[Federal Register Volume 61, Number 32 (Thursday, February 15, 1996)]
[Notices]
[Pages 6050-6051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3420]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36821; File No. SR-Amex-96-06]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange, Inc., Relating to a Pilot Program for Execution of Odd-
Lot Orders

February 8, 1996
    Pursuant to Section 19(b)(1) of the Securities and Exchange Act of 
1934 (``Act''),\1\ notice is hereby given that on February 5, 1996, 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend for six months its existing pilot 
program under Amex Rule 205 requiring execution of odd-lot market 
orders at the prevailing Amex quote with no differential charged.\2\

    \2\ The Exchange seeks accelerated approval of the proposed rule 
change in order to allow the pilot program, which expires on 
February 8, 1996, to continue without interruption.
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    The text of the proposed rule change is available at the Office of 
the Secretary, 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 
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
    The Commission has approved, on a pilot basis extending to February 
8, 1996, amendments to Amex Rule 205 to require execution of odd-lot 
market orders at the Amex quote with no odd-lot differential 
charged.\3\ The Commission initially approved these odd-lot pricing 
procedures as a pilot program in January 1989 \4\ and subsequently 
extended it eleven times.\5\

    \3\ Securities Exchange Act Release No. 35344 (Feb. 8, 1995), 60 
FR 8430 (approving File No. SR-Amex-95-03).
    \4\ Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 
54 FR 2248 (approving File No. SR-Amex-88-23).
    \5\ 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).
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    Under the pilot procedures, odd-lot market orders with no 
qualifying notations are executed at the Amex quotation at the time the 
order is represented in the market, either by being received at the 
trading post or through the Exchange's Post Execution Reporting 
(``PER'') system.\6\ Enhancements to the PER system have been 
implemented to provide for the automatic execution of odd-lot market 
orders entered through PER. 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 odd-lot market orders.

    \6\ 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.
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    In approving prior extensions to the Exchange's odd-lot pilot 
program, the Commission has expressed interest in the feasibility of 
the Exchange utilizing the Intermarket Trading System (``ITS'') best 
bid or offer, rather than the Amex bid or offer, for purposes of the 
Exchange's odd-lot pricing system. In its most recent request for an 
extension of the pilot program, the Exchange stated that it had 
determined to proceed with a systems modification to provide for 
execution of odd-lot market orders at the ITS best bid or offer.\7\

    \7\ See Securities Exchange Act Release No. 35344 (Feb. 8, 
1995), 60 FR 8430 (approving File No. SR-Amex-95-03).
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    In September 1995, the Commission approved amendments to Amex Rule 
205 to accommodate the prospective modifications to the Exchange's odd-
lot pricing system.\8\ As amended, Amex Rule 205 would provide that 
odd-lot market orders to buy (sell) are filled at the ``adjusted ITS 
offer'' (``adjusted ITS bid''), which would be defined in Amex Rule 
205, Commentary .04, as the lowest offer (highest bid) disseminated by 
the Amex or by another ITS participant market.\9\ Where quotation 
information is 

[[Page 6051]]
not available (e.g., 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. These procedures also will apply to 
odd-lot 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.

    \8\ See Securities Exchange Act Release No. 36181 (Sept. 1, 
1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
    \9\ In order to protect against the inclusion of incorrect or 
stale quotations when determining the highest bid and lowest offer, 
Amex Rule 205, Commentary .04, contains seven criteria that must be 
met before a quotation in a stock from another ITS market center 
will be considered. If the ITS quotation fails to meet one of the 
specified criteria, the best bid or offer disseminated by the 
Exchange will be used. See Securities Exchange Act Release No. 36181 
(Sept. 1, 1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
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    As the exchange noted in SR-Amex-95-24, it will implement these 
amendments upon completion of the necessary systems enhancements by the 
Exchange and the Securities Information Automation Corporation 
(``SIAC''). Upon implementation of the amended rule, the Exchange will 
notify the Commission, as well as Exchange members and member 
organizations. In order to provide the additional time necessary to 
implement the systems enhancements, the Exchange proposes to extend the 
existing pilot program procedures under Amex Rule 205 for an additional 
six-month period.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \10\ of the Act in general and furthers the objectives of 
Section 6(b)(5) \11\ and Section 11A(a)(1) \12\ in particular in that 
it is designed to facilitate the economically efficient execution of 
odd-lot transactions and to improve the execution of customer's orders.

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes 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

    The Exchange has neither solicited nor received written comments 
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 NW., 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 NW., 
Washington, D.C. 20549. Also, copies of such filing will be available 
for inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-96-06 and should be 
submitted by March 7, 1996.

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

    The Commission finds that the Exchange's proposal to extend its 
pilot program concerning the execution of odd-lot orders to August 8, 
1996, is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. 
Specifically, the Commission believes the proposal is consistent with 
Section 6(b)(5) and Section 11A(a)(1) of the Act \13\ because the 
Exchange's proposed pricing procedures are designed to facilitate 
transactions in odd-lot orders, to help ensure the economically 
efficient execution of these transactions, and, in general, to protect 
investors and the public interest. The Commission further believes the 
revised procedures should provide investors with more timely executions 
of their odd-lot orders and should produce execution prices that more 
accurately reflect market conditions than would otherwise be the case 
under the pre-pilot pricing procedures.\14\

    \13\ 15 U.S.C. 78f(b)(5) and 78K-1(a)(1).
    \14\ 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 
off-lot order received the same price as the last Exchange round-lot 
transaction, plus or minus and odd-lot dealer differential. See 
Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54 FR 
2248 (approving File No. SR-Amex-88-23).
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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 thereof in the Federal Register. This will permit the pilot 
program to continue on an uninterrupted basis. In addition, the 
procedures the Exchange proposed to continue using are identical to the 
procedures that were published previously in the Federal Register for 
the full comment period and were approved by the Commission.\15\

    \15\ See Securities Exchange Act Release No. 35344 (Feb. 8, 
1995) 60 FR 8430.
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    Because some odd-lot orders may not be receiving the best available 
price under the current pilot pricing procedures, the Commission is 
concerned that the Exchange was unable to implement the new odd-lot 
pricing procedures that provide for odd-lot market orders to be filled 
at the ITS best bid or offer as planned.\16\ The Commission encourages 
the Exchange to complete the systems modifications upon which 
implementation of the new odd-lot pricing procedures depend as soon as 
possible. To ensure that the Commission is adequately informed of the 
Exchange's progress towards such completion, the Commission requests 
that the Exchange, beginning May 1, 1996, and every month thereafter 
until the systems modifications are completed, report to the Commission 
on the progress of this project. Finally upon completion of the systems 
modifications, the Exchange should give advance notice to the 
Commission of the date when the new odd-lot pricing procedures are to 
be implemented.

    \16\ See Securities Exchange Act Release No. 35344 (Feb. 8, 
1995), 60 FR 8430 (noting that the Exchange's current pricing 
formula does not include quotations from other markets).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (SR-Amex-96-06) is approved on a 
pilot basis for a six-month period ending on August 8, 1996.

    \17\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\

    \18\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3420 Filed 2-14-95; 8:45 am]
BILLING CODE 8010-01-M