Document ID: SEC-2006-0038-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-01-13T05:00Z

[Federal Register: January 13, 2006 (Volume 71, Number 9)]
[Notices]               
[Page 2286-2289]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ja06-146]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53088; File No. SR-Phlx-2005-87]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change, and Amendment No. 1 Thereto Relating to the Exchange's 
Covered Sale Fee and Exchange Rule 607

January 6, 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 December 23, 2005, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Phlx. On 
January 4, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons, and is approving the amended proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made technical changes to the proposed rule 
text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to change the title from the ``SEC Fee'' to 
``Covered Sale Fee'' as it appears on the Exchange's Summary of Equity 
Charges and the Nasdaq-100 Index Tracking StockSM Fee 
Schedule (``Fee Schedule'').\4\ The Exchange also proposes to amend 
Exchange Rule 607 to clarify the description of the Covered Sale Fee, 
including renaming the title of Phlx Rule 607 to ``Covered Sale Fee'' 
and providing a more complete description of a new arrangement for 
passing fees among Intermarket Trading System (``ITS'') participants. 
Below is the text of the proposed rule change, as amended. Proposed new 
language is in italics; proposed deletions are in brackets.
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    \4\ The Nasdaq-100[reg], Nasdaq-100 Index[reg], Nasdaq[reg], The 
Nasdaq Stock Market[reg], Nasdaq-100 SharesSM, Nasdaq-100 
TrustSM, Nasdaq-100 Index Tracking StockSM, 
and QQQSM are trademarks or service marks of The Nasdaq 
Stock Market, Inc. (``Nasdaq'') and have been licensed for use for 
certain purposes by the Phlx pursuant to a license agreement with 
Nasdaq. The Nasdaq-100 Index[reg] (``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.

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Rule 607.

 [Transaction] Covered Sale Fee
    Under Section 31 of the Securities Exchange Act of 1934, the 
Exchange must pay certain fees to the Securities and Exchange 
Commission (``Commission''). To help fund the Exchange's obligations to 
the Commission under Section 31, a Covered Sale Fee is assessed by the 
Exchange to members and member organizations. To the extent there may 
be any excess monies collected under this Rule, the Exchange may retain 
those monies to help fund its general operating expenses. [Every member 
and member organization shall pay to the Exchange in such manner and at 
such time as the Exchange shall direct, the fees specified in Section 
31 of the Securities Exchange Act of 1934, and rules thereunder, for 
all sales upon the Exchange of securities specified in

[[Page 2287]]

Section 31 of the Securities Exchange Act of 1934, and rules 
thereunder.]
    Each member and member organization engaged in executing sale 
transactions on the Exchange or executing transactions, which were 
routed over the Intermarket Trading System, on another exchange during 
any computational period shall pay a Covered Sale Fee equal to (i) the 
Section 31 fee rate multiplied by (ii) the member's aggregate dollar 
amount of covered sales.
    The Exchange may enter into arrangements with other exchanges to 
pass the Covered Sale Fee among the applicable exchanges where the 
Exchange has collected the Covered Sale Fee from its members and member 
organizations for sale transactions executed on another exchange 
through the Intermarket Trading System and when other exchanges have 
collected the Covered Sale Fee from its members for sale transactions 
executed on the Exchange through the Intermarket Trading System.
* * * * *
SUMMARY OF EQUITY CHARGES (p 2/3)*
* * * * *
[SEC FEE] Covered Sale Fee
    [The amount shall be determined by Section 31 of the Securities 
Exchange Act of 1934.]
    Each member and member organization engaged in executing sale 
transactions on the Exchange or executing transactions, which were 
routed over the Intermarket Trading System, on another exchange during 
any computational period shall pay a Covered Sale Fee equal to (i) the 
Section 31 fee rate multiplied by (ii) the member's aggregate dollar 
amount of covered sales.
* * * * *
NASDAQ-100 INDEX TRACKING STOCKSM FEE SCHEDULE
PHLX FEE SCHEDULE
* * * * *
[SEC FEE] Covered Sale Fee
    [The amount shall be determined by Section 31 of the Securities 
Exchange Act of 1934.]
    Each member and member organization engaged in executing sale 
transactions on the Exchange or executing transactions, which were 
routed over the Intermarket Trading System, on another exchange during 
any computational period shall pay a Covered Sale Fee equal to (i) the 
Section 31 fee rate multiplied by (ii) the member's aggregate dollar 
amount of covered sales.
* * * * *

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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. 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 changing the name of the ``SEC Fee'' as it appears 
on the Exchange's fee schedule and in Phlx Rule 607 is to conform with 
the Commission's request to rename this fee to help clarify that 
members and member organizations do not incur an obligation to the 
Commission under Section 31 of the Act and to help minimize confusion 
in connection with the Exchange's assessment of the fee. In addition, 
the amendments to Rule 607 reflect the new arrangements with respect to 
the passing of fees among ITS participants that each collects from its 
respective members for transactions executed on another SRO through 
ITS.

Background

    In late June 2004, the Commission established new procedures 
governing the calculation, payment, and collection of fees and 
assessments on securities transactions owed by national securities 
exchanges and national securities associations (collectively ``SROs'') 
to the Commission pursuant to Section 31 of the Act.\5\ In connection 
with these new procedures, the Commission expressed its concern about 
the manner in which SROs labeled the fees that they passed to their 
members and the manner in which members labeled the fees passed to 
their customers. Because Section 31 does not place an obligation on 
members of covered SROs or their customers, the Commission stated its 
belief that it is misleading to suggest that a customer or an SRO 
member incurred an obligation to the Commission under Section 31. 
Accordingly, the Commission requested that SROs take action to correct 
any such misperception, which would include changing the title of the 
``SEC Fee'' as it appears on the Exchange's fee schedule.
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    \5\ See Securities Exchange Act Release No. 49928 (June 28, 
2004), 69 FR 41060 (July 7, 2004).
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    Thus, in order to comply with the Commission's request and to 
minimize any confusion relating to the assessment of the fee, the 
Exchange proposes to rename its ``SEC Fee'' and Phlx Rule 607 
``Transaction Fee'' to ``Covered Sale Fee.'' \6\
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    \6\ Pursuant to Rule 31 under the Act, 17 CFR 240.31, a covered 
sale is a sale of a security, other than an exempt sale or a sale of 
a security future, occurring on a national securities exchange or by 
or through any member of a national securities association otherwise 
than on a national securities exchange.
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ITS Collection

    In addition, the Exchange recently filed with, and received an SEC 
order granting accelerated approval from, the Commission to enter into 
arrangements with other participating SROs to pass certain fees they 
have collected from members for transactions executed on another 
exchange through the ITS.\7\ Participating SROs have entered into an 
arrangement to pass fees among ITS participants that each participating 
SRO has collected from its members for sale transactions executed on 
another participating SRO through ITS. Pursuant to this new 
arrangement, each ITS participant will determine whether it has 
received and executed more in dollar value of covered sales than it has 
originated and sent to each other ITS participant.\8\ One participating 
SRO will then deduct the amount it owes another participating SRO and 
will invoice only for the difference; however, the duty to report and 
pay the Section 31 fee will remain with the ITS participant SRO on 
which the sale was in fact transacted. It is anticipated that the 
invoicing process will occur twice yearly to coincide with the March 15 
and September 30 payment schedule for Section 31 fees set forth in the 
Act.
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    \7\ See Securities Exchange Act Release No. 52745 (November 7, 
2005), 70 FR 69182, (November 14, 2005) (SR-Phlx-2005-64).
    \8\ For example, for the period September 2003 through August 
2004, SRO A sent ITS commitments for covered sales whose dollar 
value was $150 million to SRO B for execution. SRO A collected fees 
from its members to fund its Section 31 obligation for those covered 
sales executed on SRO B. Under the new procedures established by the 
Commission for the calculation and collection of Section 31 fees on 
such covered sales, SRO B, as the executing market center, is 
obligated to pay the Section 31 fee to the Commission.

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[[Page 2288]]

NSCC Collection and Computational Period

    The Exchange intends to have the National Securities Clearing 
Corporation (``NSCC'') collect this fee (and other Exchange fees) for 
the Exchange for certain members and member organizations and pay over 
to the Exchange the funds collected in connection with equity 
transactions, which should increase the efficiency in which this fee, 
as well as other Exchange fees, are collected.\9\ Further, the Exchange 
intends to have the Options Clearing Corporation (``OCC'') continue to 
bill and collect this fee in connection with covered sales of 
options.\10\
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    \9\ Currently, NSCC collects the fee on the 23rd calendar day of 
each month, provided that if such day is other than an NSCC 
business/settlement day, on the next succeeding NSCC business/
settlement day. The Exchange implemented this collection practice in 
November 2005, which covered transactions that occurred in October 
2005. For equity transactions, the NSCC debits the Phlx member's or 
member organization's clearing firm. If an Exchange member clears 
through the Stock Clearing Corporation of Philadelphia (``SCCP''), a 
Phlx subsidiary, the Exchange will debit the member's or member 
organizations' margin account at SCCP.
    \10\ Currently, OCC and the options exchanges, including the 
Phlx, have established arrangements whereby OCC tabulates the 
aggregate amount of sales of options that occur on the exchanges, 
based on data captured by OCC's systems. OCC then calculates the 
Section 31 fees owed by the exchanges and, in turn, remits to the 
Commission the Section 31 fees on behalf of these exchanges.
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    The computational period, referred to in proposed Rule 607 above, 
may change during the course of a year if there is a change in the 
Section 31 fee rate.\11\ Thus, the amount of the Section 31 fee may 
change during the year, which would, in turn, start a new computational 
period. The Exchange determines whether a trade ``occurs'' before or 
after a fee rate change so that the appropriate dollar amounts of 
securities sales are multiplied by the correct fee rate.
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    \11\ The Commission is required to adjust the securities 
transaction fee rates on an annual basis, after consultation with 
the Congressional Budget Office and the Office of Management and 
Budget. The Commission may also be required to make a ``mid-year'' 
adjustment to the Section 31 fee rate.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with and furthers the objective of Section 6(b)(4) of the 
Act,\12\ which requires that the rules of an exchange provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities.
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    \12\ 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, as 
amended, 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, as amended.

III. 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 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-2005-87 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 20549-9303.

All submissions should refer to File Number SR-Phlx-2005-87. 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, as 
amended, 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-2005-87 and should be 
submitted on or before February 3, 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, as amended, is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\13\ In particular, the 
Commission believes that the proposal is consistent with Section 
6(b)(4) of the Act,\14\ which requires that the rules of an exchange 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers, and other persons using its 
facilities.
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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(4).
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    Under Section 19(b)(2) of the Act,\15\ 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. The Commission hereby finds 
good cause for approving the proposed rule change, as amended, 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. 
This proposal will make the Exchange's rules consistent with the 
Commission's guidance on Section 31 without undue delay. The proposal 
also codifies the current Exchange arrangement for passing the Covered 
Sale Fees between the ITS participants. Therefore, the Commission 
believes that proposed rule change, as amended, raises no new 
regulatory issues and that a full notice-and-comment period is not 
necessary.
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    \15\ 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,\16\ that the proposed rule change, as amended (SR-Phlx-2005-87), 
is hereby approved on an accelerated basis.
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    \16\ Id.

[[Page 2289]]

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    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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Nancy M. Morris,
Secretary.
[FR Doc. E6-257 Filed 1-12-06; 8:45 am]

BILLING CODE 8010-01-P