[Federal Register Volume 66, Number 50 (Wednesday, March 14, 2001)]
[Notices]
[Pages 14945-14947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6322]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44048; File No. SR-Amex-01-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to Restrictions on 
Specialist Affiliates

March 7, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on February 14, 2001, 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 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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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 193 to make technical 
corrections and to provide an exemption to Amex Rules 186(a) and 950(i) 
to approved persons of Amex specialists that established, and obtain 
Exchange approval for, an information barrier

[[Page 14946]]

between them and the affiliated specialist. The text of the proposed 
rule change is set forth below. New text is in italics; deleted text is 
in brackets:

Affiliated Persons of Specialists

    Rule 193. (a)-(b) No change.
    (c) Notwithstanding the provisions of paragraph (a) of the Rule, an 
approved person or member organization which is affiliated with a 
specialist member organization shall not be subject to (i) Rule 170(e), 
(ii) Rule 175(a), (iii) Rule 186(a), (iv) Rules 190(a) and (b) [and 
(iv)] (v) Commentary to Rule 190, (vi) Commentary .01 to Rule 950(i), 
(vii) 950(k) and Commentary thereto, and (viii) 950(n) insofar as it 
applies Rule 170(e), to options provided that it has established and 
obtained Exchange approval of procedures restricting the flow of 
material, non-public corporate or market information between itself and 
the specialist member organization, and any member, officer, or 
employee associated therewith.
    (d)-(e) No change.

   Commentary

Guidelines for Exemptive Relief Under Rule 193 for Approved Persons or 
Member Organizations Affiliated With a Specialist Member Organization
    (a) The Exchange Rules listed below impose certain restrictions on 
an approved person * or member organization which is affiliated with a 
specialist unit (collectively referred to herein as an ``affiliated 
upstairs firm''):
     Rule 170(e) provides that an affiliated upstairs firm may 
not purchase or sell any security in which the specialist is registered 
for any account in which such person or party has a direct or indirect 
interest.
     Rule 175 provides that an affiliated upstairs firm may not 
hold or grant any option in any stock in which the specialist is 
registered.
     Rule 186(a) provides that no member in a specialist member 
organization or any officer, employee or approved person therein may be 
an officer or director of a corporation in whose securities the 
specialist is registered.
     Rule 190(a) prohibits an affiliated upstairs firm from 
engaging in any business transaction with the issuer of a speciality 
stock and its insiders.
     Rule 190(b) prohibits an affiliated upstairs firm from 
accepting orders in speciality stock directly from the issuer, its 
insiders and certain designated institutions.
     Rule 190 Commentary prohibits an affiliated upstairs firm 
from ``popularization'' a stock in which a specialist is registered, 
e.g., making recommendations and providing research coverage.
     Rule 950(i) and its Commentary extend the prohibitions 
contained in Rule 186 to the trading of options contracts.
     Rule 950(k) extends certain of the above prohibitions 
contained in Rule 190 and its Commentary to the trading of option 
contracts.
     Rule 950(n) extends certain of the prohibitions contained 
in Rule 170 and its Commentary to the trading of options contracts.
    Exchange Rule 193 provides a means by which an affiliated upstairs 
firm may obtain an exemption from the restrictions discussed above. 
This exemption is only available to an affiliated upstairs firm which 
obtains prior Exchange approval for procedures restricting the flow of 
material nonpublic information between it and its affiliated 
specialist, i.e., a ``Chinese Wall''. These guidelines set forth, at a 
minimum, the steps an affiliated upstairs firm must undertake to seek 
to qualify for exemptive relief. Any firm that does not obtain Exchange 
approval of its procedures in accordance with these guidelines will 
remain subject to the restrictions in the Rules set forth above.
    * An ``approved person'' is an individual or corporation, 
partnership or other entity which controls a member of member 
organization, or which is engaged in the securities business and is 
under common control with, or controlled by, a member or member 
organization or which is the owner of a membership held subject to a 
special transfer agreement. (The term ``approved person'' is defined in 
Article I, Section Footnote 3(g) of the Exchange Constitution and the 
term ``control'' is defined by Exchange Definitional Rule 13.)
    (b)-(f) No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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. 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
    Currently, Exchange rules impose certain restrictions on an 
approved person \3\ or a member organization that is affiliated with a 
specialist or specialist unit (collectively ``specialist affiliates''). 
Amex Rule 193 provides specialist affiliates an exemption from various 
restrictions applicable to them, provided the specialist and its 
affiliates establish procedures to prevent the passage between them of 
corporate or market information that is material and non-public. The 
New York Stock Exchange (``NYSE'') has rules that restrict the 
activities of persons affiliated with NYSE specialists that are very 
similar to the Amex restrictions, and the NYSE also has an exemption to 
these rules: NYSE Rule 98. Both exemptions were adopted at the same 
time \4\ and both were intended to facilitate the entry of full-service 
investment firms into the specialist business.
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    \3\ An ``approved person'' is an individual, corporation, 
partnership, or other entity which controls a member or member 
organization, or which is engaged in the securities business and is 
under common control with, or controlled by a member or member 
organization, or which is the owner of a membership held subject to 
a special transfer agreement. See Amex Constitution, Article I, 
Section 3(g). For the definition of ``control,'' see Amex 
Definitional Rule 13.
    \4\ See Securities Exchange Act Release No. 23768 (November 3, 
1986), 51 FR 41183 (November 13, 1986) (approving SR-Amex-85-01 and 
SR-NYSE-85-25).
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    NYSE Rule 98 and Amex Rule 193 are identical in many respects. They 
differ, however, in that the NYSE rule does but the Amex rule does not 
provide an exemption to the general rule that prohibits a specialist 
affiliate from being an officer or director of a company that is the 
issuer of a security in which the affiliated specialist is 
registered.\5\Since investment banks frequently have personnel serving 
as directors of private and public companies, the absence of an 
exemption from Amex Rules 186(a) and 950(i) may be a disincentive to 
investment banks establishing or

[[Page 14947]]

maintaining a specialist affiliate on the Exchange. Amex, accordingly, 
is proposing to conform its rules to those of the NYSE and provide an 
exemption to Rules 186(a) and 950(i) for specialist affiliates that 
establish Exchange-approved information barriers pursuant to Amex Rule 
193.
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    \5\ NYSE Rule 460(b) provides that no member or his member 
organization or any other member, allied member, or approved person 
or officer or employee of the member organization shall be a 
director of a company if such member specializes in the stock of 
that company. Amex Rule 186(a) provides that no specialist or any 
member in his member organization, officer, employee, or approved 
person therein shall be an officer or director of a corporation 
which has a security admitted to trading on the Exchange in which 
security the specialist is registered. Amex Rule 950(i) provides 
that the provisions of Amex Rule 186 also apply to the trading of 
option contracts.
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    Amex is also proposing technical corrections to Rule 193(c) to 
clarify the availability of the Rule 193 exemption with respect to Amex 
Rules 170 and 190 to the affiliates of options specialists.
2. Statutory Basis
    Amex states that the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general and furthers the objectives of 
Section 6(b)(5) \7\ in particular in that it is designed to promote 
just and equitable principles of trade and to protect investors and the 
public interest by ensuring that there are no unnecessary disincentives 
to acting as a specialist on the Exchange.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex states that the proposed rule change will impose no burden on 
competition and will, in fact, tend to enhance competition by 
potentially eliminating a disincentive to acting as a specialist on the 
Exchange.

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

    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. 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 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 filings will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to File No. SR-Amex-01-08 and should 
be submitted by April 4, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-6322 Filed 3-13-01; 8:45 am]
BILLING CODE 8010-01-M