[Federal Register Volume 60, Number 30 (Tuesday, February 14, 1995)]
[Notices]
[Pages 8430-8432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3617]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35344; File No. SR-Amex-95-03]


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

February 8, 1995.
    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 February 
2, 1995, 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 twelve 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.

    \1\The Exchange seeks accelerated approval of the proposed rule 
change in order to allow the pilot program, which expires on 
February 8, 1995, 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 February 
8, 1995, 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 [[Page 8431]] basis,\3\ and subsequently were 
extended ten times.\4\

    \2\See Securities Exchange Act Release No. 34949 (November 8, 
1994), 59 FR 58863 (November 15, 1994) (approving File No. SR-AMEX-
94-47).
    \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. 34949 (November 8, 
1994), 59 FR 58863 (November 15, 1994) (approving File No. SR-Amex-
94-47); 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 19, 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 provided 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 twelve months. The exchange notes 
that, in approving previous extensions to the Rule 205 pilot 
procedures, the Commission has expressed interest in the feasibility of 
the Exchange utilizing the Intermarket Trading System (``ITS'') best 
bid or offer, rather than the Amex bid or offer, for purposes of the 
Exchange's odd-lot pricing system. The Exchange has determined to 
proceed with system modifications, anticipated to be completed within a 
twelve month period, to provide for execution of odd-lot market orders 
at the ITS best bid or offer. The Exchange will file appropriate 
amendments to Rule 205, prior to expiration of the extended pilot 
program, to accommodate the revised odd-lot pricing procedures.
2. Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and furthers the objectives of Section 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, 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-95-03 and should be 
submitted by March 7, 1995.

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

    For the same rational 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 Section 6(b)\6\ and 11A(a)(1)\7\ of the Act and the rules and 
regulations thereunder. The Commission believes that the revised 
procedures, under which odd-lot market orders are executed at the 
prevailing Amex quote rather than at the price of a subsequent round-
lot transaction, should provide investors with more timely execution of 
their orders. The Exchange has implemented enhancements to its PER 
system to provide for the automatic execution of odd-lot market orders. 
Based on the data in the Amex's monitoring reports, the Rule 205 
amendments have resulted in a superior execution for a significant 
percentage of such orders.

    \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. 78f (1988).
    \7\15 U.S.C. 78k-1(a)(1) (1988).
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    The Commission, however, is not satisfied that all customers 
received the best execution, in terms of time and price, under the 
pilot procedures. Specifically, the Commission remains concerned that 
some odd-lot orders may not receive the best available price, because 
the Exchange's pricing formula does not include quotations from other 
markets.\8\ In its previous orders,\9\ the Commission has requested 
that the Exchange 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 has encouraged the 
Amex to evaluate the feasibility of implementing an odd-lot pricing 
system based on the ITS best bid or offer.\10\

    \8\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-SYSE-90-
06).
    \9\See supra, note 4.
    \10\See supra, note 8.
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    At this time, the Amex has determined to proceed with the necessary 
system modifications to provide for the execution of odd-lot orders at 
the ITS best bid or offer. The Exchange anticipates that the system 
modifications will be completed within a twelve month period. As noted 
above, the Commission has encouraged the Amex to implement a pricing 
formula that includes quotations from other markets and believes that 
such action would substantially alleviate the Commission's best 
execution concerns. In the interim, due to the relatively low 
[[Page 8432]] number of odd-lot market orders on the Amex\11\ and the 
benefits to customers under the pilot procedures as compared to the 
former pricing procedures, which priced odd-lot orders based on 
subsequent round-lot transactions and which raised concerns regarding 
timeliness of execution, the Commission finds that it is appropriate to 
extend the pilot program for an additional twelve months. This will 
enable the pilot program to continue without interruption during the 
system modifications.

    \11\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 substantially 
identical to the procedures that were published in the Federal Register 
for the full comment period and were approved by the Commission.\12\

    \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-95-03) is approved for a 
twelve month period ending on February 8, 1996.

    \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) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-3617 Filed 2-13-95; 8:45 am]
BILLING CODE 8010-01-M