[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6493-6495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-470]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51116; File No. SR-Phlx-2005-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Extend Its Pilot Fee Schedule for Electronic 
Communications Networks

February 1, 2005.
    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 26, 2005, 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 Items have been prepared by the Phlx. 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 Phlx proposes to amend its schedule of fees to extend its 
current pilot program for an additional one-year period (until January 
31, 2006), to continue to impose a $2,500 monthly fee for electronic 
communications networks (``ECNs'') that are member

[[Page 6494]]

organizations and send order flow to the Exchange's equity trading 
floor.\3\ The current pilot program is scheduled to expire on January 
31, 2005.\4\
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    \3\ As stated on the Phlx fee schedule, an ECN 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 single price set by the ECN (by 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. See also Rule 11Ac1-1(a)(8) under the 
Act, 17 CFR 240.11Ac1-1(a)(8) (defining ECN for the purposes of Rule 
11Ac1-1(c)(5)).
    \4\ See Securities Exchange Act Release No. 49173 (February 2, 
2004), 69 FR 6358 (February 10, 2004) (extending the ECN fee pilot 
program until January 31, 2005).
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    The $2,500 fee would continue to apply to ECN trades where the ECN 
is not acting as a specialist or a floor broker, but rather an order 
flow provider. This fee is in lieu of the equity transaction value 
charge that would normally apply to (non-specialist) equity trades.
    No changes are being made to the Exchange's Summary of Equity 
Charges which is available at the principal office of the Phlx, and on 
the Phlx's Web site, http://www.phlx.com/exchange/memservices/feesched.pdf.

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 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 extend for an 
additional one-year period (until January 31, 2006) the Exchange's 
current ECN pilot program that imposes a $2,500 monthly fee for ECNs 
that are member organizations and send order flow to the Exchange's 
equity trading floor. The continuation of the $2,500 fee is intended to 
attract equity order flow from ECNs to the Exchange by continuing to 
substitute a fixed monthly fee, in light of the potential for high 
volumes of order flow from ECNs.\5\ The monthly fee will continue to 
apply to ECN order flow to the Exchange's equity trading floor, 
including from ECNs that either became members or began sending order 
flow after the commencement of the initial program. The $2,500 fee 
would continue to apply to ECNs that are not acting as a Phlx 
specialist or floor broker.\6\ Currently, no ECN operates from the 
Exchange's equity trading floor as a floor broker or specialist unit. 
If, however, an ECN did operate from the equity trading floor, it could 
be subject to various floor-related fees respecting its floor 
operation.\7\ In addition, an ECN's transactions as a floor broker 
would be subject to the equity transaction charge and its specialists 
would be subject to other charges.\8\ Even if the ECN were acting as a 
floor broker or specialist with respect to some trades, those trades 
for which it was not acting as a floor broker or specialist, but rather 
an ECN, would be subject only to the flat monthly fee and not other 
transaction charges. An ECN that operates only as a specialist or floor 
broker would not have to pay the monthly fee, because it would, 
instead, be paying the normal transaction charges applicable to floor 
brokers and specialists.
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    \5\ To recoup costs due from the Exchange to the Commission 
pursuant to Section 31(b) of the Act, 15 U.S.C. 78ee(b), the 
Exchange intends to continue to apply such fee to ECNs, as the 
current fee schedule reflects.
    \6\ An ECN would also continue to incur certain license fees and 
other fees as specified on the Exchange's schedule of dues, fees, 
and charges. In addition, an ECN would continue to incur specialist 
or equity floor brokerage transaction fees if it acts as a Phlx 
specialist or floor broker.
    \7\ According to the Exchange, these include the Trading Post/
Booth Fee, Trading Post w/Kiosk Fee, Kiosk Construction Fee (when 
requested by specialist), Controller Space Fee, Floor Facility Fee, 
Shelf Space on Equity Option Trading Floor Fee, Computer Equipment 
Services, Repairs or Replacements Fee and Computer Relocation 
Requests Fee. Certain communications fees could also apply, such as 
the Direct Wire to the Floor Fee, Telephone System Line Extensions, 
Wireless Telephone System, Tether Initial Connectivity Fee, Tether 
Monthly Service Fee, Execution Services/Communication Charge, Stock 
Execution Machine Registration Fee (Equity Floor), Equity, Option, 
or FCO Transmission Charge, FCO Pricing Tape, Option Report Service 
Fee, Instinet, and Reuters Equipment Pass-Through Fee.
    \8\ For example, certain license fees may apply to specialists, 
and the Equity Floor Brokerage Assessment and Equity Floor Brokerage 
Transaction Fee apply to floor brokerage activity.
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    An ECN would also continue to be subject to, if applicable, the 
following membership-related fees: Permit Fees, Foreign Currency User 
Fees, Application Fee, Initiation Fee, Transfer Fee for Foreign 
Currency Options Participations, Phlx CCH Guide Fee, Examinations Fee, 
Review/Process Subordinated Loans Fee, Registered Representative 
Registration fees, Trading Floor Personnel Registration Fee, Off-Floor 
Trader Initial Registration Fee and Annual Fee, and Remote Specialist 
fees.
    Because the $2,500 fee is a flat monthly fee as opposed to a per-
transaction fee, it is intended to encourage ECN volume. Currently, the 
equity transaction charge that would otherwise apply to an ECN's equity 
trades ranges, based on share volumes, with a $50 maximum fee per trade 
side, and various other applicable discounts. Thus, many variables 
determine whether the proposed monthly $2,500 fee is generally more 
favorable than the equity transaction charge, depending upon the number 
of trades, size of the trade and type (i.e., PACE). As a general 
matter, the Exchange believes that $2,500 would be more favorable to 
the ECN because it is a fixed amount.
    The Exchange believes that the monthly ECN fee provides competitive 
fees with appropriate incentives, thus providing a reasonable method to 
attract large order flow providers such as ECNs to the Exchange. 
Additional order flow should enhance liquidity, and improve the 
Exchange's competitive position in equity trading. The Exchange 
believes that structuring this fee for ECNs is appropriate, as ECNs are 
unique in their role as order flow providers to the Exchange. 
Specifically, ECNs operate a unique electronic agency business, similar 
to a securities exchange, as opposed to directly executing orders for 
their own customers as principal or agent.
2. Statutory Basis
    The Exchange believes that its proposal to amend its schedule of 
fees 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 fees 
among Exchange members, due to the unique character of ECNs, and 
because the fixed monthly fee is a reasonable method of attracting a 
new form of order flow to the Exchange.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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 would 
impose any inappropriate burden on competition.

[[Page 6495]]

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 has become effective immediately pursuant 
to Section 19(b)(3)(A)(ii) of the Act \11\ and Rule 19b-4(f)(2) \12\ 
thereunder, in that it establishes or changes a due, fee, or other 
charge imposed by the Exchange. 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 of appropriate in the public interest, for the 
protection of investors, or otherwise in the furtherance of the 
purposes of the Act.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 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 is consistent with 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-2005-06 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-2005-06. 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 the 
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-2005-06 and should be submitted on or before 
February 28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 13 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-470 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P