[Federal Register Volume 65, Number 249 (Wednesday, December 27, 2000)]
[Notices]
[Pages 81942-81944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32894]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43737; File No. SR-Amex-00-42]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by American Stock Exchange LLC Relating to the Auto-Ex By-Pass 
Provisions

December 18, 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 9, 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, II, 
and III below, which Items have been prepared by Amex. 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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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The American Stock Exchange LLC proposes to allow options orders to 
by-pass Auto-Ex when the best bid or offer is represented by either a 
registered trader or a floor broker.

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

[[Page 81943]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The automatic execution system at the Exchange (known as ``Auto-
Ex'') provides the options investor with an important and useful tool 
in today's trading environment. since the system's implementation in 
1985--for a limited number of option classes and for small orders of 10 
contracts or less--the Commission has approved the system's expansion 
to all option classes traded and recently has approved an increase of 
the maximum permissible order size to 75 contracts.\3\ Auto-Ex provides 
the investor with an efficient means of getting a rapid, guaranteed 
execution of a market or marketable limit order. In the often fast-
moving and volatile environment of options trading, a guaranteed and 
rapid execution clearly has value to an investor. In fact, an assured 
execution in a rapidly changing market and the avoidance of the 
potential downside risk of missing the market has benefited investors 
during the last 15 years. In addition, automatic executions have 
reduced the costs of trades generally and have enabled traders, 
specialists and the Exchange itself to better manage the tremendous 
volume of transactions that our markets now regularly experience.
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    \3\ The maximum Auto-Ex size for eligible orders was recently 
increased from 50 to 75 contracts. See Securities Exchange Act 
Release No. 43516 (November 3, 2000), 65 FR 69079.
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    To operate efficiently, Auto-Ex provides that all customer market 
and marketable limit orders within the appropriate size parameters be 
executed at the prevailing best bid or offer with either the specialist 
or a registered options trader as the contra-party to the transaction. 
The specialist in each option class must sign on and remain on Auto-Ex 
every trading day; registered trades, on the other hand, are not 
obligated either to sign on or remain on Auto-Ex in the option classes 
they trade. When registered traders have signed on to Auto-Ex in a 
particular option class, however, orders automatically executed through 
the system are distributed to the specialist and registered traders on 
a random rotating basis. Thus, a registered trader who improves the 
market is not assured of being the contra-party on an Auto-Ex execution 
at that better bid or offer because it may not be that registered 
traders' turn to receive the Auto-Ex transaction.
    The Exchange is proposing to expand its auto-Ex by-pass feature to 
encourage further registered trades to improve the quotation. 
Currently, the by-pass feature provides that whenever the bid or offer 
in a specific series represents a customer limit order on the 
specialists' book, or a better bid or offer is being disseminated by 
another options exchange, market and marketable limit orders eligible 
for an Auto-Ex execution by-pass the system and are routed instead to 
the specialist for handling. Expanding this by-pass feature to include 
situations where a registered options trader improves the quotation 
would ensure that registered options traders are the conta-party to any 
market or marketable limit order that, without the by-pass feature, 
would have been executed by the Auto-Ex system. Registered traders will 
now be assured that when they improve the quotation in a given option 
series they can be the conta-party to transactions at the improved bid 
or offer for Auto-Ex eligible market and marketable limit orders in 
addition to the larger size non-Auto-Ex eligible orders for which they 
currently compete. If the registered trader chooses to use this 
feature, the size of their bid or offer will have to be at least the 
guaranteed Auto-Ex size (i.e., currently 10 to 75 contracts, depending 
on the options class).
    The Exchange also proposes that this feature be expanded to floor 
brokers representing customer orders in the trading crowd. When Auto-Ex 
was first developed in 1985, floor brokers and their customers objected 
to transactions occurring on Auto-Ex while orders they represented in 
the trading crowd went unexecuted. Floor brokers withdrew these 
objections when they recognized the benefits of Auto-Ex executions of 
small market and marketable limit orders. However, if registered 
traders can cause orders to by-pass Auto-Ex, floor brokers may believe 
that their customers' interests are not being served and, therefore, 
brokers also need the capability of having orders by-pass Auto-Ex. 
Thus, floor brokers can improve either the bid or the offer and be 
assured that their customers will be the contra-party to any market or 
marketable limit orders that would otherwise have been automatically 
executed through Auto-Ex. Floor brokers choosing to use this feature 
will have to bid or offer for at least the guaranteed Auto-Ex size 
(i.e., currently 10 to 75 contracts, depending on the options class).
2. Statutory Basis
    The Exchange represents that the proposed rule change is consistent 
with Section 6(b) of the Act\4\ and Section 6(b)(5),\5\ 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 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 inappropriate 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

    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 self-regulatory organization 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. 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

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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-00-42 and should 
be submitted by January 17, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR.200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-32894 Filed 12-26-00; 8:45 am]
BILLING CODE 8010-01-M