[Federal Register Volume 66, Number 94 (Tuesday, May 15, 2001)]
[Notices]
[Pages 26887-26889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12133]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44271; File No. SR-Amex-2001-20]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to the Implementation of ``Interim Linkages''

May 7, 2001.
    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 March 21, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization. On April 27, 2001, the Exchange filed 
Amendment No. 1 to the proposal.\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\ See Letter from Claire P. McGrath, Vice President and 
Special Counsel, Derivative Securities, Amex, to Nancy Sanow, 
Assistant Director, Division of Market Regulation, Commission, dated 
April 26, 2001 (``Amendment No. 1''). In Amendment No. 1, the 
Exchange requested that the proposed rule change be considered a 
``non-controversial'' rule change under paragraph (f)(6) of Rule 
19b-4 under the Act, which renders the proposal effective upon 
receipt of this filing by the Commission, and requested that the 
Commission accelerate the operative date of the proposal. In 
addition, the Exchange amended proposed Amex Rule 940(a)(6), which 
defines ``eligible order,'' to include a reference to subparagraph 
(d) of the proposed rule.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to adopt Amex Rule 940 providing for the 
implementation of ``interim linkages'' with the other option 
exchanges.\4\
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    \4\ On January 30, 2001, the Commission approved similar 
proposals submitted by the Chicago Board Options Exchange, Inc. 
(``CBOE'') and the International Securities Exchange LLC (``ISE''). 
See Securities Exchange Act Release No. 43904 (January 30, 2001), 66 
FR 9112 (February 6, 2001). On February 20, 2001, the Commission 
issued a notice of filing and immediate effectiveness of a similar 
proposal submitted by the Pacific Exchange, Inc. (``PCX''). See 
Securities Exchange Act Release No. 43986 (February 20, 2001), 66 FR 
12578 (February 27, 2001).
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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 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 purpose of this proposed rule change is to implement certain 
aspects of an intermarket options linkage on an ``interim'' basis.\5\ 
This interim linkage would utilize existing systems to facilitate the 
sending and receiving of order flow between Amex specialists

[[Page 26888]]

and their counterparts on the other option exchanges as an interim step 
towards development of a ``permanent'' linkage.
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    \5\ Under the proposal, the interim linkage would be for a pilot 
period expiring on January 31, 2002.
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    The Commission has approved a linkage plan that now includes all 
five option exchanges.\6\ The option exchanges continue to work towards 
implementation of this linkage. However, because the implementation may 
take a significant amount of time, the option exchanges have discussed 
implementing an ``interim'' linkage. Such a linkage would use the 
existing market infrastructure to route orders between market makers on 
the participating exchanges in a more efficient manner.
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    \6\ See Securities Exchange Act Release Nos. 43086 (July 28, 
2000), 65 FR 48023 (August 4, 2000); 43573 (November 16, 2000), 65 
FR 70851 (November 28, 2000); and 43574 (November 16, 2000), 65 FR 
70850 (November 28, 2000).
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    The key component of the interim linkage would for the 
participating exchanges to open their automated customer execution 
system, on a limited basis, to market maker orders. Specifically, 
market makers would be able to designate certain orders as ``customer'' 
orders, and thus would receive automatic execution of those orders on 
participating exchanges.
    This proposed rule would authorize the Amex to implement bilateral 
or multilateral interim arrangements with the other exchanges to 
provide for equal access between market makers on our respective 
exchanges. The Exchange currently anticipates that the initial 
arrangements would allow Amex specialists and their equivalents on the 
other exchanges, when holding customer orders, to effectively send 
those orders to the other market for execution when the other market 
has a better quote. Such orders would be limited in size to the lesser 
of the size of the two markets' automatic execution size for customer 
orders. The interim linkage may be expanded to include limited access 
principal orders (i.e., when the market maker is not holding a customer 
order), for orders of no more than 10 contracts. This access for 
principal orders will allow market makers to attempt to ``clear'' 
another market displaying a superior quote.
    All interim linkage orders must be ``immediate or cancel'' (i.e., 
they cannot be placed on an exchange's limit order book), and a market 
maker may send a linkage order only when the other (receiving) market 
is displaying the national best bid or offer and the sending market is 
displaying an inferior price. This will allow a market maker to access 
the better price for its customer. Any exchange participating in the 
interim linkage will implement heightened surveillance procedures to 
help ensure that their market makers send only properly-qualified 
orders through the linkage.
    Specialist participation in the interim linkage will be voluntary. 
Only when a specialist and its equivalent on another exchange believe 
that this form of mutual access would be advantageous will the 
exchanges employ the interim linkage procedures. The Amex believes that 
the interim linkage will benefit investors and will provide useful 
experience that will help the exchanges in implementing the full 
linkage.
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 
mechanisms of a free and open market and a national market system, and, 
in general, protect investors and the public interest.
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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 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

    The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\9\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\10\ Because the 
foregoing proposed rule change: (i) does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
Exchange has given the Commission written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date of the proposed rule change, it has become effective 
pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6).
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission accelerate the 
operative date of the proposal. The Commission finds that it is 
appropriate to accelerate the operative date of the proposal and 
designate the proposal to become operative today.\11\
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    \11\ 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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    The Commission finds good cause for accelerating the operative date 
of the proposed rule change. The Commission notes that it has approved 
similar proposals filed by the ISE and the CBOE.\12\ Acceleration of 
the operative date should enable investors effecting transactions on 
the Amex to obtain better prices displayed on other exchanges and thus, 
is consistent with Section 6(b)(5) of the Act.\13\
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    \12\ See note 4, supra.
    \13\ 15 U.S.C. 78f(b)(5).
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    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 furtherance of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether it 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 filing will also be available for 
inspection and copying at the principal office of the Amex. All

[[Page 26889]]

submissions should refer to SR-AMEX-2001-20 and should be submitted by 
June 5, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-12133 Filed 5-14-01; 8:45 am]
BILLING CODE 8010-01-M