[Federal Register: June 3, 2003 (Volume 68, Number 106)]
[Notices]
[Page 33216-33217]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03jn03-158]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47928; File No. SR-Amex-2003-26]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change by the American Stock Exchange
LLC Relating to ETF and Index Options Subject to an Annual Minimum
Guaranteed License Fee
May 27, 2003.
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 April 14, 2003, 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. On May
13, 2003, the Exchange filed Amendment No. 1 to the proposed rule
change.\3\ On May 23, 2003, the Exchange filed Amendment No. 2 to the
proposed rule change.\4\ The Exchange has designated this proposal as
one establishing or changing a due, fee or other charge imposed by the
self-regulatory organization under section 19(b)(3)(A)(ii) of the Act
\5\ and Rule 19b-4(f)(2) thereunder,\6\ which renders the proposed rule
change 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\ See letter from Jeffrey P. Burns, Associate General Counsel,
Amex, to John S. Polise, Senior Special Counsel, Division of Market
Regulation (``Division''), Commission, dated May 9, 2003
(``Amendment No. 1''). In Amendment No. 1, the Exchange replaced the
proposed rule text in its entirety.
\4\ See letter from Jeffrey P. Burns, Associate General Counsel,
Amex, to John S. Polise, Senior Special Counsel, Division,
Commission, dated May 22, 2003 (``Amendment No. 2''). In Amendment
No. 2, the Exchange replaced Amendment No. 1 in its entirety. 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 the period
to commence on May 23, 2003, the date the Exchange filed Amendment
No. 2. See 15 U.S.C. 78s(b)(3)(C).
\5\ 15 U.S.C. 78s(b)(3)(A)(ii).
\6\ 17 C.F.R. 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 its Options Fee Schedule to require
specialist units that are allocated exchange-traded fund (``ETF'') and/
or index options subject to an annual minimum guaranteed license fee
amount to pay the Exchange for non-reimbursed index license fees
associated with such options. The text of the proposed rule change is
available at the Office of the Secretary, 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 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 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 Exchange has entered into numerous agreements with issuers and
owners of indexes for the purpose of trading options on ETFs and
securities indexes. This requirement to pay an index license fee to
third parties is a condition to the listing and trading of these index-
based options. In many cases, the Exchange is required to pay a
significant licensing fee to issuers or index owners, which may not be
reimbursed. In an effort to recoup the costs associated with index
licenses, the Exchange previously established a licensing fee for
specialists and registered options traders (``ROTs'') that is collected
on every transaction in designated products in which a specialist and
ROT is a party.\7\ The licensing fee currently imposed on specialists
and ROTs is as follows: (1) $0.10 per contract side for options on the
Nasdaq-100 Index Tracking Stock (QQQ), the Nasdaq-100 Index (NDX), the
Mini-NDX (MNX) and the iShares Goldman Sachs Corporate Bond Fund (LQD);
(2) $0.09 per contract side for options on the iShares Cohen & Steers
Realty Majors Index Fund (ICF) and (3) $0.05 per contract side for
options on the S&P 100 iShares (OEF).
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\7\ See Securities Exchange Act Release No. 45163 (December 18,
2001), 66 FR 66958 (December 27, 2001).
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The Exchange represents that several index license providers have
recently suggested that an annual guaranteed license fee be considered
for the right to use an index regardless of the volume of trading of
the particular ETF option or index option. Although the Exchange to
date has not entered into a significant guaranteed license fee
arrangement, it is expected that this practice will become more common
in the future. Accordingly, the Amex represents that the Exchange's
current licensing fee (as detailed above) based on the trading volume
of the particular ETF option and/or index option may not provide the
Exchange with sufficient revenue for it to be able to recoup annual
index licensing fees.
As a result, the Exchange proposes to amend its Options Fee
Schedule to require specialists allocated ETF and index options to pay,
on an annual basis, any non-reimbursed costs of the Exchange resulting
from index license agreements that are subject to a recurring annual
guaranteed licensing fee. The Exchange represents that any payment made
by specialists to the Exchange pursuant to this filing would reflect
only actual non-reimbursed costs of the Exchange in connection with the
trading of the allocated ETF and/or index option, which are not offset
by any other fees imposed by the Exchange (such as the per contract
license fee noted above). The Exchange further submits that it will
inform specialists that may wish to be allocated ETF options and index
options that they may be subject to annual index license fees, and that
such fees may be separate and additional from any per contract license
fee that may also be charged to the specialist and ROT in connection
with the trading of such product.
The Exchange believes that it is reasonable for it to recoup non-
reimbursed expenses on an annual basis, that are directly associated
with index license agreements that are subject to an annual guaranteed
licensing fee. The Exchange submits that the existence of non-
reimbursed actual costs associated with guaranteed index license fee
arrangements would trigger the requirement that the specialist pay the
non-reimbursed index
[[Page 33217]]
license fee of the Exchange less any fees imposed by the Exchange that
may offset the non-reimbursed license fee.
The Exchange asserts that a guaranteed license fee payment in
connection with ETF and index options can be counter-productive in
connection with the ability of the Exchange to offer new index
products, if such products, do not trade in sufficient volumes to
satisfy the Exchange's contractual commitments. Accordingly, the
Exchange believes that requiring specialists units that are allocated
ETF options and/or index options to pay the non-reimbursed license fee
of the Exchange related to such product(s) is justified and consistent
with the rules of the Exchange and the Act. In addition, the Exchange
believes that the administration of this non-reimbursed license fee by
passing it along to the specialist allocated to the particular index-
based option is more efficient and consistent with the intent of the
Exchange to pass on its non-reimbursed costs to those market
participants that benefit.
The Exchange notes that the Amex in recent years has increased a
number of member fees to better align Exchange fees with the actual
cost of delivering services and reduce Exchange subsidies of such
services.\8\ The Exchange believes that implementation of this
amendment to the Options Fee Schedule is further consistent with such
reduced or eliminated subsidies.
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\8\ See Release Nos. 34-45360 (January 29, 2002), 67 FR 5626
(February 6, 2002); and 34-44286 (May 9, 2001), 66 FR 27187 (May 16,
2001). In addition, the Chicago Board of Options Exchange (``CBOE'')
recently made a change to its fee schedule relating to the pass-
through of periodic license or royalty fees. See Release No. 34-
47169 (January 13, 2003), 68 FR 2596 (January 17, 2003). Telephone
conversation between Jeffrey P. Burns, Associate General Counsel,
Exchange, and Ann E. Leddy, Attorney, Division of Market Regulation,
Commission (April 29, 2003).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\9\ in general, and Section 6(b)(4) of the
Act,\10\ in particular, in that it provides for the equitable
allocation of reasonable dues, fees, and other charges among its
members.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(4).
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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
Written comments were neither solicited nor 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 immediately effective pursuant
to section 19(b)(3)(A)(ii) of the Act,\11\ and subparagraph (f)(2) of
Rule 19b-4 thereunder,\12\ in that it establishes or changes a due,
fee, or other charge imposed by the self-regulatory organization. At
any time within 60 days of the filing of such proposed rule change, the
Commission may summarily abrogate the 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.
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
\12\ 17 CFR 240.19b-4(f)(2).
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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. 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 Exchange. All submissions should refer to File
No. SR-Amex-2003-26 and should be submitted by June 24, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-13770 Filed 6-2-03; 8:45 am]
BILLING CODE 8010-01-P