[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3320]


[[Page Unknown]]

[Federal Register: February 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33584; File No. SR-Amex-93-45]

 

Self-Regulatory Organizations; Filing and Order Granting Partial 
Temporary Accelerated Approval to Proposed Rule Change by American 
Stock Exchange, Inc. Relating to a Pilot Program for Execution of Odd-
lot Market Orders

February 7, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
27, 1993, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. On February 4, 1994, the Amex submitted Amendment No. 1 
to the proposed rule change in order to clarify the duration of this 
pilot extension.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\See letter from Geraldine M. Brindisi, Corporate Secretary, 
Amex, to Diana Luka-Hopson, Branch Chief, Division of Market 
Regulation, SEC, dated February 4, 1994 (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to implement on a permanent basis its existing 
pilot procedures under Exchange Rule 205 requiring execution of odd-lot 
market orders at the prevailing Amex quote with no differential 
charged. In order to permit the pilot program to continue without 
interruption, the Exchange also requests that the existing program be 
extended for an additional six month period in order to provide the 
Commission with the further opportunity, if necessary, to assess the 
operation of the program beyond February 8, 1994.\2\
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    \2\The Amex original requested that this pilot program be 
extended for an additional three months. However, at the 
Commission's request, the Amex has agreed to extend the pilot until 
August 8, 1994, in order to provide the Commission with further 
opportunity to review the Exchange's request for permanent approval 
of the pilot procedures. See Amendment No. 1, supra, note 1. The 
Exchange seeks accelerated approval of the six month extension 
included in the proposed rule change in order to allow the pilot 
program, which expires on February 8, 1994, to continue without 
interruption. See letter from Geraldine M. Brindisi, Corporate 
Secretary, Amex, to Diana Luka-Hopson, Branch Chief, Division of 
Market Regulation, SEC, dated February 1, 1994.
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    The complete text of the proposed rule change is available at the 
Office of the Secretary, Amex, and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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 exchanged 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
    The Commission has approved, on a pilot basis extending to February 
8, 1994, amendments to Exchange Rule 205 to require the execution of 
odd-lot market orders at the prevailing Amex quote with no odd-lot 
differential.\3\ These procedures initially were approved by the 
Commission on a pilot basis,\4\ and subsequently were extended seven 
times.\5\
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    \3\See Securities Exchange Act Release No. 32726 (August 9, 
1993), 58 FR 43394 (August 16, 1993) (approving File No. SR-Amex-93-
24).
    \4\See Securities Exchange Act Release No. 26445 (January 10, 
1989), 54 FR 2248 (January 19, 1989) (approving File No. SR-Amex-88-
23).
    \5\See Securities Exchange Act Release Nos. 32726 (August 9, 
1993), 58 FR 43394 (August 16, 1993) (approving File No. SR-Amex-93-
24); 31828 (February 5, 1993) 58 FR 8434 (February 12, 1993) 
(approving File No. SR-Amex-93-06); 30305 (January 30, 1992), 57 FR 
4653 (February 6, 1992) (approving File No. SR-Amex-92-04); 29922 
(November 8, 1991), 56 FR 58409 (November 19, 1991) (approving File 
No. SR-Amex-91-30); 29186 (May 9, 1991), 56 FR 22488 (May 15, 1991) 
(approving File No. SR-Amex-91-09); 28758 (January 10, 1991), 56 FR 
1656 (January 16, 1991) (approving File No. SR-Amex-90-39); and 
27590 (January 5, 1990), 55 FR 1123 (January 11, 1990) (approving 
File No. SR-Amex-89-31).
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    Under the pilot procedures, odd-lot market orders with no 
qualifying notations are executed at the Amex quotation at the time the 
order is represented in the market, either by being received at the 
trading post or through the Exchange's Post Execution Reporting 
(``PER'') System. Enhancements to the PER system have been implemented 
to provide for the automatic execution of odd-lot market orders entered 
through PER. For purposes of the pilot program, odd-lot limit orders 
that are immediately executable based on the Amex quote at the time 
order is received, at the trading post or through PER, are executed in 
the same manner as odd-lot market orders.
    The Exchange proposes that the pilot program applicable to odd-lot 
execution procedures be approved on a permanent basis. The Exchange 
believes that current odd-lot execution procedures under the pilot 
program have resulted in superior customer executions, in terms of 
price and time of execution, compared to previous odd-lot procedures 
under Rule 205.\6\ Odd-lot market orders as well as executable odd-lot 
limit orders, entered in the Exchange's PER system or directly with the 
specialist after a regular opening or a reopening following a trading 
halt, receive an immediate automatic execution at the displayed Amex 
bid or offer; odd-lot market orders entered before the opening or 
reopening are accumulated and automatically executed at the price of 
the opening or reopening transaction without a differential.
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    \6\The Commission notes that, prior to approval of the current 
procedures on a pilot basis, see supra note 4, odd-lot market orders 
were executed at the price of a subsequent round-lot transaction, 
plus or minus an odd-lot dealer differential.
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    Because, except for odd-lot market orders entered prior to the 
opening, execution of such orders is not based on a subsequent round-
lot transaction, as previous market order procedures under Rule 205 
required, the Amex believes odd-lot market orders (as well as odd-lot 
limit orders executable at the time entered) are executed without delay 
at prices reflecting market conditions at the time the order is 
entered, with the customer receiving a report more quickly. This is 
particularly important with respect to odd-lot orders in less 
frequently traded issues, which, under former Rule 205 procedures, 
could have been subject to significant execution delays.
    The added system efficiencies and greater timeliness of executions 
provided by the pilot procedures, together with the opportunity for 
improved price executions, have resulted in significant customer 
benefits compared to prior procedures.
    In order to permit the pilot program to continue without 
interruption, the Exchange also requests that the existing program be 
extended for an additional six month period in order to provide the 
Commission with further opportunity, if necessary, to assess the 
operation of the program beyond February 8, 1994.
2. Basis
    The proposed rule change is consistent with sections 6(b) and 
11A(a)(1) of the Act in general and furthers the objectives of section 
6(b)(5) in particular in that it facilitates the economically efficient 
execution of odd-lot transactions, and is intended to result in 
improved execution of customer orders.

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 Statements on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

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

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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such 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-93-45 and should be 
submitted by March 7, 1994.

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

    In regard to the six month extension of the Amex's odd-lot 
execution pilot program, the Commission, for the same rationale 
discussed in its previous orders regarding these procedures,\7\ finds 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange and, in particular with the requirements 
of sections 6(b)\8\ and 11A(a)(1)\9\ of the Act and the rules and 
regulations thereunder. The Commission believes that the revised 
procedures, which provide for pricing of odd-lot market orders at the 
prevailing Amex quote rather than at the execution price of a 
subsequent transaction, should provide investors with more timely 
execution of these orders. Moreover, these orders should receive less 
costly executions than under the former procedures because no 
differential will be charged. In addition, the Exchange has implemented 
enhancements to its PER system for the automatic execution of odd-lot 
market orders, as set forth in the Commission's order approving the use 
of the pilot program procedures.\10\
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    \7\See supra, note 5.
    \8\15 U.S.C. 78f (1988).
    \9\15 U.S.C. 78k-1(a) (1988).
    \10\See Securities Exchange Act Release No. 26445, supra note 4, 
for a description of the Exchange's odd-lot procedures and the 
Commission's rationale for approving those procedures on a pilot 
basis. The discussion in the aforementioned order is incorporated by 
reference into this order.
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    In its previous orders,\11\ the Commission asked the Amex to 
analyze the difference in executions between using the Intermarket 
Trading System (``ITS'') consolidated best bid or offer as compared 
with the Amex quote without the differential. Specifically, the 
Commission expressed interest in whether customers are receiving the 
best execution, both in terms of price and time, using the new Amex 
system. The Commission was also interested in the feasibility of 
implementing an odd-lot pricing system using the ITS best bid or offer 
and no differential.\12\
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    \11\See supra, note 5.
    \12\The Commission has approved amendments to the New York Stock 
Exchange's (``NYSE'') rules which incorporate the ITS quote into the 
NYSE odd-lot pricing procedures through the use of the Best Pricing 
Quote (``BPQ''). See Securities Exchange Act Release No. 27981 (May 
2, 1990), 55 FR 19409 (May 9, 1990) (File No. SR-NYSE-90-06).
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    In response, the Amex submitted the requested information with 
respect to the difference in executions between the ITS best bid or 
offer and the Amex quote to the Commission on January 9, 1991, April 
22, 1991, October 25, 1991, February 4, 1993, August 3, 1993 and 
November 16, 1993.\13\ The Amex data indicated that the pilot 
procedures provide a superior execution for a substantial majority of 
odd-lot executions. Accordingly, the Commission believes that it is 
reasonable to extend the pilot for an additional six months to enable 
the Commission to review fully the Amex reports and to enable the pilot 
to continue without interruption during the Commission's review. The 
Commission, however, remains concerned that some odd-lot orders could 
receive executions at less than the best available price since the 
Exchange's pricing formula does not include quotations from other 
markets.\14\ Nevertheless, due to the relatively low number of odd-lot 
market orders on the Amex,\15\ the percentage of Amex quotes that are 
worse than the ITS best bid or offer, and the benefits to customers 
under the pilot program procedures as compared to the former pricing 
procedures, the Commission believes that it is acceptable to continue 
the pilot's current pricing procedures for an additional six months. 
During that period, the Commission requests that the Exchange continue 
to monitor the pilot and provide data on the number of Amex quotes 
executed that are worse than the ITS consolidated best bid and offer 
and on the number of odd-lots as a percentage of total Exchange share 
volume and of the total number of trades. Moreover, the Commission 
remains interested in the feasibility of implementing an odd-lot 
pricing system using the ITS best bid and offer and no differential. 
Accordingly, the Commission requests that the Amex include in its 
monitoring report the feasibility and cost of developing such a plan, 
along with a projected time frame for potential implementation. The 
Commission requests that the Amex submit its report on these matters by 
May 8, 1994.
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    \13\See letters from Arne G. Michelson, Senior Vice President, 
Total Quality- Floor Members, Amex, to Beth A. Stekler, Attorney, 
Division of Market Regulation, SEC, dated November 16, 1993, and to 
Sharon M. Lawson, Assistant Director, Division of Market Regulation, 
SEC, dated August 3, 1993; letter from Michael Cavalier, Assistant 
General Counsel, Regulatory, Legal & Regulatory Policy Division, 
Amex, to Diana Luka-Hopson, Branch Chief, Division of Market 
Regulation, SEC, dated February 3, 1993; letters from Jules L. 
Winters, Executive Vice President, Operations, Amex, to Howard L. 
Kramer, Assistant Director, Division of Market Regulation, SEC, 
dated January 8, 1991, April 19, 1991 and October 23, 1991.
    \14\See supra, note 12.
    \15\See footnote 9 of Securities Exchange Act Release No. 29922 
(November 8, 1991), 56 FR 58409.
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    The Commission finds good cause for granting partial temporary 
approval of the proposed rule change prior to the thirtieth day after 
the date of publication of notice of filing thereof. This will permit 
the pilot program to continue on an uninterrupted basis. In addition, 
the procedures the Exchange proposes to continue using are the 
identical procedures that were published in the Federal Register for 
the full comment period and were approved by the Commission.\16\
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    \16\No comments were received in connection with the proposed 
rule change which implemented these procedures. See supra note 4.
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    It is therefore ordered, Pursuant to section 19(b)(2)\17\ of the 
Act, that the proposed rule change (SR-Amex-93-45) is approved for a 
six month period ending on August 8, 1994.
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    \17\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.\18\
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    \18\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3320 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M