[Federal Register Volume 66, Number 151 (Monday, August 6, 2001)]
[Notices]
[Pages 41071-41072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19585]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44598; File No. SR-Amex-2001-38]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange, LLC, Relating to Rebate of Marketing Fees 
to Specialists and Registered Option Traders

July 26, 2001.
    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 5, 2001 the American Stock Exchange LLC (``Amex'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items the 
Amex has prepared. On July 10, 2001, the Amex filed Amendment No. 1 to 
the proposed rule change. The Commission is publishing this notice to 
solicit comments from interested persons on the proposed rule change, 
as amended.
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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 Amex proposes to institute a rebate of certain funds in 
connection with its marketing fee program for equity options 
transactions of specialists and Registered Options Traders (``ROTs''). 
The text of the proposed rule change is available at the principal 
offices of the Amex.

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 Amex included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received. The text of these statements 
may be examined at the places specified in Item IV below. The Amex 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 Amex proposes to establish a rebate of certain funds in 
connection with its marketing fee program for equity options 
transactions of specialists and ROTs. In July 2000, the Amex began 
imposing a marketing fee of $0.40 per contract on the transactions of 
specialists and ROTs in equity options.\3\ Thereafter, the Amex imposed 
a $0.40 per contract marketing fee on the transactions of the 
specialist and ROTs in options on the Nasdaq 100 Index, which trade 
under the symbol ``QQQ.'' \4\ Trades between ROTs and trades between 
specialists and ROTs are specifically excluded from the marketing fee. 
The Amex collects the fee and allocates the funds to the Amex's 
specialists in amounts proportional to each specialist's share of the 
overall volume of the options traded at that particular trading station 
on the Amex. Specialists may then use these funds to pay broker-dealers 
for orders they direct to and that are executed on the Amex. The 
specialists, in their discretion, determine the specific terms 
governing the orders that qualify for payment and the amount of any 
payments.
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    \3\ Securities Exchange Act Release No. 43228 (August 30, 2000), 
65 FR 54330 (September 7, 2000) (SR-Amex-2000-38).
    \4\ Securities Exchange Act Release No. 44143 (April 2, 2001), 
66 FR 18330 (April 6, 2001) (SR-Amex-2001-12). The Amex includes QQQ 
options within the classification of ``equity options.''
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    The funds that the marketing fee generates are identified according 
to the trading station where the options subject to the fee are traded, 
and are then made available to the specialist for use in attracting 
order flow at that station. The Amex states that ROTs who contribute 
fees at a particular trading station also participate in the order flow 
derived from the program. According to the Amex, some broker-dealers 
and other financial firms will not accept payment for order flow. As a 
result, the Amex has found that excess fee proceeds remain in the 
marketing fee fund after distribution. The Amex therefore believes that 
a marketing fee rebate program is necessary in order to return these 
unspent funds.
    Pursuant to the rebate program, the Amex would initially rebate to 
specialists and ROTs, on a pro rata basis, the excess funds that have 
accumulated in the marketing fee fund since the commencement of the 
rebate program. Following the end of every calendar quarter, the Amex 
would then rebate to specialists and ROTs their pro rata shares of the 
marketing fee proceeds that were raised but not paid to order flow 
providers during that quarter. For example, before September 30, 2001 
(the last day of the 2001 third quarter), the Amex would rebate to 
specialists and ROTs the balance of the marketing fee funds that it 
collected during the calendar year 200 and the first quarter of 2001. 
Shortly after the end of the third quarter of 2001, the Amex would 
rebate to specialists and ROTs, on a pro rata basis, the unspent 
portions of the fees that it collected in the second quarter of 2001.
    The amount of each specialist's or ROT's refund would vary 
depending on the percentage of the total marketing fees that the 
specialist or ROT paid at a trading station during the rebate time 
period. The Amex would multiply a specialist's or ROT's percentage of 
the total marketing fees at a trading station by the full amount to be 
rebated. For example, if a specialist or an ROT contributed 1T of the 
total marketing fees at a particular trading station during the rebate 
time period, the specialist or ROT would receive 1% of the trading 
station's overall rebate amount for the rebate time period. The Amex 
would rebate the funds directly to the specialist's or ROT's clearing 
firm.
    Currently, trades between ROTs and trades between specialists and 
ROTs are excluded from the marketing fee because the nature of the 
marketing fee program is to attract customer order flow to the floor of 
the Amex. The Amex also proposes to exempt certain types of strategies 
employed by a public customer (i.e., broker-dealers) from the 
imposition of the marketing fee.
    The Amex proposes to exempt the following strategies from the fee: 
(1) Cabinet trades,\5\ (2) reversals and

[[Page 41072]]

conversions,\6\ (3) dividend spreads,\7\ and (4) box spreads.\8\ 
Because of the inability of the Amex's billing system to distinguish 
among these transactions, however, the Amex proposes to employ a manual 
procedure. Specifically, within thirty calendar days after the 
particular transaction, a specialist or an ROT must request 
reimbursement of the marketing fee that was imposed on any trade that 
was effected pursuant to any of the above-specified trading strategies. 
To request reimbursement, a specialist or an ROT must submit a 
Marketing Fee Reimbursement Form to the Service Desk on the Amex Floor. 
If the Amex approves the request, the Amex will deliver to that 
member's clearing firm a reimbursement check in the amount of the 
marketing fee charged for the transaction.
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    \5\ According to the Amex, a ``cabinet'' trade refers to trades 
in listed options on the Amex that are worthless and not actively 
traded. The Amex's procedure for engaging in cabinet or 
accommodation trades is set forth in Amex Rule 959. The Amex 
believes that the lack of trading in a ``cabinet'' option renders 
the imposition of the marketing fee unwarranted because the nature 
of these transactions will not attract order flow to the Amex, and 
therefore does not serve the purpose of the marketing fee program.
    \6\ According to the Amex, a ``conversion'' is a strategy in 
which a long put and a short call with the same strike price and 
expiration date are combined with long underlying stock to lock in a 
nearly riskless profit. The Amex describes a ``reversal'' as a 
strategy in which a short put and long call with the same strike 
price and expiration date are combined with short stock to lock in a 
nearly riskless profit.
    \7\ According to the Amex, a ``dividend spread'' is any trade 
done within a defined time frame in which a dividend arbitrage can 
be achieved between any two deep-in-the-money options.
    \8\ According to the Amex, a ``box spread'' is a spread strategy 
that involves a long call and short put at one strike price as well 
as a short call and long put at another strike price; this is a 
synthetic long stock position at one strike price and a synthetic 
short stock position at another strike price.
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2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act \9\ and furthers the objectives of Section 
6(b)(4) of the Act \10\ in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members, issuers, and other persons using its facilities.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change will impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Amex neither solicited nor received written comments with 
respect to the proposed rule change.

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

    Because the Amex has designated the foregoing proposed rule change 
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \11\ and 
Rule 19b-4(f)(2) thereunder,\12\ the proposal has become effective 
immediately upon filing with the Commission. At any time within 60 days 
after the filing of this proposed rule change, the Commission may 
summarily abrogate the 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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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \12\ 17 CFR 240.19b-4(f)(2).
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IV. Solicitation of Comments

    The Commission invites interested persons 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 amendment, 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 Amex. All submissions should refer to File No. 
SR-Amex-2001-38 and should be submitted by August 27, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19585 Filed 8-3-01; 8:45 am]
BILLING CODE 8010-01-M