[Federal Register Volume 61, Number 188 (Thursday, September 26, 1996)]
[Notices]
[Pages 50525-50527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24702]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37704; File No. SR-Amex-96-33]


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

September 19, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 13, 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 and to grant accelerated approval to the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).

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[[Page 50526]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex is proposing an extension, until November 15, 1996, of a 
pilot program that amended Exchange Rule 170 to permit a specialist to 
effect a liquidating transaction on a zero minus tick,\2\ in the case 
of a ``long'' position, or a zero plus tick,\3\ when covering a 
``short'' position, without Floor Official approval. The pilot program 
also amended Rule 170 to set forth the affirmative action that 
specialists are required to take subsequent to effecting various types 
of liquidating transactions.
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    \2\ 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.
    \3\ 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 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
    On July 17, 1996, the Commission approved an extension until 
September 23, 1996 of a pilot program that amended Exchange Rule 170 to 
permit a specialist to effect a liquidating transaction on a zero minus 
tick, in the case of a ``long'' position, or a zero plus tick, when 
covering a ``short'' position, without Floor Official approval.\4\ The 
amendments also set forth the affirmative action that specialists are 
required to take subsequent to effecting various types of liquidating 
transactions.
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    \4\ Securities Exchange Act Release No. 37448 (July 17, 1996), 
61 FR 38487 (``July 1996 Approval Order'') (approving File No. SR-
Amex-96-16).
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    During the course of the pilot program, the Exchange has monitored 
compliance with the requirements of the Rule, and its findings in this 
regard have been forwarded to the Commission under separate cover. The 
Amex believes that the amendments have provided specialists with 
flexibility in liquidating specialty stock positions in order to 
facilitate their ability to maintain fair and orderly markets, 
particularly during unusual market conditions. In addition, the 
specialist's concomitant obligation to participate as dealer on the 
opposite side of the market after a liquidating transaction has been 
strengthened.
    In order to permit the Exchange and Commission staff to review 
certain issues associated with the pilot program, the Exchange is 
proposing to extend the pilot program until November 15, 1996.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \5\ in general and furthers the objections of 
Section 6(b)(5) \6\ in particular in that it is designed to promote 
just and equitable principles of trade, remove impediments to and 
perfect the mechanism of a free and open market, and, in general, 
protect investors and the public interest. The Exchange also believes 
the proposed rule change is consistent with Section 11(b) of the Act 
\7\ which allows exchanges to promulgate rules relating to specialists 
in order to maintain fair and orderly markets.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78k(b).
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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, 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. 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-96-33 and should be 
submitted by [insert date 21 days from date of publication].

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

    The Commission finds that the Exchange's proposal to extend its 
pilot program concerning the execution of specialists' liquidating 
transactions until November 15, 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 the Section 6(b)(5) 
\8\ 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 \9\ and Rule 
11b-1 \10\ thereunder, which allow exchanges to promulgate rules 
relating to specialists in order to maintain fair and orderly markets.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78k(b).
    \10\ 17 CFR 240.11b-1.
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    The Exchange originally proposed to amend Amex Rule 170 in File No. 
SR-Amex-92-26.\11\ The proposed rule change, filed as a one-year pilot 
program, amended Amex Rule 170 to permit specialists to ``reliquify'' a 
dealer position by selling stock on a direct minus tick or by 
purchasing stock on a direct plus tick, but only if such transactions 
are reasonably necessary for the maintenance of a fair and orderly

[[Page 50527]]

market and only if the specialist has obtained the prior approval of a 
Floor Official. Under the pilot program, a specialist also may sell 
``long'' on a zero minus tick, or by purchasing on a zero plus tick to 
cover a ``short'' position, without Floor Official approval. Although 
liquidations on a zero minus or on a zero plus tick can be effected 
under the pilot procedures without a Floor Official's prior approval, 
such liquidations are still 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.
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    \11\ See Securities Exchange Act Release No. 33957 (Apr. 22, 
2994), 59 FR 22188 (``1994 Approval Order'') (approving File No. SR-
Amex-92-26). See also 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 3887 (``July 1995 Approval Order'') 
(approving File No. SR-Amex-95-19); July 1996 Approval Order, supra 
note 4.
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    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 specialty 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.\12\ The 
Commission also asked, among other things, that the 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.\13\ 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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    \12\ See 1994 Approval Order, supra note 11.
    \13\ See April 1995 Approval Order and July 1995 Approval Order, 
supra note 11.
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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 program 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 also agrees with the Exchange's assertion that 
certain issues concerning the pilot program 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.\14\
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    \14\ 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 the proposed rule 
change 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,\15\ and no comments 
have been received. Furthermore, the Commission approved a similar rule 
change for the NYSE also without receiving comments on the 
proposal.\16\ For these reasons, the Commission finds that accelerating 
approval of the proposed rule change is consistent with Section 
19(b)(2) of the Act.\17\ 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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    \15\ See 1994 Approval Order, supra note 11; April 1995 Approval 
Order, supra note 11; July 1995 Approval Order, supra note 11; July 
1996 Approval Order, supra note 4.
    \16\ See Securities Exchange Act Release No. 31797 (Jan. 29, 
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).
    \17\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-Amex-96-33) is approved for 
a pilot period ending on November 15, 1996.

    \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\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-24702 Filed 9-25-96; 8:45 am]
BILLING CODE 8010-01-M