[Federal Register Volume 61, Number 143 (Wednesday, July 24, 1996)]
[Notices]
[Pages 38486-38488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18716]


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[[Page 38487]]


SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37448; File No. SR-Amex-96-16]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 to Proposed 
Rule Change Relating to Specialists' Liquidating Transactions

July 17, 1996.

I. Introduction

    On April 30, 1996, 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 170 to permit a specialist to 
effect a liquidating transaction on a zero minus tick, in the case of a 
``long'' position, or zero plus tick, when covering a ``short'' 
position, without Floor Official approval. The Amex also proposes to 
amend this rule to set forth the affirmative action that specialists 
would be required to take subsequent to affecting various types of 
liquidating transactions.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change, together with its terms of 
substance, was provided by issuance of a Commission release on June 7, 
1996, and by publication of this release in the Federal Register on 
June 14, 1996.\3\ No comments were received in response to the 
Commission release. On July 15, 1996, the Exchange Amendment No. 1 to 
the Commission.\4\ This order approves the proposed rule change on a 
pilot basis until September 23, 1996.
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    \3\ Securities Exchange Act Release No. 37288 (June 7, 1996), 61 
FR 30268.
    \4\ Amendment No. 1 changed the proposal from a request for 
permanent approval of this pilot program to an extension of this 
pilot program until September 23, 1996. See letter from Claudia 
Crowley, Special Counsel, Amex, to Anthony Pecora, Attorney, 
Division of Market Regulation, SEC, dated July 12, 1996.
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II. Description of the Proposal

    The proposed rule change amends Amex Rule 170 as it pertains to 
specialists' liquidating transactions. The Commission previously 
approved the amendments to this rule on a pilot basis.\5\
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    \5\ See Securities Exchange Act Release No. 33957 (Apr. 22, 
1994), 59 FR 22188 (``1994 Approval Order'') (approving File No. SR-
Amex-92-26); Securities Exchange Act Release No. 35635 (Apr. 21, 
1995), 60 FR 20780 (``April 1995 Approval Order'') (approving File 
No. SR-Amex-95-11); Securities Exchange Act Release No. 36014 (July 
21, 1995), 60 FR 38870 (``July 1995 Approval Order'') (approving 
File No. SR-Amex-95-19).
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    The Exchange originally proposed to amend Amex Rule 170 in File No. 
SR-Amex-92-26.\6\ The proposed rule change, filed as a one-year pilot 
program, amended Amex Rule 170 to permit specialists to ``relinquify'' 
a dealer position by selling ``long'' on a zero minus tick,\7\ or by 
purchasing on a zero plus tick \8\ to cover a ``short'' position, 
without Floor Official approval. The proposed amendments also 
emphasized the specialist's affirmative role in providing stabilizing 
dealer participation to the marketplace where reliquification may be 
required to facilitate the maintenance of a fair and orderly market.
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    \6\ See 1994 Approval Order, supra note 5.
    \7\ A zero minus tick is a price equal to the last sale where 
the last preceding transaction at a different price was at a higher 
price.
    \8\ A zero plus tick is a price equal to the last sale where the 
last preceding transaction at a different price was at a lower 
price.
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    The Commission granted temporary approval of the Amex's proposal on 
a one-year pilot basis and requested that the Exchange submit a report 
evaluating the effects of the amendments.\9\ The Commission then 
granted a three-month extension of the pilot on April 21, 1995 to 
enable the pilot to continue on an uninterrupted basis while the 
Commission considered the Exchange's request for permanent 
approval.\10\ The Commission subsequently granted an extension of the 
pilot until July 21, 1996 to enable the Commission to review the Amex's 
use of the pilot program procedures and to enable the pilot to continue 
without interruption during the Commission's review.\11\ The reports 
submitted by the Exchange concerning the pilot program noted that the 
amendments to the Rule appear to be working well in enabling 
specialists to reliquify appropriately to meet the needs of the market. 
However, the Exchange is seeking to extend the pilot program until 
September 23, 1996 so that the Exchange and the Commission can review 
certain issues associated with the pilot program further.
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    \9\ See 1994 Approval Order, supra note 5.
    \10\ See April 1995 Approval Order, supra note 5.
    \11\ See July 1995 Approval Order, supra note 5.
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III. Commission's Findings and Order Granting Accelerated Approval of 
the Amended Proposed Rule Change

    After careful consideration, the Commission concludes 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) and Section 11 of the Act.\12\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
\13\ requirements that the rules of an exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market, and, in general, to 
protect investors and the public interest. The Commission also believes 
the proposal is consistent with Section 11(b) of the Act \14\ and Rule 
11b-1 \15\ thereunder, which allow exchanges to promulgate rules 
relating to specialists in order to maintain fair and orderly markets.
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    \12\ 15 U.S.C. 78f(b) and 78k.
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78k(b).
    \15\ 17 CFR 240.11b-1.
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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, the specialist is required to reenter 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 
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 speciality stock. In 
addition, during such periods of volatile or unusual price movements, 
re-entry into the market following a series of transactions must 
reflect a significant level of dealer participation.
    In the 1994 Approval Order, the Commission requested that the Amex 
submit a report setting forth the criteria developed by the Exchange to 
determine whether any reliquifications by specialists were necessary 
and appropriate in connection with fair and orderly markets.\16\ The 
Commission also asked, among other things, that the

[[Page 38488]]

Exchange provide information regarding the Exchange's monitoring of 
liquidation transactions effected by specialists on any destabilizing 
tick. In both of the 1995 approval orders, the Commission requested 
that the Amex continue to monitor the pilot and update its report where 
appropriate.\17\ In particular, the Commission asked the Amex to report 
any noncompliance with the Rule and the action the Amex took as a 
result of such noncompliance.
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    \16\ See 1994 Approval Order, supra note 5.
    \17\ See April 1995 Approval Order and July 1995 Approval Order, 
supra note 5.
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    The Amex submitted its reports concerning the pilot program to the 
Commission in May 1995 and April 1996. As noted above, the Amex 
believes the pilot procedures appear to be working well in enabling 
specialists to reliquify appropriately to meet the needs of the market. 
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 specialists generally are entering 
the aftermarket after effecting liquifying transactions when 
appropriate.
    The Commission believes, however, that certain issues concerning 
the pilot need to be revisited before permanent approval can be 
granted. In this regard, the Exchange should continue to emphasize the 
requirements of Amex Rule 170, 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.\18\
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    \18\ Failure to obtain the required Floor Official approval when 
establishing, increasing, or liquidating a position should be 
enforced by the Exchange through its Minor Rule Violation Fine 
System unless more serious action is warranted through full 
disciplinary proceedings. See Amex Rule 590.
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    The Commission finds good cause for approving Amendment No. 1 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. These 
procedures have been published in the Federal Register on several 
occasions for the full comment period, \19\ and no comments have been 
received. Furthermore, the Commission approved a similar rule change 
for the NYSE also without receiving comments on the proposal.\20\ For 
these reasons, the Commission finds that accelerating approval of the 
proposed rule change is consistent with Section 19(b)(2) of the 
Act.\21\ Any requests to modify this pilot program, to extend its 
effectiveness, or to seek permanent approval for the pilot program also 
should include an update on the disciplinary actions taken for 
violations of these procedures.
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    \19\ See 1994 Approval Order, supra note 5; April 1995 Approval 
Order, supra note 5; July 1995 Approval Order, supra note 5; 
Securities Exchange act Release No. 37288 (June 7, 1996), 61 FR 
30268 (publishing notice of File No. SR-Amex-96-16).
    \20\ See Securities Exchange Act Release No. 31797 (Jan. 29, 
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).
    \21\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 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, 
NW., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-96-16 and should be 
submitted by August 14, 1996.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-Amex-96-16) is approved for 
a pilot period ending on September 23, 1996.

    \22\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division, of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18716 Filed 7-23-96; 8:45 am]
BILLING CODE 8010-01-M