5618 Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 

1 15 U.S.C. 78k–1.

2 17 CFR 240.11Aa3–2.

3On July 28, 2000, the Commission approved a 

national market system plan for the purpose of 

creating and operating an intermarket options 

market linkage proposed by the Amex, CBOE, and 

ISE. See Securities Exchange Act Release No. 43086 

(July 28, 2000), 65 FR 48023 (August 4, 2000). 

Subsequently, upon request by the Phlx and PCX, 

the Commission issued orders to permit these 

exchanges to participate in the Plan. See Securities 

Exchange Act Release Nos. 43573 (November 16, 

2000), 65 FR 70850 (November 28, 2000) and 43574 

(November 16, 2000), 65 FR 70851 (November 28, 

2000).

4See Securities Exchange Act Release No. 49010 

(December 30, 2003), 69 FR 706.

5See Securities Exchange Act Release No. 47028 

(December 18, 2002), 67 FR 79171 (December 27, 

2002) (Notice of Proposed Joint Amendment No. 4).

6Trade-throughs occur when a broker-dealer 

executes its customer’s order on one exchange at a 

price inferior to another exchange’s disseminated 

quote.

7See letter from Michael Simon, Senior Vice 

President and General Counsel, ISE, to Annette 

Nazareth, Director, Division of Market Regulation, 

Commission, dated November 19, 2002.

8See Securities Exchange Act Release No. 47298 

(January 31, 2003), 68 FR 6524 (February 7, 2003) 

(approval of pilot program on a 120-day basis); see 

also Securities Exchange Act Release No. 48055 

(June 18, 2003), 68 FR 37869 (June 25, 2003) 

(approval of pilot program).

9 Id.

10 15 U.S.C. 78k–1.

11 17 CFR 240.11Aa3–2.

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2357 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49146; File No. 4–429] 

Joint Industry Plan; Order Approving 

Joint Amendment No. 8 to the Options 

Intermarket Linkage Plan Relating to 

Satisfaction Orders and TradeThroughs 

January 29, 2004. 

I. Introduction 

On December 18, 2003, December 22, 

2003, December 29, 2003, and December 

30, 2003, the International Securities 

Exchange, Inc. (‘‘ISE’’), the Pacific 

Exchange, Inc. (‘‘PCX’’), the American 

Stock Exchange LLC (‘‘Amex’’), the 

Philadelphia Stock Exchange, Inc. 

(‘‘Phlx’’), and the Chicago Board 

Options Exchange, Inc. (‘‘CBOE’’) 

(collectively, the ‘‘Participants’’), 

respectively submitted to the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) in accordance with 

section 11A of the Securities Exchange 

Act of 1934 (‘‘Act’’)1 and Rule 11Aa3–

2 thereunder,2 a proposed amendment 

to the Options Intermarket Linkage Plan 

(the ‘‘Plan’’).3 The amendment proposes 

to extend the pilot provision limiting 

trade-through liability to 10 contracts 

per satisfaction order at the end of the 

day for an additional five months, until 

June 30, 2004.

The proposed amendment to the Plan 

was published in the Federal Register

on January 6, 2004.4 No comments were 

received on the proposed amendment. 

This order approves the proposed 

amendment to the Plan.

II. Description of the Proposed 

Amendment 

In Joint Amendment No. 8, the 

Participants propose to extend the pilot 

provision contained in section 

8(c)(ii)(B)(2)(c) of the Plan that limits 

trade-through liability to 10 contracts 

per satisfaction order at the end of the 

day for an additional five months, until 

June 30, 2004, in order to gain more 

experience with the limitation on tradethrough liability. Pursuant to the pilot, 

an exchange member’s trade-through 

liability is limited to 10 contracts per 

Satisfaction Order for the period 

between five minutes prior to the close 

of trading in the underlying security and 

the close of trading in the options class. 

III. Discussion 

When this pilot was originally 

proposed in Joint Amendment No. 4 to 

the Plan,5 the Participants represented 

to the Commission that their members 

had expressed concerns regarding their 

obligations to fill Satisfaction Orders 

(which arise after a trade-through 6) at 

the close of trading in the underlying 

security. Specifically, the Participants 

represented that their members were 

concerned that they may not have 

sufficient time to hedge the positions 

they acquire.7 The Participants stated 

that they believed that their proposal to 

limit liability for trade-throughs for the 

last five minutes of trading in the 

underlying security to the filling of 10 

contracts per exchange, per transaction 

would protect small customer orders, 

but still establish a reasonable limit for 

their members’ liability. The 

Participants further represented that the 

proposal should not affect a member’s 

potential liability under an exchange 

disciplinary rule for engaging in a 

pattern or practice of trading through 

other markets under section 8(c)(i)(C) of 

the Plan.

The Commission approved the 

proposal for a one-year pilot 8 to give the 

Participants and the Commission an 

opportunity to evaluate: (1) The need for 

the limitation on liability for tradethroughs near the end of the trading 

day; (2) whether 10 contracts per 

Satisfaction Order is the appropriate 

limitation; and (3) whether the 

opportunity to limit liability for tradethroughs near the end of the trading day 

leads to an increase in trade-throughs. 

In its approval order, the Commission 

requested that the Participants provide 

a report to the Commission at least sixty 

days prior to seeking permanent 

approval of the pilot program. The 

Commission specified that the report 

should include information about the 

number and size of trade-throughs that 

occur during the last seven minutes of 

the trading day, the number and size of 

Satisfaction Orders that Participants 

might be required to fill without the 

limitation on liability and how those 

amounts are affected by the limitation 

on liability, and the extent to which the 

Participants use the underlying market 

to hedge their options positions.9

In connection with the request in 

Joint Amendment No. 8 to extend the 

pilot for an additional five months until 

June 30, 2004, the Commission notes 

that the Participants represent that if 

they seek to make the limitations on 

trade-throughs permanent, they will 

submit the above-referenced report to 

the Commission no later than March 31, 

2004. The Participants further represent 

in Joint Amendment No. 8 that each 

exchange plans to submit individual 

reports regarding the requested data and 

that these reports will detail the number 

of trade-throughs in the last seven 

minutes of options trading and the rest 

of the day, as well as the number and 

size of Satisfaction Orders that would 

have been filled absent the current 

exemption. In addition, the Participants 

represent that the reports will provide 

information on the extent to which the 

exchange’s members hedge their options 

trading during the day as part of their 

overall risk management. Finally, the 

Participants represent that they will 

make every effort to provide specific 

information regarding their members’

hedging at the end of the trading day. 

After careful consideration, the 

Commission finds that the proposed 

amendment to the Plan seeking to 

extend the current pilot is consistent 

with the requirements of the Act and the 

rules and regulations thereunder. 

Specifically, the Commission finds that 

the proposed amendment to the Plan is 

consistent with section 11A of the Act 10

and Rule 11Aa3–2 thereunder,11 in that 

extending the pilot, while the 

Participants gather and evaluate data 

Federal Register / Vol. 69, No. 24 / Thursday, February 5, 2004 / Notices 5619

12 15 U.S.C. 78k–1.

13 17 CFR 240.11Aa3–2.

14 17 CFR 200.30–3(a)(29).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 47822 

(May 9, 2003), 68 FR 27115 (May 19, 2003) (SR–

Amex–2003–14).

4For example, specialists and registered options 

traders on the Exchange are subject to a $.10 per 

contract fee for transactions in QQQ options.

5Telephone conversation between Jeffrey Burns, 

Associate General Counsel, Amex, and Jennifer 

Colihan, Special Counsel, Division of Market 

Regulation, Commission on January 23, 2004 

clarifying that the previous approval of fees for 

Linkage Orders (see note 3, supra) did not include 

the Options Licensing Fee.

6See Securities Exchange Act Release No. 47298 

(January 31, 2003), 68 FR 6524 (February 7, 2003) 

(File No. 4–429). 7 15 U.S.C. 78f(b)(4).

relating to the effect of the operation of 

the pilot, is appropriate in the public 

interest, for the protection of investors 

and the maintenance of fair and orderly 

markets. Therefore, the Commission is 

extending the effectiveness of section 

8(c)(ii)(B)(2)(c) of the Plan for an 

additional five months, until June 30, 

2004.

IV. Conclusion 

It is therefore ordered, pursuant to 

section 11A of the Act 12 and Rule 

11Aa3–2 thereunder,13 that the 

proposed Plan Amendment No. 8 is 

approved on a pilot basis until June 30, 

2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–2362 Filed 2–4–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–49145; File No. SR–Amex–

2004–03] 

Self-Regulatory Organizations; Notice 

of Filing and Order Granting 

Accelerated Approval of Proposed 

Rule Change by the American Stock 

Exchange LLC Relating to the 

Extension of a Linkage Fee Pilot 

Program 

January 29, 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 January 

14, 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 and II below, which Items have 

been prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons and is 

approving the proposed rule change on 

an accelerated basis.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to extend for 

six (6) months, until July 31, 2004, the 

current pilot program regarding 

transaction fees for trades executed 

through the intermarket options linkage 

(the ‘‘Linkage’’) on the Exchange. 

The proposed fee schedule is 

available at the Exchange 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 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 

The Amex is proposing to extend for 

six (6) months, until July 31, 2004, the 

current pilot program establishing 

Exchange fees for Principal Orders (‘‘P 

Orders’’) and Principal Acting As Agent 

Orders (‘‘P/A Orders’’) executed through 

the Linkage. The fees in connection 

with the pilot program are scheduled to 

expire on January 31, 2004.3 The fees 

charged by the Amex under the pilot 

program consist of a $0.26 per contract 

transaction fee, a $0.05 comparison fee, 

and a $0.05 floor brokerage fee. In 

addition to the previously approved 

fees, Amex is proposing to subject 

incoming P and P/A orders for certain 

licensed index products to a licensing 

fee 4 as part of the pilot.5 These are the 

same fees charged to specialists and 

Registered Options Traders (‘‘ROTs’’) for 

transactions executed on the Exchange. 

Consistent with the Linkage Plan, the 

Amex does not charge for the execution 

of Satisfaction Orders sent through the 

Linkage.6

As was the case in its filing for the 

original pilot program, the Exchange 

believes that the existing fee amount for 

equity options that currently is charged 

to Exchange specialists and ROTs 

should apply to executions resulting 

from Linkage Orders. Market makers 

from other option exchanges accessing 

the liquidity of the Exchange by sending 

P or P/A Orders accordingly pay the 

same fees applicable to Amex specialists 

and ROTs for such executions. 

Based on the limited experience 

operating the Linkage, the Exchange 

believes that an extension of the pilot 

program for six (6) months until July 31, 

2004 is appropriate. During this time, 

the Exchange intends to study the effect 

of Linkage fees and prepare to file a 

permanent Linkage fee proposal. 

2. Statutory Basis 

The Amex believes the proposed rule 

change is consistent with Section 6(b)(4) 

of the Act 7 regarding the equitable 

allocation of reasonable dues, fees and 

other charges among exchange members 

and other persons using exchange 

facilities.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes that the 

proposed rule change will impose no 

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. 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 

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: rule-comments@sec.gov. All 

comment letters should refer to File No. 

SR–Amex–2004–03. 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 

should be sent in hardcopy or by e-mail 

but not by both methods. Copies of the 

submission, all subsequent