[Federal Register Volume 59, Number 11 (Tuesday, January 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1101]


[[Page Unknown]]

[Federal Register: January 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33448; File No. SR-Amex-92-10]

 

Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Various Rule Revisions

January 10, 1994.

I. Introduction

    On February 28, 1992, the American Stock Exchange, Inc. (``Amex'' 
or ``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'')\1\ and 
Rule 19b-4 thereunder,\2\ a proposal to amend various exchange rules. 
On May 4, 1992, the Amex submitted to the Commission Amendment No. 1 to 
the proposal.\3\ On June 2, 1992, the Amex submitted to the Commission 
Amendment No. 2 to the proposal.\4\ On June 25, 1993, the Amex 
submitted to the Commission Amendment No. 3 to the proposal.\5\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\The Amex submitted a letter to the Commission adding proposed 
Commentary .03(d) to Rule 111, Restrictions on Registered Traders, 
to state that members who are not regular members (as defined in 
Article IV of the Amex Constitution) may enter orders in accordance 
with Commentary .03, as described below, only in securities which 
members of their class are otherwise entitled to trade while on the 
Floor of the Exchange. Amendment No. 1 also would amend Rule 950(c), 
Floor Rules Applicable to Options, to provide that Rule 111 and 
certain of its commentaries shall apply to options transactions. See 
letter from Geraldine Brindisi, Corporate Secretary, Amex, to Mary 
Revell, Branch Chief, Exchange Branch, Division of Market 
Regulation, Commission, dated May 1, 1992.
    \4\The Amex submitted a letter to the Commission requesting that 
its proposed amendment to Rule 170, Commentary .02, which would 
permit specialists to liquidate positions in specialty stocks on 
zero destabilizing ticks without Floor Official approval, be 
withdrawn from the instant proposed rule change. See letter from 
Claudia Crowley, Special Counsel, Legal and Regulatory Policy 
Division, Amex, to Mary Revell, Branch Chief, Exchange Branch, 
Division of Market Regulation, Commission, dated May 29, 1992. 
Proposed Rule 170 was refiled in File No. SR-Amex-92-26.
    \5\Amendment No. 3 proposes additional changes to Rules 7, 
108(c), 115 and 131(h). The proposed changes include: minor 
revisions to Rule 7, Commentary .01, in order to conform the reprint 
of Exchange Act Rule 10a-1 contained in the rule to its actual text; 
changes to Amex Rule 108(c), to include a citation to Section 11(a) 
of the Exchange Act; minor revisions to Rule 115, Commentary .02, to 
conform the reprint of Exchange Act Rule 11Ac1-1 to its actual text; 
minor clarifying language changes to Amex Rule 131(h). See letter 
from Geraldine Brindisi, Corporate Secretary, Amex, to Diana Luka-
Hopson, Branch Chief, Exchange Branch, Division of Market 
Regulation, Commission, dated June 24, 1993.
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    Notice of the proposal appeared in the Federal Register on July 9, 
1993.\6\ No comments were received on the proposal. This order approves 
the proposed rule changes.
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    \6\See Securities Exchange Act Release No. 32572 (July 1, 1993), 
58 FR 37041 (July 9, 1993).
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II. Discussion and Findings

    The Exchange conducted a review of its rules and determined that 
certain revisions were necessary to conform the Amex rules to recent 
changes to comparable NYSE rules or to update certain rules which 
contain provisions which are no longer applicable or which fail to 
address current concerns.\7\
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    \7\The Exchange proposed various revisions to Rules 2, 6, 7, 22, 
103, 108, 110, 111, 115, 124, 126, 131, 134, 135, 154, 155, 156, 
178, 179, 419, 420, 550, 560, 950 and 959.
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    The Commission has carefully reviewed the Amex's proposed rule 
changes and concludes that the proposed changes are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange and, in particular, with 
sections 6(b)(5), 6(b)(8), 11(b), and 11A(a)(1) of the Act.\8\ The 
Commission supports the Amex's efforts to continue to review the form 
and substance of market trading regulation in response to changes in 
market structure. The Commission believes that it is important to 
market quality that the Exchange have a regulatory program that is 
tailored to the current market structure. The Commission believes that 
the proposed rule changes will be helpful in updating the Amex market 
structure and trading rules and will further the purposes of the 
Act.\9\ The Commission's detailed discussion regarding the significant 
changes proposed by the Amex follows.
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    \8\15 U.S.C. 78f(b)(5), 78f(b)(8), 78k(b), and 78k-1(a)(1) 
(1988).
    \9\The texts of the actual Exchange rules to be amended and 
complete descriptions of the proposed amendments are set forth in 
the Exchange's original filing and in Amendments No. 1, 2 and 3 
thereto, all of which are available for inspection at the Commission 
and at the principal office of the NYSE.
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    The Amex proposes to amend several rules so that they correctly 
identify exchange procedures or facilities. The Commission believes 
that these rule changes are appropriate and logical revisions to the 
Amex Rules.\10\
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    \10\The Exchange proposes the following such changes:
     Rule 2--Visitors: Currently, this rule refers to the admission 
of visitors to the ``Gallery'' and the ``Trading Floor.'' The 
Commission agrees that since the ``Gallery'' has been non-existent 
for many years, reference to it should be deleted.
    Rules 6 and 550--Execution of Bonds on Exchange and Secondary 
Distributions: Currently, these rules refer to the ``Rulings and 
Inquiries Department'' as the department at the Amex to be contacted 
relative to those rules. Such department no longer exists 
(``Rulings'' and ``Inquiries'' are separate departments). The 
Commission therefore agrees that the reference should be changed to 
the ``Rulings Department.''
    Rule 7--Short Sales: Commentary .01 is a reprint of Exchange Act 
Rule 10a-1. The Exchange states that the reprint is an outdated 
version of the Commission rule and should be revised. Amendment No. 
3 proposed minor language changes to conform the reprint of Exchange 
Act Rule 10a-1, which is contained in Commentary .01 of the rule, to 
its official format. The Commission believes that the proposed 
amendment makes appropriate conforming changes and should therefore 
be approved.
    Rule 22--Authority of Floor Officials: This rule contains a 
cross reference which lists seventeen rules upon which Floor 
Officials may rule. Currently, however, there are at least three 
other rules relating to the duties and powers of floor officials 
which are not included in the list, and with future rule revisions, 
additional rules will provide for Floor Official involvement. Rather 
than attempt to provide an all-inclusive list, the Amex proposes 
that the cross reference in Rule 22 be deleted. The Commission 
believes that the proposed changes are appropriate and should 
therefore be approved.
    Rule 134--Cash and Seller's Option Transactions: This rule 
requires Floor Official oversight for two transactions that are not 
``regular way''--``cash'' and ``seller's option'' transactions. 
Although ``next day'' transactions are also not ``regular way'' 
transactions, they are not included in the rule. The Exchange states 
that this appears to have been an oversight at the time Rule 124 was 
revised to permit ``any additional settlement periods as the 
Exchange may from time to time determine.'' Therefore, the 
Commission agrees that ``next day'' transactions should be referred 
to in Rule 134.
    Rule 178--Responsibility of Specialist: This rule establishes 
the liability for losses in those situations where a member firm has 
not received a report from the specialist on an order that was 
executed or should have been executed. The Exchange states that 
time-frames cited in the current rule are no longer appropriate in 
view of the time limits set forth in Rule 719 regarding ``Next Day 
Comparison of Exchange Transactions.'' The Commission agrees that 
Rule 178 should therefore be revised to conform its time limits to 
Rule 719.
    Rule 179--Orders in Rights: Because this rule also applies to 
warrants, the title of this rule should be redesignated as ``Orders 
in Rights and Warrants.'' The Commission agrees that this change is 
appropriate.
    Rules 419 and 420--Statements of Accounts and Mailing 
Statements: Commentaries to both rules refer to ``Membership 
Compliance Division.'' The Exchange states that the correct title of 
that division is ``Compliance and Surveillance Division'' and the 
commentaries to both rules should be revised to reflect that title. 
The Commission agrees that these changes are appropriate.
    Rule 560 (i)--Special Offerings and Special Bids: Paragraph (i) 
incorporates the provisions of former Article VI, which governed 
floor brokerage commissions, into Rule 560. The Exchange states that 
Paragraph (i), however, should be deleted since Article VI, to which 
it relates, was rescinded in 1976. The Commission agrees that this 
change is appropriate.
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    The Amex proposes to amend other rules so that such rules either 
conform to similar NYSE Rules, are made clear, or are responsive to 
current market conditions. The Commission believes that these rule 
changes are also appropriate and logical revisions to Amex Rules. These 
rule changes are discussed below.
    Rule 103(a)--Dealings When Option Granted or Held: Rule 103(a) 
prohibits a member, while on the floor, from buying or selling any 
stock if the member or his firm holds or has granted an option to buy 
or sell the stock. This rule was adopted prior to 1961. In December 
1985, Exchange Act Rule 175 was revised to permit a stock specialist to 
hedge his stock position with options.\11\ The Exchange asserts that 
Rule 103(a) should, therefore, similarly be revised to permit a stock 
specialist to engage in listed options transactions to hedge his stock 
position.
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    \11\See Securities Exchange Act Release No. 22670 (November 27, 
1985), 50 FR 49808 (December 4, 1985) (File No. SR-Amex-85-18).
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    The Commission believes that this rule change is appropriate in 
order to ensure uniformity among Amex Rules and in order to conform 
Amex Rules to Exchange Act Rule 175. This change will serve to 
facilitate transactions pursuant to section 6(b)(5) of the Act.\12\
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    \12\15 U.S.C. 78f(b)(5) (1988).
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    Rule 103(c)--Discretionary Transactions: This rule provision 
prohibits the regular or options principal member, while on the floor, 
from executing or causing to be executed on the Exchange\13\ any 
transaction for the purchase or sale of any security with respect to 
which transaction such member is vested with discretion as to the 
choice of a security to be bought or sold, the total amount of any 
security to be bought or sold, or whether any such transaction shall be 
one of purchase or sale. The prohibition applies except when the member 
is executing a transaction for a bona fide cash investment account or 
for the account of a person who due to illness, absence, etc., is 
unable to effect transactions for his own account. It is proposed that 
the exceptions be deleted since they are not appropriate in today's 
market. The NYSE has adopted a similar revision to a comparable 
rule.\14\
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    \13\This includes by means of the issuance or acceptance of a 
commitment or obligation to trade.
    \14\The Amex states that the proposed amendment is based on NYSE 
Rule 95.
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    The Commission agrees that the proposed amendment to Rule 103(c) is 
substantially similar to recent revisions to NYSE Rule 95 and therefore 
should be approved. In the Commission's order approving the NYSE's 
amendments to Rule 95, we stated that the deletion of the exceptions 
would strengthen the rule by further limiting the authority of members 
to execute discretionary orders.\15\ This change will help to prevent 
fraudulent and manipulative acts and practices in accordance with 
section 6(b)(5) of the Act.\16\
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    \15\See Securities Exchange Act Release No. 29318 (June 17, 
1991), 56 FR 28937 (June 25, 1991).
    \16\See supra footnote 12.
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    Rule 108--Priority and Parity at Openings: Paragraph (c) discusses 
parity at openings of limit orders in the crowd with orders on the 
specialist's book. The Exchange states that because Exchange Act Rule 
11a1-1 impacts on the types of orders which may be on parity, Rule 
108(c) should include a reference to it.\17\
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    \17\Amendment No. 3 further amends Rule 108(c) to include a 
citation to Section 11a of the Exchange Act.
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    The Commission agrees that it is appropriate for Rule 108 to 
include a reference to Exchange Act Rule 11a1-1 since it specifically 
deals with transactions yielding priority, parity, and precedence. This 
change is designed to promote just and equitable principles of trade 
pursuant to section 6(b)(5) of the Act\18\ as it will serve to clarify 
Rule 108.
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    \18\See supra footnote 12.
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    Rules 110 and 111--Registered Traders and Restrictions on 
Registered Traders: These rules, which provide that only members 
registered as traders may trade for their own accounts while on the 
Trading Floor, were adopted in 1964 to restrict on-floor transactions 
by floor members, who, it was believed, had trading advantages due to 
their presence on the trading floor when market news unfolded, and due 
to their ability to quickly react to such information. The Exchange 
believes that since current communications technology makes information 
readily available to off-floor market participants, there is no reason 
to continue to so restrict members' on-floor orders.\19\
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    \19\The Amex proposes to both add and delete language from 
Commentary .02 to Rule 111. Amex Rule 111, Commentary .02 says that 
the Rule 111 provisions do not apply to transactions initiated by 
registered traders for an account in which they have an interest, 
``unless such transactions, although originated off the floor, are 
deemed on-floor transactions under the provisions of these Rules.'' 
The Exchange proposes to delete the aforementioned quoted text from 
Commentary .02. The Exchange proposes to add the following to Rule 
111, Commentary .02: ``However, an off-floor order for an account in 
which a member has an interest is to be treated as an on-floor order 
if it is executed by the member who initiated it.'' The Commission 
believes that the changes to Commentary .02 to Rule 111 are 
appropriate clarifying changes to the Rule, and that these changes 
will not impose any burden on competition not necessary or 
appropriate in furtherance of the Act, in accordance with section 
6(b)(8) of the Act.
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    The Amex propose to rescind the current Rule 111, Commentary .03 
and adopt a new Commentary .03 (a) through (d).\20\ Such new commentary 
will permit members, while on the trading floor, to enter orders for 
their own accounts provided that such orders are entered through an on-
floor communications facility and sent to an off-floor clearing firm's 
order room where a time-stamped record of the order is maintained 
before the order is retransmitted to the trading floor.
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    \20\The Amex proposed new Commentary .03 Sections (a) through 
(c) in the original proposal and added Section (d) in a May 4, 1993, 
amendment to the proposal.
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    Proposed Commentary .03(a) generally provides that a member using a 
communication facility on the floor of the Exchange to enter an order 
for his own account shall be deemed to be initiating an off-floor order 
if such order is routed through a clearing firm's order room, where a 
time-stamped record of the order is maintained, before such order is 
re-transmitted to the floor for execution.
    Proposed Commentary .03(b) generally provides that any order 
entered by a member for any account in which it (or its officer, allied 
member or employee) is directly or indirectly interested, or for any 
discretionary account serviced by the member organization, following a 
conversation with the member or employee in that organization who is on 
the floor, shall be deemed to be an off-floor order, provided that such 
order is transmitted to the floor through an order room or other 
facility regularly used for the transmission of public orders to the 
floor; where a time-stamped record of the order is maintained; or an 
exception is available in Rule 111 (f), (g), or (h).
    The Commission believes that proposed Commentary .03 (a) and (b) to 
Rule 111 (Restrictions on Registered Traders) are substantially similar 
to those made to NYSE Rule 112.10 (Orders Initiated ``Off the Floor'') 
and those made to NYSE Rule 112.20 (``On the Floor'' and ``Off the 
Floor''); therefore the rationale for approval of both sets of rules is 
substantially the same. The Commission finds that the rules dealing 
with on-floor orders provide a practical means for a member on the 
floor to enter an order for his own account without having to 
physically leave the floor, as is currently necessary. The Commission 
further finds that the amendments to Rule 111, Commentary .03 (a) and 
(b) more accurately reflect the status of on and off-floor orders. The 
Commission believes that the requirement of routing on-floor orders 
upstairs and then back down to the floor will continue to prevent any 
undue advantage of floor immediacy from accruing to orders designated 
as off-floor.\21\
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    \21\The interpretation of ``off-floor'' contained in the 
amendments to Rule 111, Commentary .03 only applies to Rule 111 and 
does not govern or control the meaning of ``off the floor'' for 
purposes of Exchange Act Rule 11a2-2(T) (the ``effect versus 
execute'' rule).
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    Proposed Commentary .03(c) generally provides that no member shall 
execute or cause to be executed, on the Exchange, any order for any 
account in which such member, member organization, or any member, 
allied member, or approved person in such organization or officer or 
employee thereof, is interested or for any discretionary account 
serviced by the member, in contravention of any Exchange policy against 
frontrunning of transactions that the Exchange may from time to time 
adopt and make known to its members.
    The Commission believes that, like the similar NYSE Rule 
(112.20(d)), proposed Commentary .03(c) to Rule 111 promotes conduct 
consistent with just and equitable principles of trade, in accordance 
with section 6(b)(5) of the Act, by explicitly incorporating the 
frontrunning policy into rules governing competitive trader conduct.
    Proposed Commentary .03(d) generally provides that members who are 
not regular members (as described in Article IV of the Exchange 
Constitution) may enter orders in accordance with the Commentary .03 
only in securities which members of their class are otherwise entitled 
to trade while on the floor of the Exchange.
    The Commission believes that Commentary .03(d) (along with Rule 
950(c)) is appropriate in order to ensure that members other than 
registered traders, such as limited trading option permit holders, may 
enter orders for their accounts while on the floor.
    Rule 110--Registered Traders: In addition to the changes made to 
Rule 111, the Exchange also proposes to amend Rule 110 to add a 
reference to Rule 111. As amended, Rule 110 would provide that members 
may not initiate a transaction while on the floor for an account in 
which they have an interest unless the member is registered as a 
registered trader with the Exchange, except as provided in Rule 111, 
Commentary .03. The Commission believes that this revision permits Rule 
110 to maintain its proper relationship with Rule 111 as revised. The 
NYSE has adopted similar revisions to its comparable rules.\22\
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    \22\The Amex states that the proposed amendments are based on 
NYSE Rules 111 and 112.
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    The Commission believes that the changes to Rule 110 are 
appropriate unifying changes in furtherance of the purposes of the Act 
designed to promote just and equitable principles of trade which 
generally serve to protect investors and the public interest pursuant 
to section 6(b)(5) of the Act.\23\
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    \23\See supra footnote 12.
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    Rule 115--Exchange Procedures for Use of Unusual Market Exception: 
The Exchange proposes to add a new Commentary to Rule 115. This Rule 
contains exceptions to Exchange Act Rule 11Ac1-1, but currently there 
is no reference in Rule 115 to the requirements of Rule 11Ac1-1. The 
Exchange therefore proposes that Commentary .02 be added to Rule 115 to 
incorporate the text of Rule 11Ac1-1, as has been done by the NYSE in 
its Rule 60.\24\
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    \24\Amendment No. 3 proposes minor revisions in order to conform 
the reprint of Exchange Act Rule 11Ac1-1 which is contained in 
Commentary .02 to the rule, to the actual language of the Rule.
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    The Commission agrees that it is appropriate for Rule 115 to 
incorporate the text of Rule 11Ac1-1 in order to create a more thorough 
Rule, thereby providing the members with clearer guidance. This change 
will promote just and equitable principles of trade in accordance with 
section 6(b)(5) of the Act.\25\
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    \25\See supra footnote 12.
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    Rule 124(b)--Types of Bids and Offers: In discussing ``next day'' 
delivery of rights and warrants, the rule indicates that ``bids and 
offers in rights and warrants shall specify `next day' in accordance 
with Rule 17.'' The Exchange proposes that Rule 124 be revised to 
clarify that the reference in Rule 17 relates only to expiring rights 
and warrants.
    The Commission believes that the addition of the word ``expiring'' 
to Rule 124(b) is appropriate to clarify that the next day provisions 
discussed therein only refer to expiring rights and warrants. This 
change will, therefore, promote just and equitable principles of trade 
in accordance with section 6(b)(5) of the Act.\26\
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    \26\See supra footnote 12.
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    Rule 126(e)3--Precedence of Bids and Offers--Sale Removes All Bids: 
Paragraph 3 generally provides, with one exception, that a sale removes 
all bids from the floor.\27\ The Exchange proposes to amend paragraph 3 
of Rule 126(e) to add a provision stating that the aforementioned 
applies only when not in contravention of Exchange Act Rule 11Ac1-1.
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    \27\Rule 126(e)3 provides that a sale shall remove all bids from 
the floor except that, if the number of shares of stock or principal 
amount of bonds offered exceeds the number of shares or principal 
amount specified in the bid having precedence, a sale of the 
unfilled balance to other bidders shall be governed by the 
provisions of the Rules as though no sale had been made to the 
bidder having precedence.
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    The Commission believes that the aforementioned change to Rule 
126(e)3 is an appropriate clarifying change to the Rule.
    Rule 126(h)--Precedence of Bids and Offers--Disputes: Rule 126(h) 
provides that, unless resolved by the members involved, disputes shall 
be settled, if practicable, by a vote of witnesses to a trade, and if 
not so settled shall be settled by a Floor Official.\28\ It is proposed 
that the rule be revised (and redesignated 126(i) due to a change in 
another rule filing) to provide that disputes will be settled by a 
Floor Official who may, in his deliberations, consider the comments of 
witnesses, and where only the amount traded was in dispute, the size of 
the order held by those involved in the dispute. The NYSE has adopted a 
similar revision to its comparable rule.\29\
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    \28\Rule 136(h) also provides that said Floor Official may make 
separate and different rulings with respect to active openings when 
bids and offers are simultaneous and with respect to odd-lots.
    \29\The Amex states that the proposed amendment is based on NYSE 
Rule 75.
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    The Commission believes that, like the changes to NYSE Rule 75, the 
changes to Rule 126(i) appropriately increase the level of oversight 
brought to the resolution of trade disputes by removing the membership 
voting procedures and replacing them with specified factors for Floor 
Official consideration. This increased oversight will thus promote just 
and equitable principles of trade in accordance with section 6(b)(5) of 
the Act.\30\
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    \30\See supra footnote 12.
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    Rule 131(a)--Types of Orders--Market Orders: Rule 131(a) provides 
that a market order to buy or sell a stated amount of a security at the 
most advantageous price obtainable after the order is represented in 
the trading crowd. Rule 131(a) further provides that the 
responsibilities of brokers handling market, limited price, at the 
close, and not held orders are set forth in Rule 156. It is proposed 
that ``switch orders'' be included in the reference to the orders 
brokers handle. This revision follows the inclusion of such orders in 
Rule 156.
    The Commission believes that the addition of switch orders is 
appropriate as such orders are being added to Rule 156.
    Rule 131(f)--Types of Orders--At the Opening Order: It is proposed 
that the phrase ``at the opening of the stock'' be revised to clarify 
that an ``at the opening order'' is to be executed ``on the opening 
trade in the stock.'' This revision incorporates into the rule a policy 
that is currently in effect on the Exchange.
    The Commission believes that because the proposed amendment would 
clarify the definition of an at-the-opening order, it should be 
approved. The Commission agrees with the Exchange that the 
clarifications to the definition of ``at-the-opening-only'' orders 
should help remove any misconceptions about when such orders are 
eligible for execution. Accordingly, the proposed rule change clarifies 
that while an ``at-the-opening-only'' order is eligible to be executed 
only on an opening trade, such an order is not cancelled if the stock 
opens with a quotation rather than a trade. In addition, the NYSE has 
revised its comparable rule in the same manner.\31\
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    \31\See NYSE Rule 13.
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    Rule 131(h)--Do not reduce orders (``DNR''): Rule 131(h) relates to 
DNR orders, which are not reduced to reflect ordinary cash dividends 
but are reduced for other distributions such as when a stock goes 
``ex'' a stock dividend or ex rights. Currently, the rule defines DNR 
orders to include a limited order to buy, or a stop limit order to sell 
a round lot or odd lot or a stop order to sell an odd lot which is not 
to be reduced by the amount of an ordinary cash dividend on the ex-
dividend date. The rule further provides that a DNR order applies only 
to ordinary cash dividends; it should be reduced for other 
distributions such as when a stock goes ``ex'' a stock dividend or ex 
rights. The proposed change would add ``a stop order to sell'' to the 
list of DNR orders. The Exchange would also add ``a special cash 
dividend'' to the list which provides when a DNR order should be 
reduced for other distributions.\32\
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    \32\The Exchange states that the amended definition of a DNR 
order would be identical to the definition used by the NYSE.
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    The Amex states that in 1987, the Exchange changed Rule 154 to 
permit specialists to accept stop orders on round lots\33\ and 
therefore, it proposed to modify Rule 131(h) to include stop orders to 
sell round-lots.\34\ The Exchange would also like to add special cash 
dividends to the list providing when a DNR order should be reduced for 
other distributions because such dividends are unexpected and will not 
have otherwise been taken into account.
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    \33\See Securities Exchange Act Release No. 24021 (January 21, 
1987), 52 FR 3370 (February 3, 1987) (File No. SR-Amex-84-32).
    \34\Amendment No. 3 proposes minor clarifying language changes.
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    The Commission believes that the changes to Rule 131(h) bring this 
rule into conformance with other Amex Rules and lead to a correct 
definition of DNR orders in furtherance of the purposes of the Act. The 
changes promote just and equitable principles of trade in accordance 
with section 6(b)(5) of the Act.
    Rule 131(i)--Types of Orders--Fill or Kill: The definition of a 
``fill or kill'' order in this paragraph includes a reference to two 
other types of orders, ``immediate or cancel'' and ``all or none.'' The 
Exchange believes that these references incorrectly suggest that such 
orders are comparable in nature when these three types of orders have 
unique characteristics. For instance, a ``fill or kill'' order is to be 
executed in its entirety on presentation in the crowd or immediately 
cancelled. ``Immediate or cancel'' orders require an immediate 
execution of all or part of the order with the balance cancelled. The 
``all or none'' order is to be executed in its entirety in one 
transaction but is not cancelled if not executed immediately on 
presentation in the crowd. It is therefore proposed that the reference 
to ``immediate or cancel'' and ``all or none'' orders be deleted, 
because this paragraph of the rule is not applicable to those types of 
orders.
    The Commission believes that, because this amendment appropriately 
clarifies the definition of a fill or kill order, the amendment should 
be approved. This change will promote just and equitable principles of 
trade in accordance with section 6(b)(5) of the Act.\35\
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    \35\See supra footnote 12.
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    Rule 131(l)--Types of Orders--Not Held Order: Currently, Rule 
131(l) defines a not held order as a market or limited price order 
marked ``not held,'' ``disregard tape,'' ``take time,'' or which bears 
any such qualifying notation. The Exchange proposes that orders marked 
``buy on the print'' or ``sell on the print'' be included in the types 
of orders deemed to be ``not held orders'' because by their terms, 
these orders can only be executed if a print takes place at its limit. 
The Exchange further asserts that as with other ``not held'' orders, 
there are no assurances that the broker handling the order will be able 
to execute the order at that same price.
    The Commission believes that ``buy or sell on print'' orders are 
appropriately classified as ``not held'' orders because brokers cannot 
guarantee execution at the designated ``print' price. Classifying such 
orders as ``not held'' orders should serve to put customers on notice 
that they bear the price risk of an execution at a price other than the 
``print'' price. The Commission approved a similar revision to the 
comparable NYSE Rule.\36\ The Commission believes that these changes 
will serve to protect investors and the public interest in accordance 
with section 6(b)(5) of the Act\37\ by clarifying the definition of 
``not held'' orders.
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    \36\The Commission approved similar changes to NYSE Rule 13--
Definition of Orders.
    \37\See supra footnote 12.
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    Rule 135--Cancellations: Currently, Rule 135 only permits a member 
or member organization to cancel a transaction if it was made in error 
or for other proper reason, and unless in each case prior approval of 
the cancellation is obtained from a Floor Official. The Exchange states 
that this permits unilateral cancellations. The Exchange proposes that 
Rule 135 be revised to provide that a member may only cancel or revise 
a transaction if it was made in error or the cancellation or revision 
is for other proper reason, and unless both the buying and selling 
members agree to the cancellation or revision, and prior approval of 
the cancellation or revision is obtained from a Floor Official. The 
Exchange also proposes that the title of the rule be revised to 
indicate that the rule relates to revisions in, as well as 
cancellations of, transactions.
    The Exchange further proposes to amend Commentary .02 to Rule 135 
to require that when a transaction is not cancelled but the member 
intends to assume for his or her own account the contract made for a 
customer, the provisions of Rule 390 apply, and any required consent of 
the Exchange under that rule is to be obtained from the Compliance and 
Surveillance Division instead of through the Membership Compliance 
Division.
    The Commission believes that the proposal should be approved 
because it will increase oversight of cancellations or revisions as 
well as prevent unilateral cancellations. The proposal is modeled after 
the comparable NYSE Rule (NYSE Rule 128B.10--Publication on the tape or 
in the sales sheet) which requires the cancellation of a transaction to 
be agreed to by both sides of the transaction in question in addition 
to obtaining the approval of a Floor Official. In addition, the change 
in designation in Commentary .02 to the Compliance and Surveillance 
Division is necessary so that this rule identifies the appropriate 
Division governing the regulated conduct.
    Rule 154, Commentary .03--Orders Left With Specialist: Commentary 
.03 provides that specialists may not accept ``not held'' orders or 
orders with such qualifications as ``keep the best bid or offer,'' 
``disregard tape,'' ``take time,'' and scale orders without specific 
amounts and prices orders. The Exchange proposes that Commentary .03 be 
revised to include ``buy on the print'' and ``sell on the print'' as 
additional types of orders which a specialist is prohibited from 
accepting because under Rule 131, a ``buy on the print'' or ``sell on 
the print'' order is deemed to be a ``not held'' order.
    The Commission believes that this change is an appropriate 
``housekeeping'' amendment that should be approved in conjunction with 
approval of the proposed amendment to Rule 131.
    Rule 154, Commentaries .06 and .07--Orders Left With Specialist: 
Current Commentary .06 provides that all good `til cancelled 
(``G.T.C.'') orders on a specialist's book must be cancelled on such 
periodic dates as may be prescribed by the Exchange, unless properly 
confirmed or renewed as prescribed by the Exchange. The Amex proposes 
to delete current Commentary .06. Current Commentary .07 requires 
specialists to return receipt stubs of G.T.C. orders, cancellations and 
confirmations on the same day in which they are received and it 
requires specialists to return receipt stubs of periodic confirmations 
of renewals promptly as prescribed by the Exchange. Current Commentary 
.07 also requires confirmations of cancellations of orders and 
confirmations or renewals of G.T.C. orders to be dated, and duplicate 
receipt stubs to be maintained by specialists. The Exchange proposes to 
delete references to the return of receipt stubs of periodic 
confirmation or renewals in Commentary .07 which will be renumbered as 
.06.\38\ The Exchange also proposes to delete the requirement that 
receipt stubs be signed by the specialists. In accordance with the 
amendment, specialists will just have to stamp their name on such 
receipts. Finally, the Exchange proposes to delete the requirements 
that confirmations or renewals of G.T.C. orders be dated and duplicate 
receipt stubs kept for them. The Exchange states that these proposed 
changes are based upon the NYSE's recision of its Rule 123A.55 which 
had required the periodic confirmation of G.T.C. orders on the 
specialist's book.\39\ The Exchange also states that these provisions 
are unnecessary in view of the automated recordkeeping ability of 
member firms.
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    \38\Rule 154, Commentaries .08 through .13 will be renumbered as 
provided in the Exchange's proposal.
    \39\See Securities Exchange Act Release No. 29318 (June 17, 
1991), 56 FR 28937 (June 25, 1991) (File No. SR-NYSE-89-02).
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    The Commission agrees that the changes to Rule 154, Commentary .06 
and .07 should be enacted in order to update and streamline order 
handling provisions and to bring the Amex Rules into line with 
automated exchange systems. These changes are in accordance with 
section 11A(a)(1) of the Act which provides that new data processing 
and communications techniques create the opportunity for more efficient 
and effective market operations. The changes to Commentary .06 and .07 
will also promote equitable principles of trade and serve the public 
good in accordance with section 6(b)(5) of the Act\40\ by helping to 
create a more efficient marketplace.
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    \40\See supra footnote 12.
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    Rule 154, Commentary .14--Orders Left With Specialist: Commentary 
.14 provides that a stop limit order to sell a round lot or odd lot, 
which has been elected but not executed before the ex-dividend date is 
treated the same as an open limited price order to sell and such orders 
are not to be reduced by the specialist or odd-lot dealer on ex-date 
unless otherwise instructed. The Exchange states that such commentary 
is valid as it applies to cash dividends, but is inappropriate where 
other than cash dividends are involved. The Exchange also states that 
such orders, pursuant to Rule 132 (price adjustment of open orders on 
``ex-date''), are to be adjusted as are all other orders to reflect 
stock dividends or stock distributions. The Amex, therefore, proposes 
to amend this commentary to state that such orders are not to be 
reduced by the specialist or odd-lot dealer for a cash dividend but 
will be adjusted for stock dividends and stock distributions on ex-date 
in accordance with Rule 132 unless otherwise instructed.
    The Commission believes that this amendment is a logical 
``housekeeping'' amendment which should be approved as it promotes just 
and equitable principles of trade pursuant to Section 6(b)(5) of the 
Act.
    Rule 155--Precedence Accorded to Orders Entrusted to Specialists: 
This rule requires that a specialist give precedence to orders 
entrusted to him as an agent in any stock in which he is registered 
before executing at the same price any purchase or sale in the same 
stock for an account in which the specialist has an interest. The 
Exchange states that since Exchange Act Rule 11a1-1 became effective, 
the aforementioned requirement is not universal and therefore several 
exemptions apply. The specialist is not required to refrain from 
trading for his own account when in possession of inexecutable ``G'' 
orders. Also, the Rule 155 requirements do not apply to on-floor orders 
subject to the ``two-tick'' restriction and unelected percentage 
orders. The Amex proposes that this rule be amended to state that the 
general requirement that a specialist yield precedence under Rule 155 
does not apply in these three situations.
    The Commission believes that the amendment to Rule 155 should be 
approved because it will conform Exchange Rules to Exchange Act Rule 
11a1-1 and clarify the application of Rule 155, thereby promoting just 
and equitable principles of trade pursuant to Section 6(b)(5) of the 
Act.\41\
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    \41\See supra footnote 12.
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    Rule 156--Representation of Orders: Currently, Rule 156 sets forth 
a broker's responsibility for the handling of ``market,'' ``limited 
price,'' ``at the close'' and ``not held'' orders. The Amex proposes 
that this rule be amended (by adding paragraph (e)) to include a 
broker's responsibility for the handling of ``switch orders'' and to 
provide that a broker may handle a ``switch order'' on a ``best 
efforts'' basis. The Exchange states that this proposal recognizes the 
difficulties a member may encounter in executing this type of order 
since it requires the execution of orders in different securities at 
the same time at a designated price difference.
    The Commission believes that this amendment to Rule 156 should be 
approved because ``switch orders'' are appropriately defined under the 
category of ``representation of orders,'' and because allowing ``switch 
orders'' to be handled on a ``best efforts'' basis reflects current 
market realities, thereby helping to ensure efficient execution of 
securities transactions pursuant to section 11A(a)(1) of the Act. The 
NYSE has similarly revised its comparable rule.\42\
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    \42\The Amex states that the proposed amendment is based on NYSE 
Rule 13.
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    Rule 950(c)--Floor Rules Applicable to Options--Rules of General 
Applicability: This paragraph provides that, with certain exceptions, 
the restrictions on Registered Traders as imposed by Rule 111 will 
apply to the trading of options. The Amex proposes to extend the 
proposed amendment to Rule 111, to permit members while on the Floor to 
enter orders in a manner that permits them to be deemed ``off-Floor'' 
orders, to options trading. The Exchange states that because it has 
determined that there is no reason why the proposed revisions to Rule 
111 should not be applicable to transactions in non-equity securities 
as well as equity securities, the Exchange proposes to revise Rule 
950(c) accordingly.\43\
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    \43\The Amex originally proposed to revise Rule 111 to apply 
only to equity trading. The Amex, in amendment No. 1 to the rule 
filing, proposed to provide that, with certain exceptions, Rule 111 
and its commentaries should apply to options transactions.
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    The Commission agrees that there is no reason to distinguish 
between options and equities with respect to ``off-floor'' orders. And, 
this equal treatment of equities and options will promote just and 
equitable principles of trade in accordance with section 6(b)(5) of the 
Act.\44\
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    \44\See supra footnote 12.
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    Rule 950(e)--Floor Rules Applicable to Options--Rules of General 
Applicability: This provision sets forth the types of orders, in 
addition to the orders in Rule 131, that apply to options transactions. 
The Amex proposes to add a commentary to Rule 950(e) to clarify that 
``at the opening'' orders in options are executable in whole or in part 
at the opening rotation in the pertinent option and that any such order 
or the portion thereof not so executed is to be treated as cancelled.
    The Commission believes that the addition of Commentary .01 to Rule 
950(e) is appropriate as it will clarify the manner in which ``at the 
opening'' orders in options are executable. This change will therefore 
serve to promote just and equitable principles of trade in accordance 
with section 6(b)(5) of the Act.\45\
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    \45\See supra footnote 12.
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    Rule 950(h), Commentary .05--Floor Rules Applicable to Options--
Rules of General Applicability: Paragraph (h) of Rule 950 makes the 
specialist financial requirements contained in Rule 171 applicable to 
options trading. Commentary .05 to Rule 950(h), which details how the 
financial requirements are computed for options specialists, requires 
an option specialist to maintain twenty option contracts for each class 
of options in which he or she is registered. Rule 171, however, was 
revised several years ago to require specialists to ``maintain a cash 
or liquid asset position in the amount of $600,000 or an amount 
sufficient to assume a position of sixty trading units of each security 
in which such specialist is registered * * *.''\46\ That rule 
previously required specialists to assume a position of twenty trading 
units. The Exchange states that, because Rule 171 now refers to sixty 
rather than twenty trading units, Commentary .05 should be amended 
accordingly. The Amex, therefore, proposes to amend Commentary .05 to 
require that a specialist maintain sixty options contracts of each 
class of options in which he or she is registered.\47\
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    \46\See Securities Exchange Act Release No. 25863 (June 28, 
1988), 53 FR 25225 (July 5, 1988) (File No. SR-Amex-88-14).
    \47\The Amex also proposes to renumber Commentary .05 to .01 as 
it is the only commentary under Rule 950(h).
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    The Commission believes that the change to Rule 950(h) is necessary 
in order to conform this rule with previous changes to Rule 171 thereby 
promoting just and equitable principles of trade in accordance with 
section 6(b)(5) of the Act.\48\
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    \48\See supra footnote 12.
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    Rule 959--Accommodation Transactions. This rule provides a 
``cabinet'' trading facility for the trading of options which are out 
of the money to the extent that there is no buying interest at the 
minimum price at which options trade (\1/16\ of $1 or $.06-\1/2\ per 
underlying share). Orders to sell at $1 per contract ($.01 per 
underlying share) may be entered in the cabinet subject to a number of 
restrictions, including the requirement that only closing orders may be 
entered in the ``cabinet.'' Because the rule applies only to orders 
left in the ``cabinet,'' opening orders may be crossed in the crowd. 
The Rule, however, does not provide for this type of transaction. The 
Amex therefore, proposes that the rule be amended to provide that 
opening or closing purchase and sell orders may be executed in the 
crowd in the absence of closing purchase or sale orders in the cabinet.
    The Commission believe that this is an appropriate clarifying 
amendment to Rule 959.

III. Conclusion

    The Commission has reviewed carefully the Exchange's proposed rule 
changes and concludes that, for the above stated reasons, the proposal 
is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. 
The Commission believes that the proposals developed by the Exchange 
appropriately balance the competing concerns of various Exchange 
constituencies in a manner consistent with just and equitable 
principles of trade. Given the dynamic nature of competitive forces 
shaping the national market system, the Commission strongly supports 
the Amex's efforts to review and update the structure of market trading 
regulation in order to maintain an efficient and meaningful regulatory 
program.
    Accordingly, based upon the aforementioned factors, the Commission 
finds that the Exchange's proposed rule change updating its market 
regulation rules is consistent with sections 6(b)(5), 6(b)(8), 11(b), 
and 11A(a)(1) of the Act\49\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \49\15 U.S.C. 78f(b)(5), 78f(b)(8), 78k(b), and 78k-1(a)(1) 
(1988).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\50\ that the proposed rule change (File No. SR-Amex-92-10) be, and 
hereby is, approved.

    \50\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\51\
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    \51\See 17 CFR 200.30-3(a)(12) (1990).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1101 Filed 1-14-94; 8:45 am]
BILLING CODE 8010-01-M