[Federal Register Volume 59, Number 88 (Monday, May 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11033]


[[Page Unknown]]

[Federal Register: May 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33993; File No. SR-Amex-93-15]

 

Self-Regulatory Organizations; Order Granting Partial Permanent 
Approval to a Proposed Rule Change by the American Stock Exchange, Inc. 
Relating to the After-Hours Trading Facility

May 2, 1994.

I. Introduction

    On April 21, 1993, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to request permanent approval of 
the Exchange's After-Hours Trading (``AHT'') facility.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 33802 (March 22, 1994), 59 FR 14690 (March 29, 
1994). No comments were received on the proposal. This order approves 
the proposed rule change.

II. Description of the Proposal

    The Amex requests permanent approval of its After-Hours Trading 
(``AHT'') facility.\3\ The Commission's order approving the Exchange's 
AHT facility contained a two-year ``sunset'' provision.\4\ The 
Commission several times extended the ``sunset'' date for the AHT 
facility, most recently until April 30, 1994.\5\ During the pilot 
period, the Amex submitted periodic monitoring reports on its AHT 
facility.\6\
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    \3\Concurrently with this order, the Commission is also 
permanently approving related proposals submitted by the New York 
Stock Exchange, Inc. (``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''), relating to their respective programs 
which provide for executions of securities after regular trading 
hours. See File Nos. SR-NYSE-93-50; BSE-93-24; SR-CHX-93-23; SR-
Phlx-94-8; and SR-PSE-94-2.
    \4\The Commission partially approved the Exchange's AHT facility 
in 1991. See Securities Exchange Act Release No. 29515 (August 2, 
1991), 56 FR 37736 (August 8, 1991). The Commission subsequently 
approved extensions of the Exchange's AHT facility. See Securities 
Exchange Act Release No. 32363 (May 25, 1993), 58 FR 31558 (June 3, 
1993) and 33561 (February 1, 1994), 59 FR 5789 (February 8, 1994) 
(order granting partial accelerated approval to File No. SR-Amex-93-
15).
    \5\See Release Nos. 33561 and 32363, supra note 4.
    \6\See letters from William Floyd-Jones, Jr., Assistant General 
Counsel, Legal & Regulatory Policy Division, Amex, to Louis A. 
Randazzo, Attorney, Derivative and Exchange Oversight, SEC, dated 
March 14, 1994; to Diana Luka-Hopson, Branch Chief, SEC, dated 
September 30, 1993; and to Diana Luka-Hopson, Branch Chief, SEC, 
dated May 21, 1993.
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    In August 1991, the Commission partially approved the Exchange's 
AHT facility on a temporary basis. Under the current Amex AHT facility, 
members and member organizations (``members''), not including 
specialists,\7\ enter both proprietary and agency orders in any 
Exchange-traded equity security (e.g., stocks, rights, warrants, 
American Depositary Receipts (``ADRs''), and equity derivative 
products)\8\ for execution at the Exchange's last closing regular way 
price.\9\ Specifically, commencing at 4:15 p.m.,\10\ single-sided round 
lot orders can be entered through the PER system\11\ or left with the 
specialist or his or her authorized representative for matching and 
execution at 5 p.m. at the Exchange's last closing regular way price, 
i.e., the last price at which the equity traded on the Exchange during 
the normal 9:30 a.m. to 4 p.m. trading session. In addition, coupled 
buy and sell round lot, odd lot, and partial round lot orders can be 
entered through PER or left with the specialist or his or her 
representative for execution at 5 p.m. against each other at the 
Exchange's last regular way price.\12\
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    \7\The Commission is not approving the portion of the proposed 
rule change which allows specialists to participate in the AHT 
facility by entering proprietary or customer orders.
    \8\The Commission notes that the term ``equity derivative 
products'' in the context of this rule filing is limited only to 
products that may be derivative of another equity security and 
eligible for routing through the PER system. It does not include 
standardized options, such as options on individual stocks or on 
indexes of securities, such as Amex's Major Market Index (``XMI'').
    \9\The Amex's proposal changes existing Amex rules and adopts a 
new ``1300 series'' of rules that apply solely to the after-hours 
facility (Rules for After-Hours Trading Facility'').
    \10\The 15-minute interval between the close of the normal 
trading session and the commencement of the after-hours facility 
will allow Exchange systems sufficient time for switch-over to the 
operations necessary for the after-hours facility.
    \11\The Amex's Post Execution Reporting Service (``PER'') 
electronically routes market and limit orders in equity securities 
to the applicable specialist post.
    \12\A member is not permitted to enter coupled buy and sell 
orders if both are for accounts in which any member, or an 
associated person, has a direct or indirect interest.
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    Members are also able to designate good 'til cancelled 
(``GTC'')\13\ limit orders entered during the 9:30 a.m. to 4 p.m. 
trading session as eligible for execution during the after-hours 
session. Such orders are identified as ``GTX,'' indicating that after 
the close of the normal trading session, those that are executable at 
the Exchange's last closing regular way price will migrate to the 
after-hours facility for possible execution. Only unconditioned round 
lot and partial round lot limit orders are allowed to be designated as 
GTX; any market, stop, stop limit, or odd lot orders so designated will 
be rejected. For purposes of execution during the after-hours session, 
GTX orders have priority over all other single-sided closing-price 
orders, and, among themselves, retain the same priority as they had on 
the specialist's book. Members are permitted to designate GTC orders 
transmitted both through PER and manually to the specialist during the 
regular trading session as eligible for after-hours execution.
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    \13\A GTC order is an order to buy or sell which remains in 
effect until it is either executed or cancelled. Amex Rule 131(j).
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    Eligible orders may be entered and cancelled until 5 p.m. However, 
the AHT session is not available for any issue that remains halted as 
of the close of the regular trading session. Similarly, trading in the 
after-hours session may not take place if a market-wide ``circuit 
breaker'' trading halt remains in effect at the close of the regular 
trading session. In addition, if at any time between 4 and 5 p.m. the 
Exchange determines, based on news or other events, that the AHT 
facility should not be available for a particular issue, a notice of 
such determination will be disseminated through a Common Message Switch 
(``CMS'') broadcast and over the Consolidated Tape System (``CTS'') 
high-speed line and low speed ticker, and all single-sided and coupled 
closing-price orders in that issue will be considered cancelled. GTX 
orders which had migrated to the after-hours session will be returned 
to the specialist's book, where they will remain the same priority 
among themselves as they had originally.
    After commencement of the AHT session, employees of the specialist 
unit ``strip their racks,'' or remove from their limit order books, all 
GTX orders executable at the Exchange's last closing regular way price. 
Single-sided and coupled closing-price orders transmitted through PER 
will print out at the specialist post continuously until 5 p.m., during 
which time members are also able to manually delivery such orders to 
the post. Specialists or their employees match GTX and single-sided 
closing-price buy and sell orders on a first-in, first-out (``FIFO'') 
basis and set them aside for execution at 5 p.m.\14\ In the event of 
cancellations, the specialists or their employees will re-match the 
remaining orders to ensure that they retain their FIFO priority.
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    \14\As noted above, GTX orders will have priority over single-
sided closing-price orders entered after commencement of the after-
hours session.
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    At 5 p.m., all matched GTX and single-sided closing-price orders 
are executed by the specialists, with reports of execution being 
delivered to the entering members (either though PER or manually, 
depending on how the order was entered). Any unmatched, and therefore 
unexecuted, single-sided closing-price order is reported back as such 
to the entering firm. Any unexecuted portion of a GTX order is returned 
to the specialist's book, maintaining its priority, and may therefore 
participate in the next day's normal trading session, unless cancelled 
beforehand. Coupled closing-price orders, if not cancelled, are also 
executed at 5 p.m.
    After 5 p.m., there are separate prints for each issue that 
participated in the after-hours session: The first representing the 
aggregate number of shares of the issue that was traded through single-
sided (including GTX) orders, and the second representing the aggregate 
number of shares traded through coupled orders. The latter will be 
printed as a ``sold'' sale to ensure that the price of coupled orders 
is not selected as the day's consolidated closing price or used as the 
basis for the next day's Intermarket Trading System (``ITS'') pre-
opening application.

III. Discussion

    After careful consideration, the Commission believes that the 
portion of the Amex proposal establishing an after-hours session which 
would enable members, not including specialists, to enter both 
proprietary and agency orders in any Exchange-traded equity security, 
including stocks, rights, warrants, ADRs, and non-option equity 
derivative products, for execution at the Exchange's last closing 
regular way price, is reasonably designed to promote just and equitable 
principles of trade, perfect the mechanism of a free and open national 
market system, and, in general, further investor protection and the 
public interest in fair and orderly markets on national securities 
exchanges. For these reasons and for the reasons set forth below and in 
the approval orders for the Amex pilot,\15\ the NYSE pilot,\16\ and the 
NYSE order granting permanent approval of its OHT facility also being 
approved today,\17\ the Commission finds that permanent approval of the 
Amex's AHT trading session, as originally adopted without specialist 
participation, 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 and 
11A of the Act.\18\
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    \15\See AHT Approval Orders, supra note 4 for a complete 
description of the Amex AHT facility and the Commission's rationale 
for approving the proposal on a pilot basis. The discussions in 
those orders are incorporated by reference into this order.
    \16\See Securities Exchange Act Release No. 29237 (May 24, 1991) 
(order approving File Nos. SR-NYSE-90-52 and SR-NYSE-90-53).
    \17\See Securities Exchange Act Release No. 33992 (May 2, 1994).
    \18\15 U.S.C. 78f and 78k-1 (1988).
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    In its most recent monitoring report, the Amex stated that, in 
1993, 57 trades having a volume of 611,300 shares were traded during 
the Amex AHT session. From September 1993 through February 1994, a 
total of 51 firms entered orders in the AHT session. Data submitted in 
the monitoring reports does not indicate that the AHT trading session 
had any effect on volatility, quote spreads or block trading during the 
last hour of the regular trade session.
    The Amex proposal is substantially similar, and a reasonable 
competitive response, to the NYSE's Crossing Session I.\19\ By allowing 
members to enter single-sided and coupled orders into an after-hours 
facility,\20\ 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 after-hours facility, the 
Exchange is providing a benefit to investors who wish to participate in 
an after-hours trading session. The AHT facility also is a mechanism 
for maintaining the Amex's individual marketplace on a competitive 
level with the NYSE and the regional exchanges.
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    \19\For a description of NYSE Crossing Session I, see Release 
No. 29237, supra note 16.
    \20\But see limitation on member orders described in note 14, 
supra.
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    The Commission believes that, although Amex specialists will know 
which limit orders are designated ``GTX'' and will manually execute 
matched GTX and one-sided orders, they should not be able to use this 
information to their own advantage because specialists will be 
prohibited from entering orders into the after-hours facility. The 
Commission expects that the Amex will monitor carefully the execution 
of GTX, single-sided and coupled orders to ensure that Amex specialists 
are not taking unfair advantage of this information.\21\
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    \21\The Amex requested and received an exemption from Rule 10a-1 
under the Act to permit, subject to certain conditions, short sales 
of certain orders during the AHT sessions without complying with the 
``tick'' provisions of the Rule; and interpretive advice under Rule 
10b-18 under the Act to permit issuers to purchase their securities 
in the AHT sessions. See letter from Larry E. Bergmann, Associate 
Director, Division of Market Regulation, Commission, to Scott I. 
Noah, Assistant Vice President, Amex, dated August 5, 1991.
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    The Commission believes that the AHT facility provides benefits to 
the marketplace generally, and is reasonably consistent with the 
maintenance of fair and orderly markets. The AHT facility retains some 
features of an auction market system in that it is a limited purpose 
facility designed to bring buyers and sellers together with the 
benefits associated with exchange trading and maintains priority rules 
for migrated limit orders.\22\ With respect to price discovery, the 
Commission notes that the Amex closing price has been determined by 
auction market trading during the regular trading session.\23\
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    \22\See supra note 14.
    \23\The Commission continues to believe that, in the event that 
multiple, comparable after hours trading systems develop, resolution 
of intermarket issues would be the equal responsibility of all 
marketplaces offering those sessions.
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    The Commission expects that the Amex, through use of its 
surveillance procedures, will monitor for, and report to the 
Commission, any patterns of manipulation or trading abuses or unusual 
trading activity in the after-hours facility. Specifically, the 
Commission expects the Amex to monitor closely the trading of equity 
derivative products in the after-hours facility to ensure that trading 
in these issues is not subject to any patterns of manipulation or 
trading abuses or unusual trading activity. Moreover, the Commission 
expects the Amex to keep the Commission apprised of any technical 
problems which may arise regarding the operation of the after-hours 
facility.

IV. Conclusion

    Based on the foregoing, the Commission finds that permanent 
approval of the AHT facility is consistent with the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act\24\ that the portion of the proposed rule change (SR-Amex-93-15) 
establishing an after-hours trading facility in which members, not 
including specialists, may enter both proprietary and agency orders in 
Exchange-traded equity securities for execution at the Exchange's last 
closing regular way price, is hereby approved.

    \24\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.\25\
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    \25\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11033 Filed 5-6-94; 8:45 am]
BILLING CODE 8010-01-M