Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on January 30, 2004, the American Stock Exchange LLC (“Exchange” or “Amex”) 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 March 1, 2004, Amex filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
17 CFR 240.19b-4.
See letter from Jeffrey P. Burns, Associate General Counsel, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, dated February 27, 2004 (“Amendment No. 1”). In Amendment No. 1, Amex clarified that proposal is intended to apply the reduced transaction fees set forth in footnote 1 to the Options Fee Schedule to member broker-dealers and revised the proposed rule text to conform it to recent changes made to the Options Fee Schedule. For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers that period to commence on March 1, 2004, the date Amex filed Amendment No. 1 to the proposed rule change. See 15 U.S.C. 78s(b)(3)(C).
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Amex proposes to amend its Options Fee Schedule to adopt an options fee cap of $2,000 per trade, exclusive of the options licensing fee, for specialists, registered options traders (“ROTs”), member broker-dealers, and non-member broker-dealers in connection with cabinet trades and certain options strategies. Amex also proposes to apply reduced transaction fees set forth in footnote 1 to the Options Fee Schedule to member broker-dealers.
The text of the proposed rule change is available at 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, 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. 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
Amex is proposing to impose an options fee cap of $2,000 per trade, exclusive of the options licensing fee, for specialists, ROTs, member broker-dealers, and non-member broker-dealers in connection with cabinet trades and the following options strategies: (a) reversals and conversions; (b) dividend spreads; (c) box spreads; and (d) butterfly spreads (collectively “Spread Trades”). Cabinet trades and Spread Trades are currently subject to reduced fees, exclusive of license fees, as a result of a fee rebate program.
See Amex Rule 959.
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 risk-less 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 risk-less profit.
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.
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.
A “butterfly spread” is an option strategy that has both limited risk and limited profit potential, constructed by combining a bull spread and a bear spread having the same expiration date for all options. Three (3) strike prices are involved, with the lower two strikes being utilized in the bull spread and the higher two (2) strikes in the bear spread. The strategy may be established with either puts or calls.
See Securities Exchange Act Release Nos. 46026 (June 4, 2002), 67 FR 40034 (June 11, 2002), and 48219 (July 23, 2003), 68 FR 44823 (July 30, 2003).
Pursuant to the Options Fee Schedule, the Exchange imposes charges for transactions in options executed on the Exchange by specialists, ROTs, member broker-dealers, and non-member broker-dealers. Current charges for specialist and ROT transactions in equity options and index options are $0.36 and $0.31, respectively, per contract side. For member broker-dealers and non-member broker-dealers, the current charge for equity options and index options is $0.26 and $0.18, respectively, per contract side. The current fees for specialists, ROTs, and non-member broker-dealers in connection with cabinet trades and Spread Trades have previously been reduced, exclusive of the options licensing fee, as a result of a fee rebate program. These transactions are currently subject to reduced fees so that the options transaction fee, the options comparison fee, and the options floor brokerage fee are reduced by $0.09, $0.01, and $0.02, respectively. The current proposal will apply this fee rebate program to member broker-dealers.
The Exchange is proposing to adopt a maximum fee amount that may be collected on a per trade basis from specialists, ROTs, member broker-dealers, and non-member broker-dealers in connection with cabinet trades and the Spread Trades. The proposed maximum fee amount is $2,000 per trade.
Amex represents that the current rebate program remains unchanged for transactions below the $2,000 maximum.
The Exchange believes that the proposed fee cap in connection with cabinet trades should encourage specialists and ROTs to provide liquidity as an accommodation to investors seeking to close out worthless option positions. Amex also believes that capping fees should also encourage specialists and ROTs to provide liquidity for reversals, conversions, dividend spreads, box spreads, and butterfly spreads. Amex notes that these financing strategies are entered into by professionals with narrow profit margins. Therefore, by capping fees, Amex believes that such professionals may find the Exchange an attractive venue to execute their trades.
Amex believes that the ability to compete with the other options exchanges for order flow based on pricing is essential for the continued vitality of the Exchange's options market. In addition, Amex believes that pricing changes must be done on a timely basis in order to be beneficial.
2. Basis
The Exchange believes the proposed rule change is consistent with Section 6 of the Act, in general, and with Section 6(b)(4) of the Act, in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities.
15 U.S.C. 78f.
B. Self-Regulatory Organization's Statement on Burden on Competition
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
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 proposed rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder, because it establishes or changes a due, fee, or other charge.
17 CFR 240.19b-4(f)(2).
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.
See note 3 supra.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including 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. Comments should be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-Amex-2004-09. This file number should be included on the subject line if e-mail is used. To help the Commission process and review comments more efficiently, comments should be sent in hard copy or by e-mail but not by both methods. 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 Amex. All submissions should be submitted by March 31, 2004.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-5378 Filed 3-9-04; 8:45 am]
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