[Federal Register Volume 60, Number 175 (Monday, September 11, 1995)]
[Notices]
[Pages 47194-47196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22392]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36181; File No. SR-Amex-95-24]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to the
Execution of Odd-Lot Market Orders
September 1, 1995.
On June 16, 1995, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``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 amend Amex Rule 205\3\ to provide for the
execution of odd-lot market orders\4\ at a price based upon the
Intermarket Trading System (``ITS'') best bid or offer, subject to
certain conditions as described more fully below.
\1\15 U.S.C. 78s(b)(1).
\2\17 CFR 240.19b-4.
\3\Amex Rule 205 pertains to the manner of executing odd-lot
orders.
\4\An odd-lot market order is an order of less than a unit of
trading to buy, sell, or sell short, that carries no further
qualifying notations. The normal trading unit, or round-lot, is 100
shares.
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The proposed rule change was published for comment in the Federal
Register on July 19, 1995.\5\ No comments were received on the
proposal.
\5\Securities Exchange Act Release No. 35963 (July 12, 1995), 60
FR 37112.
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The Exchange proposes to amend Amex Rule 205 in order to establish
new odd-lot pricing procedures. The Commission initially approved the
Exchange's current odd-lot pricing procedures as a pilot program in
January 1989\6\ and extended it eleven times since then.\7\ Under the
pilot procedures, odd-lot market orders with no qualifying notations
are executed at the Amex quotation at the time the order is
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represented in the market either by being received at the trading post
or through the Exchange's Post Execution Reporting (``PER'') system.\8\
Also, for the purposes of the pilot program, 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 market orders. Neither order type is charged an odd-lot
differential.\9\ Prior to the 1989 pilot program, odd-lot market orders
were routed to a specialist and held in accumulation in the PER system
or by the specialist until a round-lot execution in that security took
place on the Exchange. Subsequent to the round-lot execution, the odd-
lot order received the same price as the last Exchange round-lot
transaction, plus or minus an odd-lot dealer differential.
\6\Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54
FR 2248 (approving File No. SR-Amex-88-23).
\7\See Securities Exchange Act Release Nos. 35344 (Feb. 8,
1995), 60 FR 8430 (approving File No. SR-Amex-95-03); 34949 (Nov. 8,
1994), 59 FR 58863 (approving File No. SR-Amex-94-47); 34496 (Aug.
8, 1994), 59 FR 41807 (approving File No. SR-Amex-94-28); 33584
(Feb. 7, 1994), 59 FR 6983 (approving File No. SR-Amex-93-45); 32726
(Aug. 9, 1993), 58 FR 43394 (approving File No. SR-Amex-93-24);
31828 (Feb. 5, 1993), 58 FR 8434 (approving File No. SR-Amex-93-06);
30305 (Jan. 20, 1992), 57 FR 4653 (approving File No. SR-Amex-92-
04); 29922 (Nov. 8, 1991), 56 FR 58409 (approving File No. SR-Amex-
91-30); 29186 (May 19, 1991), 56 FR 22488 (approving File No. SR-
Amex-91-09); 28758 (Jan. 10, 1991), 56 FR 1656 (approving File No.
SR-Amex-90-39); 27590 (Jan. 5, 1990), 55 FR 1123 (approving File No.
SR-Amex-89-31).
\8\Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54
FR 2248. The PER system provides member firms with the means to
electronically transmit equity orders, up to volume limits specified
by the Exchange, directly to the specialist's post on the trading
floor of the Exchange. Securities Exchange Act Release No. 34869
(Oct. 20, 1994), 59 FR 54016.
\9\A differential is a charge paid by the customer to the
specialist odd-lot dealer for executing the order.
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In its previous orders, the Commission encouraged the Exchange to
evaluate the feasibility of implementing an odd-lot pricing system
based on the ITS best bid or offer.\10\ The Commission was not
satisfied that all customers were receiving the best execution, in
terms of price and time, under the pilot procedures. In response, the
Exchange, in its most recent request for an extension of the pilot
program, stated that it has decided to proceed with systems
modifications to provide for the execution of odd-lot market orders at
the ITS best bid or offer, subject to certain conditions as hereinafter
described, and that such system modifications should be completed by
February 8, 1996.\11\
\10\Securities Exchange Act Release No. 26445 (Jan. 10, 1989),
54 FR 2248 (approving File No. SR-Amex-88-23).
\11\Securities Exchange Act Release No. 35344 (Feb. 8, 1995), 60
FR 8430 (approving File No. SR-Amex-95-03). The Commission notes
that the current odd-lot pilot program is scheduled to expire on
February 8, 1996.
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The Exchange now proposes to amend Amex Rule 205, which it intends
to implement after the required systems modifications are completed.
The proposed amendment provides generally for the execution of odd-lot
market orders at the highest bid and lowest offer disseminated by the
Amex or by another ITS participant market. In order to protect against
the inclusion of incorrect or stale quotations when determining the
highest bid and lowest offer, a quotation in a stock from another ITS
market center will be considered only if: (1) The stock is included in
ITS in that market center, (2) the size of the quotation is greater
than 100 shares, (3) the bid or offer is no more than one-quarter
dollar away from the bid or offer, respectively, disseminated by the
Exchange, (4) the quotation conforms to the Exchange's requirements
concerning minimum fractional changes,\12\ (5) the quotation does not
result in a ``locked market,''\13\ (6) the market center is not
experiencing operational or system problems with respect to the
dissemination of quotation information, and (7) the bid or offer is
``firm'' pursuant to the Commission's and the market's rules.\14\ If an
ITS quotation from another market is not used because it fails to meet
one of the above criteria, the best bid and offer disseminated by the
Exchange will be used.
\12\Amex Rule 127 governs the Exchange's policy concerning
minimum fractional changes for securities.
\13\According to Amex Rule 236(a)(4), a ``locked market'' occurs
whenever the Exchange disseminates a bid for an ITS security at a
price that equals or exceeds the price of the offer for the security
then being displayed from another ITS participating market center or
whenever the Exchange disseminates an offer for an ITS security at a
price that is less than the price of the bid for the security then
being displayed from another ITS participating market center.
\14\The Exchange considers a bid or offer as ``firm'' when the
members of the market center disseminating the bid or offer are not
relieved of their obligations with respect to such bid or offer
under paragraph (c)(2) of Rule 11Ac1-1 pursuant to the ``unusual
market'' exception of paragraph (b)(3) of Rule 11Ac1-1. See 17 CFR
240.11Ac1-1(b)(3); 17 CFR 240.11Ac1-1(c)(2).
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Where quotation information is not available (e.q., when quotation
collection or dissemination facilities are inoperable) odd-lot market
orders would be executed at the prevailing Amex bid or offer or at a
price deemed appropriate under prevailing market conditions. All odd-
lot market orders entered prior to the opening of trading will continue
to automatically receive the opening price, unless the Rule provides
otherwise.\15\ The pricing procedures will apply to market orders to
buy on the offer and orders to sell on the bid marked ``long.'' The
proposal will continue to prohibit odd-lot differentials for these
transactions. Finally, these procedures also will apply to odd-lot
executable limit orders.
\15\See Amex Rule 205 (c) (1) (``Orders Filled After the
Close'') and Amex Rule 205 (c) (2) (``Non-Regular Way Trades'').
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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).\16\ Specifically,
the Commission believes the proposal is consistent with Section 6(b)
(5) of the Act\17\ because the Exchange's proposed pricing procedures
for standard odd-lot market orders are designed to facilitate the
execution and reporting of odd-lot transactions, assist in the prompt
and accurate clearance and settlement of such transactions, perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest. The Commission
anticipates this proposal will ensure that customers receive the best
execution, both in terms of price and time, for standard odd-lot market
orders because such orders will be priced off a current market quote
instead of a subsequent transaction. This should result in investors
receiving more timely executions at the best prices then prevailing
under current market conditions.
\16\15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f (b) (5).
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The Commission also believes it is reasonable for the Exchange to
set certain requirements to trigger the use of the ITS best bid or
offer in the odd-lot pricing system. The limited prerequisites for the
use of the ITS quote are appropriate to protect the automatic execution
feature of the odd-lot pricing system against the inclusion of aberrant
quotations. Although the ITS quote remains the Commission's preferred
method of pricing standard odd-lot orders, the Commission recognizes
that the use of the ITS quote may not always be practicable for the
Exchange. Therefore, the Commission believes, in the instances
enumerated by the Exchange, it is appropriate to use the Amex best bid
or offer. Moreover, even those few orders receiving only the Amex quote
will be executed more cheaply than under the pre-1989 system because
the Exchange's proposal continues to ensure that a differential is not
charged for odd-lot market orders.
When the ITS best bid or offer is unavailable, the Commission
believes it is acceptable for the Amex to price standard odd-lot market
orders at the price of the last Exchange round-lot sale or at a price
deemed appropriate under prevailing market conditions by the odd-lot
dealer. In this way, the Exchange continue to provide procedures that
facilitate the execution of odd-lot orders.
Finally, the Commission expects, based on the Exchange's
representations, the required systems modifications will be completed
by
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February 8, 1996. The Commission also expects the Exchange to notify
the Commission staff of such completion and the implementation of this
proposal.
It Therefore Is Ordered, pursuant to Section 19(b)(2) of the
Act,\18\ that the proposed rule change (SR-Amex-95-24) is approved.
\18\ 15 U.S.C. 78s (b) (2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
\19\ 17 CFR 200.30-3 (a) (12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22392 Filed 9-8-95; 8:45 am]
BILLING CODE 8010-01-M