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, 2286-2289 [E6-257]

Download as PDF 2286 Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Nancy M. Morris, Secretary. [FR Doc. E6–324 Filed 1–12–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53070; File No. SR–Phlx– 2005–63 Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to the Prohibition of Trade Shredding January 6, 2006. I. Introduction On October 25, 2005, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 the proposed rule change relating to the prohibition of trade shredding. The proposed rule change was published for comment in the Federal Register on December 5, 2005.3 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal The Exchange proposed to amend Rule 707, Conduct Inconsistent with Just and Equitable Principles of Trade, to prohibit members, member organizations and persons associated with or employed by a member or member organization from unbundling orders for execution for the primary purpose of maximizing a monetary or like payment to the member, member organization, or person associated with or employed by a member or member organization. hsrobinson on PROD1PC70 with NOTICES III. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,4 15 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 52834 (November 25, 2005), 70 FR 72492. 4 In approving this proposed rule change, the Commission has considered the proposed rule’s 1 15 VerDate Aug<31>2005 15:41 Jan 12, 2006 Jkt 208001 particularly Section 6(b)(5) of the Act which, among other things, requires that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating securities transactions, to remove impediments to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest.5 The Commission believes that the proposed rule change should help eliminate the distortive practice of trade shredding, and, therefore, promote just and equitable principles of trade. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,6 that the proposed rule change (File No. SR– Phlx–2005–63), be and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.7 Nancy M. Morris, Secretary. [FR Doc. E6–256 Filed 1–12–06; 8:45 am] 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. 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. Rule 607. [Transaction] Covered Sale Fee BILLING CODE 8010–01–P 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 impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). 6 15 U.S.C. 78s(b)(2). 7 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 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 3 Amendment No. 1 made technical changes to the proposed rule text. 4 The Nasdaq-100, Nasdaq-100 Index, Nasdaq, The Nasdaq Stock Market, 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 (‘‘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. E:\FR\FM\13JAN1.SGM 13JAN1 Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices 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 * * * * * hsrobinson on PROD1PC70 with NOTICES [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 VerDate Aug<31>2005 15:41 Jan 12, 2006 Jkt 208001 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 5 See Securities Exchange Act Release No. 49928 (June 28, 2004), 69 FR 41060 (July 7, 2004). PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 2287 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. 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 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. 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. 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. E:\FR\FM\13JAN1.SGM 13JAN1 2288 Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices NSCC Collection and Computational Period B. Self-Regulatory Organization’s Statement on Burden on Competition 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 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. 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. 2. Statutory Basis hsrobinson on PROD1PC70 with NOTICES 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. 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. 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. 12 15 U.S.C. 78f(b)(4). VerDate Aug<31>2005 15:41 Jan 12, 2006 Jkt 208001 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. 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 III. Solicitation of Comments and regulations thereunder applicable to Interested persons are invited to a national securities exchange.13 In submit written data, views, and particular, the Commission believes that arguments concerning the foregoing, the proposal is consistent with Section including whether the proposed rule 6(b)(4) of the Act,14 which requires that change, as amended, is consistent with the rules of an exchange provide for the the Act. Comments may be submitted by equitable allocation of reasonable dues, any of the following methods: fees, and other charges among its Electronic Comments members, issuers, and other persons using its facilities. • Use the Commission’s Internet comment form (https://www.sec.gov/ Under Section 19(b)(2) of the Act,15 rules/sro.shtml); or the Commission may not approve any • Send an e-mail to ruleproposed rule change prior to the comments@sec.gov. Please include File thirtieth day after the date of Number SR–Phlx–2005–87 on the publication of the notice of filing subject line. thereof, unless the Commission finds good cause for so doing. The Paper Comments Commission hereby finds good cause for • Send paper comments in triplicate approving the proposed rule change, as to Nancy M. Morris, Secretary, amended, prior to the thirtieth day after Securities and Exchange Commission, publishing notice of filing thereof in the Station Place, 100 F Street, NE., Federal Register. The Commission Washington, DC 20549–9303. believes that such action is consistent All submissions should refer to File with the protection of investors and the Number SR-Phlx-2005–87. This file public interest. This proposal will make number should be included on the the Exchange’s rules consistent with the subject line if e-mail is used. To help the Commission’s guidance on Section 31 Commission process and review your without undue delay. The proposal also comments more efficiently, please use codifies the current Exchange only one method. The Commission will arrangement for passing the Covered post all comments on the Commission’s Sale Fees between the ITS participants. Internet Web site (https://www.sec.gov/ Therefore, the Commission believes that rules/sro.shtml). Copies of the proposed rule change, as amended, submission, all subsequent raises no new regulatory issues and that amendments, all written statements a full notice-and-comment period is not with respect to the proposed rule necessary. change, as amended, that are filed with V. Conclusion the Commission, and all written communications relating to the It is therefore ordered, pursuant to proposed rule change between the 16 Commission and any person, other than Section 19(b)(2) of the Act, that the proposed rule change, as amended (SR– those that may be withheld from the Phlx–2005–87), is hereby approved on public in accordance with the an accelerated basis. provisions of 5 U.S.C. 552, will be available for inspection and copying in 13 In approving this proposal, as amended, the the Commission’s Public Reference Room. Copies of such filing also will be Commission has considered its impact on efficiency, competition, and capital formation. See available for inspection and copying at 15 U.S.C. 78c(f). the principal office of the Phlx. All 14 15 U.S.C. 78f(b)(4). 15 15 U.S.C. 78s(b)(2). comments received will be posted 16 Id. without change; the Commission does PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 E:\FR\FM\13JAN1.SGM 13JAN1 Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.17 Nancy M. Morris, Secretary. [FR Doc. E6–257 Filed 1–12–06; 8:45 am] Summary of Equity Option Charges (p. 3/6) BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53078; File No. SR–Phlx– 2005–88] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Elimination of the 500 Contract Cap on Payment for Order Flow Fees January 9, 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’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Phlx has designated this proposal as one changing a fee imposed by the Phlx under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. hsrobinson on PROD1PC70 with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to eliminate the 500-contract cap per individual cleared side of a transaction which is currently imposed in connection with the Exchange’s equity options payment for order flow program.5 The Exchange states that the elimination of the 500contract cap would be scheduled to become effective for trades settling on or after January 2, 2006. Below is the text of the proposed rule change. Proposed deletions are in [brackets]. * * * * * 17 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 See Securities Exchange Act Release No. 52568 (October 6, 2005), 70 FR 60120 (October 14, 2005) (SR–Phlx–2005–58). VerDate Aug<31>2005 15:41 Jan 12, 2006 Jkt 208001 For any top 120 option listed after February 1, 2004 and for any top 120 option acquired by a new specialist unit ** within the first 60-days of operations, the following thresholds will apply, with a cap of $10,000 for the first 4 full months of trading per month per option provided that the total monthly market share effected on the Phlx in that top 120 Option is equal to or greater than 50% of the volume threshold in effect: First full month of trading: 0% national market share. Second full month of trading: 3% national market share. Third full month of trading: 6% national market share. Fourth full month of trading: 9% national market share. Fifth full month of trading (and thereafter): 12% national market share. ** A new specialist unit is one that is approved to operate as a specialist unit by the Options Allocation, Evaluation, and Securities Committee on or after February 1, 2004 and is a specialist unit that is not currently affiliated with an existing options specialist unit as reported on the member organization’s Form BD, which refers to direct and indirect owners, or as reported in connection with any other financial arrangement, such as is required by Exchange Rule 783. Real-Time Risk Management Fee $.0025 per contract for firms/members receiving information on a real-time basis. Equity Option Payment for Order Flow Fees * (1) For trades resulting from either Directed or non-Directed Orders that are delivered electronically and executed on the Exchange: Assessed on ROTs, specialists and Directed ROTs on those trades when the specialist unit or Directed ROT elects to participate in the payment for order flow program.*** (2) No payment for order flow fees will be assessed on trades that are not delivered electronically. QQQQ (NASDAQ–100 Index Tracking StockSM)—$0.75 per contract. Remaining Equity Options, except FXI Options—$0.60 per contract. * Assessed on transactions resulting from customer orders[, subject to a 500-contract cap, per individual cleared side of transaction]. This proposal will be in effect for trades settling on or after October 1, 2005 and will remain in effect as a pilot program that is scheduled to expire on May 27, 2006. *** Any excess payment for order flow funds billed but not utilized by the specialist PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 2289 or Directed ROT will be carried forward unless the Directed ROT or specialist elects to have those funds rebated to the applicable ROT, Directed ROT or specialist on a pro rata basis, reflected as a credit on the monthly invoices. See Appendix A for additional fees. * * * * * 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 According to the Phlx, currently, the following payment for order flow rates are in effect at the Exchange: (1) Equity options other than QQQQ 6 and FXI Options are assessed $0.60 per contract; (2) options on QQQQ are assessed $0.75 per contract; and (3) no payment for order flow fees are assessed on FXI Options. Trades resulting from either Directed or non-Directed Orders that are delivered electronically over AUTOM and executed on the Exchange are assessed a payment for order flow fee, while non-electronically-delivered orders (i.e., represented by a floor broker) are not assessed a payment for order flow fee.7 The Exchange also imposes a 500-contract cap per individual cleared side of a transaction. At this time, the Exchange proposes to eliminate the 500-contract cap per 6 The Nasdaq-100, Nasdaq-100 Index, Nasdaq, The Nasdaq Stock Market, 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 (‘‘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. The Exchange states that 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. 7 The Phlx states that electronically-delivered orders do not include orders delivered through the Floor Broker Management System pursuant to Exchange Rule 1063. E:\FR\FM\13JAN1.SGM 13JAN1

Agencies

[Federal Register Volume 71, Number 9 (Friday, January 13, 2006)]
[Notices]
[Pages 2286-2289]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-257]


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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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.

---------------------------------------------------------------------------
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 (https://
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 (https://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