[Federal Register Volume 60, Number 63 (Monday, April 3, 1995)]
[Notices]
[Pages 16894-16895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8089]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35537; File No. SR-Amex-95-02]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Minimum 
Fractional Changes

March 27, 1995.
    On January 31, 1995, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to increase from $5 to $10 the 
price level below which equity securities are traded in sixteenths.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240 240.19b-4 (1994).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 35338 (February 7, 1995), 60 FR 8432 (February 
14, 1995). No comments were received on the proposal.
    The rule change amends Amex Rule 127 to allow the minimum 
fractional changes in sixteenths ($.0625) for all securities priced 
between $.25 and $10. Amex Rule 127 will continue to provide that the 
minimum fractional change for dealings in securities priced below $.25 
will be in thirtyseconds ($.03125), and for securities priced above $10 
the minimum fractional change will continue to be in eighths 
($.125).\3\

    \3\In 1992, the Commission approved amendments to Amex Rule 127 
to provide that securities selling between $.25 and $5 could be 
traded in sixteenths. See Securities Exchange Act Release No. 31118 
(August 28, 1992), 57 FR 40484 (September 3, 1992).
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    At the time of publication of the Commission release noticing this 
proposal, the Intermarket Trading System (``ITS'') was not equipped to 
accommodate trading in sixteenths for stocks priced above $5. However, 
at the February 1995 meeting of the ITS Operating Committee, the ITS 
participants approved enhancements to ITS to permit trading in 
sixteenths for Tape B securities\4\ priced under $10. The Amex 
represents that these system modifications have been made and that the 
system now is able to accommodate trading all Amex securities priced 
below $10 in sixteenths.\5\

    \4\The Consolidated Tape, operated by the Consolidated Tape 
Association (``CTA''), compiles last sale reports in certain listed 
securities from all exchanges and market makers trading such 
securities and disseminates these reports to vendors on a 
consolidated basis. Amex-listed stocks and qualifying regional-
listed stocks are reported on CTA Tape B.
    \5\The Amex will verify that the other ITS participants have 
completed any necessary system modifications before trading 
securities priced between $5 and $10 in sixteenths. See letter from 
Arne G. Michelson, Amex, to ITS Operating Committee, dated March 7, 
1995.
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    The Commission finds that the proposed rule change to increase from 
$5 to $10 the price level below which equity securities are traded in 
sixteenths 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) 
and 11A.\6\ The Commission believes the proposal is consistent with the 
Section 6(b)(5) requirements that the rules of an exchange be designed 
to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts, and, in general, to protect investors 
and the public interest. Additionally, the Commission believes that the 
proposal is consistent with Section 11A, which requires the Commission 
to facilitate the establishment of a national market system. Pursuant 
to Section 11A, a national market system should assure, among other 
things, fair competition between the exchanges, economically efficient 
execution of securities transactions and the practicability of brokers 
executing investors' orders in the best market.

    \6\15 U.S.C. 78f(b) and 78k-1 (1988).
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    The Commission believes that market quality should be enhanced by 
applying a minimum fractional change of \1/16\, rather than \1/8\, to 
securities selling below $10. The Commission believes that decreasing 
such trading variations should help to produce more accurate pricing of 
such securities and can result in tighter quotations. In addition, if 
the quoted markets are improved by the [[Page 16895]] reduced minimum 
tick fluctuations, the change could result in added benefits to the 
market such as increased liquidity in stocks priced below $10.\7\ The 
Commission believes that decreasing such trading variations should help 
to produce more accurate pricing of such securities and can result in 
tighter quotations.

    \7\The rule change is consistent with the recommendation of the 
Division of Market Regulation (the ``Division'') in its Market 2000 
Study, in which the Division noted that the \1/8\ minimum variation 
can cause artificially wide spreads and hinder quote competition by 
preventing offers to buy or sell at prices inside the prevailing 
quote. See Division of Market Regulation, SEC, Market 2000: An 
Examination of Current Equity Market Developments (January 1994), at 
18.
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    Furthermore, the Amex represents that approximately 60% of all 
equity securities presently traded on the Amex sell for under $10 per 
share.\8\ The Commission believes that the tighter quotation resulting 
from trading these securities in sixteenths should provide customers 
with the most competitive market and the best possible execution of 
their transactions in securities priced below $10.

    \8\The Amex estimates that the rule change will increase the 
number of securities traded in sixteenths from 362 securities 
(approximately 37% of Amex-listed securities) to 589 securities 
(approximately 60% of Amex-listed securities). These estimates were 
made by the Exchange as of February 3, 1995.
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    In addition, the Commission believes that the proposal should lead 
to increased competition between the exchanges pursuant to Section 11A 
of the Act. As noted above, ITS participants will have the capability 
to trade in sixteenths in Amex-listed securities. By ensuring that all 
ITS participants can quote in sixteenths, customers should be able to 
receive a better, more competitive price in securities priced below 
$10.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Amex-95-02) is approved.

    \9\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.\10\

    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8089 Filed 3-31-95; 8:45 am]
BILLING CODE 8010-01-M