02-27117. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. Relating to Amending Exchange Rule 607, Registration Fee, and Deleting ...

October 17, 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 September 20, 2002, 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, II, and III below, which Items have been prepared by the Exchange. The Exchange filed an amendment to the proposed rule change on October 2, 2002.^[3] The Exchange has filed the proposal as a “non-controversial” rule change pursuant to section 19(b)(3)(A)(iii) of the Act,^[4] and Rule 19b-4(f)(6) thereunder,^[5] which renders the proposal effective upon filing with the Commission.^[6] The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.

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

The Phlx, pursuant to Rule 19b-4 of the Act, proposes to amend Exchange Rule 607, Registration Fee, to conform the rule to section 31 of the Act,^[7] as amended by H.R. 1088, the Investor and Capital Markets Fee Relief Act (“Fee Relief Act”).^[8] In addition, the Exchange proposes to delete Exchange Rule 608, Charge for Making Transaction.

The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets.

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Rule 607. Transaction [Registration] Fee

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 Section 31 of the Securities Exchange Act of 1934, and rules thereunder. [clearing transactions effected on the Exchange, shall pay to the Exchange the sum of one cent for each $500 or fraction thereof of the dollar volume of his or its sales upon the Exchange (other than securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States or such securities issued or guaranteed by corporations in which the United States has a direct or an indirect interest as shall be designated for exemption from the provisions of this Section by the Secretary of the Treasury), in reimbursement to the Exchange of the Registration Fee imposed under Section 31 of the Securities Exchange Act of 1934, as amended, in accordance with such rules as the Committee may prescribe.]

[Rule 608. Charge for Making Transaction]

[Every member or member organization who is required by Rule 607 to pay any sum to the Exchange in respect of any sale upon the Exchange shall charge and collect from the person for whom he was acting in making such transaction an amount, which shall be determined by Section 31 of the Securities Exchange Act of 1934 as the sum of one cent for each $500 or fraction thereof of the dollar amount involved in such transaction.]

[Supplementary Material:]

[Registration Fee]

[.01 Every member and member organization engaged in clearing or settling transactions effected upon the Exchange shall maintain a daily record of the aggregate dollar amount of the sales of securities made upon the Exchange and cleared or settled by him or it. The amount of money shall be computed upon the actual sales price, disregarding commissions, taxes or accrued interest on bonds. Blotter dates shall be used throughout. All sales on the Exchange shall be included, whether the securities are tax-exempt or not, except securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States or such securities issued or guaranteed by corporations in which the United States has a direct or an indirect interest as shall be designated for exemption from the provisions of this section by the Secretary of the Treasury. Odd-lot dealers shall record both the full lots and the odd lots which they sell on the Exchange. If a member organization clears and settles a transaction for a member or member organization that in turn clears it for another principal, only the member organization settling the transaction shall include it in its record. Monthly reports of the daily totals above referred to shall be submitted to the Secretary's office in the manner described below.

.02 At or before 10:30 o'clock a.m. on the 10th day of each month each member or member organization required to report to the Exchange shall submit a report on a form supplied by the Exchange showing: aggregate dollar sales volume; the Registration Fee due thereon; principal amount of bonds; number of shares of stock and number of rights to subscribe.

.03 Every such reporting member and member organization shall pay to the Exchange a sum equal to one cent for each $500 or fraction thereof of the total aggregate dollar sales volume reported monthly.

.04 With respect to all transactions which are required by these directions to be included in the foregoing report, the member or member organization responsible for reporting any transaction to the Exchange shall charge to the account, as billed, for which such transaction was made the sum of one cent for each $500 or fraction thereof represented by such transaction.

Whenever the account against which such charge is made is that of a member or member organization who is acting for a principal, such member or member organization shall withhold from the sum credited to the account of such principal, as billed, an amount equal to one cent for each $500 or fraction thereof represented by the transaction made for such principal.

.05 In rendering to customers confirmations of sales made on the Exchange for their account, the charge required by these directions either shall be shown separately or be treated in the same manner as transfer taxes. In either case the confirmation shall contain an explanatory legend.

.06 Members or organizations that cease the clearing or settling of security transactions shall promptly render reports for any interim period resulting from such change, and shall pay promptly any sum due under the above directions.

.07 When sales are made on the Exchange for a customer each item reported in writing to the customer must be separately used as the basis for computing the fee appertaining thereto. If the written report shows as a single item the sale of two or more lots of the same security at the same price on the same day, the fee may be computed upon the total of such lots as a unit; otherwise each sale, whether reported together with others or separately, must be independently made the basis for computing the fee relating thereto.

.08 Members or organizations who settle transactions for other members or organizations, and who consequently are required to report sales on the Exchange and pay a fee thereon pursuant to paragraphs 1 and 2 above, must charge the account of the member or organization for whom they act on the same basis as is prescribed above with respect to transactions made for customers. This applies also to organizations carrying accounts of Floor traders and non-clearing members or organizations both in Philadelphia and elsewhere.

.09 The use of daily, weekly, or any similar totals of transactions made for a particular customer or for a particular account as a basis for computing the fee chargeable to such customer or account, whether member or nonmember, is prohibited.

.10 When differences in the computation of the fee arise in good faith, such as when an organization has rendered to a customer a single report covering two or more lots of the same security at the same price, and, because of “give-ups” or otherwise, it is necessary to bill or record the transaction as two or more separate lots, or when similar differences arise between a main office and a branch office, such differences may be adjusted between the organizations or offices involved by mutual agreement.]

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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

1. Purpose

The purpose of the proposed rule change is to amend Exchange Rule 607 to conform the rule to section 31 of the Act, as amended by the Fee Relief Act. Section 31 of the Act provides for the assessment of transaction fees to be paid to the Commission by national securities exchanges and national securities associations. Among other things, the Fee Relief Act reduced the amount of the assessment of transaction fees under section 31 of the Act and required the Commission to make annual adjustments to the fee rates for certain fiscal years.

In addition to conforming Exchange Rule 607 to recent Congressional changes, the proposal will allow for future adjustments to be made automatically to the rates as specified by the Commission and in section 31 of the Act. In addition, the Exchange proposes to delete Exchange Rule 608 because the requirements in Exchange Rule 608 are outdated and no longer necessary due to the fact that many of the procedures in Exchange Rule 608 have been automated. No such reporting is needed.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act ^[9] in general and furthers the objectives of sections 6(b)(4) ^[10] and 6(b)(5) ^[11] of the Act, in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members, it promotes just and equitable principles of trade and it protects investors and the public interest.

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

No written comments were either solicited or received.

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

Because the proposed rule change: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative for 30 days (or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest) from the date on which it was filed, the proposed rule change has become effective pursuant to section 19(b)(3)(A) of the Act ^[12] and Rule 19b-4(f)(6) thereunder.^[13]

A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. Because the proposed rule change will codify the Exchange's current section 31 billing practice and allow the Exchange to conform Exchange Rule 607 to section 31 of the Act, the Exchange has requested that the Commission waive the pre-filing notice requirement of at least five business days (or such shorter time as designated by the Commission) and the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii).^[14] The Commission, consistent with the protection of investors and the public interest, has determined to make the proposed rule change operative immediately.^[15]

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.^[16]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal 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 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 number SR-Phlx-2002-51 and should be submitted by November 14, 2002.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[17]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from Cynthia K. Hoekstra, Counsel, Phlx, to Deborah Lassman Flynn, Assistant Director, Division of Market Regulation, SEC, dated October 1, 2002 (“Amendment No. 1”). In Amendment No. 1, the Exchange amended the basis upon which the proposal would become effective under the Act and requested that the Commission waive the five-day pre-filing notice requirement.

4.  15 U.S.C. 78s(b)(3)(A).

5.  17 CFR 240.19b-4(f)(6).

6.  The Phlx asked the Commission to waive the 30-day operative delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).

7.  See 15 U.S.C. 78ee.

8.  See Pub. L. No. 107-123, 115 Stat. 2390 (2002).

9.  15 U.S.C. 78f(b).

10.  15 U.S.C. 78f(b)(4).

11.  15 U.S.C. 78f(b)(5).

12.  15 U.S.C. 78s(b)(3)(A).

13.  17 CFR 240.19b-4(f)(6).

14.  17 CFR 240.19b-4(f)(6)(iii).

15.  For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

16.  See section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-day abrogation period, the Commission considers the period to commence on October 2, 2002, the date that the Exchange filed Amendment No. 1.

17.  17 CFR 200.30-3(a)(12).