[Federal Register Volume 67, Number 218 (Tuesday, November 12, 2002)]
[Notices]
[Pages 68704-68706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28604]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46764; File No. SR-Amex-2002-81]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to Member Transaction Charges for Exchange-Traded Funds

November 1, 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 October 3, 2002, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') 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 Amex. 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. 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 amend the Exchange Equity Fee Schedule 
relating to transaction charges imposed on Exchange specialists and 
Registered Traders for transactions in Exchange-Traded Funds (``ETFs'') 
for which the Exchange pays non-reimbursed fees to third parties.
    The text of the proposed rule change is available at the Amex and 
at the Commission.

[[Page 68705]]

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 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

I. Purpose
    In connection with the formation and listing of ETFs, the Exchange 
has entered into a number of agreements with third parties (e.g., 
issuers and owners of indexes underlying certain ETFs). ETFs include 
Portfolio Depositary Receipts (e.g., Nasdaq 100[reg] Index Tracking 
Stock or ``QQQ,'' and Standard and Poor's Depositary 
ReceiptsTM or ``SPDRs(TM)'') and Index Fund Shares (e.g.. 
iSharesTM, VIPERsTM). For those ETFs for which an 
Amex subsidiary (PDR Services LLC) is Sponsor--SPDRs (based on the S&P 
500[reg] Index), MidCap SPDRsTM (based on the S&P MidCap 
400TM Index), and DIAMONDS[reg] (based on the Dow Jones 
Industrial Average)--the licensing and certain other expenses are 
permitted to be passed on to the respective trusts for those securities 
pursuant to the terms of Commission orders for the respective trusts 
issued pursuant to the Investment Company Act of 1940.\3\ For other 
ETFs, however, the Exchange represents that it is required to pay 
significant licensing or other fees to third parties, including issuers 
or index owners, which are not reimbursed.\4\
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    \3\ 15 U.S.C. 80a.
    \4\ The Exchange represents that it will not impose the proposed 
fee on any portion of a non-reimbursed licensing or other third-
party fee that it recoups via another Exchange fee or assessment. 
Telephone conversation between Michael Cavalier, Associate General 
Counsel, Amex, and Frank N. Genco, Attorney, Division of Market 
Regulation, Commission, on October 30, 2002.
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    The Exchange proposes to recoup a portion of these fees by imposing 
an additional fee on all Amex specialists and Registered Traders for 
transactions in specified ETFs. An additional fee of $.07 per 100 
shares for specialists and $.03 per 100 shares for Registered Traders 
would be applied only for transactions in ETFs for which the Exchange 
pays a non-reimbursed fee. The ETFs subject to the additional fee will 
be included in proposed Note 4 to the Exchange Equity Fee Schedule.
    The ETF transaction charge for specialists is currently $.63 per 
100 shares, subject to a per trade maximum of $300. For transactions in 
ETFs listed in proposed Note 4 to the Equity Fee Schedule, the 
transaction charge would be $.70 per 100 shares, with a per trade 
maximum of $300. ETF transaction charges for Registered Traders 
currently are $.73 per 100 shares, subject to a per trade maximum of 
$350. For ETFs listed in proposed Note 4, the transaction charge would 
be $.76 per 100 shares, with a $350 per trade maximum.
    The Exchange would discontinue charging the additional $.07 or $.03 
per 100 shares transaction charge for any ETF series for which the 
Exchange no longer pays a non-reimbursed fee. Such deletions would be 
filed with the Commission pursuant to Rule 19b-4 under the Act.\5\ Any 
additional ETFs for which the Exchange pays non-reimbursed fees in the 
future will be added to the list in proposed Note 4 and filed with the 
Commission pursuant to Rule 19b-4 under the Act.\6\
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    \5\ 17 CFR 240.19b-4.
    \6\ Id.
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2. Basis
    The Exchange believes the proposed rule change is consistent with 
section 6 of the Act,\7\ in general, and with section 6(b)(4) of the 
Act,\8\ 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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    \7\ 15 U.S.C. 78f.
    \8\ 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 Exchange received a letter relating to the proposed increase in 
transaction charges for specialists and Registered Traders for 
transactions in certain ETFs.\9\ Susquehanna states that the proposal 
does not make competitive sense when other markets assess no fees and/
or provide rebates to their members for trading certain ETFs, including 
the QQQ. Susquehanna states that the type of markets made by 
Susquehanna and other liquidity providers cannot, in the long run, be 
as competitive as those on markets where there are no charges or where 
there are subsidies. Susquehanna believes that the fees on specialists 
and Registered Traders should be reduced to zero and, instead, Amex 
should impose a fee on each membership. Susquehanna's letter also 
refers to other suggestions made to Amex officials relating to 
maintaining and enhancing Amex's market share.
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    \9\ See Letter from Jeffrey Yass, Managing Director, Susquehanna 
International Group, LLP (``Susquehanna''), to Anthony J. Boglioli, 
Amex, dated September 23, 2002.
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    The Exchange has determined to impose a modest fee increase on 
those Exchange members that have responsibility for trading specified 
ETFs in accordance with Amex rules, and that have the potential to 
achieve greatest financial benefit from trading these securities. The 
Exchange, of course, recognizes that increases in any fees can have an 
adverse impact on the Exchange's competitive position compared to other 
markets. Those markets may provide member subsidies and payment for 
order flow, or waive all member ETF transaction charges, thereby 
subsidizing costs incurred by those markets in overseeing their 
members' ETF trading through other charges levied by those markets on 
their members. The Exchange has concluded that it is most prudent and 
equitable at this time to partially recoup non-reimbursed fees paid to 
third parties through increased transaction charges imposed on all 
specialists and Registered Traders actually trading these securities.

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

    The foregoing proposed rule change has become effective pursuant to 
section 19(b)(3)(A)(ii) of the Act \10\ and subparagraph (f)(2) of Rule 
19b-4\11\ thereunder, because it establishes or changes a due, fee, or 
other charge. At any time within 60 days of October 3, 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ 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,

[[Page 68706]]

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 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-2002-81 and should be 
submitted by December 3, 2002.

    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. 02-28604 Filed 11-8-02; 8:45 am]
BILLING CODE 8010-01-P