[Federal Register Volume 62, Number 90 (Friday, May 9, 1997)]
[Notices]
[Pages 25682-25683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12175]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38571; File No. SR-Amex-97-14]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Trading in 
One Sixteenth of a Dollar

May 5, 1997.
    On March 17, 1997, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``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 permit all Amex equity 
securities selling at or above $0.25 to trade in sixteenths.
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    \1\ 15 U.S.C. Sec. 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 April 1, 1997.\3\ No comments were received concerning the 
proposal. This order approves the proposal.
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    \3\ Securities Exchange Act Release No. 38437 (Mar. 25, 1997), 
62 FR 15552 (Apr. 1, 1997).
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    In 1992, the Commission approved amendments to Amex Rule 127 to 
provide that securities selling between $0.25 and $5 could be traded in 
sixteenths ($0.0625).\4\ In 1995, this rule was amended to expand the 
securities that could be traded in sixteenths to those selling up to 
$10.\5\ The proposed rule change would eliminate the $10 cap, thus 
allowing all Amex-listed equity securities priced at or above $0.25 to 
trade in sixteenths.\6\ The

[[Page 25683]]

Exchange believes that trading in sixteenths will enhance competition 
and, thus, increase the potential for an investor's order to receive 
price improvement.\7\
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    \4\ Securities Exchange Act Release No. 31118 (Aug. 28, 1992), 
57 FR 40484 (Sept. 3, 1992) (approving File No. SR-Amex-91-07).
    \5\ Securities Exchange Act Release No. 35537 (Mar. 27, 1995), 
60 FR 16894 (Apr. 3, 1995) (approving File No. SR-Amex-95-02).
    \6\ Standard and Poor's Depositary Receipts 
(``SPDRs'') and S&P MidCap 400 SPDRsTM will 
continue to trade in \1/64\s ($0.0155625), and dealingsin Amex-
listed equity securities priced below $0.25 will continue to be in 
\1/32\s ($0.03125).
    \7\ The proposed rule change should affect a significant number 
of orders because, according to the Exchange, approximately 50% of 
all equity securities presently traded on the Amex sell for over $10 
per share.
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    At the March 1997 meeting of the Intermarket Trading System 
(``ITS'') Operating Committee, the ITS participants approved 
enhancements to ITS to permit trading in sixteenths for all Tape B 
securities.\8\ The Amex has represented that these system modifications 
have been made and the system now is able to accommodate trading all 
Amex equity securities in sixteenths.\9\
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    \8\ The Consolidated Tape, operated by the Consolidated Tape 
Association (``CTA''), compiles last sale reports in certain listed 
securities from all exchange and market makers trading such 
securities and disseminates these reports to vendors on a 
consolidated basis. Amex-listed stocks and qualifying regional-
listed stocks are reported on CTA Tape B.
    \9\ Letter from Arne G. Michaelson, Senior Vice President, Amex, 
to Howard L. Kramer, Senior Associate Director, SEC, dated April 25, 
1997.
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    The Commission finds that the proposed rule change to permit all 
Amex equity securities selling at or above $0.25 to trade in increments 
as small as one sixteenth of a dollar 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 11A.\10\
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    \10\ 15 U.S.C. Secs. 78f(b) and 78k-1. In approving this rule 
change, the Commission notes that it has considered the proposal's 
impact on efficiency, competition, and capital formation, consistent 
with Section 3 of the act. Id. Sec. 78c(f).
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    The Commission believes the quality of the market for Amex-listed 
securities will likely be enhanced by allowing a minimum fractional 
change of \1/16\, rather than \1/8\, for all Amex equity securities 
selling at or above $0.25.\11\ Decreasing such trading variations 
should help to produce more accurate pricing of such securities and can 
result in tighter quotations. In addition, if the quoted markets are 
improved by the reduced minimum tick fluctuations, the change could 
result in added benefits to the market such as reduced transaction 
costs.\12\
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    \11\ A study that analyzed the 1992 reduction in the minimum 
tick size for Amex-listed securities priced between $1.00 and $5.00 
found that, in general, the spreads for those securities decreased 
significantly while trading activity and market depth was relatively 
unaffected. See Hee-Joon Ahn, Charles Q. Chao, and Hyuk Choe, Tick 
Size, Spread, and Volume, 5 J. Fin. Intermediation 2 (1996).
    \12\ The rule change is consistent with the recommendation of 
the Division of Market Regulation (``Division'') in its Market 2000 
Study, in which the Division noted that the \1/8\ minimum variation 
can cause artificially wide spreads and hinder quote competition by 
preventing offers to buy or sell at prices inside the prevailing 
quote. See SEC, Division of Market Regulation, Market 2000: An 
Examination of Current Equity Market Developments 18-19 (Jan. 1994).
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    Furthermore, this change in the minimum increment will complement 
the Commission's Order Execution Rules.\13\ The rule change allows a 
more complete display of the buying and selling interest in Amex-listed 
securities. For example, the enhanced transparency will allow customer 
limit orders in smaller increments to be displaced, thus giving these 
limit orders greater visibility and allowing enhanced quote 
competition. The enhanced transparency will improve access to the best 
available prices and provide an opportunity for executions at prices 
that were not previously available.
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    \13\ See Securities Exchange Act Release No. 37619A (Sept. 6, 
1996), 61 FR 48290 (Sept. 12, 1996).
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    Finally, the Commission believes the proposal allows increased 
competition among the different markets pursuant to Section 11A of the 
Act.\14\ As noted above, ITS participants will have the capability to 
trade all Tape B securities in sixteenths. By ensuring that all ITS 
participants can quote in sixteenths, regional exchanges, over-the-
counter market makers trading in Amex-listed securities, and Amex 
specialists will be able to compete with each other by quoting in finer 
increments.
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    \14\ 15 U.S.C. Sec. 78k-1(a)(1)(C)(ii).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-Amex-97-14) is approved.

    \15\ Id. Sec. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12175 Filed 5-8-97; 8:45 am]
BILLING CODE 8010-01-M