[Federal Register Volume 60, Number 145 (Friday, July 28, 1995)]
[Notices]
[Pages 38870-38872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18600]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36014; File No. SR-Amex-95-19]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Temporary Approval of Proposed Rule Change by the 
American Stock Exchange, Inc. Relating to Amendments to Rule 170 
Pertaining to Specialists' Liquidating Transactions

July 21, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 24, 1995, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex requests permanent approval of a pilot program that amends 
Exchange Rule 170 to permit a specialist to effect a liquidating 
transaction on a zero minus tick, in the case of a ``long'' positions, 
or zero plus tick, when covering a ``short'' position, without Floor 
Official approval. The pilot program also amends Rule 170 to set forth 
the affirmative action that specialists are required to take subsequent 
to effecting various types of liquidating transactions. In the 
alternative, the Exchange is proposing a one year extension of the 
pilot program.

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
    On April 22, 1994, the Commission approved, on a one year pilot 
basis, amendments to Exchange Rule 170 to permit a specialist to effect 
a liquidating transaction on a zero minus tick, in the case of a 
``long'' position, or a zero plus tick, when covering a ``short'' 
position, without Floor Official approval.\3\ The amendments also set 
forth the affirmative action that specialists are required to take 
subsequent to effecting various types of liquidating transactions.

    \3\ The Commission approved the pilot program in Securities 
Exchange Act Release No. 33957 (April 22, 1994), 59 FR 22188 (April 
29, 1994) (``1994 Approval Order''). On April 21, 1995, the 
Commission granted a three month extension to the pilot program, 
ending on July 21, 1995. Securities Exchange Release No. 35635 
(April 21, 1995), 60 FR 20780 (April 27, 1995).
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    During the course of the pilot program, the Exchange has monitored 
compliance with the requirements of the Rule, and our findings in this 
regard have been forwarded to the Commission under separate cover. We 
believe that the amendments have provided specialists with flexibility 
in liquidating specialty stock positions in order to facilitate their 
ability to maintain fair and orderly markets, particularly during 
unusual market conditions. In addition, the specialist's concomitant 
obligation to participate as dealer on the opposite side of the market 
after a liquidating transaction has been strengthened.
    The Exchange is therefore proposing approval of the amendments to 
Rule 170. In the alternative, the Exchange is requesting an extension 
of the pilot program for an additional one year period, if the 
Commission feels that further study and monitoring of the effects of 
the pilot program are necessary.

[[Page 38871]]

2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and further the objectives of Section 6(b)(5) in particular 
in that it is designed to promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market, and, in general, protect investors and the public 
interest. The proposed rule change is also consistent with Section 
11(b) of the Act which allows exchanges to promulgate rules relating to 
specialists in order to maintain fair and orderly markets.
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 Statement 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-95-19 and should be 
submitted by August 18, 1995.

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

    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 Sections 6(b)(5) and 11 of the Act.\4\ 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, remove impediments to and perfect 
the mechanism of a free and open market, and, in general, protect 
investors and the public interest. The Commission also believes that 
the proposal is consistent with Section 11(b) of the Act and Rule 11b-1 
thereunder,\5\ which allow exchanges to promulgate rules relating to 
specialists in order to maintain fair and orderly markets.

    \4\ 15 U.S.C. 78f and 78k (1988).
    \5\ 17 CFR 240.11b-1 (1994).
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    Under the pilot program, a specialist may liquidate a position by 
selling stock on a direct minus tick or by purchasing stock on a direct 
plus tick only if such transactions are reasonably necessary for the 
maintenance of a fair and orderly market and only if the specialist has 
obtained the prior approval of a Floor Official. Liquidations on a zero 
minus or a zero plus tick, which previously required Floor Official 
approval, can be effected under the pilot procedures without a Floor 
Official's approval, but continue to be subject to the restriction that 
they be effected only when reasonably necessary to maintain a fair and 
orderly market. In addition, the specialist must maintain a fair and 
orderly market during the liquidation.
    After the liquidation, a specialist is required to re-enter the 
market on the opposite side of the market from the liquidating 
transaction to offset any imbalances between supply and demand. During 
any period of volatile or unusual market conditions resulting in a 
significant price movement in a specialist's specialty stock, the 
specialist's re-entry into the market must reflect, at a minimum, his 
or her usual level of dealer participation in the specialty stock. In 
addition, during such periods of volatile market conditions or unusual 
price movements, re-entry into the market following a series of 
transactions must reflect a significant level of dealer participation.
    In our 1994 Approval Order,\6\ the Commission asked the Amex to 
submit a report setting forth the criteria developed by the Exchange to 
determine whether liquidating transactions effected by specialists 
pursuant to the pilot were necessary and appropriate in connection with 
fair and orderly markets. The Commission also asked the Amex to provide 
information regarding the Exchange's monitoring of liquidating 
transactions effected by specialists on any destabilizing tick. In 
addition, the Commission asked the Amex to provide the following 
information in its report: (1) a review of all liquidating transactions 
effected by specialists on any destabilizing ticks; (2) a review of 
liquidating transactions by specialists to determine that the required 
Floor Official approval was obtained where necessary; and (3) a review 
of liquidating transactions in light of dealer participation levels and 
re-entry into the market in terms of timing and support.

    \6\ See supra note 3.
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    In April 1995, the Commission extended the pilot program for three 
months to give the Exchange additional time to prepare the report 
discussed above and submit the data to the Commission for its 
consideration of whether the pilot program should be granted permanent 
approval.\7\ The Exchange submitted the report in May 1995. After 
reviewing the data, the Commission agrees with the Exchange that the 
pilot generally is working well. In particular, the Commission believes 
the report indicates that specialist generally are entering the 
aftermarket after effecting liquifying transactions when appropriate 
and that the Exchange has developed surveillance procedures that enable 
it to monitor specialists' reliquifying activity.

    \7\ See supra note 3.
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    The Commission believes, however, that further monitoring of the 
pilot is necessary before permanent approval can be granted. In this 
regard, the Exchange should continue to emphasize the requirements of 
the rule, including the necessity for floor official approval of 
specialists' purchases and sales on direct plus or minus ticks, and 
that such transactions can only be effected if reasonably necessary for 
the maintenance of fair and orderly markets. In addition, where proper 
procedures are not followed, the Amex should take appropriate 
disciplinary action.
    The Commission has therefore decided to extend the pilot program 
for one year. During the one year extension, the Commission expects the 
Amex to continue to monitor compliance with the pilot program 
procedures and report any non-compliance with the rule and the action 
the Amex has taken as a result of such non-compliance. The Amex should 
prepare an additional report as described above and submit the data to 
the Commission for its consideration of whether the pilot 

[[Page 38872]]
program should be granted permanent approval.\8\

    \8\ The Commission requests that this report be submitted by 
April 1996, along with any requests for extension or permanent 
approval of the pilot.
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    The Commission finds good cause for approving 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 Exchange proposes 
to continue using the identical procedures contained in the pilot 
program. The rule change that implemented the pilot program was 
published in the Federal Register for the full comment period,\9\ and 
no comments were received. Furthermore, the Commission approved a 
similar rule change for the NYSE also without receiving comments on the 
proposal.\10\

    \9\ See Securities Exchange Act Release No. (August 25, 1993), 
58 FR 45926 (August 31, 1993).
    \10\ See Securities Exchange Act Release No. 31797 (January 29, 
1993), 58 FR 7277 (February 5, 1993).
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    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change is approved on an accelerated 
basis for a one year period ending on July 21, 1996.

    \11\ 15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-18600 Filed 7-27-95; 8:45 am]
BILLING CODE 8010-01-M