[Federal Register Volume 67, Number 81 (Friday, April 26, 2002)]
[Notices]
[Pages 20847-20849]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10311]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45784; File No. SR-Amex-2002-12]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating to Options Trading Fees

April 18, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 1, 2002, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The Amex 
filed Amendment No. 1 to the proposed rule change on April 16, 2002.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change and Amendment No. 1 from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Clair P. McGrath, Vice President and Deputy 
General Counsel, Amex, to Nancy Sanow, Assistant Director, Division 
of Market Regulation, Commission, dated April 12, 2002 (``Amendment 
No. 1''). In Amendment No. 1, the Amex amended the proposal to 
incorporate the Exchange's reasons for not charging specialists and 
registered options traders the recent increase in transaction, 
comparison and floor brokerage fees for accommodation trades or 
trades executed pursuant to reversals and conversions, dividend 
spreads, and box spreads. Amex also provided an explanation of the 
December 1, 2001 implementation date for the elimination of the fee 
cap.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange has proposed to amend one of its options trading fees 
under File No. SR-Amex-2002-11,\4\ which was filed for immediate 
effectiveness pursuant to section 19(b)(3)(A)(ii) of the Act.\5\ The 
Exchange now seeks to impose this fee change, as set forth in File No. 
SR-Amex-2002-11 and described below, as of December 1, 2001.
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    \4\ See Securities Exchange Act Release No. 45783 (April 18, 
2002) for a description of these fees changes.
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).

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[[Page 20848]]

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 Exchange recently (1) increased transaction, comparison and 
brokerage fees for all specialist and registered options trader 
transactions in both equity and index options;\6\ and (2) eliminated 
the cap on the number options contracts subject to the transaction, 
comparison and floor brokerage fees on a given day.\7\ This fee 
increase went into effect on December 1, 2001.\8\
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    \6\ The options fees were increased as follows: (1) The Options 
Transaction Fee per contract side was increased from $0.17 to $0.26 
for equity options and from $0.12 to $0.21 for index options; (2) 
the options comparison fee was increased from $0.04 to $0.05 per 
contract side; and (3) the floor brokerage fee per contract side was 
increased from $0.03 to $0.05.
    \7\ See Securities Exchange Act Release No. 45163 (December 18, 
2001), 66 FR 66958 (December 27, 2001) (notice of filing and 
immediate effectiveness of File No. SR-Amex-2001-101).
    \8\ See Securities Exchange Act Release No. 45360 (January 29, 
2002), 67 FR 5626 (February 6, 2002) (order approving File No. SR-
Amex-2001-102). The Exchange represents that it intended to 
eliminate the fee cap as of October 1, 2001. However, due to a delay 
in the reprogramming of the changes for the Exchange's Finance 
Division, the fee cap elimination did not go into effect until 
December 1, 2001.
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    The Exchange also determined, at the time, that accommodation 
trades (also known as ``Cabinet Trades'') \9\ and trades occurring as 
part of certain types of strategies would continue to be eligible for 
the cap on that portion of the transaction, option clearance and floor 
brokerage fees that represented the increase in fees. Thus, for 
contracts executed in excess of 3,000 on a given day, the transaction 
fee increase of $0.09, the options comparison fee increase of $0.01 and 
the floor brokerage fee increase of $0.02 were to be reimbursed. 
Transaction, options comparison and floor brokerage fees were to 
continue to be charged for only the first 3,000 contracts executed as 
an accommodation trade or pursuant to one of the following strategies: 
(1) Reversals and conversions; \10\ (2) dividend spreads; \11\ and (3) 
box spreads.\12\
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    \9\ See Exchange Rule 959 for a description of an accommodation 
trade.
    \10\ 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. A ``reversal'' is 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.
    \11\ A ``dividend spread'' is any trade done within a defined 
time frame in which a dividend arbitrage can be achieved between any 
two (2) deep-in-the-money options.
    \12\ 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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    The Exchange proposes not to charge the recent increase in 
transaction, comparison and floor brokerage fees (a total increase of 
$0.12) for the entire number of contracts executed as an accommodation 
trade or pursuant to one of the above strategies. Thus, specialists and 
registered traders will pay a (1) transaction fee of only $0.17 for 
equity options and $0.12 for index options; (2) comparison fee of 
$0.04; and (3) floor brokerage fee of $0.03 for contracts executed as 
an accommodation trade or pursuant to a reversal or conversion, a 
dividend spread or a box spread.
    The Exchange proposes not to apply the fee increases to 
accommodation transactions in order to encourage specialists and 
registered options traders, by keeping fees low, to provide liquidity 
as an accommodation to investors seeking to close out worthless option 
positions. In addition, the Exchange proposes not to apply the fee 
increases to reversals, conversions, dividend spreads and box spreads 
in order to encourage specialists and registered options traders, by 
keeping fees low, to provide liquidity for these types of financing 
strategies. The Exchange represents that these financing strategies are 
usually entered into by professionals whose profit margins are 
generally narrow. In addition, the Exchange states that it has 
determined to keep fees for accommodation transactions and spread 
strategies comparable with the fees charged by other options exchanges 
for these types of transactions.
    The Exchange represents that its billing system is unable to 
distinguish among these types of transactions; therefore, it has 
developed a manual procedure. Specifically, within thirty calendar days 
of the particular transaction date, a Fee Reimbursement Form must be 
completed and submitted to the Exchange. Upon acceptance, the Exchange 
will deliver to that member's clearing firm a reimbursement check in 
the amount of the transaction, clearance and brokerage fee increases (a 
total of $0.12) charged on contracts executed pursuant to an 
accommodation trade or one of the strategies described above.
    The Exchange proposed these fee changes in File No. SR-Amex-2002-
11, which became effective upon filing with the Commission.\13\ The 
Exchange now proposes to make this fee change retroactive to the date 
of imposition of the fee, which was on December 1, 2001.\14\ The 
Exchange believes that due to the paperwork involved in obtaining a 
reimbursement of these trading fees it would be easier on its 
membership if the revision could coincide with the imposition of the 
fee. In addition, given that the Exchange has increased a number of 
fees to its membership in recent months, it believes that the 
implementation of any type of reduction in fees should be put in place 
as soon as possible.
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    \13\ See Securities Exchange Act Release No. 45783 (April 18, 
2002). The proposal became effective on April 16, 2002.
    \14\ This proposal to revise the recently adopted options 
trading fees was originally submitted on January 14, 2002 (File No. 
SR-Amex-2002-04). The Commission rejected the filing, stating that 
it was unable to accept filing pursuant to Section 19(b)(3)(A) 
because of the Exchange's request to apply the fee reduction 
retroactively.
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(2) Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \15\ in general and furthers 
the objectives of section 6(b)(4) \16\ in particular in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 20849]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 Amex. All submissions should refer to File No. 
SR-Amex-2002-12 and should be submitted by May 17, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-10311 Filed 4-25-02; 8:45 am]
BILLING CODE 8010-01-P