[Federal Register Volume 69, Number 47 (Wednesday, March 10, 2004)]
[Notices]
[Pages 11469-11471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-5378]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49358; File No. SR-Amex-2004-09]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC Relating to a Per Trade Options Fee Cap

March 3, 2004.
    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 January 30, 2004, 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 Amex. On March 1, 
2004, Amex 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\ See letter from Jeffrey P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated February 27, 2004 (``Amendment No. 
1''). In Amendment No. 1, Amex clarified that proposal is intended 
to apply the reduced transaction fees set forth in footnote 1 to the 
Options Fee Schedule to member broker-dealers and revised the 
proposed rule text to conform it to recent changes made to the 
Options Fee Schedule. For purposes of 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 that period to commence on March 1, 2004, the date Amex 
filed Amendment No. 1 to the proposed rule change. See 15 U.S.C. 
78s(b)(3)(C).

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[[Page 11470]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Amex proposes to amend its Options Fee Schedule to adopt an options 
fee cap of $2,000 per trade, exclusive of the options licensing fee, 
for specialists, registered options traders (``ROTs''), member broker-
dealers, and non-member broker-dealers in connection with cabinet 
trades and certain options strategies. Amex also proposes to apply 
reduced transaction fees set forth in footnote 1 to the Options Fee 
Schedule to member broker-dealers.
    The text of the proposed rule change is available at 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, 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. 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
    Amex is proposing to impose an options fee cap of $2,000 per trade, 
exclusive of the options licensing fee, for specialists, ROTs, member 
broker-dealers, and non-member broker-dealers in connection with 
cabinet trades \4\ and the following options strategies: (a) reversals 
and conversions; \5\ (b) dividend spreads; \6\ (c) box spreads; \7\ and 
(d) butterfly spreads \8\ (collectively ``Spread Trades''). Cabinet 
trades and Spread Trades are currently subject to reduced fees, 
exclusive of license fees, as a result of a fee rebate program.\9\
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    \4\ See Amex Rule 959.
    \5\ 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 risk-less 
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 risk-less profit.
    \6\ 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.
    \7\ 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.
    \8\ 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 (3) strike prices are involved, with the lower 
two strikes being utilized in the bull spread and the higher two (2) 
strikes in the bear spread. The strategy may be established with 
either puts or calls.
    \9\ See Securities Exchange Act Release Nos. 46026 (June 4, 
2002), 67 FR 40034 (June 11, 2002), and 48219 (July 23, 2003), 68 FR 
44823 (July 30, 2003).
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    Pursuant to the Options Fee Schedule, the Exchange imposes charges 
for transactions in options executed on the Exchange by specialists, 
ROTs, member broker-dealers, and non-member broker-dealers. Current 
charges for specialist and ROT transactions in equity options and index 
options are $0.36 and $0.31, respectively, per contract side. For 
member broker-dealers and non-member broker-dealers, the current charge 
for equity options and index options is $0.26 and $0.18, respectively, 
per contract side. The current fees for specialists, ROTs, and non-
member broker-dealers in connection with cabinet trades and Spread 
Trades have previously been reduced, exclusive of the options licensing 
fee, as a result of a fee rebate program. These transactions are 
currently subject to reduced fees so that the options transaction fee, 
the options comparison fee, and the options floor brokerage fee are 
reduced by $0.09, $0.01, and $0.02, respectively. The current proposal 
will apply this fee rebate program to member broker-dealers.
    The Exchange is proposing to adopt a maximum fee amount that may be 
collected on a per trade basis from specialists, ROTs, member broker-
dealers, and non-member broker-dealers in connection with cabinet 
trades and the Spread Trades. The proposed maximum fee amount is $2,000 
per trade.\10\
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    \10\ Amex represents that the current rebate program remains 
unchanged for transactions below the $2,000 maximum.
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    The Exchange believes that the proposed fee cap in connection with 
cabinet trades should encourage specialists and ROTs to provide 
liquidity as an accommodation to investors seeking to close out 
worthless option positions. Amex also believes that capping fees should 
also encourage specialists and ROTs to provide liquidity for reversals, 
conversions, dividend spreads, box spreads, and butterfly spreads. Amex 
notes that these financing strategies are entered into by professionals 
with narrow profit margins. Therefore, by capping fees, Amex believes 
that such professionals may find the Exchange an attractive venue to 
execute their trades.
    Amex believes that the ability to compete with the other options 
exchanges for order flow based on pricing is essential for the 
continued vitality of the Exchange's options market. In addition, Amex 
believes that pricing changes must be done on a timely basis in order 
to be beneficial.
2. Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6 of the Act,\11\ in general, and with Section 6(b)(4) of the 
Act,\12\ in particular, in that it is designed to provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and other persons using its facilities.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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

    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 proposed rule change has become effective pursuant to 
Section 19(b)(3)(A)(ii) of the Act \13\ and subparagraph (f)(2) of Rule 
19b-4\14\ thereunder, because it establishes or changes a due, fee, or 
other charge.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change,\15\ 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.\16\
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    \15\ See note 3 supra.
    \16\ 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 is consistent with the Act. Persons making written submissions 
should file six copies thereof with the

[[Page 11471]]

Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments should be submitted electronically 
at the following e-mail address: [email protected]. All comment 
letters should refer to File No. SR-Amex-2004-09. This file number 
should be included on the subject line if e-mail is used. To help the 
Commission process and review comments more efficiently, comments 
should 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 Amex. 
All submissions should be submitted by March 31, 2004.

    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. 04-5378 Filed 3-9-04; 8:45 am]
BILLING CODE 8010-01-P