Document ID: SEC-2006-1319-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc
Posted Date: 2006-10-10T04:00Z

[Federal Register: October 10, 2006 (Volume 71, Number 195)]
[Notices]               
[Page 59577-59579]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc06-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54555; File No. SR-Phlx-2006-60]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change Relating to NMS Linkage and Phlx's Covered Sale Fee

October 2, 2006.
    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 September 25, 2006, 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 and 
II below, which Items have been prepared by Phlx. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and is approving the proposal on an accelerated 
basis.
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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

    Phlx proposes to amend its Rule 607, its Summary of Equity Charges, 
and the Nasdaq-100 Index Tracking StockSM Fee Schedule \3\ 
to allow the Exchange to charge the Covered Sale Fee to members and 
member organizations engaged in executing sales on another exchange or 
on a participant in the NASD's Alternative Display Facility (``ADF'') 
that were routed over the NMS Linkage Plan or the Intermarket Trading 
System (``ITS'').\4\ Phlx also proposes to amend its Rule 607 to allow 
the Exchange to enter into arrangements with ADF participants to pass 
the Covered Sale Fee among the ADF participants where the Exchange has 
collected the Covered Sale Fee from its members and member 
organizations for sales executed on ADF participants through ITS, and 
when ADF participants have collected a fee from their members for sales 
executed on the Exchange through ITS. In addition, Phlx also proposes 
to amend Rule 607 to allow the Exchange to enter into arrangements with 
other exchanges to pass the Covered Sale Fee among the applicable 
exchanges where the

[[Page 59578]]

Exchange has collected the Covered Sale Fee from its members and member 
organizations for sales executed on another exchange through the NMS 
Linkage Plan, and when other exchanges have collected a similar fee 
from their members for sales executed on the Exchange through the NMS 
Linkage Plan.
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    \3\ The Nasdaq-100[supreg], Nasdaq-100 Index[supreg], 
Nasdaq[supreg], The Nasdaq Stock Market[supreg], Nasdaq-100 
SharesSM, Nasdaq-100 TrustSM, Nasdaq-100 Index 
Tracking StockSM, and QQQSM are trademarks or 
service marks of The Nasdaq Stock Market, LLC (``Nasdaq'') and have 
been licensed for use for certain purposes by the Phlx pursuant to a 
License Agreement with Nasdaq. The Nasdaq-100 Index[supreg] 
(``Index'') is determined, composed, and calculated by Nasdaq 
without regard to the Licensee, the Nasdaq-100 TrustSM, 
or the beneficial owners of Nasdaq-100 SharesSM. Nasdaq 
has complete control and sole discretion in determining, comprising, 
or calculating the Index or in modifying in any way its method for 
determining, comprising, or calculating the Index in the future.
    \4\ The Commission published a notice relating to the NMS 
Linkage Plan. See Securities Exchange Act Release No. 54239 (July 
28, 2006), 71 FR 44328 (August 4, 2006) (File No. 4-524). An NMS 
Linkage Plan, dated August 1, 2006, reflecting Phlx's inclusion as a 
participant, was sent to the Commission on August 8, 2006. The 
participants requested that the NMS Linkage Plan commence on October 
1, 2006.
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    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.phlx.com), at the Exchange's principal office, and 

at the Commission's Public Reference Room.

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 allow Phlx to 
accommodate the billing and collection of its Covered Sale Fee \5\ for 
executions that originated as orders sent to and received from the NMS 
Linkage Plan, which is proposed to commence on October 1, 2006. 
Currently, Phlx Rule 607 authorizes Phlx to charge its members and 
member organizations the Covered Sale Fee for sale executions on the 
Exchange. Phlx Rule 607 also allows Phlx to enter into arrangements to 
charge other exchange when their members send orders to Phlx through 
ITS that result in sales on Phlx. Phlx also charges its members and 
member organizations a Covered Sale Fee when their orders, sent over 
ITS, result in a sale at another exchange. Phlx then uses that fee to 
cover the charge received from that exchange. The NMS Linkage Plan is 
the successor linkage plan to ITS for the equity markets.\6\ The 
proposed changes to Phlx Rule 607 and the Phlx Fee Schedule are 
intended to carry the Covered Sale Fee charges and arrangements that 
currently exist for ITS into the NMS Linkage Plan and to ADF 
participants.\7\
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    \5\ The Covered Sale Fee is currently imposed on members and 
member organizations engaged in executing sales on the Exchange or 
executing transactions, which were routed over the ITS, on another 
exchange during any computational period. The Covered Sale Fee is 
equal to (i) the section 31 fee rate multiplied by (ii) the member's 
aggregate dollar amount of covered sales. See Securities Exchange 
Act Release No. 53088 (January 6, 2006), 71 FR 2286 (January 13, 
2006) (SR-Phlx-2005-87).
    \6\ The NASD has not joined the NMS Linkage Plan and will 
maintain linkage for its ADF participants through ITS.
    \7\ Phlx, along with the other exchanges, intends to file a 
separate proposed rule change that will allow it to charge and be 
charged fees, including Phlx's Covered Sale Fee, for transactions 
that result from orders sent over the NMS Linkage Plan. See e.g., 
Securities Exchange Act Release No. 54480 (September 21, 2006), 71 
FR 57596 (September 29, 2006) (SR-NYSE-2006-72). In addition, Phlx 
intends to make arrangements with ADF participants to charge and be 
charged fees, including Phlx's Covered Sale Fee, for transactions 
that result from orders sent over ITS because the NASD will not be 
joining the NMS Linkage Plan and will not be collecting or paying 
these fees on behalf of the ADF participants.
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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 objective 
of sections 6(b)(4) and 6(b)(5) of the Act \9\ in particular, in that 
it is an equitable allocation of reasonable fees among Exchange members 
and issuers and other persons using its facilities, designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
by creating a mechanism for charging the Covered Sale Fee for 
transactions over the NMS Linkage Plan.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (b)(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 will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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 rule-comments@sec.gov. Please include 

File Number SR-Phlx-2006-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2006-60. 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 Exchange. 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-2006-60 and should be submitted on or before 
October 31, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change and Amendment No.1 Thereto

    The Commission finds that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\10\ In particular, the Commission 
believes that the proposal is consistent with sections 6(b)(4) of the 
Act, which requires that the rules of an

[[Page 59579]]

exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among Exchange members and issuers and other persons 
using its facilities.
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    \10\ In approving this proposal, as amended, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
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    National securities exchanges obtain funds to pay their section 31 
fees to the Commission by charging fees to broker-dealers who generate 
the covered sales on which section 31 fees are based. An exchange can 
obtain most of these funds by imposing a fee on one of its members 
whenever the member is on the sell side of a transaction. However, when 
the exchange accepts an ITS commitment to buy, the ultimate seller is a 
party on another market. The exchange lacks the ability to pass a fee 
to that seller directly, because the seller may not be a member of the 
exchange. The Commission previously approved an arrangement whereby 
Phlx collects fees from broker-dealers that place sell orders routed 
away over ITS,\11\ then charges fees to or accepts fees from each other 
ITS participant exchange, depending on whether it is a net sender or 
net receiver of executed ITS sell orders with respect to that other 
exchange. The Commission believes that the current proposal, to 
continue this practice under the NMS Linkage Plan, is a reasonable 
means for Phlx to obtain funds to pay its section 31 fees on covered 
sales resulting from NMS Linkage Plan trades and is consistent with the 
Act.
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    \11\ See Securities Exchange Act Release No. 52745 (November 7, 
2005), 70 FR 69182 (November 14, 2005).
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    Under section 19(b)(2) of the Act,\12\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so doing. Granting accelerated approval 
will permit the Exchange to charge the Covered Sale Fee to members and 
member organizations engaged in executing sale transactions on another 
exchange through the NMS Linkage Plan at the start of that plan's 
operation. Moreover, approving this proposal will enable Phlx to charge 
fees to or accept fees from an ADF participant that is not a member of 
the Exchange, depending on the net amount of sales between them 
conducted through ITS. The Commission expects that a non-member ADF 
participant will not be charged a fee unless it has entered into an 
agreement with the Exchange subjecting it to such an arrangement. 
Therefore, the Commission finds good cause for approving the proposed 
rule change prior to the thirtieth day after publishing notice of 
filing thereof in the Federal Register. The Commission believes that 
such action is consistent with the protection of investors and the 
public interest.
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    \12\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-2006-60) is hereby 
approved on an accelerated basis.
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    \13\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-16631 Filed 10-6-06; 8:45 am]

BILLING CODE 8010-01-P