[Federal Register Volume 59, Number 156 (Monday, August 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19825]


[[Page Unknown]]

[Federal Register: August 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-34496; Filed No. SR-Amex-94-28)

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change by American Stock 
Exchange, Inc. Relating to a Pilot Program for Execution of Odd-Lot 
Market Orders

August 8, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on August 
5, 1994, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes that the Commission extend for three months the 
Exchange's existing pilot program under Rule 205 requiring execution of 
odd-lot market orders at the prevailing Amex quote with no differential 
charged.\1\ The text of the proposed rule change is available at the 
Office of the Secretary, Amex, and at the Commission.
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    \1\The Exchange seeks accelerated approval of the proposed rule 
change in order to allow the pilot program, which expires on August 
8, 1994, to continue without interruption.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change 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 III below. The self-regulatory 
organization 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

1. Purpose
    The Commission has approved, on a pilot basis extending to August 
8, 1994, amendments to Exchange Rule 205 to require the execution of 
odd-lot market orders at the prevailing Amex quote with no odd-lot 
differential.\2\ The Exchange also has proposed to implement on a 
permanent basis its existing pilot procedures under Amex Rule 205.\3\ 
These procedures initially were approved by the Commission on a pilot 
basis,\4\ and subsequently were extended eight times.\5\
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    \2\See Securities Exchange Act Release No. 33584 (February 7, 
1994), 59 FR 6983 (February 14, 1994) (approving Filed No. SR-Amex-
93-45).
    \3\Id.
    \4\See Securities Exchange Act Release No. 26445 (January 10, 
1989), 54 FR 2248 (January 19, 1989) (approving File No. SR-Amex-88-
23).
    \5\See Securities Exchange Act Release Nos. 33584 (February 7, 
1994), 59 FR 6983 (February 14, 1994) (approving File No. SR-Amex-
93-45); 32726 (August 9, 1993), 58 FR 43394 (August 16, 1993) 
(approving File No. SR-Amex-93-24); 31828 (February 5, 1993) 58 FR 
8434 (February 12, 1993) (approving File No. SR-Amex-93-06); 30305 
(January 30, 1992), 57 FR 4653 (February 6, 1992) (approving File 
No. SR-Amex-92-04); 29922 (November 8, 1991), 56 FR 58409 (November 
19, 1991) (approving File No. SR-Amex-91-30); 29186 (May 9, 1991), 
56 FR 22488 (May 15, 1991) (approving File No. SR-Amex-91-09); 28758 
(January 10, 1991), 56 FR 1656 (January 16, 1991) (approving File 
No. SR-Amex-90-39); and 27590 (January 5, 1990), 55 FR 1123 (January 
11, 1990) (approving File No. SR-Amex-89-31).
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    Under the pilot procedures, odd-lot market orders with no 
qualifying notations are executed at the Amex quotation at the time the 
order is represented in the market, either by being received at the 
trading post or through the Exchange's Post Execution Reporting 
(``PER'') system. Enhancements to the PER system have been implemented 
to provide for the automatic execution of odd-lot market orders entered 
through PER. For purposes of the pilot program, odd-lot limit orders 
that are immediately executable based on the Amex quote at the time the 
order is received, at the trading post or through PER, are executed in 
the same manner as odd-lot market orders.
    The Exchange proposes that the pilot program applicable to odd-lot 
execution procedures be extended for three months. This would provide 
the Commission with an additional period of time to assess procedures 
under the pilot program and would permit the Exchange to provide 
additional data and information regarding its experience under the 
pilot program.
2. Basis
    The proposed rule change is consistent with Sections 6(b) and 
11A(a)(1) of the Act in general and furthers the objectives of Section 
6(b)(5) in particular in that its facilitates the economically 
efficient execution of odd-lot transactions, and is intended to result 
in improved execution of customer orders.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no burden on competition.

C. Self-Regulatory Organization's Statements on Comments on the 
Proposed Rule Change Received from Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. 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, N.W., Washington, D.C. 20549. 
Copies of the submission, 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. Sec. 552, will be available for inspection and copying at 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-94-28 and should be 
submitted by September 6, 1994.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    In regard to the three month extension of the Amex's odd-lot 
execution pilot program, the Commission, for the same rationale 
discussed in its previous orders regarding these procedures,\6\ finds 
that the proposed rule change 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(b)\7\ and 11A(a)(1)\8\ of the Act and the rules and 
regulations thereunder. The Commission believes that the revised 
procedures, which provide for pricing of odd-lot market orders at the 
prevailing Amex quote rather than at the execution price of a 
subsequent transaction, should provide investors with more timely 
execution of these orders. Moreover, these orders should receive less 
costly executions than under the former procedures because no 
differential will be charged. In addition, the Exchange has implemented 
enhancements to its PER system for the automatic execution of odd-lot 
market orders, as set forth in the Commission's order approving the use 
of the pilot program procedures.\9\
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    \6\See supra, note. 5.
    \7\15 U.S.C. Sec. 78f (1988).
    \8\15 U.S.C. Sec. 78k-1(a)(1) (1988).
    \9\See Securities Exchange Act Release No. 26445, supra note 4, 
for a description of the Exchange's odd-lot procedures and the 
Commission's rationale for approving those procedures on a pilot 
basis. The discussion in the aforementioned order is incorporated by 
reference into this order.
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    In its previous orders,\10\ the Commission asked the Amex to 
analyze the difference in executions between using the Intermarket 
Trading System (``ITS'') consolidated best bid or offer as compared 
with the Amex quote without the differential. Specifically, the 
Commission expressed interest in whether customers are receiving the 
best execution, both in terms of price and time, using the new Amex 
system. The Commission was also interested in the feasibility of 
implementing an odd-lot pricing system using the ITS best bid or offer 
and no differential.\11\
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    \10\See supra, note 5.
    \11\The Commission has approved amendments to the New York Stock 
Exchange's (``NYSE'') rules which incorporate the ITS quote into the 
NYSE odd-lot pricing procedures through the use of the best Pricing 
quote (``BPQ''). See Securities Exchange Act Release No. 27981 (May 
2, 1990), 55 FR 19409 (May 9, 1990) (File No. SR-NYSE-90-06).
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    In response, the Amex submitted the requested information with 
respect to the difference in executions between the ITS best bid or 
offer and the Amex quote to the Commission on January 9, 1991, April 
22, 1991, October 25, 1991, February 4, 1993, August 3, 1993, November 
16, 1993, April 14, 1994 and July 11, 1994.\12\ The Amex data indicated 
that the pilot procedures provide a superior execution for a 
substantial majority of odd-lot executions.
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    \12\See letters from Michael Cavalier, Assistant General 
Counsel--Regulatory, Legal & Regulatory Policy Division, Amex, to 
Beth Stekler, Attorney, Division of Market Regulation, SEC, dated 
April 4, 1994 and July 7, 1994; letters from Arne G. Michelson, 
Senior Vice President, Total Quality--Floor Members, Amex, to Beth 
Stekler, Attorney, Division of Market Regulation, SEC, dated 
November 16, 1993, and to Sharon M. Lawson, Assistant Director, 
Division of Market Regulation, SEC, dated August 3, 1993; letter 
from Michael Cavalier, Assistant General Counsel, Regulatory, Legal 
& Regulatory Policy Division, Amex, to Diana Luka-Hopson, Branch 
Chief, Division of Market Regulation, SEC, dated February 3, 1993; 
and letters from Jules L. Winters, Executive Vice President, 
Operations, Amex, to Howard L. Kramer, Assistant Director, Division 
of Market Regulation, SEC, dated January 8, 1991, April 19, 1991 and 
October 23, 1991.
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    Accordingly, the Commission believes that it is reasonable to 
extend the pilot for an additional three months to enable the 
Commission to review fully the Amex reports and to enable the pilot to 
continue without interruption during the Commission's review. The 
Commission, however, remains concerned that some odd-lot orders could 
receive executions at less than the best available price since the 
Exchange's pricing formula does not include quotations from other 
markets.\13\ Nevertheless, due to the relatively low number of odd-lot 
market orders on the Amex,\14\ the percentage of Amex quotes that are 
worse than the ITS best bid or offer, and the benefits to customers 
under the pilot program procedures as compared to the former pricing 
procedures, the Commission believes that it is acceptable to continue 
the pilot's current pricing procedures for an additional three months. 
During that period, the Commission requests that the Exchange continue 
to monitor the pilot and provide data on the number of Amex quotes 
executed that are worse than the ITS consolidated best bid and offer 
and on the number of odd-lots as a percentage of total Exchange share 
volume and of the total number of trades. Moreover, the Commission 
remains interested in the feasibility of implementing an odd-lot 
pricing system using the ITS best bid and offer and no differential. 
Accordingly, the Commission requests that the Amex evaluate the 
feasibility and cost of developing such a plan, along with a projected 
time frame for potential implementation.
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    \13\See supra, note 11.
    \14\See footnote 9 of Securities Exchange Act Release No. 29922 
(November 8, 1991), 56 FR 58409.
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    The Commission finds good cause for granting approval of the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof. This will permit the pilot 
program to continue on an uninterrupted basis. In addition, the 
procedures the Exchange proposes to continue using are the identical 
procedures that were published in the Federal Register for the full 
comment period and were approved by the Commission.\15\
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    \15\No comments were received in connection with the proposed 
rule change which implemented these procedures. See supra note 4.
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    It Is Therefore Ordered, pursuant to Section 19(b)(2)\16\ of the 
Act, that the proposed rule change (SR-Amex-94-28) is approved for a 
three month period ending on November 8, 1994.

    \16\15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\17 CFR 200.30-3(a)(12) (1991).
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Maraget H. McFarland,
Deputy Secretary.
[FR Doc. 94-19825 Filed 8-12-94; 8:45 am]
BILLING CODE 8010-01-M