[Federal Register Volume 62, Number 29 (Wednesday, February 12, 1997)]
[Notices]
[Pages 6591-6592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3430]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38238; File No. SR-AMEX-96-39]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Various 
Updates to Amex Trading Rules and Company Guide Section 402.

February 4, 1997.
    On October 16, 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 incorporate various minor updates and 
clarifications into the Exchange's rules and Company Guide.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4
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    The proposed rule change was published for comment in the Federal 
Register on November 13, 1996.\3\ No comments were received on the 
proposal. Subsequently, the Exchange clarified its rationale for the 
modification of Amex Rule 126, which governs order precedence.\4\ This 
order approves the proposal.
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    \3\ Securities Exchange Act Release No. 37924 (Nov. 6, 1996), 61 
FR 58270.
    \4\ Letter from Claudia Crowley, Special Counsel, Amex, to 
Michael Walinskas, Senior Special Counsel, Division of Market 
Regulation, SEC, dated January 31, 1997.
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    The Exchange proposed that the following minor housekeeping changes 
be made:
    A. Rule 135--delete the reference to sales sheets published by 
``Francis Emory Fitch, Inc.'' because the Exchange no longer utilizes 
this company's service.
    B. Rule 152--delete the reference to Rule 570 because Rule 570 was 
rescinded.
    C. Rule 340--change the reference to the Exchange's ``Market 
Operations Division'' to the ``Exchange.''
    D. Rule 171--remove the prohibition against specialist units of 
less than three natural persons to conform with a comparable NYSE 
provision.
    E. Rule 904--change the reference to the Exchange's ``Membership 
Compliance Division'' to the ``Exchange.''
    F. Rule 950--delete Rule 170 from the list of rules that are 
applicable in their entirety to option transactions because all of that 
rule's commentary is not applicable (paragraph (n) of Rule 950 already 
specifies which portions of Rule 170 are applicable).
    G. Section 402 of the Company Guide--add Bloomberg Business News to 
the list of approved services for disclosure of material information.
    In addition, the Exchange proposed a change to Amex Rule 126, which 
provides generally that the highest bid and lowest offer have priority 
in execution. When bids or offers are made at the same price, priority 
is determined by the time order in which they were placed. If bids and 
offers are made simultaneously at the same price, they are on parity 
and, as such, are entitled to share equally in an execution at the 
specified price. Amex Rule 108, which governs parity and priority at 
openings, contains similar provisions. In addition, Amex Rule 108 
grants a specialist's agency limit orders a preference over other 
orders on parity whenever there is a substantial accumulation of orders 
on the book at a limit price equal to the proposed opening price. Under 
these circumstances, the specialist is entitled to execute its agency 
limit orders at the following percentages: 60% when there is one broker 
on parity, 40% when there are 2-5 brokers on parity, and 30% when there 
are 6 or more brokers on parity.
    The Exchange believes that procedures similar to those contained in 
Amex Rule 108 should be utilized throughout the trading day. Thus, 
under the current proposal, when a specialist has a substantial 
accumulation of agency orders on its book and there are also floor 
brokers in the trading crowd that are on parity with those orders, the 
specialist's orders would be entitled to the same percentage of shares 
of the contra side order as is currently provided for in Amex Rule 108. 
The Exchange believes that keying the

[[Page 6592]]

percentage of contra side shares allotted to the specialist's orders to 
the number of competing floor brokers on parity would divide the 
specified execution as equally as possible, while providing an easy to 
use formula whose implementation is not unduly disruptive to trading. 
In addition, the Amex believes this change would facilitate the ability 
of the specialist, who normally represents multiple customer orders, to 
compete with floor brokers in the trading crowd, who normally only 
represent one customer order each.
    The final aspect of the proposal concerns the adjustment of stop 
limit orders when a security is quoted ex-divided, ex-distribution, ex-
rights, or ex-interest. When a security is quoted ex-divided, ex-
distribution, ex-rights, or ex-interest (except for stock dividends and 
distributions), Amex Rule 132(a) generally provides that a specialist 
must reduce all open orders to buy and open stop orders to sell by the 
cash value of the payment or rights. However, there occasionally has 
been some confusion concerning stop limit orders because the rule does 
not specifically provide that both the limit and the stop price must be 
reduced. Therefore, the Exchange proposes to amend paragraph (a) to 
provide such specificity. This change also will conform Amex Rule 132 
to New York Stock Exchange (``NYSE'') Rule 118.
    The Commission finds 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).\5\ Specifically, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
\6\ requirements that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to facilitate transactions in 
securities, and, in general, to protect investors and the public 
interest.\7\
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In making this finding, the Commission notes that the 
proposal should increase efficiency by eliminating a source of 
confusion among Amex members and removing outdated provisions. See 
15 U.S.C 78c(f) (noting that it is in the public interest to 
consider whether an action will promote efficiency, competition, or 
capital formation).
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    The Commission supports the Amex's efforts to continue to review 
the form and substance of its regulations. In this regard, the 
Commission agrees with the Exchange's assertion that the proposed to 
Amex rules 135, 152, 340, 171, 904, and 950 will eliminate or update 
requirements that no longer serve a meaningful regulatory purpose. In 
addition, the Commission believes that adding Bloomberg Business News 
to the Exchange's list of approved services for disclosure of material 
information should facilitate the dissemination of important 
information, thereby enhancing the quality of the markets.
    The Commission also believes the changes concerning the precedence 
of orders are consistent with the Act. These changes should allow 
specialists, who often represent many orders, to compete more equitably 
with traders in the crowd, who often represent only one order. The 
Commission believes it is reasonable for the Exchange to conclude that 
the percentages selected should divide the specified execution in an 
equitable manner, while providing an easy to use formula whose 
implementation should not disrupt trading. Moreover, the Commission 
believes this practice serves the function addressed by procedures in 
place at other exchanges that facilitate the execution of customer 
limit orders.\8\
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    \8\ See, e.g., NYSE Rule 72. NYSE Rule 72 permits the largest 
bid (offer) to ``size out'' other smaller bids (offers) that are on 
parity with it. However, all bids (offers) in ``the book'' that are 
on parity with the larger bids (offers) in the trading crowd are 
aggregated for precedence purposes to facilitate the ability of the 
book to compete with the trading crowd for contra side order flow. 
Moreover, a specialist may further increase the opportunity for bids 
(offers) in the book to size out bids (offers) in the trading crowd 
by combining his bid (offer) for his own account with the bids 
(offers) in the book, if he so chooses. NYSE Rule 108.10.
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    Finally, the Commission believes it is appropriate to require 
specialists to adjust open stop limit orders to sell when a security is 
quoted ``ex'' to ensure that these orders will continue to be handled 
according to the sellers' original intentions and to preserve the 
ability of these orders to obtain the best price available. Moreover, 
for the purposes of Amex Rule 132(a), open stop limit orders to sell 
and open stop orders to sell are essentially the same. The only 
difference between these orders is that a stop limit order to sell 
places a floor on an acceptable execution price whereas a stop order to 
sell will accept whatever the current market price is after a 
transaction occurs at or below the stop order's sell price.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Amex-96-39) is approved.

    \9\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3430 Filed 2-11-97; 8:45 am]
BILLING CODE 8010-01-M