Document ID: SEC-2006-1024-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-08-08T04:00Z

[Federal Register: August 8, 2006 (Volume 71, Number 152)]
[Notices]               
[Page 45081-45083]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08au06-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54261; File No. SR-Amex-2006-69)]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment No. 1 Thereto Relating to an Extension of a Pilot Program 
for the Fee Cap Program for Certain Options Spread Trades

August 1, 2006.
    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 July 20, 2006, 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 substantially prepared by Amex. Amex 
has designated the proposed rule change as one establishing or changing 
a due, fee, or other charge, pursuant to Section 19(b)(3)(A)(ii) of the 
Act \3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. On July 28, 2006, the 
Exchange filed Amendment No. 1 to the proposed rule change.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
    \5\ In Amendment No. 1, Amex modified the statutory basis of the 
proposal from being Section 6(b)(5) of the Act to be Section 6(b)(4) 
of the Act.
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 I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend its fee cap program for dividend 
spreads, merger spreads and short stock interest spreads (the ``Pilot 
Program'') for an additional six months through February 1, 2007.
    The text of the proposed rule change is available on Amex's Web 
site at http://www.amex.com, at the Office of the Secretary at Amex, 

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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, and discussed any comments it received on the proposal. The 
text of these statements may be examined at the places specified in 
Item IV 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 Pilot Program was established in February 2006.\6\ The Exchange 
believes that the Pilot Program has operated, as designed, to allow the 
Exchange to become more competitive with fee cap programs in place at 
other options exchanges. Accordingly, the Exchange believes that a six-
month extension is reasonable and consistent with the intent of the 
Pilot Program.
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    \6\ See Securities Exchange Act Release No. 53415 (March 3, 
2006), 71 FR 12745 (March 13, 2006).
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    The Pilot Program amended the Exchange's fee cap program that 
limits per trade the transaction, comparison

[[Page 45082]]

and floor brokerage fees (hereinafter referred to collectively as 
``transaction-based fees'') charged to specialists, registered options 
traders, non-member market makers, member firms, broker dealers and 
non-member broker dealers (referred to hereinafter as ``non-customer 
market participants'') for accommodation and spread trades.\7\ The 
Pilot Program was put in place specifically for option transactions 
that are part of dividend spreads,\8\ merger spreads,\9\ and short 
stock interest spreads \10\ and it amended the fee cap for such option 
transactions in the following manner: First, the Exchange proposed to 
convert the cap on transaction-based fees from a per trade cap to a cap 
on all transactions executed as part of these spreads on the same 
trading day in the same option class and to reduce the amount of fees 
charged before the cap is applied to $1,000 per day. Secondly, the 
Exchange proposed to add a monthly fee cap of $50,000 on transaction-
based fees per initiating firm for transactions in dividend spreads, 
merger spreads and short stock interest spreads. The Exchange proposed 
to make these revisions to its fee cap program to match similar fee cap 
programs at other exchanges.\11\ The Exchange implemented these two 
changes for option transactions that are part of dividend spreads, 
merger spreads, and short stock interest spreads on a pilot basis until 
August 1, 2006.
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    \7\ Accommodation trades (also known as cabinet trades) are 
transactions to close out positions in worthless or nearly worthless 
out-of-the-money option contracts. Spread trades include: (i) 
Reversals and conversions, (ii) dividend spreads, (iii) box spreads, 
(iv) butterfly spreads, (v) merger spreads, and (vi) short sock 
interest spreads.
    \8\ A dividend spread transaction is defined as any trade done 
to achieve a dividend arbitrage between any two deep-in-the-money 
options.
    \9\ A merger spread transaction is defined as a transaction 
executed pursuant to a merger spread strategy involving the 
simultaneous purchase and sale of options of the same option class 
and expiration date, but 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 in a stock 
subject to a merger are required to elect their respective form of 
consideration (i.e., cash or stock).
    \10\ 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.
    \11\ See PCX Options Fee Schedule and Securities Exchange Act 
Release No. 53171 (January 24, 2006), 71 FR 5090 (January 31, 2006) 
(SR-CBOE 2005-117).
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    To date, the Exchange believes that the Pilot Program has been 
beneficial to the Exchange because it has brought more business to the 
Exchange. In this manner, non-customer market participants are 
encouraged to bring more order flow to the Exchange increasing 
competition among all option exchanges. Accordingly, the Exchange 
believes that an extension of the Pilot Program for six months through 
February 1, 2007 is warranted.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\12\ in general, and furthers 
the objectives of Section 6(b)(4),\13\ in particular, in that it is 
designed to provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities. Specifically, the Exchange is proposing to 
implement revisions to a fee cap program that is competitive with 
similar programs at other options exchanges.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that proposed rule change will not 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

    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, as amended, has become effective 
pursuant to Section 19(b)(3)(A)(ii) of the Act \14\ and subparagraph 
(f)(2) of Rule 19b-4 thereunder \15\ because it establishes or changes 
a due, fee, or other charge. At any time within 60 days of the filing 
of 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 furtherance of the purposes of the Act.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ The effective date of the original proposed rule change is 
July 20, 2006, the date of the original filing, and the effective 
date of Amendment No.1 is July 28, 2006, the filing date of the 
amendment. For purposes of calculating the 60-day abrogation period 
within which the Commission may summarily abrogate the proposed rule 
change, as amended, under Section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on July 28, 2006, the 
date on which the Exchange submitted Amendment No. 1. 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, as amended, 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     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-69 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE, 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Amex-2006-69. 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 Amex. 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 Number 
SR-Amex-2006-69 and should be submitted on or before August 29, 2006.

[[Page 45083]]

    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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Nancy M. Morris,
Secretary.
 [FR Doc. E6-12839 Filed 8-7-06; 8:45 am]

BILLING CODE 8010-01-P