[Federal Register Volume 68, Number 97 (Tuesday, May 20, 2003)]
[Notices]
[Pages 27613-27616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: R3-9035]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47647; File No. SR-Phlx-2003-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. To Adopt a License Fee for Transactions in 
DIAMONDS<SUP>[reg]</SUP> Exchange Traded Funds

April 8, 2003.

    Editorial Note: Due to numerous footnote errors, this document 
is being reprinted in its entirety. It was originally printed in the 
Federal Register on Monday, April 14, 2003 at 68 FR 17979-17982.

    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 March 28, 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 and II 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.
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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 Exchange proposes to amend its Summary of Equity Charges to 
adopt a license fee of $0.00025 per share per trade side for sides 
greater than 500 shares, with no maximum fee per trade side charged to 
Non-PACE Customers \3\ and Electronic Communications Networks 
(``ECNs''),\4\ and a license fee of $0.0005 per share per trade side, 
with no maximum fee per trade side charged to specialists for 
transactions on the Phlx in the DIAMONDS[reg] Exchange Traded Funds 
(``DIAMONDS'').\5\ The Exchange also proposes to make minor, technical 
changes to its equity fee schedule to make corresponding references to 
the proposed fees. All other equity charges currently assessed by the 
Phlx will be imposed where applicable.\6\
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    \3\ PACE is the acronym for the Exchange's Automated 
Communication and Execution System, which is the Exchange's order 
routing, delivery, execution and reporting system for its equity 
trading floor. See Exchange Rules 229 and 229A.
    \4\ 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 specified price set by 
the ECN, 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.
    \5\ Dow Jones[reg], ``The Dow<SUP>SM</SUP>,'' ``Dow 
30<SUP>SM</SUP>,'' ``Dow Jones Industrial Average<SUP>SM</SUP>,'' 
``Dow Jones Industrials<SUP>SM</SUP>,'' ``DJIA<SUP>SM</SUP>,'' 
``DIAMONDS[reg]'' and ``The Market's Measure[reg]'' are trademarks 
of Dow Jones & Company, Inc. (``Dow Jones'') and have been licensed 
for use for certain purposes by the Philadelphia Stock Exchange, 
Inc., pursuant to a License Agreement with Dow Jones. The DIAMONDS 
Trust, based on the DJIA, is not sponsored, endorsed, sold or 
promoted by Dow Jones, and Dow Jones makes no representation 
regarding the advisability of investing in the DIAMONDS Trust.
    \6\ These charges may include equity transaction charges, an 
equity floor brokerage assessment, an equity floor brokerage 
transaction fee, an off-Exchange trade information fee, an SEC fee, 
a remote information access fee, an Electronic Communications 
Network fee, an outbound Inter-Market Trading System (``ITS'') fee 
and a net inbound ITS credit. Additionally, the PACE Specialist 
charge does not apply because specialists are not eligible for 
further PACE volume discounts. See Securities Exchange Act No. 44259 
(May 4, 2001), 66 FR 23962 (May 10, 2001) (SR-Phlx-2001-41).
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    The Exchange proposes to implement this fee as of April 1, 2003, 
the date that

[[Page 27614]]

it began trading in the DIAMONDS.\7\ Text of the proposed rule change 
is set forth below. New text is in italics. Deleted text is in 
brackets.
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    \7\ The license fees will not be eligible for the monthly credit 
of up to $1,000 to be applied against certain fees, dues and charges 
and other amounts owed to the Exchange by certain members. See 
Securities Exchange Act Release No. 44292 (May 11, 2001), 66 FR 
27715 (May 18, 2001) (SR-Phlx-2001-49).

     Summary of Equity Charges (p 1/3)*--Equity Transaction Charge I
 
 [Based on total shares per transaction with the exception of specialist
                       trades and PACE trades.\1\]
 
 Monthly transaction value Rate per share
 
First 500 shares $0.00
Next 2,000 shares 0.0075
Next 7,500 shares 0.005
Remaining shares 0.004
    $50 maximum fee per trade side.
 
License Fee
 
    SPDRs, Standard & Poor's Depositary Receipts**
 
        Customer Non-PACE and Electronic Communications Network <SUP>E</SUP>
         (``ECN'') License Fee:
            $0.00025 per share per trade side for sides greater than 500
             shares
            No maximum fee per trade side
        Specialist License Fee:
            $0.00035 per share per trade side
            No maximum fee per trade side
 
    DIAMONDS[reg] Exchange Traded Funds**
 
        Customer Non-PACE and Electronic Communications Network <SUP>E</SUP>
         (``ECN'') License Fee:
            $0.00025 per share per trade side for sides greater than 500
             shares
            No maximum fee per trade side
        Specialist License Fee:
            $0.0005 per share per trade side
            No maximum fee per trade side
 
 See Appendix A for additional fees.
 I denotes fee eligible for monthly credit of up to $1,000.
 * Not applicable to transactions in Nasdaq-100 Index Tracking Stock<SUP>SM</SUP>
 (see page 4 for fees).
 
     Summary of Equity Charges (p 2/3)*--PACE Specialist Charge <SUP>2</SUP> I
 
 $.20 per PHLX Specialist Trade against PACE Executions (Not applicable
 to PACE trades on the opening)
 
Equity Floor Brokerage Assessment I
 
    $250 monthly charge <SUP>3</SUP>
 
Equity Floor Brokerage Transaction Fee I
 
    $.05 per 100 shares or fraction thereof, for floor broker executing
     transactions for their own member firms.
 
SEC Fee
 
 The amount shall be determined by Section 31 of the Securities Exchange
 Act of 1934.
 
Off-Exchange Trade Information Fee I
 
    $.10 per DOT trade
 
Remote Information Access Fee I
 
    $300.00 per month
 
Electronic Communications Network <SUP>E</SUP> (``ECN'') Fee
 
    $2,500.00 per month (in lieu of equity transaction charges)
 
Outbound ITS Fee I (also applicable to transactions in Nasdaq-100 Index
 Tracking Stock<SUP>SM</SUP>) <SUP>4</SUP>
 
For PACE orders sent over ITS with the customer information attached:
 
500 shares or less $0.60 per 100 shares
501 to 4,999 shares 0.30 per 100 shares
 
                    Summary of Equity Charges (p 3/3)
 
Net Inbound ITS Credit (also applicable to transactions in Nasdaq-100
 Index Tracking Stock <SUP>SM</SUP>) <SUP>5</SUP>
 
    $0.30 per 100 shares on the excess, if any, of the number of inbound
     ITS shares executed over the number of outbound ITS shares sent and
     executed on a monthly basis.
 
 
 See Appendix A for additional fees.
I denotes fee eligible for monthly credit of up to $1,000.
* Not applicable to transactions in Nasdaq-100 Index Tracking Stock<SUP>SM</SUP>
  (see next page for fees).
<SUP>E</SUP> 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 specified price set by the ECN, 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.

[[Page 27615]]

 
Any fees, credits, discounts and other charges in the Exchange's fee
  schedule which are based upon an equity specialist's specialist
  activity apply to competing specialists.
<SUP>**</SUP> ``Standard & Poor's,[reg]'' ``S&[reg]'',``S&P 500[reg]'', ``Standard
  & Poor's 500[reg]'', and ``500'' are trademarks of The McGraw-Hill
  Companies, Inc., and have been licensed for use by the Philadelphia
  Stock Exchange, Inc., in connection with the listing and trading of
  SPDRs, on the Phlx. These products are not sponsored, sold or endorsed
  by S&P, a division of The McGraw-Hill Companies, Inc., and S&P makes
  no representation regarding the advisability of investing SPDRs.
<SUP>**</SUP> Dow Jones[reg], ``The Dow<SUP>SM</SUP>,'' ``Dow 30<SUP>SM</SUP>,'' ``Dow Jones Industrial
  Average<SUP>SM</SUP>,'' ``Dow Jones Industrials<SUP>SM</SUP>,'' ``DJIA<SUP>SM</SUP>,''
  ``DIAMONDS[reg]'' and ``The Market's Measure[reg]'' are trademarks of
  Dow Jones & Company, Inc. (``Dow Jones'') and have been licensed for
  use for certain purposes by the Philadelphia Stock Exchange, Inc.,
  pursuant to a License Agreement with Dow Jones. The DIAMONDS Trust,
  based on the DJIA, is not sponsored, endorsed, sold or promoted by Dow
  Jones, and Dow Jones makes no representation regarding the
  advisability of investing in the DIAMONDS Trust.
\1\ However, this charge applies where an order, after being delivered
  to the Exchange by the PACE system is executed by the specialist by
  way of an outbound commitment, when such outbound ITS commitment
  reflects the PACE order's clearing information, but does not apply
  where a PACE trade was executed against an inbound ITS commitment.
\2\ This charge does not apply to transactions in Nasdaq-100 Index
  Tracking Stock<SUP>SM</SUP> [and] SPDRs and DIAMONDS[reg].
\3\ Applies to each member who derives at least 80% of gross income
  generated from Phlx floor based activities from his/her floor
  brokerage business conducted on the Exchange. Floor brokerage business
  conducted on the Exchange includes orders that are received on the
  Phlx, even if those orders are executed on an exchange other than the
  Phlx. The 5% floor brokerage assessment is waived until Dec. 31, 2003
  and is scheduled to be reinstated Jan. 1, 2004.
\4\ This fee will only apply when the specialist sends an order received
  over PACE to ITS and receives an execution, if the specialist used the
  PACE customer's clearing information on the outbound ITS commitment.
\5\ This credit will include all inbound and outbound ITS executions,
  including both PACE and non-PACE and both proprietary and customer
  commitments.

* * * * *

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 III 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 adopt a license fee 
that will apply to trading DIAMONDS on the Exchange. The Exchange 
recently determined to begin trading DIAMONDS. The license fees should 
help off-set licensing fees incurred by the Exchange associated with 
the trading of these products on the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\8\ in general, and furthers the 
objectives of Section 6(b)(4) of the Act,\9\ in particular, in that it 
is an equitable allocation of reasonable dues, fees, and other charges 
among Exchange members. The Exchange believes that charging members 
that trade these products a licensing fee is an equitable means of 
recovering a portion of the licensing fees incurred by the 
Exchange.\10\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ With regard to the distinction between Customer PACE and 
Non-PACE license fees, the Exchange states that it is consistent 
with its current practice to not impose customer charges for equity 
transactions delivered through PACE, but to impose customer charges 
for Non-PACE executions. See, e.g., Securities Exchange Act Release 
Nos. 47385 (February 20, 2003), 68 FR 10295 (March 4, 2003) (SR-
Phlx-2003-06); 44381 (June 1, 2001), 66 FR 31264 (June 11, 2001) 
(SR-Phlx-2001-57); and 43776 (December 28, 2000), 66 FR 1166 
(January 5, 2001) (SR-Phlx-2000-103). Also, consistent with its 
current practice, the Exchange charges customer transaction fees and 
specialist transaction fees at different rates. See, e.g., 
Securities Exchange Act Release Nos. 44381 (June 1, 2001), 66 FR 
31264 (June 11, 2001) (SR-Phlx-2001-57); 47109 (December 30, 2002), 
68 FR 841 (January 7, 2003) (SR-Phlx-2002-78); and 42332 (January 
12, 2000), 65 FR 3517 (January 21, 2000) (SR-Phlx-2000-59).
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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 \11\ and 
Rule 19b-4(f)(2) thereunder.\12\ 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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    \11\ 15 U.S.C. 78(s)(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. 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-2003-20 and 
should be submitted by May 5, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

[FR Doc. 03-9035 Filed 4-11-03; 8:45 am]


    Editorial Note: Due to numerous footnote errors, this document 
is being reprinted in its

[[Page 27616]]

entirety. It was originally printed in the Federal Register on 
Monday, April 14, 2003 at 68 FR 17979-17982.

[FR Doc. R3-9035 Filed 5-19-03; 8:45 am]
BILLING CODE 1505-01-D