[Federal Register Volume 60, Number 166 (Monday, August 28, 1995)]
[Notices]
[Pages 44519-44522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21229]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36123; File No. SR-Amex-95-33]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to a One-Year Extension of the Pilot 
Program for Specialist Participation in the After-Hours Trading 
Facility in Portfolio Depositary Receipts and Investment Trust 
Securities Based on Stock Indexes

August 18, 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 July 31, 
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, II, and III 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 Exchange requests permanent approval of its pilot program for 
specialist participation in the after-hours trading facility in 
portfolio depositary receipts and investment trust securities based on 
stock indexes. In the alternative, the Exchange is proposing a one-year 
extension of the pilot program. The text of the proposed rule change is 
available at the Amex and at the Commission.

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 

[[Page 44520]]
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 21, 1993, the Exchange submitted to the Commission, 
pursuant to section 19(b)(1) of the Act, and Rule 19b-4 thereunder, a 
proposed rule change concerning its After-Hours Trading (``AHT'') 
facility.\1\ As originally filed, the proposed rule change requested 
permanent approval of Amex's pilot After-Hours Trading facility, and 
approval on a pilot basis for specialists in investment trust 
securities based on stock indexes to participate in the AHT facility. 
On January 4, 1994, the Amex amended the filing to request a three-
month extension of the AHT pilot unitl April 30, 1994.\2\ On February 
1, 1994, the Commission approved the three-month extension without 
approving the portion of the proposed rule change that would allow 
specialists in investment trust securities to participate for their own 
accounts in the AHT facility.\3\ On May 2, 1994, the Commission granted 
permanent approval to that portion of the rule proposal concerning the 
Amex's After-Hours Trading facility, not including the specialist 
participation request.\4\

    \1\ File No. SR-Amex-93-15.
    \2\ See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Sandra Sciole, Special Counsel, SEC, dated 
December 23, 1993.
    \3\ See Securities Exchange Act Release No. 33561 (Feb. 1, 
1994), 59 FR 5789 (Feb. 8, 1994).
    \4\ See Securities Exchange Act Release No. 33993 (May 2, 1994), 
59 FR 23902 (May 9, 1994).
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    On August 3, 1993, the Exchange amended the filing to request that 
specialists in Portfolio Depositary Receipts (``PDRs'') also be 
permitted to participate in the AHT facility.\5\ On July 5, 1994, the 
Exchange amended the proposed rule change to eliminate the migration of 
limit orders for PDRs and investment trust securities from the 
specialist's limit order book to the AHT facility.\6\

    \5\ See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Diana Luka-Hopson, SEC, dated August 3, 1993.
    \6\ See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Sandra Sciole, Special Counsel, SEC, dated July 1, 
1994.
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    The proposed rule change to permit specialist participation in the 
AHT facility in PDRs and investment trust securities was published for 
comment in Securities Exchange Act Release No. 34316 (July 5, 1994), 59 
FR 35547 (July 12, 1994). No comments were received on the proposal. 
The proposed rule change was approved as a pilot program in Securities 
Exchange Act Release No. 34611 (Aug. 29, 1994), 59 FR 45739 (Sept. 2, 
1994). The pilot is scheduled to expire on August 29, 1995.
    The Exchange now seeks permanent approval for amendments to Rules 
1300 (Applicability of 1300 Series) and 1302 (After-Hours Trading 
Orders) to permit specialists in PDRs and investment trust securities 
listed pursuant to Section 118B of the Exchange's Company guide \7\ to 
participate in the AHT facility to ``clean-up'' order imbalances by 
entering an order for the specialist's account. For example, if there 
were single sided orders to buy 10,000 and sell 20,000 SPDRs 
immediately prior to the 5:00 p.m. close of the AHT facility, the 
specialist is permitted under the Exchange's pilot program to enter an 
order for its account to buy up to 10,000 SPDRs in order to eliminate 
the sell side order imbalance.

    \7\ The Exchange currently lists two Portfolio Depositary 
Receipts, viz., Standard and Poor's Depositary Receipts on the S&P 
500 and MidCap Indexes (``SPDRs''); and two investment trust 
securities pursuant to Section 118B of the Exchange's Listing 
Guidelines: LOR Index Trust SuperUnits and LOR Money Market 
SuperUnits.
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    The Exchange also seeks permanent approval for amendments to Rule 
1302(b) to eliminate the migration of limit orders for PDRs and 
investment trust securities from the specialist's limit order book to 
the AHT facility. (Amex Rule 1302(b) would provide, with respect to 
equity securities other than PDRs and investment trust securities, that 
a regular way good 'til canceled order that is designated as After-
Hours eligible, that is on the specialist's limit order book, and that 
is executable at the closing price or better, shall migrate from the 
specialist's limit order book to the AHT program.)
    The Exchange also seeks permanent approval for amendments to Rule 
1302 to permit specialists in PDRs and investment trust securities to 
participate in a coupled closing price order so long as the other side 
of the order is not for an account in which a member or member 
organization has a direct or indirect interest.\8\ For example, under 
the pilot program, the specialist in SPDRs is permitted to agree prior 
to the 4:15 close of the regular trading session for such securities to 
take the other side of a customer order to buy or sell SPDRs for 
execution in the AHT facility as a closing price coupled order. The 
Exchange believes that such capability tends to conform the trading of 
PDRs and investment trust securities to the practices of the ``basket'' 
market for equities where it is customary for a dealer to agree prior 
to the close of the regular trading session to take the contra side of 
a customer basket order at the closing index value.

    \8\ As amended, Amex Rule 1300(e)(i) defines, ``closing price'' 
as the price established by the last regular way sale on the 
Exchange prior to the official closing of the 9:30 a.m. to 4:15 p.m. 
trading session, as determined by the Exchange.
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    The Exchange believes that permanent approval of the Exchange's 
pilot program that permits specialists in PDRs and investment trust 
securities to participate in the AHT facility in order to ``clean-up'' 
order imbalances and effect closing price coupled orders would benefit 
investors by providing additional liquidity to the listed cash market 
for derivative securities based upon well known market indexes. The 
market price of these securities is based upon transactions largely 
effected in markets other than the Amex. The Exchange states that the 
specialist in the Amex listed derivatives has no unique access to 
market sensitive information regarding the market for the underlying 
securities or closing index values. The Exchange, therefore, believes 
that specialist participation in the AHT facility in PDRs and 
investment trust securities in the manner described above does not 
raise any market integrity issues. In addition, should a customer not 
care for an execution at the closing price, the rules of the Exchange's 
AHT facility permit cancellation of an order up to the close of the AHT 
session at 5:00 p.m.\9\ (Orders in the AHT facility are not executed 
until the 5:00 p.m. close of the After-Hours session.) A customer, 
therefore, has approximately 40 minutes to determine if an execution at 
the closing price suits its needs, and may cancel its order if it 
believes that the closing price does not suit its objectives.

    \9\ See Amex Rule 1302(d).
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    As an alternative to permanent approval of the rule changes 
described above, the Exchange requests that the Commission extend the 
pilot for an additional one year term. Although the specialists on the 
Exchange made little or no use of the pilot program, the Exchange 
believes that the Commission should extend the pilot for an additional 
one year term because specialists have expressed interest in using the 
AHT for SPDRs and have indicated that the ability to participate in the 
AHT facility provides them with additional ability to meet customer 
demand that comes into the market late in the trading session.\10\

    \10\ See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Jennifer Choi, SEC, dated August 14, 1995.

[[Page 44521]]

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2. Statutory 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) in particular 
in that it is designed to prevent fraudulent manipulative acts and 
practices, promote just and equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.

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. 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 Exchange. All 
submissions should refer to File No. SR-Amex-95-33 and should be 
submitted by September 18, 1995.

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

    For the reasons set forth below, the Commission finds that approval 
of the Exchange's proposed rule change, for a temporary period ending 
on August 29, 1996, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with the requirements of Section 6(b) \11\ and 
Section 11A \12\ of the Act. The Commission believes that the proposed 
rule change is consistent with 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 a national market system, and, in general, 
further investor protection 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,\13\ which allow exchanges to promulgate 
rules relating to specialists to maintain fair and orderly markets.

    \11\ 15 U.S.C. 78(f) (1988 & Supp.V. 1993).
    \12\ 15 U.S.C. 78(k) (1988).
    \13\ 17 CFR 240.11b-1 (1994).
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    Under the pilot program, specialists in PDRs and investment trust 
securities listed pursuant to Section 118B of the Exchange's Listing 
Guidelines may participate in the AHT facility to clean up order 
imbalance by entering an order for their own account. The pilot program 
also allows specialists in PDRs and investment trust securities to 
participate in a coupled closing price order as long as the other side 
of the order is not for an account in which a member or member 
organization has a direct or indirect interest. Moreover, the pilot 
program eliminates the migration of limit orders for PDRs and 
investment securities from the specialist's limit order book to the AHT 
facility to prevent the potential for manipulation or misuse of 
specialists' information regarding which limit orders are eligible for 
execution in the AHT facility.
    In the pilot approval order, the Commission believed that the rule 
change permitting specialists in PDRs and investment trust securities 
to participate in the AHT facility by entering an order for the 
specialist's account to eliminate order imbalances should assist 
specialists in their obligation to minimize temporary disparity between 
supply and demand.\14\ Moreover, the Commission agreed with the 
Exchange that permitting specialists in PDRs and investment trust 
securities to participate in the AHT facility to ``clean-up'' order 
imbalances and effect closing price coupled orders would benefit 
investors by providing additional liquidity to the listed cash market 
for derivative securities based upon well known market indexes. The 
Commission also believed that the Amex's rule change strikes a 
reasonable balance between the Exchange's need to accommodate the needs 
of investors by increasing liquidity in the listed cash market for 
derivative securities based on market indexes and the need to prevent 
the potential for manipulation or misuses of information. Therefore, 
although Amex specialists will know which limit orders are eligible for 
execution in the AHT facility, they will not be able to use this 
information to their advantage because Rule 1302(b) is being amended to 
eliminate the migration of limit orders for PDRs and investment trust 
securities from the specialist's limit order book to the AHT facility.

    \14\ See Securities Exchange Act Release No. 34611 (Aug. 29, 
1994), 59 FR 45739 (Sept. 2, 1994).
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    The Commission initially approved the Amex rule change for a one-
year pilot period to provide the Commission and the Exchange an 
opportunity to monitor the operation of the amendments to Rules 1300 
and 1302. In this regard, the Commission requested that the Exchange 
submit a report and analysis regarding the operation of the pilot 
program. The Exchange, however, did not submit a report to the 
Commission because specialists on the Exchange made little or no use of 
the pilot program.
    Therefore, the Commission believes that it would be appropriate to 
allow the Exchange to continue the pilot program for an additional one-
year period to afford the Exchange and the Commission an opportunity to 
evaluate the operation of the pilot program and evaluate whether there 
are additional issues that need to be addressed. The Exchange should 
monitor the operation of the amendments to Rules 1300 and 1302 and 
assure the Commission that the specialists are properly executing their 
responsibilities.
    The Commission, therefore, requests that the Exchange submit a 
report to the Commission by May 1, 1996, describing its experience with 
the pilot program. At a minimum, this report should contain the 
following information (broken down by month): (1) Trading volume 
(trades and number of shares of PDRs and investment trust securities) 
in the after-hours session; (2) the number of trades, if any, of (a) 
single-sided orders, and (b) coupled buy and sell orders which 
specialists executed in the after-hours session; (3) the number of 
shares, if any, of (a) single-sided orders, and (b) coupled buy and 
sell orders which specialists executed in the after-hours session; and 
(4) the number, if any, of single-sided orders that remained unexecuted 
at the end of the after-hours session. In addition, the Commission 
expects the Exchange to monitor closely the trading of PDRs and 
investment trust securities in the AHT facility to ensure that trading 
in these 

[[Page 44522]]
issues is not subject to any patterns of manipulation or trading abuses 
or unusual trading activity. Finally, the Commission requests that the 
Amex keep the Commission apprised of any technical problems that may 
arise regarding the operation of the pilot program.
    At the conclusion of the pilot period, if there continues to be no 
specialist activity or interest in the program, the Exchange should 
reevaluate whether this program should be continued. Any requests to 
modify this pilot program, to extend its effectiveness, or to seek 
permanent approval for the pilot program also should be submitted to 
the Commission by May 1, 1996, as a proposed rule change pursuant to 
Section 19(b) of the Act.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. This will permit the pilot 
program to continue on an uniterrupted basis. Moreover, the Exchange 
proposes to continue using the identical procedures contained in the 
pilot program as originally approved. In addition, the rule change that 
implemented the pilot program was published in the Federal Register for 
the full comment period, and no comments were received. Accordingly, 
the Commission believes that it is consistent with the Act to 
accelerate approval of the proposed rule change.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-Amex-95-33) is approved on a 
pilot basis until August 29, 1996.

    \15\ 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.\16\

    \16\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21229 Filed 8-25-95; 8:45 am]
BILLING CODE 8010-01-M