

[Federal Register: December 29, 2005 (Volume 70, Number 249)]
[Notices]               
[Page 77204-77207]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de05-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52994; File No. SR-Amex-2005-122]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto Relating to Exchange Traded Fund 
Transaction Charges

December 21, 2005.
    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 November 29, 2005, 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 
December 14, 2005, the Amex submitted Amendment No. 1 to the proposed 
rule change. On December 21, 2005, the Amex submitted Amendment No. 2 
to the proposed rule change. The Amex has designated this proposal, as 
amended, as one changing a fee imposed by the Amex under 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

[[Page 77205]]

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\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 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 Amex proposes to revise a variety of transaction fees that 
Exchange members are charged for executions on the Exchange in 
connection with transactions in exchange traded fund shares (``ETFs'') 
and trust issued receipts (``TIRs'') (collectively, ``Exchange Traded 
Funds''). The text of the proposed rule change, as amended, is 
available on the Amex's Web site (http://www.amex.com), at the Amex's 

Office of the Secretary, 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 Amex included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, 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

1. Purpose
    The Amex proposes to revise its Equity Fee Schedule and its 
Exchange Traded Funds and Trust Issued Receipts Fee Schedule (the 
``ETF/TIR Fee Schedule'') to revise the transaction fees applicable to 
Exchange members in connection with Exchange Traded Funds. The Amex 
states that these fee changes will be assessed on Exchange members 
commencing December 1, 2005.
    For the purpose of clarity, the Exchange proposes to eliminate in 
the Equity Fee Schedule references to Exchange Traded Funds, as 
applicable. Those sections of the Equity Fee Schedule that relate 
solely to Exchange Traded Funds will be deleted and, if necessary, 
added to the ETF/TIR Fee Schedule. In this manner, equities and 
Exchange Traded Funds will now have separate and distinct fee 
schedules.
    The Exchange proposes the following changes to the ETF/TIR Fee 
Schedule: (i) adoption of transaction charges for all market 
participants of $0.34 per 100 shares per trade for all Exchange Traded 
Funds (except the SPDR O-Strip); (ii) adoption of transaction charges 
for all market participants of $0.50 per 100 shares per trade in 
connection with the SPDR O-Strip; (iii) elimination of customer 
transaction charge fee waivers for the ETFs listed in Note 2 to the 
Equity Fee Schedule and Note 3 of the ETF/TIR Fee Schedule; (iv) 
elimination of the fee suspensions for specialists, registered traders 
and broker-dealers in connection with iShares Lehman 1-3 Year Treasury 
Bond Fund (``SHY''), iShares Lehman 7-10 Year Treasury Bond Fund 
(``IEF''), iShares Lehman 20+ Year Treasury Bond Fund (``TLT'') and 
iShares Goldman Sachs InvestTop Corporate Bond Fund (``LQD''); (v) 
elimination of the transaction fee waivers in connection with ETFs that 
are executed as part of an exchange-for-physical transaction (``EFP''); 
(vi) addition of the ``Order Cancellation Fee'' previously set forth 
only in the Equity Fee Schedule; (vii) reduction of the current 
exemption for transaction charges for electronic orders from up to 
5,099 shares to up to 2,400 shares; and (viii) renaming of the 
``Regulatory Fee'' as the ``Value Based Fee.''
    The Amex currently charges members transaction fees on a per trade 
basis for Exchange Traded Funds transactions executed on the Exchange. 
The current transaction charges are shown in the table below.

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                                                Specialists               Registered traders                 Customer/broker-dealer (off-floor)
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                                       I. Transaction Charges for ETFs Without Unreimbursed Fees to a Third Party
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Per Share Side.......................  $0.0033 ($0.33 per 100        $0.0036 ($.36 per 100         $0.0060 ($.60 per 100 shares)
                                        shares).                      shares).
Subject to the following per trade     $300 (90,909 shares)........  $300 (83,333 shares)........  $100 (16,667 shares).
 maximums.
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                             II. Transaction Charges for ETFs for which the Exchange Pays Unreimbursed Fees to a Third Party
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Per Share Side.......................  $0.0037 ($0.37 per 100        $0.0038 ($0.50 per 100        $0.0060 ($.60 per 100 shares)
                                        shares).                      shares).
Subject to the following per trade     $300 (81,081 shares)........  $300 (78,947 shares)........  $100 (16,667 shares).
 maximums.
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                                                        III. Transaction Charges for SPDR O-Strip
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Per Share Side.......................  $0.0050 ($0.50 per 100        $0.0050 ($0.50 per 100        $0.0060
                                        shares.                       shares).
Subject to the following per trade     $300 (60,000 shares)........  $300 (60,000 shares)........  $100 (16,667 shares).
 maximums.
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                                           IV. Transaction Charges for iShares FTSE/Xinhua China 25 Index Fund
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Per Share Side.......................  $0.0039 ($0.39 per 100        $0.0042 ($0.42 per 100        $0.0060
                                        shares).                      shares).
Subject to the following per trade     $300 (76,923 shares)........  $300 (71,428 shares)........  $100 (16,667 shares).
 maximums.
The proposed revision to the per trade transaction charge in connection with Exchange Traded Funds executed on the Exchange are set forth below.
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                                             I. Transaction Charges for ETFs/TIRs (except the SPDR O-Strip)
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Per Share Side.......................  $0.0034 ($0.34 per 100        $0.0034 ($.34 per 100         $0.0034 ($.34 per 100 shares)
                                        shares).                      shares).
Subject to the following per trade     $300 (88,235 shares)........  $300 (88,235 shares)........  $100 (29,411 shares).
 maximums.
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[[Page 77206]]


                                                        II. Transaction Charges for SPDR O-Strip
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Per Share Side.......................  $0.0050 ($0.50 per 100        $0.0050 ($.50 per 100         $0.0050 ($.50 per 100 shares)
                                        shares).                      shares).
Subject to the following per trade     $300 (60,000 shares)........  $300 (60,000 shares)........  $100 (20,000 shares).
 maximums.
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    The Exchange is proposing to clarify and simplify transaction 
charges applicable to Exchange Traded Funds that affect members and 
market participants. In particular, the Exchange believes that the 
proposal will attract additional order flow as a result of the 
reduction in the per share rate charge, especially in connection with 
customer and broker-dealer orders. Currently, the per share rate charge 
for customers and broker-dealer orders is $0.0060, or $0.60 per 100 
shares. The proposal will significantly reduce this charge by $0.0026 
per share to $0.0034 per share, or $0.34 per 100 shares. The Exchange 
believes that order flow providers will find this transaction fee 
reduction attractive.
    The Exchange is proposing to adopt a uniform Exchange Traded Fund 
transaction fee that is attractive to market participants and easier to 
calculate and administer. As stated above, the proposed transaction fee 
applicable to Exchange Traded Funds (except the SPDR O-Strip) will be 
$0.0034 per share, or $0.34 per 100 shares, subject to the existing fee 
cap per trade. The current transaction charge per trade is capped at 
$300 for specialists and registered traders and $100 for broker-dealers 
and customers. In connection with the SPDR O-Strip, the Exchange states 
that it proposes to levy a higher transaction charge due to a more 
expensive license agreement than is typically found in other ETFs. 
Specifically, the proposed transaction fee applicable to the SPDR O-
Strip will be $0.0050 per share, or $0.50 per 100 shares, subject to 
the existing fee cap per trade. The current transaction charge per 
trade is capped at $300 for specialists and registered traders and $100 
for broker-dealers and customers. In addition, specialist transaction 
charges will continue to be capped at $400,000 per month per specialist 
unit.
    For clarity and ease of administration, the Exchange believes that 
the elimination of various transaction fee waivers is warranted. As a 
result, customer transaction charge fee waivers for the ETFs listed in 
Note 2 of the Equity Fee Schedule and Note 3 of the ETF/TIR Fee 
Schedule; fee suspensions for specialists, registered traders, and 
broker-dealers in connection with SHY, IEF, TLT, and LQD; and 
transaction fee waivers in connection with ETFs that are executed as 
part of an EFP will be terminated in connection with this proposal. The 
existing specialist fee waiver in connection with QQQQ trades will 
continue to apply and will expire as expected on December 31, 2005.\5\
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    \5\ See Securities Exchange Act Release No. 52736 (November 4, 
2005), 70 FR 69171 (November 14, 2005).
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    The ``Order Cancellation Fee'' applicable to Exchange Traded Funds 
is currently set forth in the Equity Fee Schedule.\6\ In order to 
provide a ``stand alone'' fee schedule for Exchange Traded Funds, the 
``Order Cancellation Fee'' section in the Equity Fee Schedule will also 
be set forth in the ETF/TIR Fee Schedule.
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    \6\ See Securities Exchange Act Release No. 52533 (September 29, 
2005), 70 FR 58496 (October 6, 2005) (SR-Amex-2005-085).
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    The Exchange further proposes that orders entered electronically 
into the Amex Order File from off the Floor (``System Orders'') for up 
to 2,400 shares in Exchange Traded Funds will not be assessed a 
transaction charge. The current ETF/TIR Fee Schedule provides that up 
to 5,099 shares in Exchange Traded Funds are not assessed a transaction 
charge. As is the case in the existing Fee Schedule, this provision 
does not apply to System Orders of a member or member organization 
trading as an agent for the account of a non-member competing market 
maker.\7\ Therefore, this limited fee exemption is not available to 
non-member competing market makers.\8\ The Amex states that this 
limited fee exemption was originally intended to attract ``smaller 
orders'' to the Exchange. However, as the size of orders that are 
deemed ``small'' continues to decrease, the Exchange believes that the 
proposed modification to the transaction fee exemption will reflect 
this reality. In addition, the Exchange submits that reducing the fee 
exemption for System Orders from 5,099 shares to 2,400 shares should 
help generate additional revenue to fund Exchange operations.
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    \7\ The Amex states that a ``competing market maker'' is defined 
as a specialist or market maker registered as such on a registered 
stock exchange (other than the Amex), or a market maker bidding and 
offering over-the-counter, in an Amex-traded security.
    \8\ The Exchange states that it intends to revise its rules to 
conform to Rule 610 of Regulation NMS prior to the compliance date 
of such rule.
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    The Exchange has also proposed to change the name of the 
``Regulatory Fee'' to ``Value Based Fee.'' \9\ As with the current 
``Regulatory Fee,'' the Amex states that the ``Value Based Fee'' will 
only be applied to System Orders entered by a member or member 
organization trading as agent for the account of a non-member competing 
market maker.\10\ The rate of the fee (.000075) also will not change. 
The Exchange submits that changing the name of the ``Regulatory Fee'' 
to ``Value Based Fee'' better reflects the intent and type of this fee. 
The System Orders of all other market participants will continue to not 
be subject to this Value Based Fee. The Exchange states that the 
proposed language set forth under the ``Value Based Fee'' Section is 
identical in operation and meaning to the existing text of the 
``Regulatory Fee.'' Accordingly, the Exchange states that the operation 
of the ``Value Based Fee'' will be applied identically to the current 
``Regulatory Fee'' in the ETF/TIR Fee Schedule.
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    \9\ The Exchange submits that its regulatory obligations are 
funded by numerous sources.
    \10\ The Exchange states that it intends to revise its rules to 
conform to Rule 610 of Regulation NMS prior to the compliance date 
of such rule.
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    The Exchange believes that the proposed revision to Exchange Traded 
Funds transaction fees will benefit the Exchange by providing greater 
incentive for market participants to send order flow to the Amex. In 
addition, the revision also clarifies the transaction fees that market 
participants will be charged for transactions in Exchange Traded Funds 
due to the elimination of various fee waivers that are currently part 
of the ETF/TIR Fee Schedule.
    The Exchange submits that this proposal to revise Exchange Traded 
Funds transaction fees applicable to Exchange members is consistent 
with section 6(b)(4) of the Act.\11\ The Exchange believes that the 
proposal provides for an equitable allocation of reasonable fees among 
Exchange members largely through the adoption of a uniform transaction 
fee for Exchange Traded Funds and the elimination of various fee 
waivers. In addition, the Exchange expects the

[[Page 77207]]

proposal to attract additional order flow largely due to the 
simplification and reduction of per share fee rates, especially in 
connection with customer and broker-dealer orders. Therefore, the 
Exchange maintains that the proposed Exchange Traded Funds transaction 
fee changes, in the aggregate, are an equitable allocation of 
reasonable fees among Exchange members.
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    \11\ 15 U.S.C. 78f(b)(4).
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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) of the Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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, as 
amended, will impose any inappropriate burden on competition 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 either solicited or received.

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

    The foregoing proposed rule change, as amended, has been designated 
as a fee change pursuant to section 19(b)(3)(A)(ii) of the Act \14\ and 
Rule 19b-4(f)(2) \15\ thereunder, because it establishes or changes a 
due, fee, or other charge imposed by the Exchange. Accordingly, the 
proposal, as amended, will take effect upon filing with the Commission. 
At any time within 60 days of the filing of such 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\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \15\ 17 CFR 240.19b-4(f)(2).
    \16\ The effective date of the original proposed rule change is 
November 29, 2005, the effective date of Amendment No. 1 is December 
14, 2005, and the effective date of Amendment No. 2 is December 21, 
2005. For purposes of calculating the 60-day 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 December 21, 2005, the date on 
which the Exchange submitted Amendment No. 2. 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 rule-comments@sec.gov. Please include 

File Number SR-Amex-2005-122 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-Amex-2005-122. 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, 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 also will be available for 
inspection and copying at the principal office of the 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-2005-122 and should be 
submitted on or before January 19, 2006.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-8059 Filed 12-28-05; 8:45 am]

BILLING CODE 8010-01-P
