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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to Options Trading Fees

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Start Preamble April 18, 2002.

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 March 1, 2002, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (the “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Amex filed Amendment No. 1 to the proposed rule change on April 16, 2002.[3] The Commission is publishing this notice to solicit comments on the proposed rule change and Amendment No. 1 from interested persons.

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

The Exchange has proposed to amend one of its options trading fees under File No. SR-Amex-2002-11,[4] which was filed for immediate effectiveness pursuant to section 19(b)(3)(A)(ii) of the Act.[5] The Exchange now seeks to impose this fee change, as set forth in File No. SR-Amex-2002-11 and described below, as of December 1, 2001.

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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 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. 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 Exchange recently (1) increased transaction, comparison and brokerage fees for all specialist and registered options trader transactions in both equity and index options;[6] and (2) eliminated the cap on the number options contracts subject to the transaction, comparison and floor brokerage fees on a given day.[7] This fee increase went into effect on December 1, 2001.[8]

The Exchange also determined, at the time, that accommodation trades (also known as “Cabinet Trades”) [9] and trades occurring as part of certain types of strategies would continue to be eligible for the cap on that portion of the transaction, option clearance and floor brokerage fees that represented the increase in fees. Thus, for contracts executed in excess of 3,000 on a given day, the transaction fee increase of $0.09, the options comparison fee increase of $0.01 and the floor brokerage fee increase of $0.02 were to be reimbursed. Transaction, options comparison and floor brokerage fees were to continue to be charged for only the first 3,000 contracts executed as an accommodation trade or pursuant to one of the following strategies: (1) Reversals and conversions; [10] (2) dividend spreads; [11] and (3) box spreads.[12]

The Exchange proposes not to charge the recent increase in transaction, comparison and floor brokerage fees (a total increase of $0.12) for the entire number of contracts executed as an accommodation trade or pursuant to one of the above strategies. Thus, specialists and registered traders will pay a (1) transaction fee of only $0.17 for equity options and $0.12 for index options; (2) comparison fee of $0.04; and (3) floor brokerage fee of $0.03 for contracts executed as an accommodation trade or pursuant to a reversal or conversion, a dividend spread or a box spread.

The Exchange proposes not to apply the fee increases to accommodation transactions in order to encourage specialists and registered options traders, by keeping fees low, to provide liquidity as an accommodation to investors seeking to close out worthless option positions. In addition, the Exchange proposes not to apply the fee increases to reversals, conversions, dividend spreads and box spreads in order to encourage specialists and registered options traders, by keeping fees low, to provide liquidity for these types of financing strategies. The Exchange represents that these financing strategies are usually entered into by professionals whose profit margins are generally narrow. In addition, the Exchange states that it has determined to keep fees for accommodation transactions and spread strategies comparable with the fees charged by other options exchanges for these types of transactions.

The Exchange represents that its billing system is unable to distinguish among these types of transactions; therefore, it has developed a manual procedure. Specifically, within thirty calendar days of the particular transaction date, a Fee Reimbursement Form must be completed and submitted to the Exchange. Upon acceptance, the Exchange will deliver to that member's clearing firm a reimbursement check in the amount of the transaction, clearance and brokerage fee increases (a total of $0.12) charged on contracts executed pursuant to an accommodation trade or one of the strategies described above.

The Exchange proposed these fee changes in File No. SR-Amex-2002-11, which became effective upon filing with the Commission.[13] The Exchange now proposes to make this fee change retroactive to the date of imposition of the fee, which was on December 1, 2001.[14] The Exchange believes that due to the paperwork involved in obtaining a reimbursement of these trading fees it would be easier on its membership if the revision could coincide with the imposition of the fee. In addition, given that the Exchange has increased a number of fees to its membership in recent months, it believes that the implementation of any type of reduction in fees should be put in place as soon as possible.

(2) Statutory Basis

The Exchange believes that the proposed rule change, as amended, is consistent with section 6(b) of the Act [15] in general and furthers the objectives of section 6(b)(4) [16] 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange 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.Start Printed Page 20849

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or (ii) as to which the Exchange consents, the Commission will:

A. By order approve such proposed rule change; or

B. Institute proceedings to determine whether the proposed rule change should be disapproved.

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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 the Amex. All submissions should refer to File No. SR-Amex-2002-12 and should be submitted by May 17, 2002.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[17]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  See letter from Clair P. McGrath, Vice President and Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, dated April 12, 2002 (“Amendment No. 1”). In Amendment No. 1, the Amex amended the proposal to incorporate the Exchange's reasons for not charging specialists and registered options traders the recent increase in transaction, comparison and floor brokerage fees for accommodation trades or trades executed pursuant to reversals and conversions, dividend spreads, and box spreads. Amex also provided an explanation of the December 1, 2001 implementation date for the elimination of the fee cap.

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4.  See Securities Exchange Act Release No. 45783 (April 18, 2002) for a description of these fees changes.

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5.  15 U.S.C. 78s(b)(3)(A)(ii).

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6.  The options fees were increased as follows: (1) The Options Transaction Fee per contract side was increased from $0.17 to $0.26 for equity options and from $0.12 to $0.21 for index options; (2) the options comparison fee was increased from $0.04 to $0.05 per contract side; and (3) the floor brokerage fee per contract side was increased from $0.03 to $0.05.

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7.  See Securities Exchange Act Release No. 45163 (December 18, 2001), 66 FR 66958 (December 27, 2001) (notice of filing and immediate effectiveness of File No. SR-Amex-2001-101).

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8.  See Securities Exchange Act Release No. 45360 (January 29, 2002), 67 FR 5626 (February 6, 2002) (order approving File No. SR-Amex-2001-102). The Exchange represents that it intended to eliminate the fee cap as of October 1, 2001. However, due to a delay in the reprogramming of the changes for the Exchange's Finance Division, the fee cap elimination did not go into effect until December 1, 2001.

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9.  See Exchange Rule 959 for a description of an accommodation trade.

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10.  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 riskless 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 riskless profit.

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11.  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.

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12.  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.

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13.  See Securities Exchange Act Release No. 45783 (April 18, 2002). The proposal became effective on April 16, 2002.

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14.  This proposal to revise the recently adopted options trading fees was originally submitted on January 14, 2002 (File No. SR-Amex-2002-04). The Commission rejected the filing, stating that it was unable to accept filing pursuant to Section 19(b)(3)(A) because of the Exchange's request to apply the fee reduction retroactively.

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[FR Doc. 02-10311 Filed 4-25-02; 8:45 am]

BILLING CODE 8010-01-P