[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)] [Notices] [Pages 65623-65625] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-31725] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-38024; File No. SR-Amex-96-47] 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 December 6, 1996. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on December 2, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend until February 10, 1997 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 December 6, 1996, to continue without interruption. --------------------------------------------------------------------------- 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 December 6, 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 procedures were initially approved by the Commission in 1989 \4\ and were most recently extended in February 1996.\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 No. 37462 (July 19, 1996), 61 FR 39170 (approving File No. SR-Amex-96-25). Prior to that release, the Commission had extended this pilot program twelve times. See Securities Exchange Act Release Nos. 36821 (Feb. 8, 1996), 61 FR 6050 (approving File No. SR-Amex-96-06); 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-Amex93-24); 31828 (Feb. 5, 1993), 58 FR 8434 (approving File No. SR-Amex93-060; 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); and 27590 (Jan. 5, 1990), 55 FR 1123 (approving File No. SR-Amex-89-31). --------------------------------------------------------------------------- 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 off-lot pricing system. In File No. SR-Amex-95-03, requesting a further extension of the pilot program, the Exchange stated that it had determined to proceed with systems modifications to provide for execution of odd-lot market orders at the ITS best bid or offer.\6\ --------------------------------------------------------------------------- \6\ See Securities Exchange Act Release No. 35344 (Feb. 8, 1995), 60 FR 8430 (approving File No. SR-Amex-95-03). --------------------------------------------------------------------------- The Commission has approved amendments to Amex Rule 205 to accommodate the prospective modifications to the Exchange's odd-lot pricing system.\7\ Specifically, amended Amex Rule 205 would provide that odd-lot market orders to buy or sell would be filled at the ``adjusted ITS offer'' or ``adjusted ITS bid,'' respectively, which [[Page 65624]] would be defined in Amex Rule 205, Commentary .04, as the lowest offer and highest bid disseminated by the Amex or by another ITS participant market.\8\ Where quotation information is 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 Post Execution Reporting (``PER'') system. --------------------------------------------------------------------------- \7\ See Securities Exchange Act Release No. 36181 (Sept. 1, 1995), 60 FR 47194 (approving File No. SR-Amex-95-24). \8\ 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 use. See Securities Exchange Act Release No. 36181 (Sept. 1, 1995), 60 FR 47194 (approving File No. SR-Amex-95-24). --------------------------------------------------------------------------- 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 these systems enhancements, the Exchange proposes to extend the existing pilot program procedures under Amex Rule 205 until February 10, 1997. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) \9\ of the Act in general and furthers the objectives of Section 6(b)(5) \10\ and Section 11A(a)(1) \11\ in particular in that it is designed to facilitate the economically efficient execution of odd-lot transactions and to improve the execution of customers' orders. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(5). \11\ 15 U.S.C. 78k-1(a)(1). --------------------------------------------------------------------------- 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. 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-96-47 and should be submitted by January 6, 1997. 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 through February 10, 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 Section 6(b)(5) and Section 11A(a)(1) of the Act \12\ 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.\13\ --------------------------------------------------------------------------- \12\ 15 U.S.C. 78f(b)(5) and 78k-1(a)(1). \13\ 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 odd-lot order received the same price as the last Exchange round-lot transaction, plus or minus an odd-lot dealer differential. See Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54 FR 2248 (approving File No. SR-Amex-88-23). --------------------------------------------------------------------------- Nevertheless, the Commission is concerned that the Exchange has been unable to implement the new odd-lot pricing procedures as planned. Under the current pilot pricing procedures, which only use the Amex quote in establishing the execution price, some odd-lot orders may not be receiving the best available price.\14\ Therefore, the Commission expects the Exchange to complete the systems modifications upon which implementation of the new odd-lot pricing procedures depend before the February 10, 1997 deadline.\15\ To ensure that the Commission is adequately informed of the Exchange's progress towards such completion, the Commission again requests that the Exchange provide the Commission with a status report regarding this project on the first day of every month until the necessary system modifications are completed. 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\ --------------------------------------------------------------------------- \14\ 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). \15\ As noted above, the new procedures provide for odd-lot market orders to be filled at the ``adjusted its best bid or offer.'' \16\ The Commission expects the Amex to implement the new odd- lot pricing procedures no later than the February 10, 1997 expiration of this pilot extension. --------------------------------------------------------------------------- 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 while the Amex works to implement the new procedures. In addition, the procedures the Exchange proposes 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.\17\ --------------------------------------------------------------------------- \17\ See Securities Exchange Act Release No. 35344 (Feb. 8, 1995); 60 FR 8430; Securities Exchange Act Release No. 36821 (Feb. 8, 1996), 61 FR 6050; and Securities Exchange Act Release No. 37462 (July 19, 1996), 61 FR 39170. --------------------------------------------------------------------------- [[Page 65625]] It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\18\ that the proposed rule change (SR-Amex-96-47) is approved on a --------------------------------------------------------------------------- pilot basis for a two-month period ending on February 10, 1997. \18\ 15 U.S.C. Sec. 78s(b)(2). --------------------------------------------------------------------------- For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\19\ --------------------------------------------------------------------------- \19\ 17 C.F.R. 200.30-3(a)(12). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 96-31725 Filed 12-12-96; 8:45 am] BILLING CODE 8010-01-M