Document ID: SEC-2006-0325-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-03-13T05:00Z

[Federal Register: March 13, 2006 (Volume 71, Number 48)]
[Notices]               
[Page 12745-12747]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr06-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53415; File No. SR-Amex-2006-10]

 
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 Its Fee Cap Program for Certain 
Options Spread Trades

March 3, 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 February 2, 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, II 
and III below, which items have been prepared by Amex. On February 28, 
2006, Amex submitted Amendment No. 1 to the proposed rule change.\3\ 
Amex has designated the proposed rule change, as amended, as one 
establishing or changing a due, fee, or other charge, pursuant to 
Section 19(b)(3)(A)(ii) of the Act \4\ and Rule 19b-4(f)(2) 
thereunder,\5\ which renders the proposal effective upon filing with 
the Commission. The Commission is

[[Page 12746]]

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\ In Amendment No. 1, Amex proposes to make the revised fee 
cap program for dividend spreads, merger spreads, and short stock 
interest spreads a six-month pilot program expiring August 1, 2006.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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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 Options Fee Schedule relating to 
its fee cap program for certain options spread trades.
    The text of the proposed rule change, as amended, 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
    Currently, the Exchange provides a fee cap program in which it 
limits to $2,000 per trade the transaction, comparison 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.\6\ The fee cap 
program does not apply to the license fees that are charged for 
transactions in some option classes. The program requires the 
submission to the Exchange of a Fee Reimbursement Form together with 
appropriate documentation for fees collected in excess of the cap to be 
reimbursed to the non-customer market participants. Currently, there is 
no time limit within which the Fee Reimbursement Form must be 
submitted.
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    \6\ 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 stock 
interest spreads.
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    Over the years, the execution of certain types of spread trades 
have grown in popularity--in particular, option transactions that are 
part of dividend spreads \7\, merger spreads,\8\ and short stock 
interest spreads \9\ have grown significantly with two to three million 
contracts a day being executed. In order to become more competitive 
with fee cap programs in place at other options exchanges, the Exchange 
is now proposing to revise its cap program. The following revisions are 
being proposed:
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    \7\ A dividend spread transaction is defined as any trade done 
to achieve a dividend arbitrage between any two deep-in-the-money 
options.
    \8\ 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).
    \9\ 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.
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    First, for dividend spreads, merger spreads, and short stock 
interest spreads, the Exchange proposes 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 reduce the amount of fees charged before 
the cap is applied to $1,000 per day. The Exchange is making these 
revisions to its fee cap program to match similar fee cap programs at 
other exchanges.\10\
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    \10\ See PCX Options Fee Schedule and Securities Exchange Act 
Release No. 53171 (January 24, 2006) (SR-CBOE-2005-117).
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    Second, the Exchange proposes 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 
purpose of this revision is to also match similar fee cap programs at 
other exchanges.\11\
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    \11\ Id.
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    Third, the Exchange proposes to provide a $2,000 per trade cap on 
transaction-based fees charged to members for customer box spread 
transactions \12\ in index options. The recent options fee increases 
have significantly altered the economics for customers engaging in box 
spread transactions in index options. In order to retain this type of 
order flow, the Exchange is proposing ro expand the fee cap program to 
customer box transactions in index options as a way of remaining 
competitive with the other options exchanges.
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    \12\ This is a combination of a long synthetic stock or index 
position (long call plus short put) and a short synthetic stock 
position (long put plus short call), which expire simultaneously and 
have different strike prices. Box spreads are used primarily to 
``borrow'' or ``lend'' money. A lender is said to ``buy'' the box 
and a borrower is said to ``sell'' the box. Boxes are evaluated 
essentially on the basis of returns on the cash they tie up or free 
up.
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    Fourth, the Exchange proposes to establish that the Fee 
Reimbursement Form must be submitted within three business days of the 
transaction. The Exchange believes that a limited time for submission 
of the Form will assist it in more efficiently processing the 
reimbursement requests and that while the timeframe is limited, market 
participants, including firms seeking reimbursements for transaction-
based fees charged for customer box spreads, should be able to meet the 
proposed deadline, which is already in effect at other options 
exchanges with similar fee cap programs.
    Lastly, the Exchange proposes to establish the revised fee cap 
program for dividend spreads, merger spreads, and short stock interest 
spreads as a six-month pilot program expiring August 1, 2006. The 
Exchange intends to implement the proposed revisions to the fee cap 
program effective February 6, 2006.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\13\ in general, and furthers the objectives of Section 
6(b)(4) \14\ in particular in that it is intended to assure 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex believes that the proposed rule change, as amended, does 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, as amended.

[[Page 12747]]

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 \15\ and subparagraph 
(f)(2) of Rule 19b-4 thereunder \16\ 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ The effective date of the original proposed rule change is 
February 2, 2006, the date of the original filing, and the effective 
date of Amendment No. 1 is February 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 February 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-2006-10 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-2006-10. 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-2006-10 and should be submitted on or before April 3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-3497 Filed 3-10-06; 8:45 am]

BILLING CODE 8010-01-P