[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Notices]
[Pages 30612-30614]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14120]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35797; File No. SR-Amex-95-15]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to the Solicitation of Options 
Transactions

June 1, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 22, 1995, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the 
[[Page 30613]] proposed rule change as described in Items I, II, and 
III below, which Items have been prepared by the Amex. The Exchange 
filed Amendment No. 1 to the proposed rule change on May 30, 1995.\2\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Amendment No. 1 concerns the priority of non-solicited 
market participants and floor brokers in the trading crowd over 
solicited parties or solicited orders. In addition, Amendment No. 1 
makes certain minor technical and clarifying modifications to the 
proposed changes to Amex Rule 950(d), Commentary .03. See letter 
from Claire P. McGrath, Managing Director and Special Counsel, 
Derivative Securities, Amex, to Michael Walinskas, Branch Chief, 
Division of Market Regulation, Commission, dated May 26, 1995 
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend its Rule 950(d), Commentary .03, to 
modify the manner in which members solicit other members to participate 
in options transactions.

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 IV 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

    In 1989, the Exchange adopted its solicitation rule \3\ to govern 
the manner in which members may solicit other members and non-member 
broker dealers to participate in options transactions. Generally, 
members solicit participation in large size orders and orders that 
might contain complex terms and conditions, including orders involving 
both stock and options. Currently, if the solicited party is a broker 
dealer other than a registered trader, the rule permits the 
solicitation of such a broker dealer to participate in trades without 
first attempting to determine whether the trading crowd wishes to 
participate. The rule had sought to reconcile the growing practice of 
soliciting participation in orders outside of trading crowds with the 
rules and practices of the auction market. Since its adoption, the rule 
has operated successfully and has helped in giving fair and equal 
access to information regarding solicited transactions to participants 
in trading crowds and has resulted in more competitive markets and 
executions for customers at the best available prices.

    \3\ Securities Exchange Act Release No. 26947 (June 19, 1989), 
54 FR 26869 (approving Amex Rule 950(d), Commentary .03).
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    Specifically, the rule permits the solicitation of on-floor and 
off-floor members outside of a trading crowd to participate as the 
contra-side of an order only if the trading crowd is given (1) the same 
information about the options order as is given to the solicited party; 
and (2) a reasonable opportunity to accept the bid or offer before the 
solicited party participates in the transaction. However, with respect 
to the solicitation of a registered options trader, the soliciting 
member must also disclose to the trading crowd, prior to the 
solicitation, the same terms and conditions as will be disclosed to the 
solicited registered options trader.
    The Exchange now seeks to modify the rule to eliminate the 
difference in how the rule is applied to the solicitation of registered 
options traders. Members who are engaged in the practice of soliciting 
orders indicate that it is difficult, at times, to determine prior to 
the solicitation whether the solicited party is a registered options 
trader. Such a determination is important for a soliciting member 
seeking to adhere to the rule requirement that the trading crowd be 
notified of the terms of an order prior to solicitation of a registered 
options trader. Rather than chance violating the Exchange's rule, these 
members advise that in the case of multiple traded options, they 
frequently seek to trade at another options exchange whose solicitation 
rule does not differentiate between broker dealers other than 
registered traders, and registered traders.
    Therefore, the Exchange seeks to eliminate the requirement that a 
soliciting member first disclose to a trading crowd the terms and 
conditions of the order prior to the solicitation of a registered 
trader. The Exchange believes that if trading crowds are given a 
reasonable opportunity to accept the bid or offer,\4\ after the terms 
and conditions of the order are announced, then it is not necessary for 
the soliciting member to disclose those terms and conditions to the 
trading crowd prior to soliciting a registered options trader. Once 
other market participants are given a reasonable opportunity to accept 
the bid or offer, the solicited party may accept all or any remaining 
part of such order, or the member may cross all or any remaining part 
of the originating order with the solicited party at such bid or offer 
by announcing that the member is crossing the orders and stating the 
quantity and price.

    \4\ Since the size and complexity of orders for options can vary 
widely, the phrase ``reasonable opportunity to accept the bid and 
offer'' has not been specifically defined. However, the Exchange has 
determined that the following factors should be considered when 
deciding whether a reasonable opportunity has been given: (1) size 
and complexity of the order; (2) ease of executing hedging 
transactions in the underlying stock; and (3) effect of the options 
order on the positions held by participants in the trading crowd.
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    The Exchange also proposed to add language to its solicitations 
rule to make it clear that non-solicited market participants and floor 
brokers holding non-solicited discretionary orders in the trading crowd 
will have priority over the solicited party or the solicited order to 
trade with the original order at the best bid or offer price subject to 
the precedence rules set forth in Rule 155.\5\

    \5\ See Amendment No. 1, supra note 2. Amex Rule 155 generally 
provides that a specialist shall give precedence to orders entrusted 
to him as an agent in any stock in which he is registered before 
executing at the same price any purchase or sale in the same stock 
for an account in which he has an interest.
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    Finally, the Exchange proposes to codify its policy that its 
solicitation rule also applies to the solicitation of non-member broker 
dealers.
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Amex believes that the proposed rule change will not impose any 
burden on competition.

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

    Written comments on the proposed rule change were neither solicited 
nor received. [[Page 30614]] 

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change, or
    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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, 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to File No. 
SR-Amex-95-15 and should be submitted by June 30, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\

    \6\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-14120 Filed 6-8-95; 8:45 am]
BILLING CODE 8010-01-M