[Federal Register Volume 63, Number 127 (Thursday, July 2, 1998)]
[Notices]
[Pages 36280-36282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17561]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40123; file No. SR-AMEX-98N10]


Self-Regulatory Organizations; American Stock Exchange, Inc., 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No 1. to Proposed 
Rule Change Relating to Market-at-the-Close and Limit-at-the-Close 
Order Handling Requirements

June 24, 1998.

I. Introduction

    On February 18, 1998, the American Stock Exchange, Inc. (``Amex'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities and Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to revise the Exchange's policy 
for entry of market-at-the-close orders (``MOC'') and

[[Page 36281]]

to permit the entry of limit-at-the-close orders (``LOC''). The 
proposed rule change was published for comment in the Federal Register 
on March 26, 1998.\3\ On May 12, 1998, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\4\ This order approves the proposal 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 39770 (Mar. 18, 1998), 
63 FR 14747.
    \4\ See letter from Claudia Crowley, Special Counsel, Legal & 
Regulatory Policy, Amex to David Sieradzki, Attorney, Division of 
Market Regulation (``Division''), Commission dated May 7, 1998 
(``Amendment No. 1''). In Amendment No. 1, the Exchange clarifies 
that the proposed policy regarding imbalance dissemination 
requirements will be applied to the opening as well as the close, 
and any applicable imbalance must be published prior to the opening 
at 9:30 a.m. In addition, the Exchange represents that it does not 
intend to apply the proposed order entry procedures to the opening.
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II. Description of the Proposal

    Exchange Rule 109 sets for 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 or 
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 Amex's Post Execution Reporting system 
(``PER'').\5\ 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 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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    \5\ See Securities and Exchange Act Release No. 35660 (May 2, 
1995), 60 FR 22592 (May 8, 1995).
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    Although the 3:50 p.m. deadline has alleviated some of the 
disruptive impact of MOC orders, Amex believes that further 
modifications are appropriate to reduce excess market volatility that 
may arise from the liquidation of stock positions related to trading 
strategies involving index derivative products, 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'') \6\
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    \6\ The Commission recently approved a proposal submitted by the 
NYSE to make various changes to its policy with respect to MOC and 
LOC orders. See Securities and Exchange Act Release No. 40094 (June 
15, 1998) (order approving SR-NYSE-97-36).
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    As a result, Amex is proposing to substantially conform its policy 
to the NYSE policy. However, Amex's policy will differ from that of the 
NYSE in several respects to account for the differences in the types of 
stocks that trade on the Amex versus those that trade on the NYSE 
(e.g., smaller float and capitalization of Amex companies). The 
proposed policy is as follows:
    (a) A 3:40 p.m. deadline will be imposed every day for the entry of 
all MOC orders in all common stocks,\7\ other than those that trade in 
units of less than 100 shares. After the 3:40 p.m. deadline, MOC orders 
will only be accepted to offset published imbalances. MOC orders will 
be irrevocable after that time, except to correct an error.
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    \7\ This policy will not apply to any security the pricing for 
which is based on another security or an index, such as derivatives, 
warrants and convertible securities.
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    (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 (1) anticipates that the execution price of the MOC 
orders on the book will exceed the price change parameters of Amex Rule 
154, Commentary .08,\8\ or (2) believes that an order imbalance should 
otherwise be planned.\9\
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    \8\ 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.
    \9\ 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 (which Amex does not currently permit to be entered) 
will now be permitted to be entered prior to the applicable deadline 
(i.e., 3:40 p.m.), but after the deadline only to offset a published 
imbalance. LOC orders will be irrevocable after that time, except to 
correct an error.\10\
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    \10\ Telephone conversation between Stuart Diamond, Director, 
Rulings, Amex and David Sieradzki, Attorney, Division, Commission on 
June 16, 1998.
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    The Exchange is also proposing that the order imbalance 
dissemination requirements described in paragraph (b) above also be 
applied to the opening at 9:30 a.m.\11\
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    \11\ See Amendment No. 1, supra note 3.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with Section 6 \12\ of the Act the rules and regulations thereunder. In 
particular, the Commission believes that the proposal is consistent 
with the Section 6(b)(5) \13\ 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 remove 
impediments to, and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.\14\
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78f(b).
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    In recent years, the Exchange and other self-regulatory 
organizations have instituted certain safeguards to minimize excess 
market volatility that may arise from the liquidation of stock 
positions at the end of the trading day. The Exchange has been 
utilizing special closing procedures for the entry of MOC orders in 
Amex-listed stocks since December 16, 1992.\15\ These procedures allow 
Amex specialist to determine the buying and selling interest in MOC 
orders and, if there is a substantial imbalance on one side of the 
market, to provide the investing public with timely and reliable notice 
of the imbalance and with an opportunity to make appropriate investment 
decision in response. The Commission believes that Amex's proposal 
appropriately refines and augments the current procedures.
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    \15\ See Securities Exchange Act Release No. 31610 (Dec. 16, 
1992), 57 FR 61131 (Dec. 23, 1992).
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    The Commission believes that the proposed rule change may further 
increase public awareness of MOC order imbalances and provide market 
participants with more of an opportunity to make appropriate investment 
decisions. Specifically, the proposal will change the deadline from 
3:50 p.m. to 3:40 p.m. for entry of all MOC orders on all trading days. 
In addition, the proposal will allow the entry of LOC orders prior to 
the applicable deadline, but after the deadline only to offset a 
published

[[Page 36282]]

imbalance. In conjunction with the prohibition on canceling or 
modifying any MOC/LOC order after 3:40 p.m. the Commission believes 
that this requirement should allow the specialist to make a timely and 
reliable assessment, for every Amex-listed stock, of MOC/LOC order flow 
and its potential impact on closing prices.
    Further, the proposal would require Amex specialists to publish 
order imbalances of 25,000 shares or more as close to 3:40 p.m. as 
practicable. In addition, under certain circumstances, order imbalances 
of less than 25,000 shares may be published as close to 3:40 p.m. as 
practicable with the approval of a Floor Official. The Commission 
believes that permitting order imbalance publications even though the 
imbalance is under 25,000 shares should give specialists needed 
flexibility to balance order flow where the specialist believes that it 
may be necessary to attract contra-side interest. With respect to 
changing the deadline for entering MOC orders on non-expiration days, 
the Commission believes that, by giving market participants more time 
to react to published MOC order imbalances, the proposal may contribute 
to reducing volatility at the close.\16\
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    \16\ As discussed above, LOC orders will be subject to the same 
deadlines for order entry as MOC orders.
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    Finally, the Exchange proposes to apply the order imbalance 
dissemination requirements at the opening of trading as well as at the 
close. Specifically, as discussed above, the Exchange will require 
order imbalances of 25,000 shares or more to be disseminated before 
9:30 a.m. Circumstances under which an imbalance of less than 25,000 
shares would be published will apply to the opening as well.\17\ The 
Commission believes that requiring order imbalances to be published 
prior to the opening may help reduce volatility at the opening as well 
as at the close of improving the specialists' ability to accurately 
assess opening order flow, and attract contra-side interest to help 
alleviate order imbalances. Further, the policy should help 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 decision.
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    \17\ As discussed above and in Amendment No. 1, the Commission 
notes that the Exchange will not apply the order entry procedures 
used for the close of trading to the opening of trading. See 
Amendment No. 1, supra note 3.
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    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing of this amendment in the Federal 
Register. Amendment No. 1 clarifies the proposal to indicate what the 
deadline is for order imbalance publications at the opening. In 
addition, Amendment No. 1 clarifies that MOC/LOC order entry procedures 
will not apply to the opening of trading. As a result, the Commission 
does not believe that Amendment No. 1 raises any new regulatory issues. 
Further, the Commission notes that the original proposal was published 
for the full 21-day comment period and no comments were received by the 
Commission. Accordingly, the Commission believes there is good cause, 
consistent with Sections 6(b)(5) and 19(b) \18\ of the Act, to approve 
Amendment No. 1 to the Exchange's proposal on an accelerated basis.
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    \18\ 15 U.S.C. 78f(b)(5) and 15 U.S.C. 78s(b).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 1, including whether it is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 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 at the Commission's 
Public Reference Room. 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 July 23, 1998.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-AMEX-98-10) is approved as 
amended.

    \19\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17561 Filed 7-1-98; 8:45 am]
BILLING CODE 8010-01-M