[Federal Register Volume 65, Number 33 (Thursday, February 17, 2000)]
[Notices]
[Pages 8216-8217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3748]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42407; File No. SR-Amex-99-29]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the American Stock Exchange LLC Relating to Disclosures by 
Specialists Under Amex Rule 174

February 9, 2000.

I. Introduction

    On August 6, 1999, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with 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 amend Amex Rule 174 pertaining to the 
disclosure of specialists' orders. The proposed rule change was 
published for comment in the Federal Register on September 20, 1999.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 41870 (September 13, 
1999), 64 FR 51156 (September 21, 1999).
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II. Description of the Proposal

    Presently, Amex Rule 174 prohibits specialists from disclosing 
information regarding orders left with the specialist other than to a 
Floor Official or an authorized Amex official. This prohibition is 
subject to three exceptions: (1) a specialist may disclose information 
to requesting members or issuer representatives regarding names of 
buying and selling member organizations in completed or partially 
executed Amex transactions unless parties to the trade direct 
otherwise; (2) in response to a member's probe of the market, the 
specialist, in a fair and impartial manner, may provide information 
about buying and selling interest at or near the prevailing quotation, 
including the identity of bidders or offerors represented on the book, 
unless the entering broker directs otherwise; and (3) the specialist 
must disclose information regarding limited price orders held by the 
specialist to the extent required by the Intermarket Trading System 
Plan.
    The Exchange proposes to amend Amex Rule 174 to expand the 
information that the specialist, while acting in a market making 
capacity on the Floor, is permitted to disclose in response to a 
member's market probe in the normal course of business. The proposed 
rule change would eliminate the specialist disclosure restriction for 
information regarding orders ``at or near the prevailing quotation,'' 
and instead would permit any information concerning buying and selling 
interest of orders held by the specialist on the specialist's book to 
be disclosed following a member's market probe. In addition, the 
specialists would be permitted to disclose information regarding stop 
orders if the specialist reasonably believes that the requesting member 
intends to trade the security at a price at which stop orders would be 
relevant.\4\ The proposed rule change also will permit, although not 
require, disclosure of percentage orders in a manner similar to 
disclosure of any other orders (except stop orders).\5\ Although a 
specialist would not be required to disclose any order information on 
the specialist's book in response to a member's market probe, under the 
existing or the proposed rule, if the specialist determines to make 
such disclosure, it must disclose the same information in a fair and 
impartial manner to any member on the Floor.
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    \4\ A stop order to buy (sell) becomes a market order when a 
transaction in the security occurs at or above (below) the stop 
price after the order is represented in the Trading Crowd. A stop 
limit order to buy (sell) becomes a limit order executable at the 
limit price or better when a transaction occurs at or above (below) 
the stop price after the order is represented. See Amex Rule 131(q) 
and (r), respectively.
    \5\ A percentage order is a limited price order to buy or sell 
50% of the volume of a specified stock after its entry. A percentage 
order is ``elected'' and becomes capable of execution under 
circumstances set forth in Amex Rule 131.
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III. Discussion

    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,\6\ and, in 
particular, with the requirements of Sections 6(b)(5),\7\ 
11A(a)(1)(C)(iii),\8\ and 1(b) of the Act.\9\ Section 6(b)(5) of the 
Act \10\ requires, among other things, that an exchange have rules 
which are designed to promote just and equitable principles of trade, 
to facilitate transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market, and, in general, to 
protect investors and the public interest. In Section 11A(a)(1)(C)(iii) 
of the Act,\11\ Congress found that it is in the public interest and 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure the availability to brokers, dealers, and 
investors of information with respect to quotations for and 
transactions in securities. section 11(b) of the Act,\12\ among other 
things, prohibits a specialist or Exchange official from disclosing 
information with respect to orders that is not available to all members 
of the Exchange to any person other than an official of the Exchange, a 
representative of the Commission, or a specialist who may be acting for 
such specialist.
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    \6\ In approving this rule change, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \9\ 15 U.S.C. 78k(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \12\ 15 U.S.C. 78k(b).
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    Presently, Amex Rule 174 prohibits specialists from disclosing Book 
information to other exchange members who are probing the market, 
unless the market probe is made at or near the prevailing quote. The 
proposed rule change would liberalize the specialist disclosure 
provisions by permitting specialists, while acting in a market maker 
capacity and in response to a market probe by a member, to give 
information concerning buying and selling interest or orders the 
specialist holds on the Book in a stock. All market participants, 
including individual investors and issuers, will be able to obtain the 
Book information through a member's probe. The Commission believes that 
this provision should promote the objectives of Sections 6(b)(5) and 
11A of the Act \13\ by increasing price transparency, broadening the 
public dissemination of market information, and enhancing the ability 
of investors to develop strategies and make informed investment 
decisions. Moreover, because the proposed amendments to Amex Rule 174 
will make Book information available to all member organizations on a 
non-exclusive basis and requires a specialist to disclose information 
in a

[[Page 8217]]

fair and impartial manner, the proposal is consistent with Section 
11(b) of the Act.\14\
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    \13\ 15 U.S.C. 78f(b)(5) and 15 U.S.C. 78k-1.
    \14\ 15 U.S.C. 78k(b).
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    Stop orders, however, are treated differently than other orders 
under the proposed rule change. Under the proposed rule change, 
specialists may disclose information about stop orders when the 
specialist reasonably believes that the member conducting the market 
probe has the intention to trade in the stock at a price at which such 
stop orders would be relevant. Orders other than stop orders, including 
percentage orders, may be disclosed without restriction in response to 
a member's probe. The Commission believes that because stop orders held 
on the book may be far away from the market the proposal's special 
treatment of stop orders is reasonable. The Commission believes that it 
is reasonable that specialists only disclose stop order information 
when a member's market probe reasonably indicates an intention to trade 
at a price at which the stop orders would be relevant. This restriction 
should help safeguard against potential market manipulation and provide 
investors who place stop orders with a level of protection and 
confidence that Exchange members will not be permitted to obtain 
information regarding stop orders unless they have a legitimate market 
interest in that information.\15\
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    \15\ The Commission notes that it approved a proposed rule 
change submitted by the New York Stock Exchange (``NYSE'') 
pertaining to specialist disclosure of information on the order book 
which contained substantially similar provisions to this proposal. 
The NYSE proposal also included a provision permitting a specialist 
to disclose to a member the identity of any buyer or seller on the 
Book unless the buyer or seller expressly requests that his or her 
investment anonymity be maintained at all times with respect to a 
specific order. See Securities Exchange Act Release No. 41421 (May 
18, 1999), 64 FR 28848 (May 27, 1999). A similar provision already 
contained in Amex Rule 174 is not amended by this proposal.
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IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-AMEX-99-29) is approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-3748 Filed 2-16-00; 8:45 am]
BILLING CODE 8010-01-M