Philadelphia Stock Exchange Rulemaking:
Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the Issuance of Equity Trading Permits and Establishment of Related Fees and Amendment No. 1 thereto
SECURITIES AND EXCHANGE COMMISSION
(Release No. 34-43213; File No. SR-Phlx-00-04)
August 25, 2000
Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the Issuance of Equity Trading Permits and Establishment of Related Fees and Amendment No. 1 thereto.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),1 and Rule 19b-4 thereunder,2 notice is hereby given that on January 12, 2000, the Philadelphia Stock Exchange, Inc. ("Phlx" or "Exchange") filed with the Securities and Exchange Commission ("SEC" or "Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On May 30, 2000, the Exchange filed Amendment No. 1 to the proposal.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend its schedule of dues, fees and charges in connection with its proposal to issue equity trading permits. A copy of the proposed schedule is available at the Exchange and at the Commission.
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 IV 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
The Exchange has proposed, in a separate filing with the Commission, to adopt new Rule 23 relating to the issuance by the Exchange of equity trading permits ("ETPs").4 ETPs would confer access privileges to the Exchange's equity trading floor and certain of the rights of members of the Exchange to ETP holders. In this filing, the Exchange proposes to apply the Exchange's existing application fee to all applicants for ETPs, and to apply an initiation fee to those applicants who become ETP holders who are not Exchange members at the time of application.5 The Exchange also proposes to amend its schedule of fees, dues and other charges to include monthly ETP fees.6
Background. In SR-Phlx-00-03, the Exchange proposes to issue two classes of ETPs: Regular Equity Trading Permits ("Regular ETPs") and Off-Floor Equity Trading Permits ("Off-Floor ETPs"). Regular ETPs would confer the rights held by members of the Exchange without options privileges, except as provided in Rule 23 or in other Exchange rules. Consequently, Regular ETPs would permit their holders to trade equity securities on any facility of the Exchange, including as a specialist. Off-Floor ETPs would confer the same rights as Regular ETPs, except for physical access to the Exchange floor. Holders of ETPs would have no voting rights, and ETPs would not be transferable except as provided in proposed Rule 23.
Application Fee. The Exchange proposes to charge a $200 application fee for every ETP application submitted to the Exchange. This charge would apply whether the application is made by a current Exchange member, foreign currency options participant ("FCO Participant"), or by an individual with no pre-existing relationship with the Exchange.
Initiation Fee. The Exchange further proposes to charge ETP applicants who are not Exchange members when the ETP application is submitted, a $1,500 initiation fee. The initiation fee will be charged if the applicant is admitted as an ETP holder pursuant to the Exchange's established procedures in place for new members.7 The $1,500 initiation fee will be imposed on ETP holders when admitted, to the same extent it is imposed on members when elected to membership.8
Monthly ETP Fee. The Exchange proposes to charge a monthly fee of $2,000 for each Regular ETP and $500 for each Off-Floor ETP ("Monthly ETP Fee"). To limit the Exchange's administrative costs in connection with ETPs, the Monthly ETP Fee would not be prorated in the event an ETP is issued or terminated in the middle of a month. The revenue from the Monthly ETP Fee is intended to help fund the Exchange's costs of providing a marketplace for its members and other qualified persons using its trading facilities. The Exchange believes that the higher Monthly ETP Fee for Regular ETP holders is appropriate in view of the greater privileges conferred by a Regular ETP (including the right to apply for specialist privileges) and because the Exchange will incur higher costs in connection with those ETP holders who may be physically present on the trading floor while conducting their Exchange business.
Other Fees and Charges. ETP holders would be subject to the same fees as other Phlx members except for membership dues and the technology fee.9 Additionally, ETP holders would not be subject to any capital assessments the Exchange may impose.10 The Exchange notes that all Exchange fees may be modified from time to time in accordance with Exchange procedures and the provisions of the Act.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6 of the Act11 in general, and with Section 6(b)(4),12 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and other persons using Phlx's facilities. The proposed rule change takes into account the nature of the differing interests of holders of legal and equitable titles to Exchange memberships and ETP holders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change will impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received from members, participants or others regarding this proposed amendment to the schedule of dues, fees and other charges.13
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Phlx consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0609. 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 will also be available for inspection and copying at the principal office of the Phlx.
All submissions should refer to File No. SR-Phlx-00-04 and should be submitted by [insert date 21 days from the date of publication in the Federal Register].
For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14
Jonathan G. Katz
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 See Letter from Carla Behnfeldt, Counsel, Phlx, to Sonia Patton, Attorney, Division of Market Regulation, Commission, dated May 25, 2000. ("Amendment No. 1"). In Amendment No. 1, among other things, the Exchange clarified the circumstances under which, and to whom, the Application Fee and the Initiation Fee will be charged.
4 See SR-Phlx-00-03, filed with the Commission concurrently with this filing. In connection with proposed Rule 23, the Exchange has also proposed to add Article Twenty-First ("Article Twenty-First") to the Exchange's Certificate of Incorporation which would generally authorize the issuance of permits to conduct business on the Exchange. See SR-Phlx-00-02.
5 The Exchange currently charges a $200 application fee for membership and foreign currency options participation applications. An initiation fee of $1,500 is imposed on members upon their election to membership and on non-member foreign currency options participants upon the purchase of foreign currency options participations.
6 The Commission recently granted permanent approval to the $1,500 monthly capital funding fee. See Securities Exchange Act Release No. 42993 (June 29, 2000), 65 FR 42415 (July 10, 2000).
7 See SR-Phlx-00-03 proposing the issuance of ETPs pursuant to proposed Rule 23, and Phlx By-law 12-4 which describes the process of application for election to membership.
8 See Phlx By-law 12-8(a) which imposes the $1,500 initiation fee on members upon their election to membership.
9 Membership dues would not be assessed on ETP holders because they would not have a voting membership interest in the Exchange. Also, the Exchange's technology fee was intended to cover system software modifications, Year 2000 modifications, specific system development and maintenance costs, SIAC and OPRA communication charges, and ongoing system maintenance charges. See Securities Exchange Act Release No. 38394 (March 12, 1997), 1997 SEC LEXIS 576 (March 12, 1997). ETP holders would not be assessed the technology fee because the Exchange intends the Monthly ETP Fee to be a single charge covering all overhead costs attributable to ETP holders.
10 The Exchange notes that ETP holders would not, by virtue of the ETP, be holders of equitable title to Exchange memberships and thus would not be subject, by virtue of the ETP, to the Exchange's $1,500 capital funding fee. See Securities Exchange Act Release No. 42993 (June 29, 2000), 65 FR 42415 (July 10, 2000). An ETP holder by definition cannot be an owner-member, lessee or party to an A-B-C Agreement with a member organization. Therefore, ETP holders will not be entitled to the monthly credit of up to $1,000 to be applied against certain fees, dues, charges and other amounts owed to the Exchange in connection with the ETP. See Securities Exchange Act Release No. 42791 (May 16, 2000), 65 FR 33606 (May 24, 2000).
11 15 U.S.C. 78f(b).
12 15 U.S.C. 78f(b)(4).
13 Written comments were received in connection with the Exchange's proposal to issue ETPs and have been provided to the Commission as part of SR-Phlx-00-03, filed concurrently with this filing.
14 17 CFR 200.30-3(a)(12).