[Federal Register Volume 68, Number 146 (Wednesday, July 30, 2003)]
[Notices]
[Pages 44823-44824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-19290]



[[Page 44823]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48219; File No. SR-Amex-2003-51]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to Option Fee Reductions

July 23, 2003.
    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 May 29, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') submitted to 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. On July 
3, 2003, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ 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.
    \3\ The Exchange submitted a new Form 19b-4, which replaces and 
supersedes the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify its options fee schedule by 
eliminating the options fee for specialist and registered options 
traders (``ROTs'') transactions in their allocated options resulting 
from broker-dealer Auto-Ex trades. In addition, this proposal also 
seeks an increase of $0.06 per option trade in the current options fee 
rebate for QQQ option trades by specialists, ROTs and non-member 
broker-dealers in connection with accommodation trades as well as 
trades that are part of reversals and conversions, dividend spreads, 
box spreads and butterfly spreads. The text of the proposed rule change 
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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Specialist Fee Rebate. The Amex proposes to eliminate options fees 
for specialist and ROT transactions in their allocated options 
resulting from broker-dealer trades, including trades of away market 
makers,\4\ in connection with the Exchange's Broker-Dealer Auto-Ex 
Program.\5\ Specialists and ROTs are currently subject to fees in 
connection with executing Broker-Dealer Auto-Ex orders of $0.36 for 
equity options, $0.36 plus any applicable licensing fee for ETF options 
and $0.31 plus any applicable licensing fee for index options.\6\
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    \4\ An ``away market maker'' is a member of another national 
securities exchange registered as a market maker in an options 
class(es).
    \5\ On June 21, 2002, the Exchange filed with the Commission a 
proposal to permit broker-dealer orders to be executed through Auto-
Ex. See Securities Exchange Act Release No. 46479 (September 10, 
2002), 67 FR 58654 (September 17, 2002).
    \6\ Broker-dealer orders executed through Auto-Ex are subject to 
a $0.50 options transaction fee as well as an options comparison fee 
and options floor brokerage fee so that the total fee for broker-
dealer Auto-Ex trades designated as broker-dealer or firm is $0.57. 
See Securities Exchange Act Release No. 47216 (January 17, 2003), 68 
FR 5059 (January 31, 2003).
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    The Exchange recently increased a number of member fees to better 
align its fees with the actual cost of delivering services as well as 
to reduce subsidies of these services. As a result, specialists have 
seen an increase in their fees for transactions executed at the Amex. 
This change to the Exchange's option fee structure better reflects the 
cost to the Exchange of operating the options floor. However, 
consistent with assuring the continued economic vitality of the 
Exchange, the Exchange believes the fee specialists and ROTs pay for 
executing broker-dealer orders in connection with the Broker-Dealer 
Auto-Ex Program should be eliminated. The option fees eliminated for 
specialists and ROTs executing Broker-Dealer Auto-Ex orders consist of 
the options transaction fee, the options comparison fee, the options 
floor brokerage fee and the options licensing fee (if applicable).\7\ 
The elimination of these fees amounts to $0.36 for equity options, 
$0.36 plus any applicable options licensing fee for ETF options and 
$0.31 plus any applicable options licensing fee for index options. In 
this manner, the Exchange believes that it can better contribute to the 
continued success of the options floor and the Broker-Dealer Auto-Ex 
Program. The Exchange further believes that the proposal will provide 
specialists and ROTs with an incentive to attract away market maker 
order flow to the Exchange.
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    \7\ The options marketing fee of $0.40 per contract on 
specialist and ROT transactions is only imposed on transactions 
involving customer orders from firms accepting payment for order 
flow. Accordingly, the options marketing fee does not apply to 
transactions of specialists and ROTs in connection with executing 
Broker-Dealer Auto-Ex orders. See Securities Exchange Act Release 
No. 48053 (June 17, 2003), 68 FR 37880 (June 25, 2003).
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    Options Fee Rebate Increase for QQQ Options. The Commission in June 
2002 approved an Exchange proposal providing for an options fee rebate 
for accommodation trades \8\ as well as trades entered into as part of 
a reversal and conversion,\9\ dividend spread \10\ and box spread \11\ 
so that the increase in fees of $0.12 per contract side were 
reimbursed.\12\ The Exchange in this proposal seeks to increase for QQQ 
option trades the rebate from $0.12 per contract side to $0.18 per 
contract side as well as to include the ``butterfly spread''\13\ as an 
additional strategy subject to the rebate.
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    \8\ An ``accommodation'' or ``cabinet'' trade refers to trades 
in listed options on the Exchange that are worthless and not 
actively traded. The Exchange's procedure for engaging in 
accommodation or cabinet trades is set forth in Amex Rule 959.
    \9\ 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.
    \10\ 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.
    \11\ 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.
    \12\ See Securities Exchange Act Release No. 46026 (June 4, 
2002), 67 FR 40034 (June 11, 2002). Pursuant to this order, the 
Exchange began providing the options fee rebate in December 2001. 
See also Securities Exchange Act Release No. 45783 (April 18, 2002), 
67 FR 20851 (April 26, 2002).
    \13\ A ``butterfly spread'' is an option strategy that has both 
limited risk and limited profit potential, constructed by combining 
a bull spread and a bear spread having the same expiration date for 
all options. Three strike prices are involved, with the lower two 
strikes being utilized in the bull spread and the higher two strikes 
in the bear spread. The strategy may be established with either puts 
or calls.
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    The Exchange believes that in connection with the trading of QQQ 
options, the increase in the options fee rebate should encourage 
specialists and

[[Page 44824]]

ROTs to provide liquidity by keeping fees low for these special types 
of trades and option strategies. In addition, the Exchange believes 
that the increase in the options fee rebate will help to attract 
greater order flow to the floor of the Exchange by making our fee 
structure more competitive with the other options exchanges.
    In order to collect the options fee rebate, 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 fees (a 
total of $0.18) charged on QQQ option contracts executed pursuant to an 
accommodation trade or one of the strategies described above.
2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act,\14\ in general, and with Section 6(b)(4) \15\ 
of the Act in particular, in that it provides for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members.
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    \14\ See 15 U.S.C. 78f(b).
    \15\ See 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, as 
amended, 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.

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

    The foregoing rule change has become effective immediately because 
it has been designated as a fee change pursuant to Section 
19(b)(3)(A)(ii) of the Act \16\ and Rule 19b-4(f)(2) \17\ thereunder. 
At any time within 60 days of the filing of Amendment No. 1 to 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 the furtherance of the purposes of the Act.
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    \16\ 15 U.S.C. 78(s)(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(2).
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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 proposal, 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. 
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 the File No. SR-Amex-2003-51 and 
should be submitted by August 20, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-19290 Filed 7-29-03; 8:45 am]
BILLING CODE 8010-01-P