6358 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

10 15 U.S.C. 78s(b)(3)(A)(ii).

11 17 CFR 240.19b–4(f)(2).

12 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3As stated on the Phlx fee schedule, 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 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 SEC Rule 11Ac1–1(a)(8). 

The Exchange is herein proposing minor changes to 

this definition, which appears on the fee schedule, 

to correct inconsistencies between the text of the 

SEC Rule 11Ac1–1(a)(8) and the text that appears 

on the Exchange’s fee schedule.

4See Securities Exchange Act Release No. 47120 

(January 3, 2003), 68 FR 1498 (January 10, 2003) 

(Notice of Filing and Immediate Effectiveness of 

SR–Phlx–2002–83, extending the ECN fee pilot 

program until January 31, 2004). See also Securities 

Exchange Act Release Nos. 44155 (April 5, 2001), 

66 FR 19274 (April 13, 2001) (Notice of Filing and 

Immediate Effectiveness of SR–Phlx–2001–09, 

adopting the ECN fee program on a pilot basis); and 

45456 (February 19, 2002), 67 FR 8831 (February 

26, 2002) (Notice of Filing and Immediate 

Effectiveness of SR–Phlx–2002–08, extending the 

ECN fee pilot program until January 31, 2003).

5To recoup costs due from the Exchange to the 

Commission pursuant to Section 31(b) of the Act, 

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 10 and Rule 19b–4(f)(2) 11

thereunder. 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.

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. 

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 in 

the Commission’s Public Reference 

Room. Comments may also be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–Phlx–2004–05. 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 hard copy or by email, but not by both methods. 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–

05 and should be submitted by March 

2, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.12

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2809 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49173; File No. SR–Phlx–

2004–07] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by the 

Philadelphia Stock Exchange, Inc. 

Relating to the Extension of Its Pilot 

Program To Implement Its Existing Fee 

Schedule for Electronic 

Communications Networks 

February 2, 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 

28, 2004, 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 Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to extend the 

Exchange’s current pilot program for an 

additional one-year period (until 

January 31, 2005), in order to continue 

to impose a $2,500 monthly fee for 

Electronic Communications Networks 

(‘‘ECNs’’) that are member organizations 

and send order flow to the Exchange’s 

equity trading floor.3 The current pilot 

program is scheduled to expire on 

January 31, 2004.4 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.

The text of the proposed rule change 

is available at the Office of the 

Secretary, the Phlx, and the 

Commission. 

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 extend 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 for an additional one-year period, 

until January 31, 2005. 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

Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 6359

the Exchange intends to continue to apply such fee 

to ECNs, as the current fee schedule reflects.

6An 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.

7According 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, Quotron Equipment Fee, 

Instinet, Reuters Equipment Pass-Through Fee and 

the Option Mailgram Service Fee.

8For 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.

9 In a separate proposed rule change, the 

Exchange states that it amended its schedule of 

dues, fees, and charges to adopt permit fees in 

connection with the Exchange’s recent 

demutualization and to make other related postdemutualization fee changes. Pursuant to that 

proposal, permit fees were adopted and certain fees 

were deleted from the Exchange’s fee schedule. For 

example, fees that were deleted included 

membership dues, charges relating to Equity 

Trading Permits, Foreign Currency Options 

Participation fee, Technology Fee for Exchange 

members and for Foreign Currency Options 

Participants who do not hold legal title to a Phlx 

membership. References to the capital funding fee 

and monthly credit were also deleted and the 

Foreign Currency User Fee was increased. See

Securities Exchange Act Release No. 49157 (January 

30, 2004) (Notice of Filing and Immediate 

Effectiveness of SR–Phlx–2004–02). This proposal 

became effective for new members and participants 

upon the issuance of permits when the Exchange’s 

demutualization became effective (January 20, 

2004). Pre-demutualization membership-related 

fees will remain in effect for then current members, 

participants, and member and participant 

organizations for the month of January 2004.

10 15 U.S.C. 78f(b).

11 15 U.S.C. 78f(b)(4).

12 15 U.S.C. 78(s)(b)(3)(A)(ii).

13 17 CFR 240.19b–4(f)(2).

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 was 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 only 

operates 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.

An ECN would also continue to be 

subject to, if applicable, the following 

membership-related 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.9

Because the $2,500 fee is a flat 

monthly fee as opposed to a pertransaction 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 the 

proposed rule change is consistent with 

Section 6(b) of the Act,10 in general, and 

furthers the objectives of Section 6(b)(4) 

of the Act,11 in particular, by providing 

for the equitable allocation of reasonable 

dues, fees and other charges among its 

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.

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.

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. 

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 should be submitted 

electronically at the following e-mail 

address: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–Phlx–2004–07. 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 hard copy or by e-mail 

but not by both methods. Copies of the 

submission, all subsequent 

amendments, all written statements 

6360 Federal Register / Vol. 69, No. 27 / Tuesday, February 10, 2004 / Notices 

14 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3On July 31, 2003, the Exchange filed a proposed 

rule change to implement a pilot program to deploy 

the Exchange’s new System. The proposed rule 

change was noticed, and accelerated approval was 

granted thereto, on July 31, 2003. The pilot was 

scheduled to expire on August 29, 2003. See

Securities Exchange Act Release No. 48266 (July 31, 

2003), 68 FR 152 (August 7, 2003) (SR–Phlx–2003–

56). On August 29, the Commission extended the 

pilot to September 12, 2003. See Securities 

Exchange Act Release No. 48425 (August 29, 2003), 

68 FR 53210 (September 9, 2003) (SR–Phlx–2003–

60). On September 12, 2003, the Commission 

extended the pilot again until November 14, 2003. 

See Securities Exchange Act Release No. 48490 

(September 12, 2003), 68 FR 54926 (September 19, 

2003). On December 18, 2003, the Commission 

extended the pilot until February 6, 2004. See

Securities Exchange Act Release No. 48947 

(December 18, 2003), 68 FR 75012 (December 29, 

2003). In order to avoid a lapse in the effectiveness 

of this pilot, the Commission now is approving the 

Exchange’s proposal to extend the rule from 

February 6, 2004 until August 2, 2004. The 

Exchange has also filed for permanent approval of 

the proposed rules. See Securities Exchange Act 

Release No. 48265 (July 31, 2003), 68 FR 47137 

(August 7, 2003) (SR–Phlx–2003–40). The Exchange 

acknowledges that SR–Phlx–2003–40 and 

Amendment No. 1 thereto are subject to public 

comment, which may result in amendments to the 

proposed rules.

4AUTOM is the Exchange’s electronic order 

delivery, routing, execution and reporting system, 

which provides for the automatic entry and routing 

of equity option and index option orders to the 

Exchange trading floor. Orders delivered through 

AUTOM may be executed manually, or certain 

orders are eligible for AUTOM’s automatic 

execution feature, AUTO–X. Equity option and 

index option specialists are required by the 

Exchange to participate in AUTOM and its features 

and enhancements. Option orders entered by 

Exchange members into AUTOM are routed to the 

appropriate specialist unit on the Exchange trading 

floor. See Exchange Rule 1080.

5See note 3, supra.

6See Securities Exchange Act Release No. 41524 

(June 14, 1999), 64 FR 33127 (June 21, 1999) (SR–

Phlx–99–11). The FBOE, a component of AUTOM, 

currently provides a means for (but does not 

require) Floor Brokers to route eligible orders to the 

specialist’s post, consistent with the order delivery 

criteria of the AUTOM System set forth in Exchange 

Rule 1080(b). The new System would include the 

same functionality as the FBOE, in addition to 

providing an electronic audit trail for nonelectronic orders received by Floor Brokers by way 

of the entry of the required information in proposed 

Rule 1063(e).

7See Securities Exchange Act Release No. 43268 

(September 11, 2000) and Administrative 

Proceeding File 3–10282 (the ‘‘Order’’).

8 15 U.S.C. 78f(b).

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–2004–07 and should be 

submitted by March 2, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 04–2810 Filed 2–9–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49178; File No. SR–Phlx–

2004–10] 

Self-Regulatory Organizations; Notice 

of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change by the Philadelphia Stock 

Exchange, Inc. Relating To a Pilot 

Program To Deploy the Options Floor 

Broker Management System 

February 3, 2004. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 2 thereunder, 

notice is hereby given that on February 

2, 2004, 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 Phlx. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons and to 

approval the proposal, on an accelerated 

basis.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to extend its 

pilot program pertaining to the Options 

Floor Broker Management System (the 

‘‘System’’) from February 6, 2004 until 

August 2, 2004.3 The System is a new 

component of the Exchange’s 

Automated Options Market (AUTOM) 

and Automatic Execution (AUTO–X) 

System.4

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 III 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 the effectiveness of 

the rules governing the System through 

August 2, 2004, in order to continue to 

have rules in place concerning the 

System and to ensure that Floor Brokers 

using the System during the continuing 

deployment would not be in violation of 

current Exchange rules regarding ticket 

marking requirements. The rules had 

previously been effective through 

August 29, 2003, extended through 

September 12, 2003, November 14, 

2003, and February 6, 2004.5

The System is designed to enable 

Floor Brokers and/or their employees to 

enter, route and report transactions 

stemming from options orders received 

on the Exchange. Floor Brokers or their 

employees access the System through an 

electronic Exchange-provided handheld 

device on which they would have the 

ability to enter the required information 

as set forth in Phlx Rule 1063(e), either 

from their respective posts on the 

options trading floor or in the trading 

crowd. The System will eventually 

replace the Exchange’s current Floor 

Broker Order Entry System (‘‘FBOE’’),6

as part of a roll-out of the new System 

floor-wide.

All of the rules pertaining to the 

System effective February 6, 2004 are 

proposed to be extended until August 2, 

2004, including: Rules 1014(g), 1015, 

1051, 1063, 1064, and 1080.06, as well 

as Option Floor Procedure Advices 

(‘‘Advice’’) A–11, B–6, B–8, C–2, C–3, 

F–1, F–2, and F–4. 

The Exchange believes that the 

System will enable Floor Brokers to 

handle orders they represent more 

efficiently, and will further enable the 

Exchange to comply with the audit trail 

requirement for non-electronic orders 

required under the Order Instituting 

Public Administrative Proceedings 

Pursuant to Section 19(h)(1) of the 

Securities Exchange Act of 1934, 

Making Findings and Imposing 

Sanctions.7

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6(b) of the Act 8 in general, and