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Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the American Stock Exchange LLC Relating to a Waiver of Transaction Fees for Exchange-Traded Funds

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Start Preamble August 22, 2002.

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 August 6, 2002, 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 the Exchange. The Amex has designated this proposal as one establishing or changing a due, fee, or Start Printed Page 55442other charge imposed by the Exchange 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Amex proposes to waive transaction fees on Exchange-Traded Funds (“ETFs”) that are part of an exchange-for-physical transaction (“EFP”). The text of the proposed rule change is available at the Amex 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 Exchange included statements concerning the purpose of and basis for its proposal and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. The Amex 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 currently imposes a charge for transactions in ETF products executed on the Exchange. Currently, charges include fees for Registered Options Traders (“ROTs”), Specialists and Customer Broker-Dealers. The current rate for Specialist transactions in these products is $0.0063 per share ($0.63 per 100 shares), capped at $300 per trade (47,619 shares). The current rate for ROT transactions is $0.0073 per share ($.73 per 100 shares), capped at $350 per trade (47,945 shares). Off-floor orders (i.e., customer and broker-dealer) are charged $0.006 per share ($0.60 per 100 shares), capped at $100 per trade (16,667 shares).[5]

The Amex now proposes that transaction fees paid in connection with ETFs be waived for EFP transactions. An EFP is a transaction in which one party buys the cash market and sells the futures market while the opposite party sells the cash market and buys the futures market. The terms of such transactions are privately negotiated. An EFP may be executed on or off the trading floor in the futures market while the cash side of the trade may be executed in the over-the-counter market or on the Exchange. Consistent with the Commodity Exchange Act (“CEA”) and the rules of the Chicago Mercantile Exchange (“CME”), ETFs are currently permitted by the CME to be used as the cash market side of certain stock index futures products. In such case, the cash market product is required to be comparable with respect to the quantity, value or risk exposure to the futures contract utilized.

The Exchange believes that ETF trades in connection with EFPs are taking place off-floor largely due to the imposition of transaction fees. As a result, the Amex has proposed this waiver of ETF transaction fees for those ETFs that are part of an EFP.[6]

However, because the Exchange's billing system is unable to distinguish an ETF transaction that is part of an EFP from any other ETF transaction, a manual procedure has been developed. Specifically, within thirty (30) 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 fee charged on ETF transactions executed pursuant to an EFP trade as described above.

2. Statutory Basis

The Exchange believes that the proposal is consistent with Section 6(b) of the Act [7] in general, and furthers the objectives of Section 6(b)(4) [8] in particular in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among the Amex's members and issuers and other persons using the Amex's 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.

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

The proposed rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act [9] and subparagraph (f)(2) of Rule 19b-4 thereunder,[10] because it establishes or changes a due, fee, or other charge imposed by the Amex. 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.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal 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 number SR-Amex-2002-66 and should be submitted by September 19, 2002.

Start Signature
Start Printed Page 55443

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  15 U.S.C. 78s(b)(3)(A)(ii).

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5.  The Exchange in response to the New York Stock Exchange, Inc. (“NYSE”) trading of ETFs has waived customer transaction charges for certain ETFs and Holding Company Depositary Receipts (HOLDRS). Specifically, customer transaction charges have been waived for DIAMONDS, QQQs, SPDRS, iShares S&P 500, MidCAP SPDRS, all Select SPDRS and all HOLDRS. See Exhibit A.

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6.  The fees that are being waived are member fees only, and the waiver is applied in a non-discriminatory fashion. The Amex will file a proposed rule change if the Amex decides to either establish new fees or reinstate the fees it waived with this proposed rule change. August 22, 2002 telephone conversation between Jeffrey P. Burns, Assistant General Counsel, Amex, and Joseph Morra, Special Counsel, SEC.

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9.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 02-22097 Filed 8-28-02; 8:45 am]