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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Amending its Fee Schedule for the Use of the Intermarket Trading System

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Start Preamble February 4, 2002.

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 31, 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. 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 revise its fee schedule by establishing a fee charged to equity specialists. According to the Exchange, the proposed fees are based on the use of the Intermarket Trading System (“ITS”) to execute certain sized customer orders received over the Philadelphia Stock Exchange Automated Communication and Execution (“PACE”) [3] system, and sent outbound over ITS with the customer's clearing information. The Exchange also proposes to create a credit to equity specialists for net inbound shares executed over ITS.

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. 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.Start Printed Page 6311

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

1. Purpose

The purpose of the proposed rule change is to establish a fee charged to Exchange equity specialists for their use of ITS to execute certain sized customer orders received over the PACE system, and create a credit given to equity specialists for net inbound shares executed over ITS. The Exchange proposes to charge equity specialists $0.60 per 100 shares on customer orders received over the PACE system of 500 shares or less that the equity specialist sends away as an ITS commitment marked with the customer's clearing information, to the extent that the order is executed over ITS. Additionally, the Exchange proposes to charge equity specialists $0.30 per 100 shares on customer orders received over the PACE system of 501 to 4,999 shares that the equity specialist sends away as an ITS commitment marked with the customer's clearing information, to the extent that the order is executed over ITS.[4] The Exchange designates this fee as eligible for the Monthly Member Credit.[5]

The Exchange also proposes that equity specialists receive a credit of $0.30 per 100 shares on the excess, if any, of the number of inbound ITS shares executed by the equity specialist over the number of outbound ITS shares sent by the equity specialist and executed away in the same calendar month.[6] The Exchange proposes to begin charging this fee and applying this credit on trades settling on January 2, 2002. The Exchange proposes to begin chagrining this fee and applying this credit on trades settling on February 1, 2002.[7]

According to the Exchange, equity specialists receiving customer orders over the PACE system may, among other things, choose to execute the order pursuant to Phlx Rule 229, or send an outbound ITS commitment marked with the customer's clearing information for execution at another exchange, pursuant to Phlx Rule 2000, et seq. The Exchange represents that members sending customer orders would pay no PACE fees when they route orders to the Exchange through PACE, however, they would incur fees when the specialist chooses to send away an ITS commitment marked with the customer's clearing information.

The Exchange believes that the proposed fee schedule should create an incentive for equity specialists to either execute customer orders under 5,000 shares received over the PACE system and not send an outbound ITS commitment marked with the customer's clearing information for execution at another exchange, or send the order as an outbound ITS commitment marked with the equity specialist's clearing information.[8] According to the Exchange, when equity specialists send outbound ITS commitments with their own clearing information, customers will not be charged a PACE fee.[9] Therefore, the Exchange believes that customers will benefit from a reduced number of orders sent via ITS marked with the customer's clearing information.

The Exchange also believes that the proposed credit to equity specialists for net inbound shares executed over ITS should encourage equity specialists to act as net “liquidity providers” (by executing more inbound ITS shares than they send away for execution), rather than acting as net “liquidity takers.”

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6 of the Act in general, [10] and Sections 6(b)(4) [11] and 6(b)(5) [12] of the Act in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities; and it promotes just and equitable principles of trade, and protects investors and the public interest.

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

The Exchange believes that the proposed fee change will not impose any burden on competition that is not necessary or appropriate in the 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

The Exchange has neither solicited nor received written comments on the proposed rule change.

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

Because the foregoing proposed rule change establishes or changes a due, fee or charge imposed by the Phlx, it has become effective upon filing pursuant to Rule 19(b)(3)(A) of the Act [13] and Rule 19b-4(f)(2) thereunder.[14] 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 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 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, DC 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 Start Printed Page 6312those 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-2001-121 and should be submitted by March 4, 2002.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[15]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  PACE is the electronic order routing, delivery, execution and reporting system used to access the Phlx Equity Floor.

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4.  The Exchange represents that equity specialists will not be charged a fee on customer orders received over the PACE system of 5,000 or greater shares that the equity specialist chooses not to execute on the Exchange, but to send and execute away an ITS commitment marked with the customer's clearing information. Additionally, equity specialists will not be charged a fee on non-PACE customer orders of any size that the equity specialist sends and executes away through ITS. Finally, the basis for the fee will be on the number of shares executed away over ITS, not on the size of the original customer order.

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5.  See Securities Exchange Act Release No. 44292 (May 11, 2001), 66 FR 27715 (May 18, 2001) (approving SR-Phlx-2001-49). The Monthly Member Credit allows Exchange members to receive a montly credit of up to $1,000 to be applied against fees, dues, charges and other such amounts.

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6.  The Exchange represents that no credit will be applied if the number of the inbound ITS shares executed by the equity specialist is equal to or less than the number of outbound ITS shares sent by the equity specialist and executed away.

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7.  February 1, 2002 telephone conversation between Edith Hallahan, Phlx, and Katherine England, Assistant Director, Division of Market Regulation (“Division”), Commission.

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8.  The Exchange notes that equity specialists who send and execute away an ITS commitment marked with the equity specialist's clearing information, as opposed to the customer's clearing information, will not be charged the proposed fee.

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9.  The Phlx represents that this reference to a PACE fee is an existing fee that is not impacted or altered by this proposed rule change. February 1, 2002 telephone conversation between John Dayton, Assistant Secretary and Counsel, Phlx, and Katherine England, Assistant Director, Division, Commission.

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[FR Doc. 02-3233 Filed 2-8-02; 8:45 am]

BILLING CODE 8010-01-P