[Federal Register Volume 59, Number 26 (Tuesday, February 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2771]


[[Page Unknown]]

[Federal Register: February 8, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33561; File No. SR-Amex-93-15]

 

Self-Regulatory Organizations; Filing and Order Granting Partial 
Accelerated Approval of Proposed Rule Change by the American Stock 
Exchange, Inc. Relating to an Extension of Its Pilot After-Hours 
Trading Facility

February 1, 1994.
    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 21, 1993, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. On January 4, 1994, the Amex amended the filing to 
request that the pilot program for its After-Hours Trading facility be 
extended for a three-month period, until April 30, 1994, while the 
Commission considers the Exchange's request for permanent approval of 
the pilot program.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\As originally filed, File No. SR-Amex-93-15 requested 
permanent approval of Amex's pilot After-Hours Trading facility. On 
January 4, 1994, the Amex amended the filing with an additional 
request for a three-month extension of the pilot in order to give 
the Commission adequate time to consider the request for permanent 
approval and requested that the extension be granted accelerated 
approval. See letter from William Floyd-Jones, Jr., Amex, to Sandra 
Sciole, Special Counsel, Commission, dated December 23, 1993.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend its pilot After-Hours Trading 
(``AHT'') facility through April 30, 1994. The current pilot program 
was scheduled to expire on January 31, 1994.
    The Exchange requests accelerated approval of the proposed rule 
change. The Exchange believes that accelerated effectiveness is 
appropriate since it would permit the Exchange's existing AHT facility 
to continue operating while the Commission considers permanent approval 
of the facility. The proposal to extend the AHT pilot, therefore, does 
not raise any new questions for the commission's consideration.

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 self-regulatory organization 
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 III below. The self-regulatory 
organization 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
    In August 1991, the Commission partially approved the Exchange's 
AHT facility on a temporary basis.\4\ This facility permits the 
execution of coupled and single-sided closing price orders after the 
close of the 9:30 a.m. to 4 p.m. trading session. Commencing at 4:15 
p.m., single-sided round lot orders for equity securities can be 
entered through the Exchange's PER system or left with the specialist 
or the specialist's authorized representative for matching and 
execution at 5 p.m. at the Exchange's last closing regular way price. 
Coupled buy and sell round lot, odd lot and partial round lot orders 
also can be entered through the PER system, or left with the specialist 
for execution at 5 p.m. against each other at the Exchange's last 
regular way price. Members are permitted to designate good `til 
cancelled (``GTC'') limit orders entered during the regular trading 
session as eligible for execution in the AHT session. Such orders are 
marked ``GTX'' and migrate to the AHT facility for possible 
execution.\5\
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    \4\See Securities Exchange Act Release No. 29515 (August 2, 
1991), 56 FR 37736 (August 8, 1991) (order approving File No. SR-
Amex-91-15) (Amex AHT Approval Order).
    \5\The Commission notes that the Amex's AHT facility enables 
members, not including specialists, to enter both proprietary and 
agency orders in any Exchange traded equity security, including 
stocks, rights, warrants, primes and scores, ADRs, and non-option 
equity derivative products, for execution at the Exchange's last 
closing regular way price.
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    The Commission stated in its order approving the AHT facility that 
it would review the operation of the facility during the temporary 
approval period. In this regard, the Commission asked the Exchange to 
assemble data on the operation of the facility which the Exchange 
submitted under separate cover. It is the Exchange's opinion that the 
system has functioned well during the temporary approval period and 
that the operation of the system has not had any adverse effects upon 
the development of the national market system. The Exchange, therefore, 
seeks a three month extension for its AHT facility.\6\
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    \6\File No. SR-Amex-93-15 also requested Commission approval for 
specialist participation in the AHT facility for investment trust 
securities listed pursuant to Section 118B of the Exchange's Listing 
Guidelines. This order approves on an accelerated basis until April 
30, 1994, only that portion of File No. SR-Amex-93-15 which 
establishes the AHT facility and which allows members, not including 
specialists, to enter proprietary and agency orders in Exchange-
traded equities. The Commission is not approving the portion of the 
proposed rule change which allows specialists to participate in any 
way for their own accounts in the AHT facility. See File No. SR-
Amex-93-15. See also letter amendment dated December 23, 1993, supra 
note 3.
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2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the Act 
in general and furthers the objectives of section 6(b)(5) in particular 
in that it is designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect of the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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 at the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of the filing will also be available for inspection 
and copying at the principal office of the Amex. All submissions should 
refer to File No. SR-Amex-93-15 and should be submitted by March 1, 
1994.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    For the reasons set forth below, the Commission finds that approval 
of the Exchange's proposed rule change, for a temporary period ending 
on April 30, 1994, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with the requirements of sections 6 and 11A of the 
Act.\7\ The Commission believes that the Amex proposal is reasonably 
designed to promote just and equitable principles of trade, perfect the 
mechanism of a free and open market and a national market system, and, 
in general, further investor protection and the public interest in fair 
and orderly markets on national securities exchanges, as well as 
facilitate the linking of qualified markets through appropriate 
communications systems and execution of investors' orders in the best 
market.
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    \7\ 14 U.S.C. Secs. 78f and 78k-1 (1988). See Amex AHT Approval 
Order, supra note 4, for a complete description of the AHT 
procedures and the Commission's rationale for approving the proposal 
on a pilot basis. The discussion in that order is incorporated by 
reference into this order.
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    In the Commission's release approving the New York Stock Exchange's 
(``NYSE'') Off-Hours Trading (``OHT'') facility, the Commission noted 
the benefits that would accrue to investors through the development of 
an after-hours trading session.\8\ By allowing Amex members to enter 
single-sided and coupled orders into an after-hours facility, as well 
as permitting the migration of certain limit orders (GTX orders) from 
the regular 9:30 a.m. to 4 p.m. trading session for possible execution 
in the AHT facility, the Amex is providing a mechanism for maintaining 
its own individual marketplace on a competitive level with the NYSE and 
the regional exchanges.\9\ Accordingly, the Commission believes that 
the proposed rule change which enables members to enter both 
proprietary and agency orders in Exchange-traded equity securities, 
including stocks, rights, warrants, primes and scores, ADRs, and non-
option equity derivative products, for execution at the Exchange's last 
closing regular way price should be extended until April 30, 1994.
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    \8\ See Securities Exchange Act Release No. 29237 (May 24, 
1991), 56 FR 24853 (May 31, 1991) (approving File Nos. SR-NYSE-90-52 
and SR-NYSE-90-53).
    \9\ Concurrently with this order, the Commission is also 
approving proposals submitted by the NYSE, the Boston Stock 
Exchange, Inc. (``BSE''), the Chicago Stock Exchange, Inc. 
(``CHX''), the Philadelphia Stock Exchange, Inc. (``Phlx'') and the 
Pacific Stock Exchange, Inc. (``PSE''), to extend, through April 30, 
1994, the respective pilot programs in place on those exchanges 
which provide for executions of securities during after-hours 
trading sessions. See Securities Exchange Act Release Nos. 32362 
(May 25, 1993) (order approving File No. SR-NYSE-93-23); 32365 (May 
25, 1993) (order approving File No. SR-BSE-93-10); 32368 (May 25, 
1993) (order approving File No. SR-MSE-93-06); 32364 (May 25, 1993) 
(order approving File No. SR-Phlx-93-16); and 32367 (May 25, 1993) 
(order approving File No. SR-PSE-93-6).
    In 1991, the Commission approved proposals submitted by the BSE, 
CHX, Phlx, and PSE which require their specialists to provide 
primary market protection to limit orders, designated as executable 
after the close of the regular trading session, based on volume that 
prints in the primary market's after-hours session. See Securities 
Exchange Act Release Nos. 29301 (June 13, 1991) 56 FR 28182 
(granting temporary accelerated approval to File No. SR-BSE-91-04; 
29297 (June 13, 1991), 56 FR 28191 (granting temporary accelerated 
approval to File No. MSE-91-11); 29300 (June 13, 1991), 56 FR 28212 
(granting temporary partial approval to File No. SR-Phlx-91-26) and 
29749 (September 27, 1991), 56 FR 50405 (order granting temporary 
accelerated approval to File No. SR-Phlx-91-32); 29305 June 13, 
1991), 56 FR 28208 (granting partial temporary accelerated approval 
to File No. SR-PSE-91-21); and 29543 (August 9, 1991), 56 FR 40929 
(order granting accelerated approval to File No. SR-PSE-28). On May 
25, 1993, the Commission approved extensions of the Amex, NYSE, CHX, 
BSE, PSE, and Phlx pilots until January 31, 1994. See Securities 
Exchange Act Release No. 32365 (May 25, 1993), 58 FR 31560 (June 3, 
1993) (order granting accelerated approval to File No. SR-BSE-93-
10); Securities Exchange Act Release No. 32363 (May 25, 1993), 58 FR 
31558 (June 3, 1993) (order granting accelerated approval to File 
No. SR-Amex-93-19); Securities Exchange Act Release No. 32368 (May 
25, 1993), 58 FR 31563 (June 3, 1993) (order granting accelerated 
approval to File No. SR-MSE-93-6); Securities Exchange Act Release 
No. 32367 (May 25, 1993), 58 FR 31570 (June 3, 1993) (order granting 
accelerated approval to File No. SR-PSE-93-6); Securities Exchange 
Act Release No. 32364 (May 25, 1993), 58 FR 31574 (June 3, 1993) 
(order granting accelerated approval to File No. SR-Phlx-93-16) and 
Securities Exchange Act Release No. 32362 (May 25, 1993), 58 FR 
31565 (June 3, 1993) (order granting accelerated approval to File 
No. SR-NYSE-93-23). All of the after-hours pilot programs were 
scheduled to expire January 31, 1994.
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    In its orders approving and extending the Amex AHT pilot program, 
the Commission requested that the Amex provide the Commission with 
specific data and a report regarding the operation of the Amex's AHT 
pilot.\10\
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    \10\ Among other things,the Commission requested that the Amex 
monitor and report on GTX, single-sided and coupled order executions 
in its trading floor to ensure that Amex specialists are not taking 
unfair advantage of information derived regarding which orders on 
their books are designated GTX and the priority among those orders. 
In addition, the Commission requested that the following information 
(broken down by month) be included in the Amex report: trading 
volume (trades and number of shares) in after-hours session; the 
number, if any, of (1) single-sided orders; (2) coupled buy and sell 
orders; and (3) GTX orders executed in the after-hours session; the 
number, if any, of single-sided and coupled orders comprised of 
primes and scores or comprised of equity derivative products that 
are executed in the after-hours session; the number, if any, of (1) 
single-sided orders; and (2) single-sided GTX orders that remained 
unexecuted at the end of the after-hours session; the number and 
percentage of GTC orders on the book that were designated ``GTX''; 
the number of member firms participating in the after-hours session; 
whether the Amex marketplace has experienced any increased 
volatility during the last hour of the 9:30 a.m. to 4 p.m. trading 
session after the initiation of the after-hours session; whether 
there were greater (wider) quote spreads during the last hour of the 
9:30 a.m. to 4 p.m. trading session after the initiation of the 
after-hours session; whether there was a diminution in the number of 
block transactions during the last hour after the initiation of the 
after-hours session; and the degree to which transactions were 
entered in the after-hours session to avoid the restrictions of the 
short sale rule in the 9:30 a.m. to 4 p.m. trading session. 
Furthermore, the Amex's report should also indicate: (1) How its 
after-hours facility could link with the NYSE's OHT facility and any 
other systems approved during the 16-month period; (2) how orders 
entered on the other marketplaces could interact with orders in the 
Amex's after-hours facility; and (3) how the intermarket issues 
discussed in the Commission's order approving the AHT pilot would be 
addressed. In this connection, however, the Commission underscored 
its strong belief that resolution of intermarket issues would not be 
solely a responsibility of the Amex, but would fall equally upon all 
self-regulatory organizations proposing after-hours sessions.
    In addition, the Commission stated that it expects the Amex, 
through use of its surveillance procedures, to monitor for, and 
report to the Commission any patterns of manipulation or trading 
abuses or unusual trading activity resulting from the new rule. 
Specifically, the Commission requested that the Amex monitor closely 
the trading of primes and scores and equity derivative products in 
the AHT facility to ensure that trading in these issues is not 
subject to any patterns of manipulation or trading abuses or unusual 
trading activity. Finally, the Commission requested that the Amex 
keep the Commission apprised of any technical problems which may 
arise regarding the operation of the pilot program, such as 
difficulties in order execution or order cancellation.
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    The Amex has reported to the Commission, on a monthly basis, the 
number of trade and share volume of orders executed after the close 
pursuant to the pilot procedures. In addition, on May 21, 1993, and 
September 30, 1993, the Exchange filed with the Commission reports 
which address the Exchange's experience with the AHT pilot through 
September 1, 1993.\11\ The Commission expects the Exchange to submit to 
the Commission by March 15, 1994, an updated report concerning pilot 
activity through February 28, 1994.\12\
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    \11\See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Diana Luka-Hopson, Esq., Branch Chief, Commission, 
dated May 21, 1993, and letter from William Floyd-Jones, Jr., 
Assistant General Counsel, Legal & Regulatory Policy Division, Amex, 
to Diana-Luka-Hopson, Branch Chief, Commission, dated September 30, 
1993.
    \12\See supra note 10 for the information required to be 
provided in the updated reports.
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    The Commission believes that it is reasonable to extend the pilot 
program in order to provide the Amex and Commission with additional 
time to review the pilot program. The pilot extension also will provide 
the Commission with an opportunity to study the reports supplied by the 
Amex. During the pilot extension, the Commission expects that the Amex 
will continue to monitor the operation of the AHT pilot program. In 
addition, the Commission continues to request that the Exchange keep 
the Commission apprised of any technical problems or patterns of 
manipulation or trading abuses which may arise regarding the operation 
of the new rule.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the proposal is appropriate in 
order to allow the Amex procedures to remain in place on an 
uninterrupted basis. This will permit the Amex to continue to compete 
with the NYSE's OHT facility, which in turn should benefit investors 
and promote competition among markets.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act\13\ that a portion of the proposed rule change (Amex-93-15), as 
discussed above, is hereby approved on a pilot basis through April 30, 
1994.

    \13\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.\14\
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    \14\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2771 Filed 2-7-94; 8:45 am]
BILLING CODE 8010-01-M