[Federal Register Volume 67, Number 104 (Thursday, May 30, 2002)]
[Notices]
[Pages 37884-37886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13482]



[[Page 37884]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45972; File No. SR-Amex-2002-08]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Amendment No. 3 to a Proposed Rule Change by the 
American Stock Exchange LLC Relating to Specialist Unit Fees

May 21, 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 February 7, 2002, the American Stock Exchange LLC (``Exchange'' 
or ``Amex'') 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 Amex. On March 13, 
2002, the Amex submitted Amendment No. 1 to the proposed rule 
change.\3\ On March 18, 2002, the Amex submitted Amendment No. 2 to the 
proposed rule change.\4\ The proposed rule change, as amended by 
Amendment Nos. 1 and 2, was published in the Federal Register on April 
17, 2002.\5\ The Commission received one comment on the proposed rule 
change.\6\ On May 16, 2002, the Amex submitted Amendment No. 3 to the 
proposed rule change.\7\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 Geraldine Brindisi, Vice President and 
Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
March 12, 2002 (``Amendment No. 1'').
    \4\ See letter from Claire McGrath, Amex, to Nancy J. Sanow, 
Assistant Director, Division, Commission, dated March 14, 2002 
(``Amendment No. 2'').
    \5\ See Exchange Act Release No. 45727 (April 10, 2002), 67 FR 
18962. Because as described below, the Form 19b-4 submitted in 
Amendment No. 2 was not complete, the proposed rule change was not 
considered filed and thus not effective on March 18, 2002.
    \6\ See letter from Brandon Becker, Wilmer, Cutler & Pickering, 
to Jonathan G. Katz, Secretary, Commission, dated May 2, 2002 (``May 
2 Letter''). The Commission notes that the Amex responded to the 
issues raised in the comment letter in Amendment No. 3 to the 
proposed rule change. See infra Section II.C.
    \7\ See letter from Geraldine Brindisi, Vice President and 
Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director, 
Division, Commission, dated May 16, 2002 (``Amendment No. 3''). In 
Amendment No. 3, the Amex responded to issues raised by a commenter 
identified in Item II.C. below. See also id. The Amex also 
elaborated in greater detail in its statement on the burden on 
competition in Item II.B. below, and modified its statutory basis 
for the proposed rule change as described in Item II.A.2. below. For 
purposes of determining the effective date and calculating the 60-
day period within which the Commission may summarily abrogate the 
proposed rule change under Section 19(b)(3)(C) of the Act, the 
Commission considers May 16, 2002 to be the effective date of the 
proposed rule change, the date the Amex filed Amendment No. 3. 15 
U.S.C. 78s(b)(3)(C). See also note 5 supra.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex is proposing to modify its Member Fee Schedule to pass 
through to Amex specialist units any fee paid by the Exchange to a 
third party in connection with the listing and trading of a security 
allocated to such specialist unit.
    The text of the proposed rule change, as amended, is available at 
the Amex 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 Amex included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, 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 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
    In connection with the listing and trading of certain securities on 
the Exchange, the Exchange may be required to pay fees to third parties 
as a condition to listing. For example, the Exchange may pay license 
fees to index providers to list index options or exchange-traded funds 
based on a stock index. The Exchange may also pay other types of fees 
to third parties in connection with a particular listing.
    The Exchange proposes to pass such fees through to the Amex 
specialist unit allocated a security for which the Exchange pays such 
fees. This fee, which would be included in the Amex Member Fees 
Schedule under ``Membership Fees,'' would be applicable to any 
securities traded on the Exchange for which the Exchange pays a fee in 
connection with Amex listing or trading, including equities, options, 
structured products, exchange-traded funds and Trust Issued Receipts.
    The Exchange currently imposes license fees on a per transaction 
basis applicable to specialists and registered options traders in 
connection with trading of options on the Nasdaq 100 Index Tracking 
Stock (symbol: QQQ), Nasdaq 100 Index (symbol: NDX), Mini NDX (symbol: 
MNX), and options on S&P 100 iShares (symbol: OEF). These fees were 
filed with the Commission in SR-Amex-2001-101.\8\ The Exchange 
represents that it will not pass through fees that the Exchange pays to 
third parties to the specialist unit, if the Exchange imposes a license 
fee on a per transaction basis with respect to the allocated security, 
(e.g., the Options Licensing Fee imposed under the Options Fee 
Schedule, as described in SR-Amex-2001-101).
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    \8\ See Securities Exchange Act Release No. 45163 (December 18, 
2001), 66 FR 66958 (December 27, 2001).
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    The Exchange represents that any fee passed through to the 
specialist unit pursuant to this filing will reflect only actual costs 
incurred by the Exchange in connection with Exchange listing or trading 
of the allocated security. Such fee could be imposed in connection with 
any security traded on the Exchange, whether a listed security or a 
security traded pursuant to unlisted trading privileges. The proposed 
fee is not intended to cover any form of payment for order flow by the 
Exchange (in the event the Exchange determines to engage in such 
payment), and any imposition of fees on members or member organizations 
to permit the Exchange to recoup such payment would be filed separately 
with the Commission pursuant to Rule 19b-4.\9\
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    \9\ 17 CFR 240.19b-4.
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2. Basis
    The Exchange believes the proposed rule change, as amended, is 
consistent with Section 6 of the Act,\10\ in general, and with Section 
6(b)(4) of the Act,\11\ 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. The Exchange believes that the proposed fees are equitable 
because they would apply to all specialists equally for all third party 
payments, operate on a cost recovery basis, and could not be reduced or 
waived by the Exchange.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(4).

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[[Page 37885]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed Specialist Fee would impose 
no burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. The proposed Specialist Fee would apply to all 
specialists in all securities traded on the Amex for which the Amex is 
required to pay a fee to a third party in connection with Amex listing 
or trading. The Exchange represents that the proposed fee would be for 
cost recovery only and the Exchange could not waive or reduce the fee.

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

    Susquehanna Investment Group (``Susquehanna'') submitted a letter 
to the Exchange, dated March 1, 2002 regarding Susquehanna's 
understanding that Amex would propose to file either a new licensing 
fee or authorize imposition of such a fee in the future.\12\ 
Susquehanna stated that the Amex sought to impose a fee of 
approximately $5 million in connection with trading of the QQQs, for 
which Susquehanna is the Amex specialist. Susquehanna stated that a 
proposal to impose a license fee only on Susquehanna is inconsistent 
with Sections 6(b)(4), 6(b)(5), and 6(b)(8) of the Act; \13\ that such 
a proposal, to the extent it is an indirect attempt to reallocate the 
QQQs to another specialist, is inconsistent with Amex Rule 27(f); and 
that the proposed fee had not been submitted to the Amex Committee 
Floor Members for review under Section 9.19 of the Amex/NASD 
Transaction Agreement, which was implemented at the time of the merger 
of the Amex and the NASD in 1998. Susquehanna also stated that, even if 
the fee were allocated between the specialist and the crowd, the fee 
``would make no economic sense'' under current competitive market 
conditions. The Amex responded in writing to the March 1 Letter on 
April 5, 2002, stating that the Amex Board discussed the issues raised 
in the March 1 Letter, and expressed its view that Amex management 
should continue to proceed on its current course.
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    \12\ See letter from Jeffrey Yass, Managing Director, 
Susquehanna, to Salvatore F. Sodano, Chairman and Chief Executive 
Officer, Amex, dated March 1, 2002 (``March 1 Letter'').
    \13\ 15 U.S.C. 78f(b)(4), 15 U.S.C. 78f(b)(5), and 15 U.S.C. 
78f(b)(8).
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    An additional letter, dated May 2, 2002, was submitted to the 
Commission on behalf of Susquehanna by Wilmer, Cutler & Pickering \14\ 
regarding SR-Amex-2002-08. The May 2 Letter stated that the Amex's rule 
change should be abrogated and noticed for comment under Section 
19(b)(2) of the Act;\15\ that the Amex's filing did not discuss 
comments made in the March 1 Letter as required by Rule 19b-4 \16\ and 
Form 19b-4 thereunder and did not discuss, in connection with the 
Statement on Burden on Competition in SR-Amex-2002-08, the March 1 
Letter's statement that a licensing fee imposed on Susquehanna would be 
discriminatory and anti-competitive; and that the filing violates 
Sections 6(b)(4), 6(b)(5) and 6(b)(8) of the Act \17\ and Amex Rule 
27(f). On May 14, 2002, Susquehanna submitted a second letter to the 
Exchange, which the Amex believes is substantially the same as the 
March 1 Letter, and attached a copy of the May 2 Letter.\18\
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    \14\ See May 2 Letter, note 6 supra.
    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 240.19b-4.
    \17\ 15 U.S.C. 78f(b)(4), 15 U.S.C. 78f(b)(5), and 15 U.S.C. 
78f(b)(8).
    \18\ See letter from Jeffrey Yass, Managing Director, 
Susquehanna, to Salvatore F. Sodano, Chairman and Chief Executive 
Officer, Amex, dated May 14, 2002.
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    The Amex strongly believes that the proposed Specialist Fee falls 
squarely within existing self-regulatory organization (``SRO'') 
precedent applicable to member fee filings made under Section 
19(b)(3)(A) of the Act.\19\ The Amex believes that if the Commission 
were to accept Susquehanna's proposition, SROs would be required to 
delay imposing revised fees filed under Section 19(b)(3)(A) of the Act 
\20\ based solely on objections by affected members. The Amex believes 
that this could have a significant adverse effect on an SRO's ability 
to conduct its business and carry out its responsibilities under the 
Act, including member firm surveillance, implementation of trading 
facilities, or development of new products and services.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ Id.
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    The Amex believes that the Commission has provided SROs with broad 
discretion to impose member fees immediately upon filing, including the 
following recent examples:
    1. Marketing and licensing fees imposed on Chicago Stock Exchange 
specialists, including licensing fees for ETF products; \21\
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    \21\ See Securities Exchange Act Release No. 45282 (January 15, 
2002), 67 FR 3517 (January 24, 2002) (SR-CHX-2001-30).
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    2. Options Clearing Corporation license fee imposed on clearing 
members for use of risk management software package; \22\
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    \22\ See Securities Exchange Act Release No. 45028 (November 6, 
2001), 66 FR 57141 (November 14, 2001) (SR-OCC-2001-13).
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    3. New York Stock Exchange (``NYSE'') Regulatory Fee, under which 
specialists pay a total of $16 million per year to be allocated among 
specialist firms based on the number of memberships affiliated with 
each specialist firm; \23\
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    \23\ See Securities Exchange Act Release No. 43726 (December 14, 
2000), 65 FR 82428 (December 28, 2000) (SR-NYSE-2000-57).
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    4. NYSE specialist allocation fee, with a maximum of $250,000 per 
allocation; \24\ and
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    \24\ See Securities Exchange Act Release No. 43700 (December 11, 
2000), 65 FR 79147 (December 18, 2000) (SR-NYSE-2000-48).
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    5. Boston Stock Exchange (``BSE'') pass through to specialists of 
all third party fees billed to BSE on behalf of specialists trading 
Nasdaq securities.\25\
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    \25\ See Securities Exchange Act Release No. 44971 (October 23, 
2001), 66 FR 54557 (October 29, 2001) (SR-BSE-2001-06).
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    The Exchange believes the proposed fee change is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8) of the Act,\26\ as discussed 
below.
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    \26\ 15 U.S.C. 78f(b)(4), 15 U.S.C. 78f(b)(5), and 15 U.S.C. 
78f(b)(8).
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    1. Section 6(b)(8) of the Act.\27\ The Amex believes that the 
proposed Specialist Fee would impose no burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Amex represents that the proposed Specialist Fee would apply to all 
specialists in all securities traded on the Amex for which the Amex is 
required to pay a fee to a third party in connection with Amex listing 
or trading. The Amex asserts that the proposed fee would be for cost 
recovery only and the Exchange could not waive or reduce the fee. The 
Exchange understands that the Nasdaq Stock Market imposes a license fee 
on other exchanges that trade the QQQ pursuant to unlisted trading 
privileges, and such fee is being, or can be, passed on to the 
specialist on at least one regional exchange. The May 2 Letter states 
that increased costs to specialists ``hinders their ability to offer a 
competitive spread'' and is, therefore, inconsistent with Section 
6(b)(8) of the Act.\28\ The Exchange's rules governing specialists 
require the specialist to make fair and orderly markets under 
prevailing market conditions. The Amex believes that the existence of, 
or the level of, particular Exchange fees should be irrelevant to any 
consideration of the

[[Page 37886]]

appropriateness of the specialist's quoted market.
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    \27\ 15 U.S.C. 78f(b)(8).
    \28\ Id.
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    2. Section 6(b)(4) of the Act.\29\ The Amex believes that the 
proposed Specialist Fee does not violate Section 6(b)(4) of the Act 
\30\ requirements regarding equitable allocation of dues and other 
charges. The Amex represents that the proposed fees would be equitable 
because they would apply to all specialists equally for all third party 
payments, operate on a cost recovery basis, and could not be reduced or 
waived by the Exchange. The Amex believes that the Commission has not 
historically involved itself with the level of fees set by an SRO for 
its members as long as they are equitably applied.
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    \29\ 15 U.S.C. 78f(b)(4).
    \30\ Id.
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    3. Section 6(b)(5) of the Act.\31\ The Amex believes that the 
proposed Specialist Fee does not violate Section 6(b)(5) of the Act 
\32\ requirements that an SRO's rules avoid unfair discrimination among 
dealers and promote just and equitable principles of trade. The Amex 
believes that the proposed Specialist Fee would not be unfairly 
discriminatory against Susquehanna as the QQQ specialist. As 
specialist, Susquehanna has the principal Exchange obligations with 
respect to QQQ under Amex rules, and also has the potentially largest 
financial reward of any member group. The Amex believes that the Act 
does not require that all exchange fees, or any fee in particular, be 
allocated among all member groups, or to all members permitted to trade 
a product. The Exchange, in exercise of its appropriate business 
discretion consistent with its SRO responsibilities under the Act, has 
determined that the specialist unit allocated a security should assume 
the burden of third party fees required to be paid by the Exchange to 
list a particular product.
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    \31\ 15 U.S.C. 78f(b)(5).
    \32\ Id.
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    4. Amex Rule 27(f). The Amex believes that allegations of indirect 
reallocation are wholly unfounded. In the event of reallocation 
proceedings for QQQ, or any other security, the Exchange would follow 
the requirements of Amex Rule 27(f).
    5. The Amex/NASD Transaction Agreement. The March 1 letter also 
asserts that Amex Committee Floor Members are required to review the 
fee under Section 9.19 of the Amex/NASD Transaction Agreement. The Amex 
represents that the proposed Specialist Fee would not be the type of 
fee to which Section 9.19 applies. The Exchange also notes that the 
Amex in recent years has increased a number of member fees to better 
align Exchange fees with the actual cost of delivering services and 
reduce Exchange subsidization of such services.\33\ The Amex believes 
that the proposed Specialist Fee would be consistent with reduced or 
eliminated subsidies.
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    \33\ See e.g., Securities Exchange Act Release Nos. 45360 
(January 29, 2002), 67 FR 5626 (February 6, 2002) (SR-Amex-2001-
102); and 44286 (May 9, 2001), 66 FR 27187 (May 16, 2001) (SR-Amex-
2001-22).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change, as amended, has become 
effective on May 16, 2002 \34\ pursuant to Section 19(b)(3)(A)(ii) of 
the Act \35\ and subparagraph (f)(2) of Rule 19b-4 \36\ thereunder, 
because it establishes or changes a due, fee, or other charge. At any 
time within 60 days of May 16, 2002, 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.\37\
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    \34\ See supra note 5.
    \35\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \36\ 17 CFR 240.19b-4(f)(2).
    \37\ See 15 U.S.C. 78s(b)(3)(C).
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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, 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, as 
amended, 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-2002-08 and should be 
submitted by June 21, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-13482 Filed 5-29-02; 8:45 am]
BILLING CODE 8010-01-P