[Federal Register: March 13, 2006 (Volume 71, Number 48)]
[Notices]
[Page 12745-12747]
[DOCID:fr13mr06-87]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53415; File No. SR-Amex-2006-10]

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 Its Fee Cap Program for Certain
Options Spread Trades

March 3, 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 February 2, 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, II
and III below, which items have been prepared by Amex. On February 28,
2006, Amex submitted Amendment No. 1 to the proposed rule change.\3\
Amex has designated the proposed rule change, as amended, as one
establishing or changing a due, fee, or other charge, pursuant to
Section 19(b)(3)(A)(ii) of the Act \4\ and Rule 19b-4(f)(2)
thereunder,\5\ which renders the proposal effective upon filing with
the Commission. The Commission is

publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, Amex proposes to make the revised fee
cap program for dividend spreads, merger spreads, and short stock
interest spreads a six-month pilot program expiring August 1, 2006.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend the Options Fee Schedule relating to
its fee cap program for certain options spread trades.
    The text of the proposed rule change, as amended, 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
    Currently, the Exchange provides a fee cap program in which it
limits to $2,000 per trade the transaction, comparison and 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.\6\ The fee cap
program does not apply to the license fees that are charged for
transactions in some option classes. The program requires the
submission to the Exchange of a Fee Reimbursement Form together with
appropriate documentation for fees collected in excess of the cap to be
reimbursed to the non-customer market participants. Currently, there is
no time limit within which the Fee Reimbursement Form must be
submitted.
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    \6\ 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 stock
interest spreads.
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    Over the years, the execution of certain types of spread trades
have grown in popularity--in particular, option transactions that are
part of dividend spreads \7\, merger spreads,\8\ and short stock
interest spreads \9\ have grown significantly with two to three million
contracts a day being executed. In order to become more competitive
with fee cap programs in place at other options exchanges, the Exchange
is now proposing to revise its cap program. The following revisions are
being proposed:
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    \7\ A dividend spread transaction is defined as any trade done
to achieve a dividend arbitrage between any two deep-in-the-money
options.
    \8\ 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).
    \9\ 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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    First, for dividend spreads, merger spreads, and short stock
interest spreads, the Exchange proposes 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 reduce the amount of fees charged before
the cap is applied to $1,000 per day. The Exchange is making these
revisions to its fee cap program to match similar fee cap programs at
other exchanges.\10\
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    \10\ See PCX Options Fee Schedule and Securities Exchange Act
Release No. 53171 (January 24, 2006) (SR-CBOE-2005-117).
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    Second, the Exchange proposes 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
purpose of this revision is to also match similar fee cap programs at
other exchanges.\11\
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    \11\ Id.
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    Third, the Exchange proposes to provide a $2,000 per trade cap on
transaction-based fees charged to members for customer box spread
transactions \12\ in index options. The recent options fee increases
have significantly altered the economics for customers engaging in box
spread transactions in index options. In order to retain this type of
order flow, the Exchange is proposing ro expand the fee cap program to
customer box transactions in index options as a way of remaining
competitive with the other options exchanges.
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    \12\ This is a combination of a long synthetic stock or index
position (long call plus short put) and a short synthetic stock
position (long put plus short call), which expire simultaneously and
have different strike prices. Box spreads are used primarily to
``borrow'' or ``lend'' money. A lender is said to ``buy'' the box
and a borrower is said to ``sell'' the box. Boxes are evaluated
essentially on the basis of returns on the cash they tie up or free
up.
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    Fourth, the Exchange proposes to establish that the Fee
Reimbursement Form must be submitted within three business days of the
transaction. The Exchange believes that a limited time for submission
of the Form will assist it in more efficiently processing the
reimbursement requests and that while the timeframe is limited, market
participants, including firms seeking reimbursements for transaction-
based fees charged for customer box spreads, should be able to meet the
proposed deadline, which is already in effect at other options
exchanges with similar fee cap programs.
    Lastly, the Exchange proposes to establish the revised fee cap
program for dividend spreads, merger spreads, and short stock interest
spreads as a six-month pilot program expiring August 1, 2006. The
Exchange intends to implement the proposed revisions to the fee cap
program effective February 6, 2006.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of Section
6(b)(4) \14\ in particular in that it is intended to assure 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.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex believes that the proposed rule change, as amended, does 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, as amended.

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 \15\ and subparagraph
(f)(2) of Rule 19b-4 thereunder \16\ 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.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \16\ 17 CFR 240.19b-4(f)(2).
    \17\ The effective date of the original proposed rule change is
February 2, 2006, the date of the original filing, and the effective
date of Amendment No. 1 is February 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 February 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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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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number SR-Amex-2006-10 on the subject line.

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-2006-10. 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-2006-10 and should be submitted on or before April 3, 2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
Nancy M. Morris,
Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-3497 Filed 3-10-06; 8:45 am]

BILLING CODE 8010-01-P