[Federal Register Volume 69, Number 19 (Thursday, January 29, 2004)]
[Notices]
[Pages 4332-4334]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1917]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49115; File No. SR-AMEX-2003-114]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the American Stock Exchange LLC Concerning Its Pilot 
Program Governing Voting Procedures With Respect to Its Marketing Fee 
Program

January 22, 2004.
    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 December 29, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change relating to the voting 
procedures pilot program for its marketing fee program. On January 5, 
2004 the Amex filed Amendment No. 1 to the proposed rule change, which 
replaces the original filing in its entirety. Amendment No. 1 to the 
proposed rule change is described in Items I and II below, which the 
Amex has prepared. The Commission is publishing this notice to solicit 
comments from interested persons on the proposed rule change, as 
amended. The Commission is also approving the proposal on an 
accelerated basis.
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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 Exchange proposes to expand the number of registered options 
traders that may be entitled to vote in connection with the marketing 
fee program as set forth in Commentary .11(a) of Rule 958. The text of 
the proposed rule change is set forth below. Proposed new language is 
in italics; proposed deletions are in [brackets].
* * * * *

Rule 958. Options Transactions of Registered Traders

    (a) through (h) No Change
Commentary
    .01 through .10 No Change
    .11 Marketing Fee Program Voting Procedures. The following 
procedures specify how a specialist and Registered Trader determine 
whether to participate or not to participate in the Exchange's 
marketing fee program. These procedures will expire six (6) months from 
the date of effectiveness unless extended, or adopted on a permanent 
basis.
    (a) Eligible Voters
    (i) Eligible Registered Traders. For option classes traded by an 
individual specialist, Registered Traders to be eligible to participate 
in the vote must have transacted at least 80% of their contracts and 
transactions in each of the three immediately preceding calendar months 
in one or more option classes traded by that specialist. For cases when 
one specialist trades a single option class or multiple specialists 
trade a single option class, Registered Traders to be eligible to 
participate in the vote must have transacted at least 80% of their 
contracts and transactions in each of the three immediately preceding 
calendar months in that option class. The calculation of the 80% 
requirement will include multiple option classes traded by multiple 
specialists provided: (i) The option classes are located in adjacent 
trading locations on the trading floor, and (ii) the ROT is 
continuously and without interruption signed onto Auto-Ex and/or Quick 
Trade in those particular options classes. Registered Traders are 
required to continue to trade the particular option class at the time 
of the vote. Eligible Registered Traders and the specialist shall each 
have one vote.
    (b) Requesting a Vote. After the marketing fee initially has been 
in effect for three consecutive calendar months with respect to the 
option classes of an individual specialist, any eligible Registered 
Trader and specialist can request that a vote be held to determine 
whether or not the Registered Trader and specialist should continue to 
participate in the marketing fee program by submitting a written 
request to that effect to the Secretary of the Exchange. The Exchange 
shall post a notice of the time and date of any vote to be taken at 
least 10 calendar days prior to the time of the vote. The Marketing Fee 
Program Committee shall determine all other administrative procedures 
pertaining to the vote.
    (c) Participation in the Marketing Fee Program. The Registered 
Traders and specialist shall be deemed to have indicated that they 
desire to participate in the Exchange's marketing fee program if a 
majority of those eligible Registered Traders participate in the vote 
and if a majority of the total votes cast are in favor of participating 
in the marketing fee program. Conversely, the eligible Registered 
Traders and the specialist shall be deemed to have indicated that they 
do not desire to participate in the Exchange's marketing fee program if 
a majority of those eligible Registered Traders participate in the vote 
and if a majority of the total votes cast are against participating in 
the marketing fee program.
    (i) Frequency of Vote. Once eligible Registered Traders and the 
specialist vote to participate in the marketing fee program, subsequent 
votes to determine whether to continue participation may be held only 
once every three calendar months. Once eligible Registered Traders and 
the specialist vote not to participate in the marketing fee program, 
subsequent votes to determine whether to participate in the marketing 
fee program may be held only once every thirty days.
    (ii) Tie Votes. If a vote conducted in accordance with this 
Commentary results in a tie, the status quo for the specialist and 
Registered Traders of the particular option class shall remain in 
effect. Accordingly, if the specialist and Registered Traders currently 
participate in the marketing fee program and a tie vote occurs, the 
marketing fee program will remain in effect for that specialist and 
Registered Traders. If the specialist and Registered Traders do not 
participate in the marketing fee at the time the tie vote occurs, the 
marketing fee will not be implemented for the specialist and Registered 
Traders at that time.
* * * * *

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 on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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
    In June 2003, the Amex reinstated an equity option marketing fee on 
the transactions of specialists and registered options traders 
(``ROTs'') involving customer orders from firms that accept payment for 
directing their orders to the Exchange.\3\ On September 30, 2003, the

[[Page 4333]]

Exchange adopted new voting procedures, operative on a six-month pilot 
basis, in connection with its reinstatement of the marketing fee 
program.\4\ The pilot program's voting procedures are set forth in 
Commentary .11 to Amex Rule 958. These procedures establish the voting 
eligibility requirements for ROTs and the manner in which ROTs may 
determine to discontinue their participation in the marketing fee 
program.
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    \3\ See Securities Exchange Act Release No. 48053 (June 17, 
2003), 68 FR 37880 (June 25, 2003) (SR-Amex-2003-50).
    \4\ See Securities Exchange Act Release No. 48577 (September 30, 
2003), 68 FR 57943 (October 7, 2003) (SR-Amex-2003-80).
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    Currently, the Amex's marketing fee is assessed only on those 
specialist and ROT transactions resulting from orders from customers of 
payment accepting firms with whom the specialist has negotiated a 
payment for order flow arrangement.\5\ The pilot program voting 
procedures provide that after the marketing fee program has been in 
effect for three consecutive calendar months with respect to those 
option classes traded by an individual specialist, the specialist and 
ROTs may determine to discontinue participation in the marketing fee 
program. To be eligible to vote on discontinuing participation in the 
marketing fee program in the option classes traded by an individual 
specialist, a ROT is required to have at least 80% of its registered 
trader activity in each of the three immediately preceding calendar 
months (measured in terms of both contract volume and transactions) in 
one or more of the options traded by that specialist. When one 
specialist trades a single option class or multiple specialists trade a 
single option class, to be eligible to vote on whether to continue with 
the marketing fee program, ROTs must have at least 80% of their 
registered trader activity in each of the three immediately preceding 
calendar months (measured in terms of both contract volume and 
transactions) in that option class.
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    \5\ See Securities Exchange Act Release No. 48053 (June 17, 
2003), 68 FR 37880 (June 25, 2003) (SR-Amex-2003-50).
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    The Exchange now believes that limiting eligibility to only those 
option classes traded by one specialist or one option class where 
multiple specialists trade such option class is overly restrictive and 
does not serve the interests of the marketing fee program. Although the 
pilot program voting requirements as originally filed were intended to 
assure the voting eligibility of only those ROTs that have concentrated 
their activity in one or more option classes traded by a specialist, 
the Exchange believes that the voting procedures have been unduly 
restrictive. The Exchange believes that determining eligibility by 
looking at one specialist or one option class in the case of multiple 
specialists, in some circumstances, has prevented otherwise eligible 
ROTs from voting.
    This proposal is intended to increase participation in the voting 
process for those ROTs that significantly concentrate their trading 
activity to particular option classes adjacent to each other that may 
have more than one individual specialist. For the purpose of 
determining whether option classes are adjacent, the Exchange asserts 
that trading locations must be directly next to each other.\6\ It is 
not the Exchange's intention in this rule filing to provide those ROTs 
with insignificant trading activity in an option class or classes with 
the opportunity to vote against the marketing fee.
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    \6\ For example, trading location 1 in the Western Row of Post 1 
is adjacent to trading location 2 in the Western Row of Post 1. In 
addition, trading location 1 in the Western Row of Post 1 would also 
be adjacent to trading location 8 in the Western Row of Post 2 and 
trading location 7 in the Eastern Row of Post 12. However, trading 
locations 3 through 7 in the Western Row of Post 1 as well as 
trading location 1 in the Eastern Row of Post 13 would not be 
adjacent to trading location 1 in the Western Row of Post 1 (i.e., 
to be adjacent, the trading locations must be directly next to each 
other).
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    Accordingly, the Amex proposes that for purposes of determining ROT 
voter eligibility, the calculation of a ROT's 80% requirement would be 
expanded in the limited circumstances described below. First, the 
option classes must be in adjacent trading locations on the trading 
floor. Second, the ROT must be continuously signed on to Auto-Ex and/or 
Quick Trade in those particular options classes.\7\ In order to vote, a 
ROT would still be required to meet the 80% contract volume and 
transaction requirement; however, the 80% requirement would be 
calculated based on the total trading activity of the ROT in multiple 
option classes. The Exchange believes that this would serve to increase 
ROT participation in the voting process to the benefit of the marketing 
fee program and the Exchange.
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    \7\ The period in which the ROT must be continuously signed on 
coincides with the three-month period used to determine whether the 
ROTs have at least 80% of their registered trader activity in that 
option class. Conversation between Jeff Burns, Associate General 
Counsel, Amex, and Elizabeth MacDonald, Attorney, Division of Market 
Regulation, Commission, January 12, 2004.
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2. Statutory Basis
    The Amex believes that the rule change is consistent with Section 6 
of the Act,\8\ particularly Section 6(b)(5) of the Act.\9\ The Exchange 
believes that the proposed rule change is intended to remove 
impediments to and perfect the mechanism for a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the amended 
proposal 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-AMEX-2003-114, and this file number should be included on 
the subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, comments may be sent in hard 
copy or by e-mail, but not by both methods. 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-2003-114 and should be 
submitted by February 19, 2004.

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IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change as amended is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange, and, in particular, with the requirements of 
Section 6(b)(5) of the Act.\10\ The Commission believes that the 
proposed changes to the voting procedures pilot program would not 
significantly affect the protection of investors or the public 
interest, and would not impose any significant burden on competition.
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    \10\ 15 U.S.C. 78f(b)(5). Section 6(b)(5) of the Act requires 
that the rules of a national securities exchange be ``designed to 
prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, 
and in general, to protect investors and the public interest; and 
are not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.''
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    The Amex has requested accelerated approval of its proposal to 
amend the marketing fee program voting procedures set forth in its six-
month pilot program, which is due to expire as of March 30, 2004. 
According to the Amex, the proposal raises no novel issues and would 
merely expand ROT voter eligibility in connection with the Exchange's 
marketing fee program. Based upon the Amex's representations, the 
Commission finds good cause, consistent with Sections 6(b)(5) and 
19(b)(2) of the Act,\11\ to approve the proposed rule change as amended 
as a pilot program prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. The Commission 
believes that the proposed change to the marketing fee program voting 
procedures, as set forth in Commentary .11(a)(i) of Amex Rule 958, 
would help to provide greater access to and participation in the voting 
process for ROTs that have significant trading activity in those option 
classes that are subject to the marketing fee, and that are traded by 
multiple specialists in adjacent trading locations. The Exchange has 
tailored the proposal to provide specific criteria for determining 
eligibility to participate in the marketing fee program vote when 
multiple option classes are traded by multiple specialists. 
Accordingly, the Commission is approving, on an accelerated basis, the 
proposed change to the marketing fee program voting procedures on a 
pilot basis to expire on March 30, 2004.\12\
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    \11\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
    \12\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change as amended to Commentary 
.11(a)(i) to Amex Rule 958 (SR-AMEX-2003-114) is hereby approved on an 
accelerated basis as a pilot program to expire on March 30, 2004.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\14\

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1917 Filed 1-28-04; 8:45 am]
BILLING CODE 8010-01-P