[Federal Register Volume 59, Number 131 (Monday, July 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16629]


[[Page Unknown]]

[Federal Register: July 11, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34298; File No. SR-Amex-94-13]

 

Self-Regulatory Organizations; The American Stock Exchange, Inc.; 
Filng and Order Granting Approval on an Accelerated Basis of a Proposed 
Rule Change Relating to Trade-Day Comparison

July 1, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that the American Stock Exchange, 
Inc. (``Amex'') filed with the Securities and Exchange Commission 
(``Commission'') on May 6, 1994, the proposed rule change (File No. SR-
Amex-94-13) as described in Items I and II below. The Commission is 
publishing this notice and order to solicit comments from interested 
persons and to grant accelerated approval of the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change will allow Amex to implement a program, in 
conjunction with the New York Stock Exchange, Inc. (``NYSE'') and the 
National Securities Clearing Corportion (``NSCC''), to compare all Amex 
equity trades on trade date. Amex will phase-in the program commencing 
June 30, 1994, with full implementation scheduled for June 30, 1995.

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

    In its filings with the Commission, Amex included statements 
concerning the purpose of and basis for the proposed rule changes 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 IV below. Amex 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

    Since 1988, Amex has sought to improve its clearing operations and 
to reduce exposure to loss through market volatility by reducing the 
comparison cycle in stocks and in options. The Amex has reduced the 
comparison times first from five business days to three business days 
and then to one business day after the trade date. For the past five 
years, the Amex, in conjunction with the NYSE, has been working with 
the member firm community and the NSCC to establish operational 
parameters, systems, and rules for shortening trade comparison time 
frames. In 1989, the Amex adopted Rule 719, which requires next-day 
comparison (``T+1'') of exchange transactions, and developed its Intra-
Day Comparison (``IDC'') System, which is an electronic system designed 
to match trade sides and to resolve uncompared trades known as ``don't 
knows'' or ``DKs.''\2\ The IDC System is used by Amex for both equities 
and options.
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    \2\Securities Exchange Act Release No. 27851 (March 27, 1990), 
55 FR 12759 [File No. SR-Amex-89-05] (order approving proposed rule 
change).
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    The Amex now proposes to implement, again in conjunction with NYSE 
and NSCC, trade-date comparison of Amex equity transactions. Trade-date 
comparison will be implemented in phases with a final target date of 
June 30, 1995. The first phase of this program is scheduled to be 
implemented by the end of June 1994. When the first phase has been 
implemented, the Amex will require all member firms to input equity 
trade data into the IDC System every two hours on the date of the trade 
rather than once daily. Input times will be 12:00 noon, 2:00 p.m., 4:00 
p.m., and 6:00 p.m. Amex member firms already are submitting option 
trade data into the IDC System on trade-date on an hourly basis. The 
IDC System will continue to be the main processor of the comparison 
data. The Amex will transmit the compared trades to a registered 
clearing agency in order to complete the process.
    The Amex is not proposing any written changes to its rules at this 
time. Amex Rule 719(a), which currently requires each transaction 
effected on the Amex to be compared or closed out no later than close-
of-business on T+1, will remain in effect for the present time. The 
Amex believes that its Rule 719(c), which requires members to submit 
trade data as may be required by the Amex, provides it with sufficient 
authority to require clearing members to submit trade data in listed 
stocks and options for comparison by such times as Amex may prescribe. 
However, as the final implementation date of June 30, 1995, approaches, 
Amex will file any other rule changes with the Commission pursuant to 
Section 19(b) of the Act\3\ and Rule 19b-4 thereunder\4\ as are 
necessary or appropraite to implement the trade-date comparison 
program. As indicated above, any such Amex rule changes will be 
developed in conjunction with the NYSE and NSCC, and Amex will work 
with the NYSE and NSCC to achieve uniformity and to monitor the 
implementation of each phase of this program.
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    \3\Supra, note 1.
    \4\17 CFR 240.19b-4 (1993).
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    The Amex states that it believes the proposed rule change is 
consistent with Section 6(b) of the Act\5\ in general and with Section 
6(b)(5)\6\ in particular because it will help prevent fraudulent and 
manipulative acts and practices, will promote just and equitable 
principles of trade, and will foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities.
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    \5\15 U.S.C. 78f (1989).
    \6\15 U.S.C. 78f(b)(5) (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex believes that the proposed rule changes will impose no burden 
on competition.

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

    Amex has neither solicited nor received any comments from its 
members, participants, or others.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    For the reasons discussed below, the Commission believes the 
proposal is consistent with Section 6(b) of the Act. Section 6(b)(5) of 
the Act\7\ states that exchange rules should be designed to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, and processing information with respect to 
securities transactions and to protect investors and the public 
interest.
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    \7\Id.
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    The risks posed by uncompared trades and by the long span of time 
between trade execution and trade comparison (as long as five business 
days for equity transactions until 1990) came under intense scrutiny 
after the Market Break of October 1987. The leading studies of the 
Market Break of 1987 identified uncompared trades as a major stress 
point in post-trade processing which, together with the unprecedented 
trading volume and the unprecedented price volatility during the Market 
Break, posed an unacceptable threat to the marketplace.\8\ The 
Commission, in its recommendations to Congress in February of 1988, 
proposed that markets accelerate their efforts to compare all trades on 
trade date.\9\
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    \8\For an analysis of the 1987 Market Break and the changes in 
clearance and settlement effected in response, refer to Division of 
Market Regulation, Market Analysis of October 13 and 16, 1989, 118-
129 (December 1990).
    \9\Testimony on the Securities and Exchange Commission's 
Recommendations Regarding the October 1987 Market Break delivered by 
David S. Ruder, Chairman, Commission, before the Senate Committee on 
Banking, Housing, and Urban Affairs at 23-24 (February 3, 1988).
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    Since 1988, the Amex, among others, has sought to improve clearing 
operations and to reduce exposure to losses associated with market 
volatility occurring during the period between execution and 
settlement. The Amex reduced its comparison cycle in stocks first from 
T+5 to T+3 and then to T+1 in 1990.\10\
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    \10\Supra note 2.
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    As stated above, the Commission believes that the proposed rule 
change which shortens the Amex comparison cycle from T+1 to trade date 
will make Amex's comparison process safer in terms of the risks 
resulting from market price volatility and more efficient in terms of 
the time and expense involved in post-trade processing. The Commission 
believes that the proposal will offer additional protection to 
investors, brokers, and other persons that safeguard investors' funds 
and facilitate investors' transactions. In the Commission's view, this 
proposal will provide fundamental and important improvements to the 
marketplace.
    The Amex has requested that the Commission find good cause for 
approving the proposed rule changes prior to the thirtieth day after 
the date of publication of notice of the filings in the Federal 
Register. Trade-date comparison is to be phased-in by both Amex and 
NYSE on a parallel schedule, and the NYSE has begun some aspects of its 
phase-in program.\11\ Accelerated approval of this proposal will permit 
Amex, as well as the NYSE and NSCC, to provide their clearing members 
with a more coordinated implementation of trade-date comparison. 
Furthermore, because neither the Commission nor NYSE received any 
written comments on the NYSE's proposal, which was very similar to the 
Amex's proposal, and because the Amex did not receive any comments from 
its members in response to its Information Circular,\12\ the Commission 
does not expect to receive any comments on this proposal. Therefore, 
the Commission believes there is good cause for approving the proposed 
rule changes prior to the thirtieth day after the date of publication 
of notice of the filing.
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    \11\For a discussion of the NYSE's implementation of trade-date 
comparison, refer to Securities Exchange Act Release No. 34153 (June 
3, 1994), 59 FR 30071 [File No. SR-NYSE-94-08] (order approving 
proposed rule change).
    \12\``Implementation of Equity Trade Date Comparison,'' Amex 
Information Circular #94-147 (April 6, 1994).
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IV. 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 submissions, 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 in the 
Commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC 20549. Copies also will be available for inspection and 
copying at the principal office of the Amex. All submissions should 
refer to File No. SR-Amex-94-13 and should be submitted by August 1, 
1994.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act\13\ that the above-mentioned proposed rule changes (File No. SR-
Amex-94-13) be, and hereby is, approved.

    \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) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-16629 Filed 7-8-94; 8:45 am]
BILLING CODE 8010-01-M