Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change To Establish Certain Fees With Respect to Transactions Executed Through the Intermarket Trading System November 7, 2005, 69182-69185 [E5-6247]

Download as PDF 69182 Federal Register / Vol. 70, No. 218 / Monday, November 14, 2005 / Notices Exchange believes that additional market participants will create deeper markets, allowing for better executions and better prices for all customers. In this regard, the PCX proposes to no longer prohibit multiple Nominees of an OTP Firm from concurrently trading as RMMs in the same option issue. 2. Statutory Basis For the above reasons, the Exchange believes that the proposed rule change would enhance competition. The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,6 in general, and furthers the objectives of Section 6(b)(5),7 in particular, in that it is designed to facilitate transactions in securities, to promote just and equitable principles of trade and to protect investors and the public interest. 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 Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as one that: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest pursuant to Section 19(b)(3)(A)(iii) of the Act 8 and Rule 19b–4(f)(6) 9 thereunder. 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 or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the U.S.C. 78f(b). U.S.C. 78f(b)(5). 8 15 U.S.C. 78s(b)(3)(A)(iii). 9 17 CFR 240.19–4(f)(6). 7 15 16:36 Nov 10, 2005 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–PCX–2005–120 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–PCX–2005–120. 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 (https://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 10 For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 6 15 VerDate Aug<31>2005 Act. The PCX provided the Commission with written notice of its intent to file this proposed rule change at least five business days prior to the date of filing the proposed rule change. The Exchange has requested that the Commission accelerate the operative date so that the proposed rule change may take effect upon filing. The Commission believes that acceleration of the operative date will permit more RMMs to trade the same options issue, which should increase liquidity in the market thereby allowing for better executions and better prices for customers. For these reasons, the Commission finds it consistent with the protection of investors and the public interest to accelerate the operative date of the proposed rule change so that it may become operative immediately upon filing.10 Jkt 208001 PO 00000 Frm 00050 Fmt 4703 Sfmt 4703 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 Section, 100 F Street, NE., Washington, DC 20549. 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–PCX–2005–120 and should be submitted on or before December 5, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Jonathan G. Katz, Secretary. [FR Doc. E5–6252 Filed 11–10–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52745; File No. SR–Phlx– 2005–64] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change To Establish Certain Fees With Respect to Transactions Executed Through the Intermarket Trading System November 7, 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 October 31, 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. 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to enter into arrangements with other national 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\14NON1.SGM 14NON1 Federal Register / Vol. 70, No. 218 / Monday, November 14, 2005 / Notices securities exchanges to pass certain fees they have collected from members for transactions executed on another exchange through the Intermarket Trading System (‘‘ITS’’). This proposal does not require changes to Phlx rule text. 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 Section 31 of the Act 3 requires each national securities exchange to pay the Commission a fee based on the aggregate dollar amount of certain sales of securities (‘‘covered sales’’). Rules 31 and 31T, adopted by the Commission in June 2004,4 established procedures for the calculation and collection of Section 31 fees on such covered sales. Rule 31 requires each national securities exchange that owes Section 31 fees to submit a completed Form R31 to the Commission each month, beginning with July 2004. Rule 31T required each exchange to submit a completed Form R31 for each of the months September 2003 to June 2004, inclusive. Each national securities exchange must report its covered sales volume based on the data from a designated clearing agency, when available. The designated clearing agency for covered sales of equity securities is the National Securities Clearing Corporation (‘‘NSCC’’). These covered sales are reported in Part I of Form R31, and each exchange is required to ‘‘provide in Part I only the data supplied to it by a designated clearing agency.’’ 5 The data supplied by NSCC for the period September 2003 through August 2004 did not accurately reflect the aggregate dollar value of the covered sales occurring on each 3 15 U.S.C. 78ee. Securities Exchange Act Release No. 49928 (June 28, 2004), 69 FR 41060 (July 7, 2004) (‘‘Adopting Release’’). 5 17 CFR 240.31(b)(5). 4 See VerDate Aug<31>2005 16:36 Nov 10, 2005 Jkt 208001 exchange to permit reports to be made in accordance with new Rules 31 and 31T. In particular, the data NSCC reported to each national securities exchange included non-covered sales data for sales originating on one exchange and executed on another exchange through the ITS.6 Section 31 requires that national securities exchanges pay a fee based on the aggregate dollar amount of sales of securities transacted on the exchange. Given the specific language of Section 31, the Commission in the Adopting Release for Rules 31 and 31T advised that the current methodology for treating sales of securities that occur through ITS 7 was no longer appropriate and that ‘‘it would be simpler and more transparent for each covered [selfregulatory organization (‘‘SRO’’)] to report all covered sales that occur on its market.’’ The Commission further stated: The Commission acknowledges that a covered SRO on which a covered sale occurs as a result of an incoming ITS order may not be able to collect funds to pay the Section 31 fee from one of its own members. However, Section 31 does not address the manner or extent to which covered SROs may seek to recover the amounts that they pay pursuant to Section 31 from their members. Covered SROs may wish to devise new arrangements for passing fees between themselves so that the funds are collected from the covered SRO that originated the ITS order.8 The Commission further noted that any such arrangements devised by the SROs would have to be established pursuant to Section 19(b) of the Act and Rule 19b–4 thereunder. 6 As a result of this and other inaccuracies in the data reported by NSCC, the national securities exchanges were unable to report accurate information on Form R31, unless they made adjustments to the NSCC data based on data other than that provided by NSCC. On October 6, 2004, the Commission’s Division of Market Regulation (‘‘Division’’) issued a ‘‘no-action’’ letter advising exchanges for whom NSCC acts as a designated clearing agency under Rule 31, that the Division staff would not recommend that the Commission take enforcement action if a national securities exchange adjusts the data provided by NSCC to accurately reflect covered sales occurring on the national securities exchange. See letter from Robert L.D. Colby, Deputy Director, Division, Commission to Ellen J. Neely, Senior Vice President and General Counsel, Chicago Stock Exchange, Inc. (‘‘CHX’’), dated October 6, 2004. 7 In the Adopting Release, the Commission described the current methodology: ‘‘SRO A sends an ITS commitment to a member of SRO B to sell a security, and the commitment is executed on SRO B. Under existing arrangements, SRO A pays the Section 31 fee arising from this trade and passes the fee to its member that initiated the trade. * * *[T]he SROs devised this system because SRO B does not have the ability to require members of SRO A to reimburse it for the cost of its Section 31 fees.’’ Adopting Release, 69 FR at 41067. 8 Id. PO 00000 Frm 00051 Fmt 4703 Sfmt 4703 69183 A subcommittee of the ITS Operating Committee 9 (‘‘Subcommittee’’) has had discussions in order to devise new arrangements for passing fees between the ITS participants that (1) were collected from their members for the months of September 2003 through August 2004; and (2) are being collected from their members beginning in September 2004 and continuing. This proposed rule change is being submitted by the Phlx with the understanding that the other exchanges participating in the proposed arrangement devised by the subcommittee will be submitting substantially similar rule change proposals.10 Pursuant to the new arrangement being proposed, each ITS participant exchange determines whether it has received and executed more in dollar value of covered sales than it has originated and sent to each other ITS participant exchange. For example, for the historical 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. SRO B, as the executing market center, is obligated to pay the Section 31 fee to the SEC. During the same period, SRO B sent ITS commitments for covered sales whose dollar value was $210 million to SRO A. SRO B collected fees from its members for those covered sales executed on SRO A. SRO A, as the executing market center, is obligated to pay the Section 31 fee to the SEC. Since SRO A executed a greater dollar value of covered sales from SRO B than it sent to SRO B, the proposed arrangement requires SRO A to determine the amount of the fees collected by SRO B from its members based on the aggregate dollar value of covered sales from SRO B and executed on SRO A through ITS commitments. When invoicing SRO B, SRO A will deduct the amount of the fee it owes to SRO B (i.e., the fee amount based on SRO A’s $210 million in aggregate covered sales less the fee amount based on SRO B’s $150 million in aggregate covered sales) and will invoice only for the difference of $60 million. 9 The ITS participants are American Stock Exchange LLC, Boston Stock Exchange (‘‘BSE’’), Chicago Board Options Exchange, CHX, National Association of Securities Dealers (‘‘NASD’’), National Stock Exchange, New York Stock Exchange (‘‘NYSE’’), Pacific Exchange, and Phlx. 10 NASD has determined not to participate in the arrangement for passing fees between exchanges although they participated in many of the conference calls regarding the proposed arrangement. E:\FR\FM\14NON1.SGM 14NON1 69184 Federal Register / Vol. 70, No. 218 / Monday, November 14, 2005 / Notices Once the fees have been invoiced and paid for the historical period, the ITS participant exchanges plan to use the same arrangement for the period beginning September 2004 and continuing. 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. To implement this proposed arrangement, an ITS participant exchange will require access to the aggregate dollar value of buy and sell transactions occurring through ITS. Under the proposed arrangement for fees collected for the months of September 2003 through August 2004, an ITS participant exchange may choose to use data obtained from the Intermarket Surveillance Information System (‘‘ISIS’’) or data that provides comparable information that includes aggregate dollar value of ITS transactions.11 The ISIS data is sorted by originating market center (i.e., the sender of an ITS commitment) and receiving market center (i.e., the market center that executes the ITS commitment). Using this data, each ITS participant exchange can determine on a monthly basis the dollar value of all executed commitments sent to and received from another ITS participant exchange. At its meeting on February 23, 2005, the Subcommittee asked the Securities Industry Automation Corporation (‘‘SIAC’’) to determine the time and expense involved for SIAC to use the ITS database that it maintains to provide reports of the aggregate dollar value of buy and sell transactions occurring through ITS to the ITS participants. On March 15, 2005, representatives of the Subcommittee authorized SIAC to develop new reports. SIAC is in the process of developing these reports and expects to complete testing by August 31. 2005. Once SIAC can provide this data, it will no longer be necessary for ISIS data to be used. The new reports provided by SIAC will be used by ITS participants in connection with determining which ITS participant exchange will pay the fee for transactions occurring through ITS and which ITS participant exchange has collected the fee from its members. The Phlx believes that the proposed arrangement is a fair and efficient means for passing fees collected at one ITS participant exchange based upon executions of covered sales occurring at another ITS participant exchange. The 11 The NYSE has made available to the ITS participants spreadsheets for each month in the period using the ISIS data. VerDate Aug<31>2005 16:36 Nov 10, 2005 Jkt 208001 Phlx acknowledges that the legal duty to report and pay the Section 31 fee remains with the ITS participant on which the sale was in fact transacted. • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2005–64 on the subject line. 2. Statutory Basis This proposal would establish a process for SROs to enter into arrangements to pass fees they have collected from members for transactions executed on another SRO through ITS. For these reasons, the Exchange believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder that are applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act.12 Specifically, the Exchange believes the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,13 in that it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. In addition, the Exchange believes that the proposed rule change is consistent with the provisions of 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 and issuers and other persons using its facilities. Paper comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–Phlx–2005–64. 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 (https://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 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–2005–64 and should be submitted on or before December 5, 2005. 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 (https://www.sec.gov/ rules/sro.shtml); or 15 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 16 15 U.S.C. 78f(b)(4). 12 15 U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). 14 15 U.S.C. 78f(b)(4). PO 00000 Frm 00052 Fmt 4703 IV. Commission’s Findings and Order Granting Accelerated Approval of a Proposed Rule Change After careful consideration, 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.15 In particular, the Commission believes that the proposal is consistent with Section 6(b)(4) of the Act,16 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 Sfmt 4703 E:\FR\FM\14NON1.SGM 14NON1 Federal Register / Vol. 70, No. 218 / Monday, November 14, 2005 / Notices facilities. 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. Under the proposed arrangement, which the Commission understands will be adopted by each of the ITS participant exchanges,17 the exchange that routed the ITS commitment away will continue to collect a fee from the broker-dealer that placed the sell order. Then, with respect to each ITS participant exchange, the exchange will determine whether it is a net sender or net receiver of ITS trades and send fees to or accept fees from each other exchange accordingly. The Commission believes this is an equitable manner for the exchanges to obtain funds to pay their Section 31 fees on covered sales resulting from ITS trades. Under Section 19(b)(2) of the Act,18 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 prior to the thirtieth day after publishing notice of filing thereof in the Federal Register. In this case, the Commission does not believe a comment period is necessary because all of the parties affected by the proposed fee—the other ITS participant exchanges—have already consented to and will adopt the same fee arrangement.19 For the reasons set forth above, the Commission finds good cause to accelerate approval of the proposed rule change pursuant to Section 19(b)(2) of the Act.20 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,21 that the 17 See letter from George W. Mann, Jr., Executive Vice President and General Counsel, BSE, and Chairman, Subcommittee, to Michael Gaw, Assistant Director, Division, Commission, dated September 29, 2005. 18 15 U.S.C. 78s(b)(2). 19 See supra note 17. 20 Id. 21 Id. VerDate Aug<31>2005 16:36 Nov 10, 2005 Jkt 208001 proposed rule change (SR–Phlx–2005– 64) is hereby approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.22 Jonathan G. Katz, Secretary. [FR Doc. E5–6247 Filed 11–10–05; 8:45 am] 69185 Dated: October 27, 2005. Hector V. Barreto, Administrator. [FR Doc. 05–22535 Filed 11–10–05; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10205 and # 10206] BILLING CODE 8010–01–P Louisiana Disaster Number LA–00004 SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10224] California Disaster # CA–00021 Declaration of Economic Injury Small Business Administration. Notice. AGENCY: ACTION: SUMMARY: This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of California, dated 10/27/2005. Incident: Lake Tahoe Sewage Spill. Incident Period: 07/19/2005. Effective Date: 10/27/2005. EIDL Loan Application Deadline Date: 07/27/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s EIDL declaration on 10/ 27/2005, applications for economic injury disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Placer Contiguous Counties: California El Dorado, Nevada, Sacramento, Sutter, Yuba. Nevada Carson City, Douglas, Washoe. The Interest Rate is: 4.000. The number assigned to this disaster for economic injury is 102240. The States which received an EIDL Declaration # are California and Nevada. (Catalog of Federal Domestic Assistance Number 59002) 22 17 PO 00000 CFR 200.30–3(a)(12). Frm 00053 Fmt 4703 Sfmt 4703 Small Business Administration. Amendment 8. AGENCY: ACTION: SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Louisiana (FEMA–1607–DR), dated 09/24/2005. Incident: Hurricane Rita. Incident Period: 09/23/2005 and continuing through 11/01/2005. Effective Date: 11/01/2005. Physical Loan Application Deadline Date: 01/11/2006. EIDL Loan Application Deadline Date: 06/26/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for the State of Louisiana, dated 09/24/2005, is hereby amended to establish the incident period for this disaster as beginning 09/23/2005 and continuing through 11/01/2005. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Cheri L. Cannon, Acting Associate Administrator for Disaster Assistance. [FR Doc. 05–22533 Filed 11–10–05; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10176 and # 10177] LOUISIANA Disaster Number LA– 00002 Small Business Administration. Amendment 2. AGENCY: ACTION: SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Louisiana (FEMA–1603–DR), dated 08/29/2005. E:\FR\FM\14NON1.SGM 14NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 218 (Monday, November 14, 2005)]
[Notices]
[Pages 69182-69185]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6247]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52745; File No. SR-Phlx-2005-64]

Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval to a Proposed
Rule Change To Establish Certain Fees With Respect to Transactions
Executed Through the Intermarket Trading System November 7, 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 October 31, 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. 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.
---------------------------------------------------------------------------

\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 enter into arrangements with other
national

[[Page 69183]]

securities exchanges to pass certain fees they have collected from
members for transactions executed on another exchange through the
Intermarket Trading System (``ITS''). This proposal does not require
changes to Phlx rule text.

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
Section 31 of the Act \3\ requires each national securities
exchange to pay the Commission a fee based on the aggregate dollar
amount of certain sales of securities (``covered sales''). Rules 31 and
31T, adopted by the Commission in June 2004,\4\ established procedures
for the calculation and collection of Section 31 fees on such covered
sales. Rule 31 requires each national securities exchange that owes
Section 31 fees to submit a completed Form R31 to the Commission each
month, beginning with July 2004. Rule 31T required each exchange to
submit a completed Form R31 for each of the months September 2003 to
June 2004, inclusive. Each national securities exchange must report its
covered sales volume based on the data from a designated clearing
agency, when available. The designated clearing agency for covered
sales of equity securities is the National Securities Clearing
Corporation (``NSCC''). These covered sales are reported in Part I of
Form R31, and each exchange is required to ``provide in Part I only the
data supplied to it by a designated clearing agency.'' \5\ The data
supplied by NSCC for the period September 2003 through August 2004 did
not accurately reflect the aggregate dollar value of the covered sales
occurring on each exchange to permit reports to be made in accordance
with new Rules 31 and 31T. In particular, the data NSCC reported to
each national securities exchange included non-covered sales data for
sales originating on one exchange and executed on another exchange
through the ITS.\6\
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\3\ 15 U.S.C. 78ee.
\4\ See Securities Exchange Act Release No. 49928 (June 28,
2004), 69 FR 41060 (July 7, 2004) (``Adopting Release'').
\5\ 17 CFR 240.31(b)(5).
\6\ As a result of this and other inaccuracies in the data
reported by NSCC, the national securities exchanges were unable to
report accurate information on Form R31, unless they made
adjustments to the NSCC data based on data other than that provided
by NSCC. On October 6, 2004, the Commission's Division of Market
Regulation (``Division'') issued a ``no-action'' letter advising
exchanges for whom NSCC acts as a designated clearing agency under
Rule 31, that the Division staff would not recommend that the
Commission take enforcement action if a national securities exchange
adjusts the data provided by NSCC to accurately reflect covered
sales occurring on the national securities exchange. See letter from
Robert L.D. Colby, Deputy Director, Division, Commission to Ellen J.
Neely, Senior Vice President and General Counsel, Chicago Stock
Exchange, Inc. (``CHX''), dated October 6, 2004.
---------------------------------------------------------------------------

Section 31 requires that national securities exchanges pay a fee
based on the aggregate dollar amount of sales of securities transacted
on the exchange. Given the specific language of Section 31, the
Commission in the Adopting Release for Rules 31 and 31T advised that
the current methodology for treating sales of securities that occur
through ITS \7\ was no longer appropriate and that ``it would be
simpler and more transparent for each covered [self-regulatory
organization (``SRO'')] to report all covered sales that occur on its
market.'' The Commission further stated:
---------------------------------------------------------------------------

\7\ In the Adopting Release, the Commission described the
current methodology: ``SRO A sends an ITS commitment to a member of
SRO B to sell a security, and the commitment is executed on SRO B.
Under existing arrangements, SRO A pays the Section 31 fee arising
from this trade and passes the fee to its member that initiated the
trade. * * *[T]he SROs devised this system because SRO B does not
have the ability to require members of SRO A to reimburse it for the
cost of its Section 31 fees.'' Adopting Release, 69 FR at 41067.
---------------------------------------------------------------------------

The Commission acknowledges that a covered SRO on which a
covered sale occurs as a result of an incoming ITS order may not be
able to collect funds to pay the Section 31 fee from one of its own
members. However, Section 31 does not address the manner or extent
to which covered SROs may seek to recover the amounts that they pay
pursuant to Section 31 from their members. Covered SROs may wish to
devise new arrangements for passing fees between themselves so that
the funds are collected from the covered SRO that originated the ITS
order.\8\

\8\ Id.

The Commission further noted that any such arrangements devised by
the SROs would have to be established pursuant to Section 19(b) of the
Act and Rule 19b-4 thereunder.
A subcommittee of the ITS Operating Committee \9\
(``Subcommittee'') has had discussions in order to devise new
arrangements for passing fees between the ITS participants that (1)
were collected from their members for the months of September 2003
through August 2004; and (2) are being collected from their members
beginning in September 2004 and continuing. This proposed rule change
is being submitted by the Phlx with the understanding that the other
exchanges participating in the proposed arrangement devised by the
subcommittee will be submitting substantially similar rule change
proposals.\10\
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\9\ The ITS participants are American Stock Exchange LLC, Boston
Stock Exchange (``BSE''), Chicago Board Options Exchange, CHX,
National Association of Securities Dealers (``NASD''), National
Stock Exchange, New York Stock Exchange (``NYSE''), Pacific
Exchange, and Phlx.
\10\ NASD has determined not to participate in the arrangement
for passing fees between exchanges although they participated in
many of the conference calls regarding the proposed arrangement.
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Pursuant to the new arrangement being proposed, each ITS
participant exchange determines whether it has received and executed
more in dollar value of covered sales than it has originated and sent
to each other ITS participant exchange. For example, for the historical
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. SRO B, as the
executing market center, is obligated to pay the Section 31 fee to the
SEC. During the same period, SRO B sent ITS commitments for covered
sales whose dollar value was $210 million to SRO A. SRO B collected
fees from its members for those covered sales executed on SRO A. SRO A,
as the executing market center, is obligated to pay the Section 31 fee
to the SEC. Since SRO A executed a greater dollar value of covered
sales from SRO B than it sent to SRO B, the proposed arrangement
requires SRO A to determine the amount of the fees collected by SRO B
from its members based on the aggregate dollar value of covered sales
from SRO B and executed on SRO A through ITS commitments. When
invoicing SRO B, SRO A will deduct the amount of the fee it owes to SRO
B (i.e., the fee amount based on SRO A's $210 million in aggregate
covered sales less the fee amount based on SRO B's $150 million in
aggregate covered sales) and will invoice only for the difference of
$60 million.

[[Page 69184]]

Once the fees have been invoiced and paid for the historical
period, the ITS participant exchanges plan to use the same arrangement
for the period beginning September 2004 and continuing. 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.
To implement this proposed arrangement, an ITS participant exchange
will require access to the aggregate dollar value of buy and sell
transactions occurring through ITS. Under the proposed arrangement for
fees collected for the months of September 2003 through August 2004, an
ITS participant exchange may choose to use data obtained from the
Inter-market Surveillance Information System (``ISIS'') or data that
provides comparable information that includes aggregate dollar value of
ITS transactions.\11\ The ISIS data is sorted by originating market
center (i.e., the sender of an ITS commitment) and receiving market
center (i.e., the market center that executes the ITS commitment).
Using this data, each ITS participant exchange can determine on a
monthly basis the dollar value of all executed commitments sent to and
received from another ITS participant exchange.
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\11\ The NYSE has made available to the ITS participants
spreadsheets for each month in the period using the ISIS data.
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At its meeting on February 23, 2005, the Subcommittee asked the
Securities Industry Automation Corporation (``SIAC'') to determine the
time and expense involved for SIAC to use the ITS database that it
maintains to provide reports of the aggregate dollar value of buy and
sell transactions occurring through ITS to the ITS participants. On
March 15, 2005, representatives of the Subcommittee authorized SIAC to
develop new reports. SIAC is in the process of developing these reports
and expects to complete testing by August 31. 2005. Once SIAC can
provide this data, it will no longer be necessary for ISIS data to be
used. The new reports provided by SIAC will be used by ITS participants
in connection with determining which ITS participant exchange will pay
the fee for transactions occurring through ITS and which ITS
participant exchange has collected the fee from its members.
The Phlx believes that the proposed arrangement is a fair and
efficient means for passing fees collected at one ITS participant
exchange based upon executions of covered sales occurring at another
ITS participant exchange. The Phlx acknowledges that the legal duty to
report and pay the Section 31 fee remains with the ITS participant on
which the sale was in fact transacted.
2. Statutory Basis
This proposal would establish a process for SROs to enter into
arrangements to pass fees they have collected from members for
transactions executed on another SRO through ITS. For these reasons,
the Exchange believes that the proposed rule change is consistent with
the Act and the rules and regulations thereunder that are applicable to
a national securities exchange and, in particular, the requirements of
Section 6(b) of the Act.\12\ Specifically, the Exchange believes the
proposed rule change is consistent with the requirements of Section
6(b)(5) of the Act,\13\ in that it is designed to promote just and
equitable principles of trade, to prevent fraudulent and manipulative
acts and practices, and, in general, to protect investors and the
public interest. In addition, the Exchange believes that the proposed
rule change is consistent with the provisions of 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 and issuers and other persons using its facilities.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ 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 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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2005-64 on the subject line.

Paper comments

Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-Phlx-2005-64. 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 (https://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 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-2005-64 and should be submitted on or before
December 5, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change

After careful consideration, 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.\15\ In
particular, the Commission believes that the proposal is consistent
with Section 6(b)(4) of the Act,\16\ 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

[[Page 69185]]

facilities. 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. Under the proposed arrangement, which
the Commission understands will be adopted by each of the ITS
participant exchanges,\17\ the exchange that routed the ITS commitment
away will continue to collect a fee from the broker-dealer that placed
the sell order. Then, with respect to each ITS participant exchange,
the exchange will determine whether it is a net sender or net receiver
of ITS trades and send fees to or accept fees from each other exchange
accordingly. The Commission believes this is an equitable manner for
the exchanges to obtain funds to pay their Section 31 fees on covered
sales resulting from ITS trades.
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\15\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. See 15
U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(4).
\17\ See letter from George W. Mann, Jr., Executive Vice
President and General Counsel, BSE, and Chairman, Subcommittee, to
Michael Gaw, Assistant Director, Division, Commission, dated
September 29, 2005.
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Under Section 19(b)(2) of the Act,\18\ 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 prior to the
thirtieth day after publishing notice of filing thereof in the Federal
Register. In this case, the Commission does not believe a comment
period is necessary because all of the parties affected by the proposed
fee--the other ITS participant exchanges--have already consented to and
will adopt the same fee arrangement.\19\
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\18\ 15 U.S.C. 78s(b)(2).
\19\ See supra note 17.
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For the reasons set forth above, the Commission finds good cause to
accelerate approval of the proposed rule change pursuant to Section
19(b)(2) of the Act.\20\
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\20\ Id.
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V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-Phlx-2005-64) is hereby
approved on an accelerated basis.
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\21\ Id.

For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-6247 Filed 11-10-05; 8:45 am]
BILLING CODE 8010-01-P

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