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Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Eliminating Equity Trading Floor Specialist Fees for the Execution of PACE Orders on the Opening

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Start Preamble May 4, 2001.

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 April 18, 2001, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Phlx.[3] The Commission is publishing this notice to solicit comments on proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Phlx proposes to eliminate equity trading floor specialist fees for each PACE transaction for orders entered before the opening of trading.[4] Specifically, the PACE specialist charge of $.20 per Phlx specialist trade for PACE executions would be eliminated.

II. Self-Regulatory Organization's Statement of the Purpose of, and the 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 the Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change is to alleviate fee burdens on specialists by eliminating specialist fees for PACE trades executed by the specialist on the opening. Presently, PACE orders, including those executed on the opening, are charged a PACE specialist fee of $.20 per trade, in addition to other costs, such as Stock Clearing Corporation of Philadelphia trade processing/clearing fees and Section 31 fees.

Exchange specialists have many responsibilities, including the maintenance of fair and orderly markets. Phlx specialists provide PACE orders specific guarantees enumerated in Phlx Start Printed Page 23963Rule 229. The Phlx believes that the specialist's role is particularly important on the opening, where the specialist must determine the opening price while being mindful of single price openings in unlisted trading privileges securities, monitor Intermarket Trading System indications and commitments, and assess and address order imbalances. The Phlx believes that these responsibilities impose unique risks and costs on specialists. For instance, the automatic execution feature of PACE is not engaged until after the opening,[5] which allows the specialist to better control the aforementioned duties, but also imposes unique manual burdens, such as matching against orders on the opening.

Thus, the proposal would eliminate the Phlx transaction fees imposed on orders on the opening that are received through PACE and executed manually. The proposed amendment would enable the specialist to continue to provide prompt execution and participate in opening orders, without the additional burden of a transaction fee. The Exchange believes that this fee reduction should encourage specialists' efforts in attracting more order flow, which in turn should promote a more liquid market.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,[6] in general, and with Section 6(b)(4),[7] in particular, in that they provide for the equitable allocation of reasonable dues, fees and other charges, by alleviating a financial burden on specialists. The Exchange notes that other equity fees apply only to certain market participants, and the Exchange has previously waived fees with respect to certain market participants.[8]

B. Self-Regulatory Organization's Statement on Burden on Competition

The Phlx does not believe that the proposed rule change, as amended, 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

No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The Exchange has designated the proposed rule change as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act[9] and Rule 19b-4(f)(2) thereunder.[10] Accordingly, the proposal will take effect upon the filing of the proposed rule change with the Commission on April 18, 2001. At any time within 60 days of the filing of the 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 Act.

IV. 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 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-2001-41 and should be submitted by May 31, 2001.

Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  The Phlx originally submitted the proposed rule change on April 2, 2001. On April 18, 2001, the Phlx submitted a new Form 19b-4, which replaces and supersedes the original filing in its entirety. See letter from Diana Tenenbaum, Counsel, Phlx, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission, dated April 17, 2001.

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4.  PACE is the Philadelphia Stock Exchange's Automated Communication and Execution System. It is the Exchange's order routing, delivery, execution, and reporting system for its equity trading floor. See Phlx Rule 229.

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5.  Telephone call between Edith Hallahan, Deputy General Counsel, Phlx, and Sonia Patton, Staff Attorney, Division, Commission (May 1, 2001).

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8.  See Securities Exchange Act Release No. 43343 (Sep. 26, 2000), 65 FR 59243 (Oct. 4, 2000) (SR-Phlx-00-80), regarding a waiver of all comparison and transaction charges for customers trading equity options.

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9.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 01-11802 Filed 5-9-01; 8:45 am]