[Federal Register: February 7, 2005 (Volume 70, Number 24)]
[Notices]
[Page 6493-6495]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe05-123]
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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 rule-comments@sec.gov. 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