange. Phlx Rule 
620(a) requires such registration.
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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.
    Permit holders may also be designated as ``excess'' permit holders 
in cases where permit holders in the same organization, other than the 
permit holder who qualifies the member organization, are either: (1) 
not Floor Brokers, Specialists or ROTs (on any trading floor) or Off-
Floor Traders; or (2) not associated with a member organization that 
meets the definition of an order flow provider.\9\ Member organizations 
that have excess permit holders are assessed $200 for each ``excess 
permit.''
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    \9\ See Securities Exchange Act Release No. 49320 (February 25, 
2004), 69 FR 10091 (March 3, 2004) (SR-Phlx-2004-09).
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Permit Fee Changes

    The Exchange is proposing to adopt a permit fee category to address 
the limited situations where a permit holder does not fit within any of 
the existing permit fee categories. The Exchange represents that it has 
found that a few permit holders have not fit in the other permit fee 
categories, and, consequently, no permit fee was applicable. For 
example, a member organization may determine to have a permit holder in 
order to be a Phlx member organization and reflect such status on its 
letterhead, which is common in the securities industry. The Exchange 
states that, if such member

[[Page 34412]]

organization does not send any business to the Exchange, it would not 
qualify for the ``order flow provider permit fee,'' and if it does not 
qualify for the other existing permit fees, then it would not be 
subject to a permit fee at all. This is an example of a situation that 
the Exchange intends to capture by adopting an ``other permit holder'' 
fee category. In this regard, the ``other'' category is intended to 
apply to permit holders who solely qualify their respective member 
organization.\10\
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    \10\ This means that there is just one permit holder in that 
member organization. If there is more than one permit holder in a 
member organization and that permit holder does not fit within any 
of the existing permit fee categories, then the fee category 
proposed herein will not apply. The Exchange notes that it could 
separately consider adopting a permit fee to cover that category.
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    Additionally, the Exchange proposes to establish the date of 
notification for terminating a permit as the date that permit fee 
billing will cease. The Exchange represents that this is a change from 
using the effective date of the posting period. Currently, upon notice 
of termination of a permit, the effective date is subject to the 
posting and notice requirements set forth by the Exchange.\11\ This 
generally requires a minimum of seven days notice and publication in 
the Exchange's Membership Bulletin. The Exchange states that, if notice 
occurs over a new billing period, the member would currently be charged 
a permit fee for a full additional month during which the permit would 
not be needed or utilized.
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    \11\ Therefore, members will not be billed an additional monthly 
permit fee for the following month after notice of termination has 
been given, provided that the termination becomes effective. 
However, if a permit holder terminates a permit at any time within a 
month, consistent with current practice, that permit holder will 
still be required to pay the applicable monthly permit fee for that 
month.
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    Further, the Exchange is proposing to assess only one monthly 
permit fee in certain limited situations where two monthly permit fees 
would be imposed. The Exchange states that, pursuant to current 
Exchange rules, a permit may not be transferred except if the transfer 
occurs within the permit holder's member organization. For example, if 
the permit holder transfers the permit to another individual within the 
same member organization only one monthly permit fee is assessed for 
that permit. Conversely, if the permit holder transfers from one member 
organization to another unrelated member organization in the same 
month, both member organizations are assessed a permit fee in the same 
billing period. The Exchange states that, when a permit holder becomes 
associated with another member organization as a result of a merger, 
partial sale of the current member organization, or other business 
combination, a new permit will be issued but, pursuant to this 
proposal, the related monthly permit fee for the new permit will not be 
assessed in these limited situations in order to avoid double billing 
for monthly permit fees in the month that the merger or business 
combination occurs. This interpretation of the assessment of only one 
permit fee when a permit holder becomes associated with another member 
organization as a result of a merger partial sale or other business 
combination with another member organization is noted in the fee 
schedule.
    The Exchange represents that this proposal creates no new permits 
or permit holders, but merely categorizes permit holders for purposes 
of applicable permit fees.

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, as 
amended, 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 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
    The purpose of the proposed rule change is to garner additional 
revenue by creating an additional category of permit fees to cover the 
limited instances where permit holders do not currently fall within an 
existing category of permit fees. This should ensure that each permit 
holder is subject to a permit fee. In addition, allowing monthly 
billing of permit fees to cease at the time a member notifies the 
Exchange, as opposed to waiting for the effective date of the posting 
and notice requirements, should avoid unnecessarily billing a member 
for permit fees for a month during which their permit was terminated. 
Also, charging only one permit fee for the month in which a merger or 
other business combination occurs should avoid unfairly double billing 
for a permit fee to a permit holder changing affiliation due to a 
merger or other business organizational changes.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \12\ in general, and furthers 
the objectives of sections 6(b)(4) and 6(b)(5) of the Act \13\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees, and other charges among Exchange members and is designed to 
perfect the mechanisms of a free and open market and a national market 
system, and to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    Written comments were neither solicited nor received.

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

    The Exchange has designated the foregoing proposed rule change, as 
amended, as a fee change pursuant to section 19(b)(3)(A)(ii) of the Act 
\14\ and Rule 19b-4(f)(2) \15\ thereunder. Accordingly, the proposed 
rule change, as amended, 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.\16\
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    \14\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change, as 
amended, under section 19(b)(3)(C) of the Act, the Commission 
considers the period to commence on June 14, 2004, the date on which 
the Phlx submitted Amendment No. 2. See 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, as amended, is consistent with

[[Page 34413]]

the Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Phlx-2004-32 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Phlx-2004-32. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the Phlx. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Phlx-2004-32 and should be submitted on or before July 
12, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13969 Filed 6-18-04; 8:45 am]
BILLING CODE 8010-01-P