[Federal Register Volume 64, Number 146 (Friday, July 30, 1999)]
[Notices]
[Pages 41480-41482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19489]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41646; File No. SR-Phlx-99-21]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the Philadelphia Stock
Exchange, Inc. To Establish Fees for Transactions Executed Through the
Volume Weighted Average Price (``VWAP'') Trading System (``VTS'')
July 23, 1999.
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 June 28, 1999, the Philadelphia Stock Exchange, Inc. (``Exchange''
or ``Phlx'') 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 Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change form interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Commission recently approved the Exchange's proposal to operate
the Volume Weighted Average Price (``VWAP'') Trading System
(``VTS''TM) \3\ as a facility of the Exchange.\4\ The VTS
will provide a daily pre-opening order matching session for the
execution of large stock orders at the VWAP. The Exchange now proposes
to establish a fee schedule for trades executed through the VTS.
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\3\ VWAP is a registered trademark of the Universal Trading
Technologies Corporation (``UTTC''). The VTSTM is the
property of UTTC.
\4\ See Securities Exchange Act Release No. 41210 (Mar. 24,
1999), 64 FR 15857 (Apr. 1, 1999) (``VTS Approval Order''). The
approval is effective for a 1 year pilot period.
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The text of the proposed rule change is available at the Office of
the Secretary, the Exchange, and at the Commission.
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
On March 24, 1999, the Exchange received Commission approval to
operate the VTS as a facility of the Exchange. The VTS will provide a
daily pre-opening order matching session for the execution of large
stock orders at the VWAP. Approximately 300 of the most highly
capitalized and highly liquid equity securities that are listed on the
New York Stock Exchange will be
[[Page 41481]]
eligible for matching during the pre-opening session. During the pre-
opening session, the VTS will electronically match orders for execution
at the VWAP according to the algorithm developed by the Universal
Trading Technologies Corporation. The matched and executed orders will
be assigned a final VWAP after the close of regular trading.
As a facility of the Exchange, the VTS will operate using Exchange
equipment and personnel, allow Exchange floor traders to participate,
and rely upon the Stock Clearing Corporation of Philadelphia (``SCCP'')
to process VTS trades.\5\ Matches performed during the pre-opening
session will be regulated and reported as Exchange trades. Further
details regarding the operation of the VTS appear in the VTS Approval
Order and Exchange Rule 237, ``The Universal Trading System Morning
Session,'' which governs the operation of VTS.
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\5\ The SCCP has filed a separate proposal with the Commission
to establish fees for the trade recording and confirmation services
that SCCP will provide for VTS trades. See File No. SR-SCCP-99-02.
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The Exchange now proposes to adopt fees for trades executed through
the VTS. Although trades executed on behalf of VTS users will result in
transaction fees, it is only Exchange member firms and clearing firms
that will be billed and held responsible for paying the fees. Thus, the
transaction fees resulting from a VTS user's trading activity will be
billed to the Exchange member or clearing firm through which the VTS
orders were routed. Although the transaction fees vary primarily
according to the ultimate user that receives trade execution through
the VTS (e.g, retail customer, specialist, Exchange member), they also
depend on the type of trade (e.g., cross versus non-cross), and the
annual volume of VTS trading activity. The proposed fee schedule is as
follows:
Institutional user and retail customer user (non-cross
trades):
1 share to 10 million shares per year: $0.02 per share
>10 million to 20 million shares per year: $0.015 per share
>20 million shares per year: $0.01 per share
Institutional user and retail customer user (cross
trades):
Intra-firm: $0.005 per share \6\
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\6\ Intra-firm cross trades refer to cross trades where the
identified contra-sides are from the same firm. Because the same
firm is on both sides of an intra-firm cross trade, the $.005 per
share fee applies to each side, thus totaling $.01 per share.
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Inter-firm: $0.01 per share
Non-member/non-institutional user: $0.015 per share.
Specialist or alternate specialist Committer: No charge.
Member off-floor liquidity provider: $0.01 per share.
Member user (not enrolled as Committer): $0.01 per share.
Under the proposal, the fees for non-cross trades executed on
behalf of a institutional user \7\ or retail customer user \8\ will be
predicated upon the aggregate number of shares that such institutional
user or retail customer user trades annually through VTS. In
calculating the number of shares that each user trades through the VTS,
the Exchange shall always treat January 1 as the start of the year. For
the first 10 million shares traded per year, the fee will be $.02 per
share. For more than 10 million shares up to 20 million shares per
year, the fee will be $.015 per share. For greater than 20 million
shares per year, the fee be $.01 per share.\9\ These volume discount
thresholds will be prorated based upon a user's enrollment date.\10\
The Exchange believes that reducing fees for increased trading volume
should help attract order flow to the VTS.
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\7\ An institutional user is an entity not registered as a
broker-dealer or doing business as a hedge fund (i.e., private
investment pool), but one that serves in a fiduciary capacity. Such
entities include, but are not limited to: qualified pension plans,
investment companies registered under the Investment company Act of
1940, bank trust departments, corporations that purchase securities
for corporate purposes, and insurance companies. See Exchange Rule
237(c)(v).
\8\ The level of fees will not affect the manner in which orders
are matched pursuant to the UTTC matching algorithm. See Exchange
Rule 237(e).
\9\ The Exchange's billing system monitors users' VTS
transaction volume on an aggregate and ongoing basis. Therefore,
discounts are immediately applied toward any VTS transaction volume
that exceeds the discount thresholds. Telephone conversation between
Michael L. Loftus, Attorney, Division of Market Regulation,
Commission, and Nandita Yagnik, Counsel, Exchange, on July 8, 1999.
\10\ For example, if a new user enrolled on July 1, the volume
discount thresholds would be reduced by 50% because 50% of the year
would have expired. Thus, the user's trades would generate
transaction fees of $.02 for the first five million shares matched,
$.015 for matches greater than 5 million shares up to 10 million
shares, and $.01 for matches over 10 million shares.
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With respect to cross orders \11\ for institutional users and
retail customer users, the Exchange proposes to charge $.005 per side,
per share, for intra-firm crosses and $.01 per share for inter-firm
crosses.\12\ The trade volume of users' cross orders (inter-firm and
intra-firm cross orders) will not be counted toward the volume
aggregations applicable to non-cross orders.
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\11\ A cross order is a two-sided order with both sides
comprised of non-member interest, with instructions to match the
identified buy-side with the identified sell-side. The two sides
making up the cross can be entered separately, with the contra-side
identified. See Exchange Rule 237(d)(i)(C).
\12\ Inter-firm cross orders refer to cross orders where the
identified contra-sides are from different firms.
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Trades for non-member/non-institutional users \13\ will be assessed
fees of $.015 per share. Trades for specialist and alternate specialist
Committers \14\ will not be charged transaction fees for VTS trades.
Trades for the other type of Committer--Exchange members who serve as
off-floor liquidity providers--will be charged $.01 per share. Lastly,
trades for member users who are not enrolled as Committers will be
assessed fees of $.01 per share.
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\13\ The non-member/non-institutional user category includes
non-member broker-dealers.
\14\ ``Committers'' are Exchange members who agree to provide
contra-side liquidity on a proprietary basis. Committers are
required to provide a minimum volume guarantee of 2,500 shares for
each side of the market. Committer status is restricted to Exchange
members that are: (i) Phlx floor traders, Phlx specialists, or Phlx
alternate specialists; or (ii) off-floor liquidity providers.
Specialists and alternate specialists may act as Committers only in
their specialty issues. See Exchange Rule 237(c)(i). A more thorough
description and discussion of order types, classes of users, and
conditions to access appear in Exchange Rule 237 and the VTS
Approval Order.
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Although Exchange members will be billed for the VTS trades of
their customer users, no other separate fee shall apply to members
acting as brokers. This practice is similar to other fee arrangements
currently employed by the Exchange, including the assessment of fees
for equity option transactions.\15\
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\15\ See Securities Exchange Act Release No. 41317 (Apr. 21,
1999), 64 FR 23144 (Apr. 29, 1999).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(4) of the Act \16\ in that it provides for the
equitable allocation of reasonable fees and other charges among members
using VTS. The Exchange further believes that the proposed fee schedule
is reasonable and will help attract order flow to VTS.
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\16\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden in Competition
The Exchange believes that the proposed rule change will not 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
The Exchange did not solicit or receive written comments with
respect to the proposed rule change.
[[Page 41482]]
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change establishes a due, fee,
or charge imposed by the Exchange, it has become effective upon filing
pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(2)
thereunder.\18\ 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.\19\
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(2).
\19\ In reviewing this proposed rule change, the Commission has
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f)
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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, N.W., Washington, D.C. 20549-
0609. Copies of the submissions, 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 persons, 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 Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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-99-21 and should be
submitted by August 20, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19489 Filed 7-29-99; 8:45 am]
BILLING CODE 8010-01-M
