[Federal Register Volume 59, Number 219 (Tuesday, November 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28138]


[[Page Unknown]]

[Federal Register: November 15, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34949; File No. SR-Amex-94-47]

 

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.

November 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 October 
31, 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 
November 8, 1994, to continue without interruption. The Commission 
notes that, under current Rule 205, no differential may be charged 
on odd-lot order transactions, except for non-regular way trades. 
See infra, note 5.
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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 November 
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\ These procedures initially were approved by the 
Commission on a pilot basis,\3\ and subsequently were extended nine 
times.\4\
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    \2\See Securities Exchange Act Release No. 34496 (August 8, 
1994), 59 FR 41807 (August 15, 1994) (approving File No. SR-Amex-94-
28).
    \3\See Securities Exchange Act Release No. 26445 (January 10, 
1989), 54 FR 2248 (January 19, 1989) (approving File No. SR-Amex-88-
23).
    \4\See Securities Exchange Act Release Nos. 34496 (August 8, 
1994), 59 FR 41807 (August 15, 1994) (approving File No. SR-Amex-94-
28); 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 though 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 Section 6(b) of the Act 
in general and furthers the objectives of Sections 6(b)(5) and 
11A(a)(1) in particular in that it 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, NW., 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-94-47 and should be 
submitted by December 6, 1994.

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

    For the same rationale discussed in its previous orders regarding 
the Amex's odd-lot execution pilot program,\5\ the Commission 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)\6\ and 11A(a)(1)\7\ 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 their orders. The Exchange has implemented enhancements to 
its PER system for the automatic execution of odd-lot market orders.
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    \5\See e.g., Securities Exchange Act Release No. 26445, supra 
note 3, for a description of the Commission's rationale for 
approving the Amex's odd-lot procedures on a pilot basis. The 
discussion in the aforementioned order is incorporated by reference 
into this order. Since initial approval of the pilot program, 
however, the Exchange has amended Rule 205 to provide that no 
differential may be charged on odd-lot order transactions, except 
for non-regular way trades. See Securities Exchange Act release No. 
34591 (August 24, 1994), 59 FR 44783 (August 30, 1994) (approving 
File No. SR-AMEX-94-15).
    \6\15 U.S.C. Sec. 78f (1988).
    \7\15 U.S.C. Sec. 78k-1(a)(1) (1988).
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    In its previous orders,\8\ however, the Commission expressed 
concern about whether customers receive the best execution, both in 
terms of price and time, under the Amex's pilot procedures. 
Specifically, the Commission asked the Exchange to analyze the 
difference in odd-lot executions between using the Intermarket Trading 
System (``ITS'') consolidated best bid or offer and using the Amex 
quote. The Commission also was interested in the feasibility of 
implementing an odd-lot pricing system based on the ITS best bid or 
offer.\9\
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    \8\See supra, note 4.
    \9\The Commission has approved amendments to the New York Stock 
Exchange's (``NYSE'') rules which incorporate the ITS quotation 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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    The Amex has submitted to the Commission several monitoring reports 
regarding the operation of its odd-lot execution pilot program, 
including the requested information about the difference in executions 
between the ITS best bid or offer and the Amex quote. As discussed in 
more detail below, 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.
    Based on the Amex data, the pilot procedures provide a superior 
execution for a substantial majority of odd-lot orders. The Commission, 
however, remains concerned that some odd-lot orders cold receive 
executions at less than the best available price, because the 
Exchange's pricing formula does not include quotations from other 
markets.\10\ Nevertheless, due to the relatively low number of odd-lot 
market orders on the Amex,\11\ the percentage of Amex quotes that are 
worse than the ITS best bid or offer, and the benefits to customers 
under the pilot procedures as compared to the former pricing 
procedures, the Commission believes that it is acceptable to extend the 
pilot program under Rule 205 for an additional three months.
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    \10\See supra, note 9.
    \11\See footnote 9 of Securities Exchange Act Release No. 29922 
(November 8, 1991), 56 FR 58409.
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    During that period, the Commission requests that the Exchange 
continue to monitor its pilot program and provide data on (1) the 
percentage of odd-lot orders executed when the Amex quote is worse than 
the ITS consolidated best bid or offer and (2) the number of odd-lot 
orders 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 or offer. 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.
    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 substantially 
identical to the procedures that were published in the Federal Register 
for the full comment period and were approved by the Commission.\12\
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    \12\No comments were received in connection with the proposed 
rule changes that implemented these procedures. See supra, notes 3-
4.
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    It is therefore ordered, pursuant to Section 19(b)(2)\13\ of the 
Act, that the proposed rule change (SR-Amex-94-47), is approved for a 
three month period ending on February 8, 1995.

    \13\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.\14\
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    \14\17 CFR 200.30-3(a)(12)(1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28138 Filed 11-14-94; 8:45 am]
BILLING CODE 8010-01-M