[Federal Register Volume 65, Number 43 (Friday, March 3, 2000)]
[Notices]
[Pages 11618-11619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5186]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42460; File No. SR-Amex-00-05]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC To Eliminate the Exchange's 
Off-Board Trading Rules

February 25, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 1, 2000, the American Stock Exchange LLC (``Exchange'' or 
``Amex'') 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 
Exchange. 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\ 17 CFR 240.19b-4.
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    The Exchange's proposed rule change raises issues similar to those 
raised by the New York Stock Exchange's (``NYSE'') proposal to repeal 
NYSE rule 390, which rule generally prohibits NYSE members and their 
affiliates from effecting transactions in certain NYSE-listed 
securities away from a national securities exchange. The Commission 
recently issued the notice of filing for the NYSE's proposal (``NYSE 
Notice'') and solicited comment on a number of important issues that 
have broad implications for the structure of the U.S. securities 
markets.\3\ Specifically, the Commission requested comment on market 
fragmentation--the trading of orders in multiple locations without 
interaction among those orders--and on several options for addressing 
market fragmentation. To promote a comprehensive discussion of off-
board trading restrictions and related market fragmentation issues, the 
Commission requests that persons interested in the Exchange's proposal 
refer to the NYSE Notice and submit comments that respond to the 
questions presented in the NYSE Notice.\4\
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    \3\ See Securities Exchange Act Release No. 42450 (Feb. 23, 
2000) (File No. SR-NYSE-99-48). The Commission notes that similar 
proposals have been filed by the Chicago Stock Exchange and the 
Philadelphia Stock Exchange. See Securities Exchange Act Release 
Nos. 42459 (Feb. 25, 2000) (File No. SR-CHX-99-28) and 42458 (Feb. 
25, 2000) (File No. SR-Phlx-00-12).
    \4\ The Commission notes that the NYSE Notice is available on 
the Commission's website at: http://www.sec.gov/rules/sros/ny9948n.htm>.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to eliminate its off-board trading rules, 
Exchange rule 5, ``Over-the-Counter Execution of Equity Securities 
Transactions,'' and Exchange Rule 6, ``Execution of Transactions in 
Bonds on Exchange Required--Exceptions.'' The text of the proposed rule 
change is available at the Exchange and at the Commission.

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 5 regulates off-board trading by Amex members in 
listed equity securities, and Exchange Rule 6 regulates off-board 
trading by a Amex members in listed bonds. Together, Exchange Rules 5 
and 6 prohibit members from trading listed equity securities and bonds 
as principal off the exchange (i.e., in the over-the-counter market) 
subject to enumerated exceptions. In 1980, the Commission adopted rule 
19c-3, which prohibits all national securities exchanges from

[[Page 11619]]

applying off-board trading restrictions to equity securities listed 
after April 26, 1979.\5\
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    \5\ See 17 CFR 240.19c-3.
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    The Exchange's off-board trading rules originally were intended to 
centralize buying and selling interest in listed securities to ensure 
the execution of orders at the best possible prices. Over time, 
however, these off-board trading restrictions came to be viewed by many 
as anti-competitive. In this regard, the Exchange notes that SEC 
Chairman Arthur Levitt recently called for the elimination of off-board 
trading rules.\6\
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    \6\ Remarks of SEC Chairman Arthur Levitt, ``Dynamic Markets, 
Timeless Principles'' September 23, 1999.
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    The Amex believes that Exchange Rule 5 is largely irrelevant to the 
trading of Amex-listed equity securities because it applies only to 
equity securities listed before April 26, 1979, and the great majority 
of Amex-listed stocks were listed for trading after that date. In 
addition, Exchange Rule 5 applies only to Amex members. Therefore, non-
member firms may trade Amex-listed equity securities off-board--and in 
fact, non-member firms do so. The Exchange's off-board trading rule for 
bonds, similarly, is of little practical consequence due to the 
exceptions in Exchange Rule 6 that permit the great bulk of listed bond 
transactions to occur over-the-counter.
    In light of the limited practical impact of the Exchange's off-
board trading rules and the changing view on their propriety, the 
Exchange proposes to repeal Exchange Rules 5 and 6, and eliminate cross 
references to these Rules found elsewhere in the Exchange's rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5),\8\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, protect investors and the public interest; and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, and dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
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 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange 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 proposed rule 
change is consistent with the Act. The Commission also invites 
interested persons to submit written data, views, and arguments on the 
market fragmentation issues presented in the NYSE Notice.\9\ Persons 
making written submissions should file six copies thereof with the 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549-0609. 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 persons, 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 Section, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Exchange. All submissions should refer 
to File No. SR-Amex-00-05 and should be submitted by March 24, 2000. 
Comments responding to the Commission's request for comment on market 
fragmentation issues should refer to File No. SR-NYSE-99-48 and should 
be submitted by April 28, 2000.
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    \9\ See supra notes 3 and 4.

    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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Jonathan G. Katz,
Secretary.
[FR Doc. 00-5186 Filed 3-2-00; 8:45 am]
BILLING CODE 8010-01-M