[Federal Register Volume 70, Number 163 (Wednesday, August 24, 2005)]
[Notices]
[Pages 49687-49689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4626]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52297; File No. SR-Amex-2005-080]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval to Proposed 
Rule Change Relating to Fees in Connection With Merger Spreads and 
Short Stock Interest Spreads

August 18, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on July 
25, 2005, the American Stock Exchange LLC (``Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared

[[Page 49688]]

by the Exchange. The Commission is publishing this notice and order to 
solicit comments on the proposed rule change from interested persons 
and to approve 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 amend the Amex Options Fee Schedule to 
include ``merger spreads'' and ``short stock interest spreads'' as 
qualified spread transactions (``Spread Trades'').
    The text of the proposed rule change is available from the 
Exchange's Web site (http://www.amex.com), at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Amex 
Options Fee Schedule to include ``merger spreads'' and ``short stock 
interest spreads'' in the definition of ``Spread Trades,'' which are 
subject to reduced transaction fees \3\ for non-member market makers 
and non-member broker-dealers, and a $2,000 fee cap per trade, 
exclusive of any license fees, applicable to specialists, registered 
options traders (``ROTs''), member broker-dealers (i.e., Firms), non-
member market makers, and non-member broker-dealers (i.e., Broker-
Dealers).\4\ In addition, the proposal would revise footnote 1 of the 
Options Fee Schedule to reflect the change of the symbol for the 
Nasdaq-100 Index Tracking Stock from ``QQQ'' to ``QQQQ.'' \5\ Qualified 
Spread Trades currently include: (a) Reversals and conversions, (b) 
dividend spreads, (c) box spreads, and (d) butterfly spreads.\6\
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    \3\ Transaction fees are comprised of options transaction fees, 
options comparison fees, and options floor brokerage fees. See Amex 
Options Fee Schedule. See also footnote 4, infra.
    \4\ The Commission notes that clarifying changes were made to 
the purpose section of the proposed rule change. Telephone 
conversations between Jeffrey P. Burns, Associate General Counsel, 
Amex, Cyndi N. Rodriguez, Special Counsel, and Johnna B. Dumler, 
Attorney, Division of Market Regulation, Commission, on August 10 & 
18, 2005.
    \5\ On December 1, 2004, the Nasdaq-100 Index Tracking Stock 
transferred its listing from the Amex to the Nasdaq Stock Market, 
Inc. It now trades on Nasdaq under the symbol QQQQ. The Amex, 
pursuant to unlisted trading privileges, trades the QQQQ.
    \6\ See Amex Options Fee Schedule, footnote 1. See also footnote 
4, supra.
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    The Amex currently imposes charges for transactions in options 
executed on the Exchange by specialists, ROTs, member broker-dealers, 
non-member market makers, and non-member broker-dealers. Current per-
contract transaction fees for specialists, ROTs, member broker-dealers, 
non-member market makers, and non-member broker-dealers in equity 
options are $0.20, $0.20, $0.26, $0.30, and $0.26, respectively, per 
contract side. In connection with index options, current per-contract 
transaction fees for specialists, ROTs, member broker-dealers, non-
member broker-dealers, and non-member market makers are $0.31, $0.31, 
$0.22, $0.22, and $0.31, respectively, per contract side.\7\
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    \7\ See footnote 4, supra.
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    A non-member broker-dealer or a non-member market maker that 
executes a Cabinet Trade or a qualified Spread Trade already would be 
subject to a fee rebate program. The options transaction fee, the 
options comparison fee, and the options floor brokerage fee are reduced 
by $0.03, $0.01, and $0.02, respectively. With respect to a Cabinet 
Trade or a qualified Spread Trade in a QQQQ option, 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. In 
addition, a Cabinet Trade or a Spread Trade by a specialist, a ROT, a 
member broker-dealer, a non-member market maker, or a non-member 
broker-dealer also would be subject to a fee cap of $2,000 per trade, 
exclusive of the options licensing fee.\8\
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    \8\ Id.
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    A merger spread is defined as a transaction executed pursuant to a 
merger spread strategy involving the simultaneous purchase and sale of 
options of the same class and expiration date, but with different 
strike prices, followed by the exercise of the resulting long option 
position. Merger spreads are executed prior to the date that 
shareholders of record are required to elect their respective form of 
consideration (i.e., cash or stock).
    A short stock interest spread is defined as a spread that uses two 
deep in-the-money put options followed by the exercise of the resulting 
long position of the same class in order to establish a short stock 
interest arbitrage position. This strategy is used to capture short 
stock interest.
    The Exchange submits that merger spreads and short stock interest 
spreads should qualify as Spread Trades under the Amex Options Fee 
Schedule for the purpose of attracting additional order flow. The 
Exchange notes that merger spreads and short stock interest spreads are 
entered into by professionals with narrow profit margins and, 
therefore, believes that, by qualifying for reduced and capped fees, 
these professionals may find the Exchange an attractive venue to 
execute their trades. The Exchange further believes that qualifying 
merger spreads and short stock interest spreads as Spread Trades will 
increase the ability of the Exchange to compete with the other options 
exchanges for order flow in connection with these options strategies.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(4) of the Act \9\ in that it provides for the 
equitable allocation of reasonable dues, fees, and other charges among 
members of the exchange and other persons using exchange facilities.
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    \9\ 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 would 
result in 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or

[[Page 49689]]

     Send an e-mail to [email protected]. Please include 
File No. SR-Amex-2005-080 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File No. SR-Amex-2005-080. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File No. SR-Amex-2005-080 and should be submitted on or before 
September 14, 2005.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\10\ In 
particular, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\11\ which requires that the 
rules of the exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using the exchange's facilities. Amending the Amex's 
Options Fee Schedule to include ``merger spreads'' and ``short stock 
interest spreads'' in the definition of ``Spread Trades,'' thereby 
rendering these types of trades eligible for reduced and capped fees, 
is a reasonable measure to improve the Exchange's competitiveness. The 
Commission notes that similar proposals to reduce and cap fees for 
certain trades, including those occurring as part of merger spreads and 
short stock interest spreads, have been adopted by other options 
exchanges.\12\
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(4).
    \12\ Most of the proposals by other options exchanges were filed 
as pilot programs pursuant to Section 19(b)(3)(A) of the Act, 
rendering the proposals effective upon filing with the Commission. 
See Securities Exchange Act Release Nos. 51468 (April 1, 2005), 70 
FR 17742 (April 7, 2005) (SR-CBOE-2005-18); 51596 (April 21, 2005), 
70 FR 22381 (April 29, 2005) (SR-Phlx-2005-19); 51657 (May 5, 2005), 
70 FR 24851 (May 11, 2005) (SR-Phlx-2005-22); 51787 (June 6, 2005), 
70 FR 34174 (June 13, 2005) (SR-PCX-2005-65); and 51828 (June 13, 
2005), 70 FR 35475 (June 20, 2005) (SR-CBOE-2005-42). However, one 
proposal to make the fee cap applicable to short stock interest 
spread transactions retroactive to January 1, 2005 was filed with 
and approved by the Commission pursuant to Section 19(b)(2) of the 
Act. See Securities Exchange Act Release No. 52083 (July 20, 2005), 
70 FR 43733 (July 28, 2005) (SR-PCX-2005-67).
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    The Amex has requested that the Commission approve the proposed 
rule change prior to the thirtieth day after publication of notice 
thereof in the Federal Register. Granting accelerated approval of the 
proposal will allow the Amex to immediately implement a fee change that 
is similar to arrangements already in place at other option exchanges. 
Furthermore, the Commission believes that granting accelerated approval 
of the proposed rule change will allow the Amex to implement reasonable 
fee reductions to various market participants without undue delay. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\13\ for approving the proposed rule change prior 
to the thirtieth day after the publication of notice thereof in the 
Federal Register.
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    \13\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Amex-2005-080), is hereby approved on 
an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4626 Filed 8-23-05; 8:45 am]
BILLING CODE 8010-01-P