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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. To Adopt a License Fee for Transactions in DIAMONDS®

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Start Preamble April 8, 2003.

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 March 28, 2003, 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 and II below, which Items have been prepared by the Exchange. 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 Summary of Equity Charges to adopt a license fee of $0.00025 per share per trade side for sides greater than 500 shares, with no maximum fee per trade side charged to Non-PACE Customers [3] and Electronic Communications Networks (“ECNs”),[4] and a license fee of $0.0005 per share per trade side, with no maximum fee per trade side charged to specialists for transactions on the Phlx in the DIAMONDS® Exchange Traded Funds (“DIAMONDS”).[5] The Exchange also proposes to make minor, technical changes to its equity fee Start Printed Page 17980schedule to make corresponding references to the proposed fees. All other equity charges currently assessed by the Phlx will be imposed where applicable.[6]

The Exchange proposes to implement this fee as of April 1, 2003, the date that it began trading in the DIAMONDS.[7] Text of the proposed rule change is set forth below. New text is in italics. Deleted text is in brackets.

Summary of Equity Charges (p 1/3)*

Equity Transaction Charge I

[Based on total shares per transaction with the exception of specialist trades and PACE trades.1]

Monthly transaction valueRate per share
First 500 shares$0.00
Next 2,000 shares0.0075
Next 7,500 shares0.005
Remaining shares0.004
$50 maximum fee per trade side.
License Fee
SPDRs, Standard & Poor's Depositary Receipts**
Customer Non-PACE and Electronic Communications Network E (“ECN”) License Fee:
$0.00025 per share per trade side for sides greater than 500 shares
No maximum fee per trade side
Specialist License Fee:
$0.00035 per share per trade side
No maximum fee per trade side
DIAMONDS® Exchange Traded Funds**
Customer Non-PACE and Electronic Communications Network E (“ECN”) License Fee:
$0.00025 per share per trade side for sides greater than 500 shares
No maximum fee per trade side
Specialist License Fee:
$0.0005 per share per trade side
No maximum fee per trade side
See Appendix A for additional fees.
I denotes fee eligible for monthly credit of up to $1,000.
* Not applicable to transactions in Nasdaq-100 Index Tracking StockSM (see page 4 for fees).

Summary of Equity Charges (p 2/3)*

PACE Specialist Charge 2 I
 $.20 per PHLX Specialist Trade against PACE Executions (Not applicable to PACE trades on the opening)
Equity Floor Brokerage Assessment I
$250 monthly charge 3
Equity Floor Brokerage Transaction Fee I
$.05 per 100 shares or fraction thereof, for floor broker executing transactions for their own member firms.
SEC Fee
 The amount shall be determined by Section 31 of the Securities Exchange Act of 1934.
Off-Exchange Trade Information Fee I
$.10 per DOT trade
Remote Information Access Fee I
$300.00 per month
Electronic Communications Network E (“ECN”) Fee
$2,500.00 per month (in lieu of equity transaction charges)
Outbound ITS Fee I (also applicable to transactions in Nasdaq-100 Index Tracking StockSM) 4
For PACE orders sent over ITS with the customer information attached:
500 shares or less$0.60 per 100 shares.
501 to 4,999 shares0.30 per 100 shares.

Summary of Equity Charges (p 3/3) Start Printed Page 17981

Net Inbound ITS Credit (also applicable to transactions in Nasdaq-100 Index Tracking StockSM) 5
$0.30 per 100 shares on the excess, if any, of the number of inbound ITS shares executed over the number of outbound ITS shares sent and executed on a monthly basis.
See Appendix A for additional fees.
I denotes fee eligible for monthly credit of up to $1,000.
* Not applicable to transactions in Nasdaq-100 Index Tracking StockSM (see next page for fees).
E ECNs shall mean any electronic system that widely disseminates to third parties orders entered therein by an Exchange market maker or over-the-counter (“OTC”) market maker, and permits such orders to be executed against in whole or in part; except that the term ECN shall not include: Any system that crosses multiple orders at one or more specified times at a specified price set by the ECN, algorithm, or by any derivative pricing mechanism and does not allow orders to be crossed or executed against directly by participants outside of such times; or, any system operated by or on behalf of an OTC market-maker or exchange market-maker that executes customer orders primarily against the account of such market maker as principal, other than riskless principal.
Any fees, credits, discounts and other charges in the Exchange's fee schedule which are based upon an equity specialist's specialist activity apply to competing specialists.
** “Standard & Poor's,®” “S&®”,“S&P 500®”, “Standard & Poor's 500®”, and “500” are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by the Philadelphia Stock Exchange, Inc., in connection with the listing and trading of SPDRs, on the Phlx. These products are not sponsored, sold or endorsed by S&P, a division of The McGraw-Hill Companies, Inc., and S&P makes no representation regarding the advisability of investing SPDRs.
**Dow Jones®, “The DowSM,” “Dow 30SM,” “Dow Jones Industrial AverageSM,” “Dow Jones IndustrialsSM,” “DJIASM,” “DIAMONDS®” and “The Market's Measure®” are trademarks of Dow Jones & Company, Inc. (“Dow Jones”) and have been licensed for use for certain purposes by the Philadelphia Stock Exchange, Inc., pursuant to a License Agreement with Dow Jones. The DIAMONDS Trust, based on the DJIA, is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in the DIAMONDS Trust.
1 However, this charge applies where an order, after being delivered to the Exchange by the PACE system is executed by the specialist by way of an outbound commitment, when such outbound ITS commitment reflects the PACE order's clearing information, but does not apply where a PACE trade was executed against an inbound ITS commitment.
2 This charge does not apply to transactions in Nasdaq-100 Index Tracking StockSM [and] SPDRs and DIAMONDS®.
3 Applies to each member who derives at least 80% of gross income generated from Phlx floor based activities from his/her floor brokerage business conducted on the Exchange. Floor brokerage business conducted on the Exchange includes orders that are received on the Phlx, even if those orders are executed on an exchange other than the Phlx. The 5% floor brokerage assessment is waived until Dec. 31, 2003 and is scheduled to be reinstated Jan. 1, 2004.
4 This fee will only apply when the specialist sends an order received over PACE to ITS and receives an execution, if the specialist used the PACE customer's clearing information on the outbound ITS commitment.
5 This credit will include all inbound and outbound ITS executions, including both PACE and non-PACE and both proprietary and customer commitments.
* * * * *

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

The purpose of the proposed rule change is to adopt a license fee that will apply to trading DIAMONDS on the Exchange. The Exchange recently determined to begin trading DIAMONDS. The license fees should help off-set licensing fees incurred by the Exchange associated with the trading of these products on the Exchange.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,[8] in general, and furthers the objectives of Section 6(b)(4) of the Act,[9] in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among Exchange members. The Exchange believes that charging members that trade these products a licensing fee is an equitable means of recovering a portion of the licensing fees incurred by the Exchange.[10]

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

The Exchange 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

No written comments were either solicited or received.

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

The foregoing rule change establishes or changes a due, fee, or charge imposed by the Exchange and, therefore, has become effective upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act [11] and Rule 19b-4(f)(2) thereunder.[12] At any Start Printed Page 17982time 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 purpose 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 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Phlx-2003-20 and should be submitted by May 5, 2003.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[13]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  PACE is the acronym for the Exchange's Automated Communication and Execution System, which is the Exchange's order routing, delivery, execution and reporting system for its equity trading floor. See Exchange Rules 229 and 229A.

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4.  ECNs shall mean any electronic system that widely disseminates to third parties orders entered therein by an Exchange market maker or over-the-counter (“OTC”) market maker, and permits such orders to be executed against in whole or in part; except that the term ECN shall not include: any system that crosses multiple orders at one or more specified times at a specified price set by the ECN, algorithm, or by any derivative pricing mechanism and does not allow orders to be crossed or executed against directly by participants outside of such times; or, any system operated by or on behalf of an OTC market-maker or exchange market-maker that executes customer orders primarily against the account of such market maker as principal, other than riskless principal.

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5.  Dow Jones®, “The DowSM,” “Dow 30SM,” “Dow Jones Industrial AverageSM,” “Dow Jones IndustrialsSM,” “DJIASM,” “DIAMONDS®” and “The Market's Measure®” are trademarks of Dow Jones & Company, Inc. (“Dow Jones”) and have been licensed for use for certain purposes by the Philadelphia Stock Exchange, Inc., pursuant to a License Agreement with Dow Jones. The DIAMONDS Trust, based on the DJIA, is not sponsored, endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in the DIAMONDS Trust.

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6.  These charges may include equity transaction charges, an equity floor brokerage assessment, an equity floor brokerage transaction fee, an off-Exchange trade information fee, an SEC fee, a remote information access fee, an Electronic Communications Network fee, an outbound Inter-Market Trading System (“ITS”) fee and a net inbound ITS credit. Additionally, the PACE Specialist charge does not apply because specialists are not eligible for further PACE volume discounts. See Securities Exchange Act No. 44259 (May 4, 2001), 66 FR 23962 (May 10, 2001) (SR-Phlx-2001-41).

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7.  The license fees will not be eligible for the monthly credit of up to $1,000 to be applied against certain fees, dues and charges and other amounts owed to the Exchange by certain members. See Securities Exchange Act Release No. 44292 (May 11, 2001), 66 FR 27715 (May 18, 2001) (SR-Phlx-2001-49).

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10.  With regard to the distinction between Customer PACE and Non-PACE license fees, the Exchange states that it is consistent with its current practice to not impose customer charges for equity transactions delivered through PACE, but to impose customer charges for Non-PACE executions. See, e.g., Securities Exchange Act Release Nos. 47385 (February 20, 2003), 68 FR 10295 (March 4, 2003) (SR-Phlx-2003-06); 44381 (June 1, 2001), 66 FR 31264 (June 11, 2001) (SR-Phlx-2001-57); and 43776 (December 28, 2000), 66 FR 1166 (January 5, 2001) (SR-Phlx-2000-103). Also, consistent with its current practice, the Exchange charges customer transaction fees and specialist transaction fees at different rates. See, e.g., Securities Exchange Act Release Nos. 44381 (June 1, 2001), 66 FR 31264 (June 11, 2001) (SR-Phlx-2001-57); 47109 (December 30, 2002), 68 FR 841 (January 7, 2003) (SR-Phlx-2002-78); and 42332 (January 12, 2000), 65 FR 3517 (January 21, 2000) (SR-Phlx-2000-59).

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11.  15 U.S.C. 78(s)(b)(3)(A)(ii).

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[FR Doc. 03-9035 Filed 4-11-03; 8:45 am]

BILLING CODE 8010-01-P