[Federal Register Volume 65, Number 175 (Friday, September 8, 2000)]
[Notices]
[Pages 54574-54578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23077]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43231; File No. SR-Amex-00-41]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the American Stock Exchange 
LLC Relating to Rules Regarding Decimal Pricing

August 30, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
August 7, 2000, the American Stock Exchange LLC ``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 Amex. 
The Amex filed the proposal pursuant to Section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ The Commission is

[[Page 54575]]

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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The Commission agreed to waive the 5-day pre-filing notice 
requirement because the proposal implements decimal pricing pursuant 
to the ``Decimal Implementation Plan for the Equities and Options 
Markets'' (``Plan'') submitted to the Commission on July 24, 2000.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to revise various Exchange equities and 
options rules to provide for decimal pricing pursuant to the Plan. The 
Exchange also proposes to amend Amex Rule 232 to conform it to a 
proposed amendment to the Intermarket Trading System (``ITS'') Plan. 
The Amex has designated this proposal as non-controversial, and 
requests that the Commission waive the 30-day operative waiting period 
contained in Rule 19b-4(f)(6)(iii) under the Act.\6\ The text of the 
proposal is available at the Amex and at the Commission.
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    \6\ 17 CFR 240.19b-4(f)(6)(iii).
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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 Amex 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 Amex 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
    On June 8, 2000, the Commission ordered the exchanges and the NASD 
(``Participants'') to submit a phase-in plan to the Commission by July 
24, 2000 providing for decimal pricing in exchange-listed securities 
and options by September 5, 2000, and for phasing in of decimal pricing 
for at least some Nasdaq securities by March 12, 2001, with 
decimalization extended to all exchange-listed securities, options and 
Nasdaq securities by April 9, 2001.\7\ The June 8th Order also requires 
the Participants to file by August 7, 2000 any rule changes necessary 
to implement the Plan.
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    \7\ Securities Exchange Act Release No. 42914 (June 8, 2000), 65 
FR 38010 (June 19, 2000) (``June 8th Order'').
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    The Participants have developed recommendations for a Phase-In 
Period for conversion to decimal pricing. These recommendations are 
contained in the Plan, which was presented to the Commission on July 
24, 2000. This Phase-In Period, which consists of four phases, will 
begin on August 28, 2000, and end with full implementation of decimal 
pricing for all equities and options on or before April 9, 2001.
    The Participants have recommended that a specified Minimum Price 
Variation (``MPV'') schedule be implemented during phase-in by all 
markets. The recommended MPVs are as follows: for equity issues, $.01 
MPV; for options issues quoted under $3 a contract, $.05 MPV; for 
options issues quoted at $3 a contract and greater, $.10 MPV. These 
MPVs will apply through the last day the Plan is in effect or until any 
other date identified by the Commission.
    Phase I will begin on August 28, 2000 with quotations in decimals 
in seven New York Stock Exchange (``NYSE'') listed stocks and six Amex 
listed stocks. Three of the NYSE listed stocks also have options. These 
options have also been priced in decimals. Amex has announced that it 
will begin decimal pricing in the following six stocks on August 28th: 
Regal Beloit Corp.; Media General Inc.; ON2.com Inc.; eMagin Corp.; 
Psychemedics Corp.; and Global Light Telecommunications Inc. In 
addition, Amex will also begin decimal pricing of options on FedEx 
Corporation and Gateway Inc. on August 28, 2000.
    In Phase IIA, beginning on September 25, 2000, an additional 50-100 
equities will be added industry wide, together with associated options. 
The Participants will continue to evaluate the transition to decimal 
pricing, especially as relating to capacity, liquidity and trading 
patterns. Under Phase IIB, the Participants along with other interested 
parties (i.e. National Securities Clearing Corporation, Depository 
Trust Company, Options Clearing Corporation, Options Price Reporting 
Authority, Securities Industry Automation Corporation, Consolidated 
Tape Association, and ITS Operating Committee), will evaluate Phases I 
and IIA and, if the Participants believe they are technically prepared 
for full implementation and there would be no adverse impact on the 
investing public, may choose to convert all equities and/or all options 
issues (both exchange-listed and Nasdaq-listed options) to decimal 
quoting. The Participants could also elect to implement a penny pilot 
in selected option issues pursuant to the Plan. Any decisions under 
Phase IIB will be made during the period between November, 2000 and 
April, 2001.
    In Phase III a limited number of Nasdaq issues (approximately 10 to 
15) will begin decimal pricing on or before March 12, 2001, under the 
recommended MPV schedule. In Phase IV, Participants will evaluate 
results of previous phases, and after consultation with the SEC and 
other industry participants, could recommend full implementation of 
decimal quoting for all equities and options under the recommended MPV 
schedule on or before April 9, 2001 through the last day the Plan is in 
effect.
    The Amex also proposes to amend Exchange Rule 232 to conform it to 
a proposed amendment to the ITS Plan.
A. Amendments to Amex Equity Rules
    The Exchange proposes to amend its rules relating to equities 
trading to accommodate implementation of decimal pricing in accordance 
with the Plan. Equities rules that currently reference quoting in 
fractions are amended to reflect the transition to decimals. References 
to fractions have been converted to two decimal places. When this is 
not possible (e.g., \1/8\), the fraction generally has been rounded 
down to the nearest five cent increment (e.g., $.10 for \1/8\). 
Conforming changes have been made to Exchange Rules 103, 111, 127, 132, 
134, 154, 175 (Guidelines) and 205.
    Rule 103 (General Floor Prohibitions). The Exchange proposes to 
amend Commentary .03 to provide examples stated in decimals for 
equities subject to decimal pricing, in addition to current fractional 
references for equities quoting in fractions.
    Rule 109 (``Stopping'' Stock). The Exchange proposes to amend Amex 
Rule 109 such that references to ``minimum fractional change'' are 
charged to ``minimum price variation.'' In addition, reference is made 
to Amex Rule 127 for different MPVs applicable to equities quoting in 
fractions and those subject to decimal pricing.
    Rule 111 (Restrictions on Registered Traders).  The reference to 
``one-eighth of a point'' in paragraph (e)(2) of Amex Rule 111 is 
pr0posed to be changed to the ``minimum price variation.''
    Rule 127 (Minimum Price Variations). Amex Rule 127 would be amended 
to subject current minimum fractional change parameters to Commentary 
.01 of the same rule relating to decimal pricing. Commentary .01 states 
that, notwithstanding the provisions of Amex Rule 127 for equity 
securities that are priced in decimals pursuant to the Plan, the MPV 
shall be one cent ($.01). In addition, Commentary .01 makes clear that 
equities not subject to decimal pricing pursuant to the Plan will 
continue to be subject to the minimum fractional change set forth in 
the Rule. Existing Commentaries .01, .02 and .03

[[Page 54576]]

are re-numbered to .02, .03 and .04, respectively, and provide that the 
minimum fractional changes provided there (e.g. \1/64\ for SPDRs), are 
subject to Commentary .01, thus providing for prospective decimal 
pricing under the Plan.
    Rule 132 (Price Adjustment of Open Orders on ``Ex-Date''). The 
examples in Commentaries .01 and .03 of Amex Rule 132, which refer to 
rounding to a higher \1/8\ point variation, are proposed to be 
eliminated. Commentary .01 of Amex Rule 132 proposes to state that 
orders would be reduced by the next higher ``minimum price variation'' 
(instead of ``variation''), with reference to Amex Rule 127. The 
Exchange also proposes in Commentary .03 of Amex Rule 132 that orders 
be rounded to the next lower ``minimum price variation'' instead of 
``variation,'' and also reference to Amex Rule 127.
    Rule 134 (Cash, Next Day and Seller's Option Transactions).  Amex 
Rule 134(b) would provide that publication of a cash or next day 
transaction will not be expected if the transaction can be effected at 
a price not greater than \1/8\ point away from the regular way market. 
The rule clarifies that reference to \1/8\ point in paragraph (b) 
applies to equities quoting in fractions. For equities subject to 
decimal pricing, the applicable increment would be $.10.
    Rule 154 (Orders Left with Specialist).  References to ``point'' or 
``points'' are proposed to be changed to ``cents,'' ``dollar'' or 
``dollars'' as the context requires. Except for the reference to ``\1/
8\ of a point'' in Commentary .15 of Amex Rule 154, which is proposed 
to be changed to ``ten cents,'' all fractional references are proposed 
to be changed to their exact equivalents in cents. The seventh 
paragraph of Commentary .15 of Amex rule 154 provides that the 
specialist (subject to specified exceptions) may convert a percentage 
order on a destabilizing tick to establish a new bid in such size as he 
deems appropriate to narrow the quotation spread, provided that no such 
bid may be more than \1/8\ point higher than the last sale. The 
amendment clarifies that the \1/8\ point parameter applies to equities 
quoting in fractions and that, for equities priced in decimals, the 
applicable parameter would be $.10.
    Rule 175 (Specialist Prohibitions). Fractional references are 
proposed to be changed to equivalents in cents in Amex Rule 175. 
References to ``point'' or ``points'' would be changed to ``dollar'' or 
``dollars,'' as appropriate.
    Rule 205 (Manner of Executing Odd-Lot Orders).
    In Amex Rule 205, references to ``point'' or ``points'' would also 
be changed to ``dollar'' or ``dollar,'' as appropriate. The change to 
the title of Amex Rule 127 (Minimum Price Variation) is reflected in 
Commentary .04 of the same rule.
    Rule 232 (Pre-Opening Application Rule).
    The Exchange also proposes to amend Exchange Rule 232 to implement 
a proposed amendment to the ITS plan.
    Rule 1000 (Portfolio Depositary Receipts) and 1000A (Index Fund 
Shares).
    The references to fractional trading increments in Amex Rule 1000, 
Commentary .03(e) and Rule 1000A, Commentary .02(e) are proposed to be 
amended to clarify that these increments are subject to Amex Rule 127, 
Commentary .01, thus providing for prospective decimal pricing.
B. Amendments to Amex Options Rules
    The Exchange has also identified various options rules that require 
revision in connection with the implementation of the conversion from 
fractions to decimals discussed above. These proposed changes are found 
in Exchange Rules 915, 918, 952, 958, 951C and 903G. Of these, the most 
significant proposed changes concern Exchange Rules 918, 958 and 952, 
which govern the minimum and maximum spreads for options quotations and 
the MPV for dealings on the Exchange in options contracts for which the 
underlying security is a stock. The remaining proposed changes to 
Exchange Rules 915, 951, and 903G convert existing fractional price 
references to their decimal equivalent, rounding up (down) where 
necessary.
    Rule 915 (Criteria for Underlying Securities).
    Amex Rule 915 provides eligibility criteria for underlying 
securities, which, among other things, require that the market price 
per share of the underlying security has been at least $7\1/2\ for the 
majority of business days during the three calendar months preceding 
the date of selection. This price requirement, which will remain the 
same, is proposed to be revised to read $7.50.
    Rule 918 (Trading Rotations, Halts and Suspensions).
    Exchange Rule 918, Commentary .03 provides that a specialist is 
required to announce to the trading crowd a price indication at the 
tightest bid/ask interval (\1/8\th of a point for options contracts 
quoting at $3 per share per option or higher and \1/16\th of point for 
those quoting below $3), prior to executing a transaction in an options 
series during a rotation. The term ``tightest bid/ask interval'' would 
be amended to ``minimum price variation.'' This provision will continue 
to apply for options series trading in fractions. The amended rule 
states that the MPV for options priced in decimals pursuant to the Plan 
is $.05 for options issues quoted under $3 a contract, and $.10 for 
options issues priced at $3 and greater. Reference is made to Amex Rule 
952 (Minimum Price Variations).
    Rule 952 (Minimum Price Variations).
    Exchange Rule 952(a) states that the minimum fractional change for 
options on stocks or Exchange-Traded Fund shares is one-eighth point in 
option contracts quoted at $3 per share per option or higher, and one-
sixteenth point in option contracts quoting under $3. These parameters 
will continue to apply to options trading in fractions. The same rule 
further states that no change may be made to the MPV for options 
quoting in decimals that is inconsistent with the Plan or that 
otherwise changes the MPV for options quoting in decimals, unless such 
change has been filed with the SEC pursuant to Rule 19b-4(f)(6) under 
the 1934 Act.\8\ The Exchange proposes to amend Exchange Rule 952(a) to 
state that the MPVs for option contracts priced in decimals, pursuant 
to the Plan, are $.05 MPV for options issues quoted under $3 a 
contract, and $.10 for options issues quoted at $3 a contract and 
greater. Options contracts that are not subject to decimal pricing 
would continue to be subject to the current Rule's minimum fractional 
parameters.
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    \8\ 17 CFR 240.19b-4(f)(6).
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    Rule 958 (Options Transactions of Registered Traders).
    Maximum permissible spread parameters applicable to options are 
currently set forth in Exchange Rule 958(c). Conversion from fractions 
to decimals will not substantively affect Exchange Rule 958. However, 
the fractional spread parameters would be revised to state the same 
parameters expressed in cents. The proposed conversions are as follows:

[[Page 54577]]



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           Current spreads expressed as fractions                  Spreads following conversion to decimals
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                                                   Maximum                                             Maximum
                Prevailing bid                     spread                 Prevailing bid                spread
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$2.00.........................................        \1/4\   $2.00................................        $0.25
> or = $2.00, but  or = $5.00.................        \3/8\   > or = $2.00, but  or = $5.00........         0.37
> $5.00, but  or = $10.00.....................        \1/2\   > $5.00, but  or = $10.00............         0.50
> $10.00, but  or = $20.00....................        \3/4\   > $10.00, but  or = $20.00...........         0.75
> $20.00......................................            1   > $20.00.............................         1.00
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    Rule 951C (Premium Bids and Offers). Exchange Rule 951C provides 
that, except as provided in Commentary .01, bids and offers in stock 
index options should be expressed in terms of a percent, with fractions 
of a percent expressed in sixteenths in the case of a premium of less 
than $300, and in eights in the case of a premium greater than $300. 
The amended rule provides that such fractions apply to stock index 
options trading in fractions, and states that bids and offers for stock 
index options priced in decimals would be expressed in terms of a 
percent expressed in an MPV of $.05, in the case of a premium less than 
$300, and an MPV of $.10, in the case of a premium greater than $300. 
The second paragraph of Exchange Rule 951C would be amended to refer to 
percentages in addition to fractions of a percent. Exchange Rule 951C 
also states that no change may be made to the percentages set forth in 
the Rule that is inconsistent with the Plan or that otherwise changes 
such percentages for options quoting in decimals unless such change is 
filed with the SEC, pursuant to Rule 19b-4(f)(6) under the 1934 Act.\9\ 
Commentary .01 would also be amended to clarify that the reference to 
bids and offers in sixteenths refers to options quoting in fractions, 
for options on reduced value stock index groups having more than twelve 
months to expiration. Bids and offers in such options, subject to 
decimal pricing, would be in increments of $.05, representing a 
rounding down of the \1/16\ parameter.
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    \9\ Id.
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    Rule 903G (Terms of FLEX Options). 
    Paragraph (c)(2) of Exchange Rule 903G would be amended to state 
that exercise prices and premiums would be rounded to the nearest MPV, 
referencing Exchange Rule 952 (Minimum Price Variation). Language 
relating to rounding exercise prices to the nearest \1/8\ of a dollar 
is proposed to be deleted.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
section 6(b) of the Act \10\ in general and furthers the objectives of 
Section 6(b)(5) \11\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to, and 
perfect the mechanism of a free and open market and, in general, to 
protect investors and the public interest by providing for certain 
securities to be quoted in decimals beginning on August 28, 2000.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from August 7, 2000, the date on which it 
was filed, it has become effective pursuant to section 19(b)(3)(A) of 
the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ At any time within 60 
days of the filing of the proposed rule change, 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 the furtherance of the 
purposes of the Act.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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    The Amex has requested that the Commission accelerate the operative 
date. The Commission believes that it is consistent with the protection 
of investors and the public interest and therefore finds good cause to 
designate the proposal to become immediately operative upon filing. 
Acceleration of the operative date will permit the Exchange to begin 
decimal quoting for various securities described above starting on 
August 28, 2000.\14\
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    \14\ The Plan provides for MPVs for equities and options of no 
less than one cent. The June 8th Order requires the Participants to 
submit joint or individual studies tow months after Full 
Implementation (as defined in the Plan) regarding the impact of 
decimal pricing on systems capacity, liquidity, and trading 
behavior, including an analysis of whether there should be a uniform 
minimum quoting increment. If a Participant wishes to move to 
quoting in an increment of less than one cent, the Participant 
should include in its study a full analysis of the potential impact 
of such trading on the Participant's market and the markets as a 
whole. Within thirty days after submitting the study, and absent 
Commission action, the Participants individually must submit for 
notice, comment, and Commission action, proposed rule changes under 
section 19(b) of the Act to establish their individual choice of 
minimum increments by which equities or options are quoted on their 
respective markets.
    The Plan also contemplates that the options exchanges may wish 
to consider a pilot program for one-cent minimum price variations 
for quoting in a limited number of options (``Penny Pilot'') at some 
point in the implementation process. The Commission expects that, 
before implementing a Penny Pilot, the options exchanges will 
carefully coordinate on such issues as the selection and number of 
options to be included in the pilot to ensure the continued orderly 
operation of the markets and clearing organizations. In particular, 
the Commission expects that the options exchanges will consult with 
the Commission regarding the impact on market-wide capacity. Before 
implementing a Penny Pilot, each options exchange should also submit 
appropriate rule filings to the Commission under section 19(b) of 
the Act.
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    The Commission also believes that the proposed amendments are non-
controversial as they provide housekeeping changes with respect to 
rules that express price values in fractions being changed to decimals. 
The Amex has also requested that the Commission waive the 5-day pre-
filing requirement. The Commission also finds good cause to waive the 
5-day pre-filing requirement since the proposal is in accordance with 
the Plan. For these reasons, the Commission designates that the 
proposal become operative immediately upon filing with the 
Commission.\15\
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    \15\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C 
78c(f).

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[[Page 54578]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change in 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-00-41 and should 
be submitted by September 29, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23077 Filed 9-7-00; 8:45 am]
BILLING CODE 8010-01-M