[Federal Register Volume 61, Number 227 (Friday, November 22, 1996)]
[Notices]
[Pages 59476-59478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29933]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37958; File No. SR-Amex-96-42]
November 15, 1996.


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

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 12, 1996, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Exchange 
submitted Amendment No. 1 on November 15, 1996.\2\ 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).
    \2\ See letter from Claudia Crowley, Special Counsel, Amex, to 
Anthony P. Pecora, Attorney, Division of Market Regulation, SEC, 
dated November 15, 1996. Amendment No. 1 removed a footnote 
detailing the Amex's perception of how this rule is supposed to be 
enforced.
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I. Self-Regulatory Organization's Statements of the Terms of Substance 
of the Proposed Rule Change

    The Amex is proposing permanent approval of the pilot program that 
amended Exchange Rule 170 to permit a specialist to effect a 
liquidating transaction on a zero minus tick,\3\ in the case of a 
``long'' position, or a zero plus tick,\4\ 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. In the alternative, the Exchange is 
requesting a three-month extension of the pilot program.
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    \3\ 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.
    \4\ 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.

[[Page 59477]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On September 19, 1996, the Commission approved 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, in the case of a ``long'' position, or a zero plus tick, when 
covering a ``short'' position, without Floor Official approval.\5\ The 
amendments also set forth the affirmative action that specialists are 
required go take subsequent to effecting various types of liquidating 
transactions.
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    \5\ Securities Exchange Act Release No. 37704 (Sept. 19, 1996), 
61 FR 50525 (approving File No. SR-Amex-96-33) (``September 1996 
Approval Order'').
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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 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 a dealer on the opposite side of the 
market after a liquidating transaction has been strengthened.
    The Exchange is therefore proposing permanent approval of the 
amendments to Rule 170 or, in the alternative, a three-month extension 
of the pilot program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general and furthers the objectives of 
Section 6(b)(5) \7\ 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 
\8\ which allows exchanges to promulgate rules relating to specialists 
in order to maintain fair and orderly markets.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 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 on 
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. Sec. 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-96-42 and should be 
submitted by December 13, 1996.

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 February 14, 1997, 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) 
\9\ 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 \10\ and Rule 
11b-1 \11\ thereunder, which allow exchanges to promulgate rules 
relating to specialists in order to maintain fair and orderly markets.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k(b).
    \11\ 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.\12\ The proposed rule change, filed as a one-year pilot 
program, amended Amex Rule 170 to permit specialists to ``reliquidate'' 
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 
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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    \12\ See Securities Exchange Act Release No. 33957 (Apr. 22, 
1994), 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 38870 (``July 1995 Approval 
Order'') (approving File No. SR-Amex-95-19); Securities Exchange Act 
Release No. 37448 (July 17, 1996), 61 FR 38487 (approving File No. 
SR-Amex-96-19) (``July 1996 Approval Order''); September 1996 
Approval Order, supra note 5.
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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 reliquidation by specialists

[[Page 59478]]

were necessary and appropriate in connection with fair and orderly 
markets.\13\ 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.\14\ 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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    \13\ See 1994 Approval Order, supra note 12.
    \14\ See April 1995 Approval Order and July 1995 Approval Order, 
supra note 12.
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    The Amex submitted it 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 reliquidate appropriately to meet the needs of the 
market. After reviewing the date, 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 
liquidating transactions when appropriate.
    Nevertheless, the Commission believes 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.\15\ Finally, the Amex should 
prepare an additional report as described above and submit the data to 
the Commission for its consideration of whether the pilot program 
should be granted permanent approval.\16\
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    \15\ All technical violations of this rule (e.g., failure to 
obtain the required Floor Official approval when such approval, if 
sought, would have been granted) should be referred to the Minor 
Floor Violation Disciplinary Committee, as required by Amex Rule 
590. Also, as the Amex has indicated previously, all substantive 
violations of this rule (e.g., failure to properly reenter the 
market or failure to obtain the required Floor Official approval 
when such approval, if sought, would not have been granted) will be 
dealt with according to the Exchange's formal disciplinary 
procedures.
    \16\ The Commission request that this report be submitted by 
January 7, 1997, along with any requests for extension or permanent 
approval of the pilot.
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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,\17\ and no comments 
have been received. Furthermore, the Commission approve a similar rule 
change for the NYSE also without receiving comments on the 
proposal.\18\ For these reasons, the Commission finds that accelerating 
approval of the proposed rule change is consistent with Section 
19(b)(2) of the Act.\19\ 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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    \17\ See 1994 Approval Order, supra note 12; April 1995 Approval 
Order, supra note 12; July 1995 Approval Order, supra note 12; July 
1996 Approval Order, supra note 12; September 1996 Approval Order 
supra note 5.
    \18\ See Securities Exchange Act Release No. 31797 (Jan 29, 
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).

    \19\ 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,\20\ that the proposed rule change (SR-Amex-96-42), as amended, is 
approved for a pilot period ending on February 14, 1997.

    \20\ Id.
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    For the Commission, by the Division of Market Regulations, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29933 Filed 11-21-96; 8:45 am]
BILLING CODE 8010-01-M