[Federal Register Volume 63, Number 60 (Monday, March 30, 1998)]
[Notices]
[Pages 15244-15246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39781; File No. SR-AMEX-98-10]


Self-Regulatory Organizations; Notice of Filing Proposed Rule 
Change by the American Stock Exchange, Inc. Relating to Market-at-the-
Close Order Handling Requirements

March 23, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 18, 1998, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'' or ``SEC'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization.\2\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ On February 4, 1998, Amex had filed the current proposal as 
a non-controversial filing, to be effective upon filing, pursuant to 
Section 19(b)(3)(A) of the Exchange Act. See SR-AMEX-98-06. Pursuant 
to the request of the Commission staff, on February 18, 1998, Amex 
simultaneously withdrew that filing and re-submitted it under 
Section 19(b)(2) of the Act.
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I. Self-Regulatory Organization's Statement of the Proposed Rule 
Change

    The Amex proposes to adopt a new policy to (i) modify the order 
entry and imbalance display procedures for market-at-the-close 
(``MOC'') orders on options expiration and non-expiration days and (ii) 
provide auxiliary imbalance display procedures for the opening. The 
test of the proposed conforming amendments to Amex Rules 109 and 131 is 
attached as Exhibit A.

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. The text of these statements may be examined at 
the places specified in Item IV 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 the 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    Exchange Rule 109 sets forth the procedures to be followed in 
executing MOC orders. Paragraph (d) of Rule 109 provides that where 
there is an imbalance between MOC buy and sell orders, the imbalance of 
buy orders should be executed against the offer, and the imbalance of 
sell orders against the bid. The remaining buy and sell orders are then 
paired off and executed at the price of the immediately preceding last 
sale. The ``pair off'' transaction is reported to the consolidated 
last-sale reporting system as ``stopped stock.''
    In May 1995, the Exchange amended Commentary .02 to Exchange Rule 
109 to impose a 3:50 p.m. deadline for the entry, cancellation or 
reduction of MOC orders through the PER system.\3\ After the 3:50 p.m. 
deadline, a member may only enter, modify or cancel MOC orders other 
than through the PER system. This change was intended to reduce the 
sometimes disruptive effect on the market of MOC orders entered through 
the PER system shortly before the close. Prior to the imposition of the 
3:50 p.m. deadline, it often took several minutes for a specialist to 
ascertain whether an imbalance existed and to pair off buyers and 
sellers, with the result that the executed MOC transactions did not 
actually print until after the close. When this happened, it was 
difficult for market participants to ascertain the closing price of the 
security in question on a timely basis.
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    \3\ See Securities and Exchange Act Release No. 35660 (May 2, 
1995), 60 FR 22592 (May 8, 1995), (File No. SR-AMEX-95-09).
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    Although the 3:50 p.m. deadline has alleviated some of the 
disruptive impact of MOC orders, further modifications are appropriate 
in order to both reduce excess market volatility that may arise from 
the liquidation of stock positions related to trading strategies 
involving index derivative products and otherwise, and to provide 
consistency to member organizations by substantially conforming the 
Amex's policy to the policy currently in effect at the New York Stock 
Exchange (``NYSE'').\4\ The existing NYSE policy, noted below, with 
respect to MOC orders differs from the current Amex policy in several 
respects:
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    \4\ The NYSE recently submitted a proposed rule change which 
would make various changes to its policy with respect to MOC and LOC 
orders (See SR-NYSE-97-36).

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[[Page 15245]]

     An earlier 3:40 p.m. deadline is imposed on expiration 
days.\5\
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    \5\ The term expiration days refers to both (1) the trading day, 
usually the third Friday of the month, when stock index options, 
stock index futures and options on stock index futures expire or 
settle, and (2) the trading day on which end of calendar quarter 
index options expire (``QIX options''). The pending NYSE rule change 
proposal would provide for a 3:40 p.m. deadline every day.
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     The deadlines are applicable to all MOC orders, whether 
entered through the automated system (i.e., SuperDot) or otherwise, and 
MOC orders are irrevocable after that time (i.e., they cannot be 
entered, canceled or changed) except to correct a bona fide error or to 
offst a published imbalance (see below).
     Specialists are required to disseminate a significant MOC 
order imbalance in certain stocks as soon as practicable after the 
applicable deadline.\6\ If such an imbalance is disseminated, both MOC 
and limit-at-the-close (``LOC'') orders may then be entered after the 
deadline to offset the imbalance.\7\
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    \6\ Order imbalances of 50,000 shares or more must be published 
in ``pilot'' stocks (the 50 most highly capitalized S & P 500 
stocks, any component stocks of the Major Market Index, and the 10 
highest weighted S & P Midcap 400 stocks) and in stocks being added 
to or dropped from an index. In addition, and imbalance may be 
published in any other stock with the approval of a Floor Official.
    \7\ The NYSE pilot program for the entry of LOC orders was 
recently extended until July 31, 1998, and permits LOC orders to be 
entered at any time during the trading day up until the applicable 
MOC deadline. Thereafter, as with MOC orders, LOC orders cannot be 
canceled (except to correct legitimate errors), and can only be 
entered to offset published imbalances. The Amex does not currently 
permit the entry of LOC orders.
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     On each expiration day on which index-related derivative 
products expire against opening prices, several auxiliary procedures 
are used to assist in achieving an efficient market opening as close to 
9:30 a.m. as possible. Stock orders related to index contracts whose 
settlement pricing is based upon opening prices must be received by 
9:00 a.m. (and labeled ``OPG''), but may be canceled or reduced in 
size. Limit-at-the-opening orders are permitted, as are ordinary limit 
and market orders. As soon as practicable after 9:00 a.m. imbalances of 
50,000 shares or more in both the ``pilot stocks'' and ``mid-
capitalized'' stocks must be published on the tape.
    The NYSE policy was developed in order to minimize the excess 
market volatility that can develop from the liquidation of stock 
positions related to trading strategies involving index derivative 
products or otherwise, without unduly restricting legitimate trading 
strategies. Due to the influx of orders at the close on expiration 
days, even MOC orders that are not related to such trading strategies 
can result in order imbalances and a corresponding decreased liquidity 
at the close. The 3:40 p.m. deadline enables the NYSE specialist to 
make a timely and reliable assessment of MOC order flow and its 
potential impact on the closing price, while providing an opportunity 
to attract any necessary contra-side interest to alleviate an imbalance 
and minimize price volatility at the close.\8\ This is particularly 
important on expiration days, but, as noted in the NYSE's pending 
filing, would also be beneficial on non-expiration days by providing 
additional time to attract contra-side interest when an imbalance does 
exist.
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    \8\ Even on non-expiration days, there can be an influx of MOC 
orders related to various trading strategies which utilize closing 
exchange prices.
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    The Exchange is proposing to substantially conform its policy to 
the NYSE policy. However, our policy will differ from the NYSE in 
several respects. Because of the typically smaller float and 
capitalization of Amex companies, the Amex policy will require 
dissemination of order imbalances in any common stock \9\ with an 
imbalance of 25,000 shares or more, or if the specialist (with the 
concurrence of a Floor Official) either anticipates that the execution 
price of the MOC orders on the book will be at a price change which 
exceeds the parameters specified in Commentary .08 to Amex Rule 154, or 
if he otherwise believes that an imbalance should be published.\10\ As 
discussed, the dissemination requirements will be applicable to all 
common stocks.\11\ Even those stocks which are neither included in an 
index nor underlie a listed option, can, at times, be subject to order 
imbalances, and dissemination thereof is beneficial to both the 
investing public and market professionals. The proposed policy is as 
follows:

    \9\ This policy will not be applicable to any security whose 
pricing is based on another security or an index, such as 
derivatives, warrants and convertible securities.
    \10\ Commentary .08 requires a specialist to have Floor Official 
approval before executing a transaction in a stock at a price (i) of 
$20 or more a share at 2 points or more away from the last sale, 
(ii) between $10 and $20 a share at one point or more away from the 
last sale, and (iii) of less than $10 a share at \1/2\ point or more 
away from the last sale.
    \11\ The only common stocks which would not be subject to this 
policy are those that trade in units of less than 100 shares.
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    (a) A 3:40 p.m. deadline will be imposed every day for the entry 
of all MOC orders in all common stocks, other than those that trade 
in units of less than 100 shares, except for those to offset 
published imbalances. MOC orders will be irrevocable after those 
times, except to correct an error.
    (b) Order imbalances must be published on the tape as soon as 
practicable after 3:40 p.m. if there is an imbalance of 25,000 
shares or more. In addition, an order imbalance below 25,000 shares 
may also be published by a specialist, with the concurrence of a 
Floor Official, if the specialist (i) anticipates that the execution 
price of the MOC orders on the book will exceed the price change 
parameters of Rule 154, Commentary .08, or (ii) believes that an 
order imbalance should otherwise be published.\12\
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    \12\ Pursuant to Amex Rule 22(d), a specialist may request that 
a Floor Governor review a determination by a Floor Official not to 
permit publication of an order imbalance.
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    (c) LOC orders will be now permitted to be entered prior to the 
applicable deadline, but after the deadline only to offset a 
published imbalance.

    The Exchange is also proposing that the imbalance dissemination 
requirements described in paragraph (b) and (c) above also be applied 
to the opening at 9:30 a.m. The proposed policy can be expected to 
reduce volatility at the close and opening by improving the 
specialists' ability to accurately assess MOC and opening order flow, 
and attract contraside interest to help alleviate order imbalances. 
Further, the policy will provide the investing public with more timely 
and reliable information regarding likely opening and closing prices, 
and thus the ability to make more informed trading decisions.
(2) Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and furthers the objectives of Section 6(b)(5) in particular 
in that it is designed to promote just and equitable principles of 
trade and remove impediments to, and perfect the mechanism of a free 
and open market and, in general, to protect investors and the public 
interest.


B. Self-Regulatory Organization's Statement on Burden on Competition

    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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Fedral Register or within such longer period (i)

[[Page 15246]]

as the Commission may designate up to 90 days of such date if it finds 
longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    A. by order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. 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 in the Commission's 
Public Reference Room in Washington, D.C. Copies of such filing will 
also be available for inspection and copying at the principal office of 
the Amex. All submissions should refer to File No. SR-AMEX-98-10 and 
should be submitted by April 20, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

Exhibit A--American Stock Exchange, Inc.

Proposed Rule Change

    It is proposed that the following Exchange rules be amended as set 
forth below. Additions are in italics; deletions are bracketed.
Rule 109. ``STOPPING'' STOCK
    (a)-(d) No Change.
. . . Commentary
    .01 Each ``stopped'' transaction shall be reported for printing on 
the tape in the form and manner prescribed by the Exchange.
    [.02 Members entering market-at-the-close orders through the PER 
system must do so no later than 3:50 p.m. The foregoing shall not limit 
or restrict the entry of market-at-the-close orders (or their 
cancellation) other than via such system.]
Rule 131. TYPES OF ORDERS
    (a) through (d)--No change.
At the Close Order
    (e) An at the close order is a market order which is to be executed 
at or as near to the close as practicable. The term ``at the close 
order'' shall also include a limit order that is entered for execution 
at the closing price, on the Exchange, of the stock named in the order 
pursuant to such procedures as the Exchange may from time to time 
establish.
    (f) through (t)--No change.

[FR Doc. 98-8201 Filed 3-27-98; 8:45 am]
BILLING CODE 8010-01-M