[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