[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20235-20236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9325]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42652; File No. SR-Amex-00-17]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 by the 
American Stock Exchange LLC Relating to Auto-Match

April 7, 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 April 6, 2000, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Amex.\3\ 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.
    \3\ The Amex originally submitted the proposal on April 5, 2000, 
and requested that the proposal become immediately effective 
pursuant to Rule 19b-4(f)(5) under the Act. On April 6, 2000, the 
Amex submitted a letter from Scott Van Hatten, Legal Counsel, 
Derivative Securities, Amex, to Elizabeth King, Associate Director, 
Division of Market Regulation, Commission, amending the proposal 
(``Amendment No. 1''). In Amendment No. 1, the Amex requested that 
the Commission consider and review the proposal under Rule 19b-
4(f)(6). Because this proposal was filed pursuant to Section 
19(b)(3)(A) of the Act, it must be complete at the time it is filed. 
Therefore, the date of the amendment is deemed the date of the 
filing of the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to enhance the Amex Order Display Book (``AODP'') 
to automatically match and execute limit orders on the specialist's 
book that represent the displayed best bid or offer in select option 
classes. The text of the proposed rule change is available at the Amex 
and at the Commission's Public Reference Room.

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to enhance the AODB to automatically match 
and execute limit orders on the specialist's book that represent the 
displayed best bid or offer in select option classes. These limit 
orders will be automatically matched with incoming Auto-Ex eligible 
market or marketable limit orders and then automatically executed at 
the limit order's displayed best bid or offer. This will provide for a 
faster, more efficient execution of market and marketable limit orders, 
as well as more efficient handling of limit orders on the specialist's 
book. The AODB enhancement initially will be used in selected less-
active option classes.
    The AODP is an electronic specialist's book that provides for the 
handling of options orders and the executing and reporting of options 
transactions. The AODB handles both market and limit orders routed to 
the specialist through the Amex Order File (``AOF''). Limit orders that 
better the current displayed bid or offer become the Amex's displayed 
best bid or offer and market orders to buy or sell are executed at 
these prices. When a limit order represents the displayed best bid or 
offer, market and marketable limit orders sent through AOF to Auto-Ex 
for execution at the displayed bid or offer by-pass Auto-Ex and are 
sent directly to the AODB for handling and execution by the specialist 
with the limit order as contra-party to the trade. The Auto-Ex system 
is bypassed in these situations to prevent the specialist and any 
registered options traders signed on Auto-Ex from trading ahead of 
customer limit orders on the specialist's book in violation of Amex 
Rule 950.
    The Exchange now proposes to enhance the AODB so that market and 
marketable limit orders that have bypassed Auto-Ex for handling by the 
specialist will instead be automatically matched with the customer 
limit order representing the best bid or offer displayed on the AODB 
and automatically executed in the AODB. This enhancement initially will 
be used only in selected less-active option classes. Once experience is 
gained using this feature and the further enhancements discussed below 
are implemented, the staff, in consultation with the membership, will 
review the program and determine whether to expand it to other option 
classes.
    It should also be note that orders eligible for Auto-Ex execution 
are limited in size.\4\ Therefore, if the limit order on the AODB is 
greater in size than the Auto-Ex eligible order, the limit order will 
be partially executed for the size of the Auto-Ex order and the 
remainder will be displayed on the AODB until it is canceled, replaced 
by a more competitive bid or offer, or completely executed. If the 
limit order on the AODB is smaller in size than the Auto-Ex eligible 
order, the limit order will be executed in full and the remaining 
contracts from the Auto-Ex order will be bought or sold by the 
specialist. For example, a limit order to buy 10 contracts represents 
the best bid in an option class whose Auto-Ex eligible size is 20 
contracts and a market order of 20 contracts to sell is routed to the 
AODB. Under the proposal, 10 contracts will be matched and executed 
against the limit order and the remaining 10 contracts will be executed 
by the specialist. A further enhancement to AODB, expected by the end 
of the third quarter of 2000, will allow the excess portion of the 
Auto-Ex eligible order to be allocated to the specialist and any 
registered options traders participating in the crowd for that option 
class. Until this further enchancement is put in place, the automatic 
execution feature for AODB will only be used in those option classes 
that have no trading crowd and no participating registered options 
traders.
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    \4\ The current size parameters for Auto-Ex eligible order are 
50, 20 and 10 contracts. Of the approximately 1256 options classes 
currently traded on Amex: 206 or 16.4% allow orders for 50 contracts 
to be automatically executed at the best bid or offer; 941 or 74.9% 
of option classes allow orders for 20 contracts, and 109 or 8.7% of 
option classes allow orders for 10 contracts.
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    This will provide for a faster, more efficient execution of market 
and marketable limit orders as well as more efficient handing of limit 
orders on the specialist's book. More importantly, it will also assure 
that limit orders on the specialist's book retain priority, where 
appropriate, over other interest on the

[[Page 20236]]

Exchange. Thus, the proposed rule change will benefit customers using 
the Auto-Ex system, as well as those customers whose orders are on the 
AODB.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \5\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5) \6\ of the Act, in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change will impose 
any 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

    Because the foregoing proposed rule: (1) does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days or such shorter time as the Commission may 
designate, the proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \7\ and subparagraph (f)(6) of Rule 19b-
4 thereunder.\8\ Although Rule 19b-4(f)(6) requires that an Exchange 
submit a notice of its intent to file at least five business days prior 
to the filing date, the Commission waived this requirement at the 
Amex's request.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    The Commission also notes that under Rule 19b-4(f)(6)(iii), the 
proposal does not become operative for 30 days after date of its 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest. 
The Amex requested a waiver of this 30 day period to permit the 
immediate integration of the proposed systems change into the 
Exchange's trading systems. Amex believes that this systems change will 
provide faster and more efficient executions to market and marketable 
limit orders, and promote more efficient handling of limit orders on 
the specialist's book. Amex also believes that the proposed change will 
assure that limit orders on the specialist's book retain priority, 
where appropriate, over other interest on the Exchange. For the reasons 
discussed above, the Commission finds that the waiver of the 30 day 
period is consistent with the protection of investors and the public 
interest.\9\
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    \9\ The Commission notes that this proposal is similar to a 
Chicago Board Options Exchange, Inc. proposal that the Commission 
approved in 1999. See Release No. 34-41995 (October 8, 1999), 64 FR 
56547 (October 20, 1999) (File No. SR-CBOE-99-29).
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    At any time within 60 days of the filing of the proposed rule 
change, as amended, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
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. 20549-0609. 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 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. 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-00-17 and should 
be submitted by May 5, 2000.


    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9325 Filed 4-13-00; 8:45 am]
BILLING CODE 8010-01-M