[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