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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 Member Transaction Charges for Exchange-Traded Funds

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Start Preamble November 1, 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 October 3, 2002, the American Stock Exchange LLC (“Exchange” or “Amex”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Amex. 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 amend the Exchange Equity Fee Schedule relating to transaction charges imposed on Exchange specialists and Registered Traders for transactions in Exchange-Traded Funds (“ETFs”) for which the Exchange pays non-reimbursed fees to third parties.

The text of the proposed rule change is available at the Amex and at the Commission. Start Printed Page 68705

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 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

I. Purpose

In connection with the formation and listing of ETFs, the Exchange has entered into a number of agreements with third parties (e.g., issuers and owners of indexes underlying certain ETFs). ETFs include Portfolio Depositary Receipts (e.g., Nasdaq 100® Index Tracking Stock or “QQQ,” and Standard and Poor's Depositary ReceiptsTM or “SPDRs(TM)”) and Index Fund Shares (e.g.. iSharesTM, VIPERsTM). For those ETFs for which an Amex subsidiary (PDR Services LLC) is Sponsor—SPDRs (based on the S&P 500® Index), MidCap SPDRsTM (based on the S&P MidCap 400TM Index), and DIAMONDS® (based on the Dow Jones Industrial Average)—the licensing and certain other expenses are permitted to be passed on to the respective trusts for those securities pursuant to the terms of Commission orders for the respective trusts issued pursuant to the Investment Company Act of 1940.[3] For other ETFs, however, the Exchange represents that it is required to pay significant licensing or other fees to third parties, including issuers or index owners, which are not reimbursed.[4]

The Exchange proposes to recoup a portion of these fees by imposing an additional fee on all Amex specialists and Registered Traders for transactions in specified ETFs. An additional fee of $.07 per 100 shares for specialists and $.03 per 100 shares for Registered Traders would be applied only for transactions in ETFs for which the Exchange pays a non-reimbursed fee. The ETFs subject to the additional fee will be included in proposed Note 4 to the Exchange Equity Fee Schedule.

The ETF transaction charge for specialists is currently $.63 per 100 shares, subject to a per trade maximum of $300. For transactions in ETFs listed in proposed Note 4 to the Equity Fee Schedule, the transaction charge would be $.70 per 100 shares, with a per trade maximum of $300. ETF transaction charges for Registered Traders currently are $.73 per 100 shares, subject to a per trade maximum of $350. For ETFs listed in proposed Note 4, the transaction charge would be $.76 per 100 shares, with a $350 per trade maximum.

The Exchange would discontinue charging the additional $.07 or $.03 per 100 shares transaction charge for any ETF series for which the Exchange no longer pays a non-reimbursed fee. Such deletions would be filed with the Commission pursuant to Rule 19b-4 under the Act.[5] Any additional ETFs for which the Exchange pays non-reimbursed fees in the future will be added to the list in proposed Note 4 and filed with the Commission pursuant to Rule 19b-4 under the Act.[6]

2. Basis

The Exchange believes the proposed rule change is consistent with section 6 of the Act,[7] in general, and with section 6(b)(4) of the Act,[8] 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 Amex 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

The Exchange received a letter relating to the proposed increase in transaction charges for specialists and Registered Traders for transactions in certain ETFs.[9] Susquehanna states that the proposal does not make competitive sense when other markets assess no fees and/or provide rebates to their members for trading certain ETFs, including the QQQ. Susquehanna states that the type of markets made by Susquehanna and other liquidity providers cannot, in the long run, be as competitive as those on markets where there are no charges or where there are subsidies. Susquehanna believes that the fees on specialists and Registered Traders should be reduced to zero and, instead, Amex should impose a fee on each membership. Susquehanna's letter also refers to other suggestions made to Amex officials relating to maintaining and enhancing Amex's market share.

The Exchange has determined to impose a modest fee increase on those Exchange members that have responsibility for trading specified ETFs in accordance with Amex rules, and that have the potential to achieve greatest financial benefit from trading these securities. The Exchange, of course, recognizes that increases in any fees can have an adverse impact on the Exchange's competitive position compared to other markets. Those markets may provide member subsidies and payment for order flow, or waive all member ETF transaction charges, thereby subsidizing costs incurred by those markets in overseeing their members' ETF trading through other charges levied by those markets on their members. The Exchange has concluded that it is most prudent and equitable at this time to partially recoup non-reimbursed fees paid to third parties through increased transaction charges imposed on all specialists and Registered Traders actually trading these securities.

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

The foregoing proposed rule change has become effective pursuant to section 19(b)(3)(A)(ii) of the Act [10] and subparagraph (f)(2) of Rule 19b-4[11] thereunder, because it establishes or changes a due, fee, or other charge. At any time within 60 days of October 3, 2002, 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.[12]

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, Start Printed Page 68706including 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. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change, as amended, 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-2002-81 and should be submitted by December 3, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[13]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


4.  The Exchange represents that it will not impose the proposed fee on any portion of a non-reimbursed licensing or other third-party fee that it recoups via another Exchange fee or assessment. Telephone conversation between Michael Cavalier, Associate General Counsel, Amex, and Frank N. Genco, Attorney, Division of Market Regulation, Commission, on October 30, 2002.

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9.  See Letter from Jeffrey Yass, Managing Director, Susquehanna International Group, LLP (“Susquehanna”), to Anthony J. Boglioli, Amex, dated September 23, 2002.

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10.  15 U.S.C. 78s(b)(3)(A)(ii).

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12.  See 15 U.S.C. 78s(b)(3)(C).

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[FR Doc. 02-28604 Filed 11-8-02; 8:45 am]