[Federal Register Volume 60, Number 195 (Tuesday, October 10, 1995)]
[Notices]
[Pages 52716-52717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25020]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36320; File No. SR-AMEX-95-15]

Self-Regulatory Organizations; Order Approving Proposed Rule Change by 
the American Stock Exchange, Inc. Relating to the Solicitation of 
Options Transactions

September 29, 1995.

I. Introduction and Background

    On March 22, 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 amend its Rule 950(d), 
Commentary .03, to modify the manner in which members solicit other 
members to participate in options transactions. The Exchange filed 
Amendment No. 1 to the proposed rule change on May 30, 1995.\3\ Notice 
of the proposal, as amended, appeared in the Federal Register on June 
9, 1995.\4\ No comments were received on the proposed rule change set 
forth in the Notice. This order approves the Exchange's proposal.

    \1\ 15 U.S.C. 78s(b)(1) (1982).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ 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'').
    \4\ Securities Exchange Act Release No. 35797, (June 1, 1995), 
60 FR 30612.
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II. Description of the Proposal

    In 1989, the Exchange adopted its solicitation rule \5\ 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 stocks 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. Generally, Rule 950(d) has sought to reconcile the growing 
practice of soliciting participation in orders outside of trading 
crowds with the rules and practices of the auction market.

    \5\ Securities Exchange Act Release No. 26947 (June 19, 1989), 
54 FR 26869 (approving Amex Rule 950(d), Commentary .03).
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    Currently, 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 so long as the trading crowd is given (1) the same 
information about the options order that 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. With 
respect to the solicitation of a registered options trader, however, 
the soliciting member must also disclose to the trading crowd, prior to 
the solicitation, the same terms and conditions that will be disclosed 
to the solicited registered options trader.
    The Exchange proposal modifies the solicitations rule to eliminate 
the requirement that the terms and conditions of a solicitation be 
disclosed to the trading crowd prior to the solicitation of registered 
options traders. Thus, once other market participants in the trading 
crowd 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. 
In effect, registered traders will have the same standards apply to 
them as have broker dealers who are not registered traders.
    The Exchange's proposal also adds language to Rule 950(d) that 
states explicitly 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.\6\

    \6\ 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 excuting 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's proposal codifies its policy that the 
solicitations rule also applies to the solicitation of non-member 
broker dealers.

III. Discussion

    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, the requirements of Section 6(b)(5) of the Act.\7\ 
Specifically, the Commission finds that the Exchange's proposal is 
consistent with the requirements of Section 6(b)(5) of the Act because 
the proposal is designed to remove impediments to and perfect the 
mechanism of a free and open market, and protect investors and the 
public interest.

    \7\ 15 U.S.C. 78f(b)(5) (1988).
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    The Exchange's proposal 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, but requires that the trading crowds be given a reasonable 
opportunity to accept the bid or offer,\8\ after the terms and 
conditions of the order are announced.

    \8\ 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 
stated 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 Commission believes that the Amex's proposal strikes a proper 
balance of allowing members to solicit, in advance, the other side of 
an order, while ensuring at the same time that the order will be 
exposed to the trading crowd consistent with auction market principles. 
Specifically, the Amex's proposal addresses the concern that Amex 
members who solicit orders may at times find it difficult to determine 
prior to the solicitation whether the solicited party is a registered 
options trader by removing the distinction between broker dealers who 
are 

[[Page 52717]]
registered options traders, and those who are not.
    The Commission further finds that adding language to Rule 950(d) 
regarding the priority of non-solicited market participants and floor 
brokers holding non-solicited discretionary orders serves to make 
explicit a provision already implicit in the Exchange's solicitations 
rule. Again, this provision will ensure that solicited orders will be 
exposed to the trading crowd consistent with auction market principles 
and that such orders do not receive any special priority consistent 
with Amex Rule 155. For similar reasons, the Commission finds that 
codifying the Amex's policy that its solicitations rule applies to the 
solicitation of non-member broker dealers is consistent with the Act.

IV. Conclusion

    For the reasons set forth above, 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, the requirements of Section 
6(b)(5).\9\

    \9\ 15 U.S.C. 78f(b)(5) (1988).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Amex-95-15), as amended, is approved.

    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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Jonathan G. Katz,

Secretary.

[FR Doc. 95-25020 Filed 10-6-95; 8:45 am]

BILLING CODE 8010-01-M