[Federal Register Volume 62, Number 57 (Tuesday, March 25, 1997)]
[Notices]
[Pages 14176-14177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7391]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38416; File No. SR-PHLX-97-10]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. Relating to a Clarification of the Exemptions From the
Exchange Examination Fee
March 18, 1997.
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 February 28, 1997, 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 PHLX.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1991).
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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 one
of the exemptions to its existing examination fee in order to clarify
to which firms the fee is applicable. The text of the amendment to the
fee schedule language is as follows (new text is italicized):
* * * * *
Examination Fee--$1,000 monthly
This fee is applicable to member/participant organizations for
which the PHLX is the DEA. The following organizations are exempt: (1)
inactive organizations; (2) organizations operating from the PHLX
trading floor which have demonstrated that at least 25% of their income
as reflected on the most recently submitted FOCUS Report was derived
from floor activities; (3) organizations for any month where they incur
transaction or clearing fees charged directly by the Exchange or by its
registered clearing subsidiary, provided that the fees exceed the
examination fee for that month; and (4) organizations affiliated with
an organization exempt from this fee due to the second or third
category. Affiliation includes an organization that is a wholly owned
subsidiary of, or controlled by or under common control with, an
``exempt'' member or participant organization. An inactive organization
is one which has no securities transaction revenue, as determined by
semi-annual FOCUS reports, as long as the organization continues to
have no such revenue each month.
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 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.
[[Page 14177]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to amend the second
exemption to the Exchange's $1,000 per month examination fee.\3\ This
fee was initially adopted to recoup the costs of examining firms, for
which the Exchange is the Designated Examining Authority (``DEA''),
which contribute little if any revenue to the Exchange to offset the
expense of conducting such examinations.\4\ Because this fee was
intended to pertain to a specific group of members and participants, a
number of exemptions were carved out for firms which do generate enough
revenue to the Exchange to offset examining costs or which are
inactive. One of the exemptions, organizations operating from the PHLX
trading floor, has proved to be too vague. The Exchange has found that
a number of member or participant organizations which operate primarily
or exclusively from off the floor, have entered into arrangements
whereby they argue that they meet this exemption.\5\ Specifically, a
floorbroker or Registered Options Trader from another firm which does
conduct business on the floor becomes dually affiliated with the off-
floor member or participant organization and may or may not ever do any
business for that firm on the floor. These firms have argued that this
dual affiliation would qualify them as an organization operating from
the PHLX trading floor since they now have an affiliated person on the
trading floor. Under this arrangement, these off-floor firms may still
not generate revenue to offset the costs of examining them. The
Exchange believes, however, that the description of the fee's exemption
for firms operating from the trading floor may have been
unintentionally vague enough to permit this interpretation and thus
determined to add an objective measurement.
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\3\ See Securities Exchange Act Release No. 35091 (Dec. 12,
1994), 59 FR 65558 (Dec. 20, 1994).
\4\ In the filing submitted by the Exchange to adopt this fee,
the Exchange noted that many of these firms are located in other
geographic regions, thus requiring increased staff time and travel
expenses to conduct examinations. It was further noted, that many of
these firms trade products not available on the PHLX, thus requiring
additional time and money to train and prepare the examiners who
conduct the exams. Securities Exchange Act Release No. 35091 (Dec.
12, 1994), 59 FR 65558 (Dec. 20, 1994).
\5\ Currently 13 firms are subject to the examination fee out of
approximately 140 firms for which the Exchange is the DEA. Seven of
the 13 firms made colorable arguments that they were not subject to
the examination fee under the previous interpretation and the
Exchange took note of their argument. Therefore, during the time
prior to filing this proposed rule change, those firms were not
charged the examination fee. Accordingly, this is a new fee to that
class of firms that are now subject to the fee by reason of the 25%
revenue test. Letter from Michele R. Weisbaum, Vice President and
General Counsel, PHLX to Karl Varner, Office of Market Supervision,
Division of Market Regulation, SEC, dated March 13, 1997; Letter
from Michele R. Weisbaum, Vice President and General Counsel, PHLX
to Karl Varner, Office of Market Supervision, Division of Market
Regulation, SEC, dated March 17, 1997.
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Under this new test, any organization which can demonstrate that it
has derived at least 25% of its revenues in a calendar quarter from
floor trading activity, will be deemed to have covered the cost of
examining the firm and will then be exempt from the $1,000 per month
fee.
The proposed rule change is consistent with Section 6 of the Act in
general, and in particular, with Section 6(b)(4), in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among its members and other persons using its facilities in that it
clarifies which firms are deemed to have paid their share of the cost
of an examination by setting an objective income test.
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
The foregoing rule change has become effective on February 28,
1997, pursuant to Section 19(b)(3)(A) of the Act \6\ and subparagraph
(e)(2) of Rule 19b-4 thereunder,\7\ because it establishes or changes a
due, fee, or other charge. 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.
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\6\ 15 U.S.C. Sec. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(e).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. 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. Sec. 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 at the
PHLX. All submissions should refer to File No. SR-PHLX-97-10 and should
be submitted by April 15, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 97-7391 Filed 3-24-97; 8:45 am]
BILLING CODE 8010-01-M
