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Notice

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

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Start Preamble 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.

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.

The Pilot Program amended the Exchange's fee cap program that limits per trade the transaction, comparison Start Printed Page 45082and 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.

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.

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]

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

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.

Start Signature
Start Printed Page 45083

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

Nancy M. Morris,

Secretary.

End Signature End Preamble

Footnotes

3.  15 U.S.C. 78s(b)(3)(A)(ii).

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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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6.  See Securities Exchange Act Release No. 53415 (March 3, 2006), 71 FR 12745 (March 13, 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.

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8.  A dividend spread transaction is defined as any trade done to achieve a dividend arbitrage between any two deep-in-the-money options.

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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).

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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.

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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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14.  15 U.S.C. 78s(b)(3)(A)(ii).

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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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[FR Doc. E6-12839 Filed 8-7-06; 8:45 am]

BILLING CODE 8010-01-P