[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] ======================================================================= ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \1\15 U.S.C. 78s(b)(1) (1988). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \2\Securities Exchange Act Release No. 27851 (March 27, 1990), 55 FR 12759 [File No. SR-Amex-89-05] (order approving proposed rule change). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \3\Supra, note 1. \4\17 CFR 240.19b-4 (1993). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \5\15 U.S.C. 78f (1989). \6\15 U.S.C. 78f(b)(5) (1988). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \7\Id. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \10\Supra note 2. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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). --------------------------------------------------------------------------- For the Commission by the Division of Market Regulation, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 94-16629 Filed 7-8-94; 8:45 am] BILLING CODE 8010-01-M