[Federal Register Volume 66, Number 122 (Monday, June 25, 2001)]
[Notices]
[Pages 33724-33728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15850]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44449; File No. SR-Amex-2001-29]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange LLC Relating to the Implementation of Automatic 
Execution for Exchange Traded Funds on a Six-Month Pilot Basis

June 19, 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 May 8, 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 and 
II below, which Items have been prepared by the Exchange. On May 24, 
2001, June 12, 2001, and June 18, 2001, respectively, the Amex filed 
Amendment Nos. 1, 2, and 3 to the proposed rule change with the 
Commission.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons. For the 
reasons discussed below, the Commission is granting accelerated 
approval of the proposed rule change.
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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 Amex proposes to adopt Exchange Rule 128A to implement an 
automatic execution feature for eligible orders in Exchange Traded 
Funds (``ETFs'') on a six-month pilot basis. The text of the proposed 
rule change follows. Proposed new language is in italics.
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    \3\ The substance of Amendment Nos. 1, 2, and 3 is incorporated 
into this notice.
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* * * * *

Automatic Execution For Exchange Traded Funds

    Rule 128A. The Exchange shall determine the size and other 
parameters of orders eligible for execution by its Automatic Execution 
System (Auto-Ex). An Auto-Ex eligible order for any account in which 
the same person is directly or indirectly interested may only be 
entered at intervals of no less than 30 seconds between entry of each 
such order in a security. Members and member organizations are 
responsible for establishing procedures to prevent orders in a security 
for any account in which the same person is directly or indirectly 
interested from being entered at intervals of less than 30 seconds.

Commentary

    .01  Auto-Ex eligible orders for Exchange Traded Funds (``ETFs'') 
must be round lot, market or marketable limit orders for 2,000 shares 
or less received by the Exchange electronically. Orders for an account 
in which a market maker in ETFs registered as such on another market 
has an interest are ineligible for Auto-Ex for ETFs. Notice concerning 
Auto-Ex eligibility criteria will be provided to members periodically 
via Exchange circulars and will be posted on the Exchange's web site.
    .02  Upon the request of a specialist, the Auto-Ex Enhancements 
Committee (``Committee'') will review and approve, disapprove or 
conditionally approve requests to increase the size of Auto-Ex eligible 
orders above 2,000 shares. The Committee will balance the interests of 
investors, the specialist, Registered Options Traders in the crowd, and 
the Exchange in determining whether to grant a request to increase the 
size of Auto-Ex eligible orders above 2,000 shares. The Committee also 
will consider a request from a specialist to reduce the size of Auto-Ex 
eligible orders balancing the same interests that the Committee would 
consider in determining whether to increase the size of Auto-Ex 
eligible orders.
    .03  Upon the request of a specialist, a Floor Governor may reduce 
the size of Auto-Ex eligible orders below 2,000 shares or increase the 
size of Auto-Ex eligible orders up to 5,000 shares if such action is 
appropriate in view of system problems or unusual market conditions. 
Any such change in the size of Auto-Ex eligible orders will be 
temporary and will only last until the end of the unusual market 
condition or the correction of the system problem.
    Auto-Ex eligible orders will be routed to the specialist and will 
not be automatically executed in situations where the specialist in 
conjunction with a Floor Governor or two Floor Officials determine that 
quotes are not reliable and if the Exchange is experiencing 
communications or systems problems, ``fast markets,'' or delays in the 
dissemination of quotes.
    Members and member organizations will be notified when the size of 
Auto-Ex eligible orders is adjusted due to system problems or unusual 
market conditions. Members and member organizations also will be 
notified when the Exchange has determined that quotes are not reliable 
and the Exchange is experiencing communications or systems problems, 
``fast markets,'' or delays in the dissemination of quotes prior to 
disengaging Auto-Ex.
    .04  When the Amex establishes the NBBO (National Best Bid or 
Offer), Auto-Ex will be programmed to execute eligible incoming ETF 
orders at the Amex Published Quote (``APQ'') plus a programmable number 
of trading increments with respect to the Amex bid (with respect to 
incoming sell orders), and less a programmable number of trading 
increments with respect to the Amex offer (with respect to incoming buy 
orders). The amount of price improvement relative to the APQ will be 
determined by the Committee.
    When the Amex does not establish the NBBO, Auto-Ex will be 
programmed to execute eligible incoming ETF orders at or better than 
the NBBO up to a specified number of trading increments relative to the 
APQ. Auto-Ex will

[[Page 33725]]

execute eligible incoming orders at an improved price relative to the 
APQ unless a trade through would result of an away ITS participant 
market. If a trade through would result, the orders will be routed to 
the Amex specialist for execution. The extent to which Auto-Ex will 
better the APQ in order to match or improve the NBBO (if the Amex does 
not establish the NBBO) will be determined by the Committee.
    Auto-Ex will be unavailable (i) with respect to incoming sell 
orders when the published bid on the Amex is for 100 shares, and (ii) 
with respect to incoming buy orders when the published offer on the 
Amex is for 100 shares. Auto-Ex also will be unavailable when the 
spread between the bid and offer on the Amex exceeds a specified 
minimum or maximum value. The Committee will determine the spread in 
the APQ at which Auto-Ex will be unavailable.
    The Committee will act upon the request of a specialist and will 
balance the interests of investors, the specialist, Registered Options 
Traders in the crowd, and the Exchange in determining (i) the amount of 
price improvement that will be programmed into Auto-Ex when the Amex 
establishes the NBBO, (ii) the extent to which Auto-Ex will better the 
APQ in order to match or improve the NBBO (if the Amex does not 
establish the NBBO), and (iii) the spread in the APQ at which Auto-Ex 
will be unavailable.
    .05  Specialists and Registered Options Traders that sign-on to 
Auto-Ex will be automatically allocated to contra side of Auto-Ex 
trades for ETFs according to the following schedule:

------------------------------------------------------------------------
                               Approximate number    Approximate number
                               of trades allocated   of trades allocated
Number of ROTs signed on the    to the specialist   to ROTs signed on to
     Auto-Ex in a crowd        throughout the day    Auto-Ex throughout
                               (``target ratio'')     the day (``target
                                    (percent)        ratio'') (percent)
------------------------------------------------------------------------
1...........................                    60                    40
2-4.........................                    40                    60
5-7.........................                    30                    70
8-15........................                    25                    75
16 or more..................                    20                    80
------------------------------------------------------------------------

    At the start of each trading day, the sequence in which trades will 
be allocated to the specialist and Registered Options Traders signed-on 
to Auto-Ex will be randomly determined. Auto-Ex trades then will be 
automatically allocated in sequence on a rotating basis to the 
specialist and to the Registered Options Traders that have signed-on to 
the system so that the specialist and the crowd achieve their ``target 
ratios'' over the course of a trading session. If an Auto-Ex eligible 
order is greater than 100 shares, Auto-Ex will divide the trade into 
lots of 100 shares each. Each lot will be considered a separate trade 
for purposes of determining target ratios and allocating trades within 
Auto-Ex.
    .06  The Committee may delegate its authority to one or more Floor 
Governors. The Committee will meet promptly to review a Governor's 
decision in the event that a Governor acts pursuant to delegated 
authority.
* * * * *

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 III 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
    Since 1986, the Exchange has had an automatic order execution 
feature (``Auto-Ex'') for eligible orders in listed options. The 
Chicago Board Options Exchange, Philadelphia Stock Exchange, and 
Pacific Exchange established similar automatic option order execution 
features at about the same time as the Amex, and the newest options 
exchange, the International Securities Exchange, also features 
automatic order execution. Auto-Ex, accordingly, has been a standard 
feature of the options markets for a number of years.
    In 1993, the Amex commenced trading Standard and Poor's Depositary 
Receipts (``SPDRs''), the first ETF to be listed 
and traded on the Exchange. ETFs are individual securities that 
represent a fractional, undivided interest in a portfolio of 
securities. Currently, approximately 100 ETFs are listed on the Amex. 
Like an option, an ETF is a derivative security, and, according to the 
Amex, its price is a function of the value of the portfolio of 
securities underlying the ETF. Thus, as is the case with options, the 
Exchange asserts that it is not the price discovery market for ETFs and 
that the price discovery market is the market or markets where the 
underlying securities trade.
    The Exchange now proposes to extend its current Auto-Ex technology 
on a six-month pilot basis to ETFs listed under Amex Rules 1002, 1002A, 
and 1202. The Amex represents that Auto-Ex for ETFs would provide 
investors that send eligible orders to the Exchange with faster 
executions than they currently receive. The Exchange believes that many 
investors desire rapid executions in trading securities that are priced 
derivatively since the value of the underlying instruments may 
fluctuate during order processing. The Amex, moreover, proposes to 
incorporate a price improvement algorithm into Auto-Ex for ETFs and 
thus to provide investors with better execution prices on their orders. 
The price improvement algorithm would work in the following manner:
    When the Amex establishes the National Best Bid or Offer 
(``NBBO''),\4\ Auto-Ex would be programmed to execute eligible incoming 
ETF orders at the Amex Published Quote (``APQ'') plus a programmable 
number of trading increments with respect to the Amex bid, and less a 
programmable number of trading increments in the case of the Amex 
offer. For example, if the Amex

[[Page 33726]]

Published Quote were 90.10 to 90.20, and the APQ constituted the NBBO, 
incoming sell orders might be automatically executed at 90.12 (the Amex 
bid plus two ticks) and incoming buy orders might be executed at 90.18 
(the Amex offer less two ticks).
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    \4\ In this context, the term ``establish'' means that the APQ 
is currently at the NBBO, regardless of whether or not the Amex was 
the first exchange to be at that price. Telephone conversation 
between William Floyd-Jones, Assistant General Counsel, Amex, and 
Ira L. Brandriss, Special Counsel, Division of Market Regulation 
(``the Division''), the Commission, on June 14, 2001.
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    If the Amex does not establish the NBBO, Auto-Ex would be 
programmed to execute eligible incoming ETF orders at or better than 
the NBBO up to a specified number of trading increments relative to the 
APQ.\5\ Auto-Ex would execute an eligible order at an improved price 
relative to the APQ unless such execution would result in a trade-
through with respect to the price of an away market that is a 
participant in the Intermarket Trading System (``ITS''). If a trade-
through would result, the order would be routed to the specialist for 
electronic processing through the Amex Point of Sale (``POS'') Book.\6\
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    \5\ The number of trading increments designated for price 
improvement when the Amex establishes the NBBO may be different than 
the number of increments designated for price improvement when the 
Amex does not establish the NBBO. Telephone conversation between 
William Floyd-Jones, Assistant General Counsel, Amex, and Ira L. 
Brandriss, Special Counsel, the Division, the Commission, on June 4, 
2001.
    \6\ Once an order that is Auto-Ex eligible is sent to the 
Exchange, the person that initiated the order has no control over 
its execution. This is the case regardless of whether the order is 
executed by Auto-Ex or is executed by the specialist because Auto-Ex 
is unavailable. If the order is routed to the specialist for 
handling because Auto-Ex is unavailable, the specialist does not 
know if the order is for the account of a broker-dealer or for the 
account of a customer. This information is in the Exchange's order 
processing systems and is unavailable to the specialist.
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    For example, assume that Auto-Ex is programmed to execute the order 
at the Amex bid plus two ticks. If the Amex bid were 90, and an away 
ITS market were bidding 90.01, an incoming sell order would be 
automatically executed on the Amex at 90.02. Continuing with this 
example, if the away market were bidding 90.02, an incoming sell order 
would be automatically executed on the Amex at 90.02 (matching the away 
market). If the away market were bidding 90.03, the incoming sell order 
would not be automatically executed. Instead, it would be routed to the 
specialist for electronic processing through the Amex POS Book.
    The amount of price improvement the system would provide, both when 
the Amex establishes the NBBO and when it does not, would be determined 
by the Auto-Ex Enhancements Committee (``Committee'') upon the request 
of a specialist and may differ among ETFs. The Committee will consist 
of the Exchange's four Floor Governors and the Chairmen (or their 
designees) of the Specialists Association, Options Market Makers 
Association and the Floor Brokers Association, respectively. The 
Exchange anticipates that the amount of price improvement would vary 
among securities based upon such factors as the width of the spread, 
the volatility of the basket of securities underlying the ETF, and 
liquidity of available hedging vehicles. The proposal would permit the 
amount of price improvement to be adjusted intra-day by the Committee.
    The proposal further provides that Auto-Ex for ETFs with price 
improvement would be unavailable when the spread is at a specified 
minimum and maximum variation, which may be adjusted security to 
security. The Committee would determine, upon the request of a 
specialist, the minimum and maximum spreads at which Auto-Ex is 
unavailable. Auto-Ex would also be unavailable with respect to incoming 
sell orders when the Amex bid is for 100 shares, and it similarly would 
be unavailable with respect to incoming buy orders when the Amex offer 
is for 100 shares.
    Orders that are otherwise Auto-Ex eligible orders would also be 
routed to the specialist and not automatically executed in situations 
where the specialist in conjunction with a Floor Governor or two Floor 
Officials determine that quotes are not reliable and the Exchange is 
experiencing communications or systems problems, ``fast markets,'' or 
delays in the dissemination of quotes. Members and member organizations 
would be notified when the Exchange has determines that quotes are not 
reliable prior to disengaging Auto-Ex.
    Specialists and Registered Options Traders (``ROTs'') that sign 
onto the system would be automatically allocated the contra side of 
Auto-Ex trades for ETFs. Due to the automatic price improvement 
feature, the specialist and ROTs that sign onto Auto-Ex for ETFs would 
be deemed to be on parity for purposes of allocating the contra side of 
ETF Auto-Ex trades. The Exchange proposes to use the following 
metholodogy for the allocation of the contra side to Auto-Ex ETF 
trades:

------------------------------------------------------------------------
                               Approximate number    Approximate number
                               of trades allocated   of trades allocated
 Number of ROTs signed on to    to the specialist   to ROTs signed on to
     Auto-Ex in a crowd        throughout the day    Auto-Ex throughout
                               (``target ratio'')     the day (``target
                                    (percent)        ratio'') (percent)
------------------------------------------------------------------------
1...........................                    60                    40
2-4.........................                    40                    60
5-7.........................                    30                    70
8-15........................                    25                    75
16 or more..................                    20                    80
------------------------------------------------------------------------

    At the start of each trading day, the sequence in which trades are 
to be allocated to the specialist and ROTs signed onto Auto-Ex would be 
randomly determined. Auto-Ex trades then would be automatically 
allocated in sequence on a rotating basis to the specialist and to the 
ROTs that have signed onto the system so that the specialist and the 
crowd achieve their ``target ratio's'' over the course of a trading 
session. If an Auto-Ex eligible order were greater than 100 shares, 
Auto-Ex would divide the trade into lots of 100 shares each. Each lot 
would be considered a separate trade for purposes of determining target 
ratios and allocating trades within Auto-Ex.
    Round lot orders delivered to the post electronically for 2,000 
shares or less would be eligible for Auto-Ex for ETFs. Orders for an 
account in which a market maker in ETFs registered as such on another 
market has an interest would be ineligible for Auto-Ex for ETFs. If 
orders for such market makers were eligible for Auto-Ex with price 
improvements, the Exchange represents that Amex specialists and ROTs 
would be unable to make markets with the proposed liquidity for other 
investors. (Orders for Amex Registered Traders are ineligible for Auto-
Ex for ETFs pursuant to Commentaries .04 and .05 to Rule 111 and Amex 
Rule 950(c).)
    The proposed rule change also stipulates that Auto-Ex eligible 
orders

[[Page 33727]]

for any account in which the same person is directly or indirectly 
interested may be entered only at intervals of 30 seconds or more 
between the entry of each such order in an ETF. The Exchange indicates 
that Amex specialists and ROTs are willing to provide Auto-Ex with 
price improvement for orders of a certain size. If persons were allowed 
to enter more than one Auto-Ex eligible order for an account in which 
they had a direct or indirect interest at intervals of less than 30 
second, according to the Exchange, Amex specialists and ROTs would be 
unable to make markets with the proposed liquidity for all investors. 
Members and member organizations would be responsible for establishing 
procedures to prevent orders for any account in which the same person 
is directlyu or indirectly interested from being entered at intervals 
of less than 30 seconds with respect to an ETF.
    The proposed rule change provides that the specialist may request 
the Exchange to increase the maximum size of Auto-Ex eligible orders. 
Such request would be reviewed by the Committee, which would approve, 
disapprove, or conditionally approve such requests. The Committee would 
balance the interests of investors, the specialist, ROTs in the crowd, 
and the Exchange in determining whether to grant a request to increase 
the size of Auto-Ex eligible orders.
    The Committee also would consider requests from the specialist or 
ROTs to reduce the size of Auto-Ex eligible orders, balancing the same 
interests that it would consider in reviewing a request to increase the 
size of Auto-Ex eligible orders. The Committee would not be permitted, 
however, to reduce the size of Auto-Ex eligible orders below 2,000 
shares.
    In addition, the Committee may delegate its authority under 
proposed Rule 128A to one or more Floor Governors. The Committee, 
however, would meet promptly to review a Floor Governor's decision in 
the event that a Floor Governor acts pursuant to delegated authority.
    The proposal further provides that in the event of system problems 
or unusual market conditions, a Floor Governor would be permitted to 
reduce the size of Auto-Ex eligible orders below 2,000 shares or 
increase the size of Auto-Ex eligible orders up to 5,000 shares. Any 
such change would be temporary and would last only until the end of the 
unusual market condition or the correction of the system of the system 
problem. Members and member organizations would be notified when the 
size of Auto-Ex eligible orders is adjusted due to system problems or 
unusual market conditions.
    The Chairman and Vice Chairman of the Exchange, acting jointly, 
would determine which ETFs are eligible for Auto-Ex.
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, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engage in regulating, clearing, settling, processing 
information with respect to and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers and 
dealers.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    The Amex believes that proposed rule change will provide investors 
with faster executions in ETFs than currently are available on the 
Exchange, which many investors desire in trading securities that are 
priced derivatively since the value of the underlying security or index 
may fluctuate during the process of their orders. The Amex believes 
that the proposal also will facilitate the comparison and settlement of 
trades, since Auto-Ex transactions result in ``locked-in'' trades. 
Moreover, the Amex notes that Auto-Ex for ETFs will automatically 
provide investors with price improvement of their orders.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. The proposal, in fact, will enhance competition among markets and 
market makers and thereby benefit investors by allowing the Exchange to 
provide Auto-Ex for ETFs with price improvement. The exclusion of 
orders for the account of registered market makers in other markets 
from eligibility for Auto-Ex will benefit investors by allowing Amex 
specialists and market makers to make tighter and more liquid markets 
in ETFs available through Auto-Ex both to public customers and to 
broker-dealers that are not registered as market makers in the 
security.

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. 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, 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 the filing will also be 
available for inspection and copying at the principal offices of the 
Amex. All submissions should refer to File No. SR-Amex-2001-29 and 
should be submitted by July 16, 2001.

IV. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange \9\ and, in 
particular, the requirements of Section 6 of the Act \10\ and the rules 
and regulations thereunder.
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    \9\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f.
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    The Commission finds specifically that the proposed rule change is 
consistent with Section 6(b)(5) of the Act.\11\ First, Auto-Ex for ETFs 
will provide investors with faster execution of eligible orders. This 
can be particularly important in the case of derivative securities like 
ETFs, since their prices are based on baskets of other securities and 
can readily change over

[[Page 33728]]

the course of time it takes to process orders manually.
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    \11\ 15 U.S.C. 78f(b)(5).
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    Moreover, the Amex proposal will offer investors an additional 
benefit by allowing their orders in many cases to be executed at better 
prices than the NBBO. At the same time, orders entering the system are 
protected against receiving automatic execution at prices inferior the 
NBBO. A further advantage of the proposed system is that by executing 
trades automatically, Auto-Ex will facilitate comparison and settlement 
of trades, thereby enhancing efficiency.
    The Commission believes that the authority granted to the Auto-Ex 
Enhancements Committee to change the minimum and maximum size of Auto-
Ex orders and to adjust the price improvement increments to be offered 
by the system, based on changing circumstances and variables and the 
balancing of various interests as noted above, is a reasonable means of 
helping ensure flexible, fair, and orderly operation of the system.
    As discussed above, the proposed rule change bars the successive 
entry of Auto-Ex orders on behalf of the same person within a 30-second 
interval. The Commission believes that this restriction should help 
reduce market risk exposure and, at the same time, provide a clear and 
objective standard for members and member organizations with respect to 
the entry of orders otherwise eligible for Auto-Ex on Behalf of the 
same person.
    The Commission further believes that the proposed methodology for 
the allocation of Auto-Ex orders among the specialist and ROTs fairly 
assigns the specialist a certain guaranteed percentage of each order in 
recognition of the specialist's contribution to the market and the 
extra risks and burdens the specialist assumes. At the same time, the 
allocation methodology preserves a sufficient share of incoming orders 
for execution by the ROTs in the crowd to assure that they can maintain 
their competitive presence in the market.
    The Amex represents that a member that submits an order into Auto-
Ex, including an order for its own account, will have no control over 
its execution, neither when the order is automatically executed nor 
when it is routed to the specialist. The Amex further represents that 
the specialist receiving the order will be unable to tell whether that 
order is for the account of a member or a customer. The Commission thus 
believes that transactions effected under the proposed rule change will 
meet the criteria set forth in Rule 1a2-2(T)(a)(2) under the Act.\12\
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    \12\ Rule 11a2-2(T)(a)(2) provides, in brief, that a member of 
an exchange ``initiating member'') may effect a transaction on the 
exchange for its own account, the account of an associated person, 
on an account over which it or an associated person exercises 
investment discretion of (i) the transaction is executed on the 
floor of the exchange or through its facilities by a member that is 
not associated with the initiating member; (ii) the order is 
transmitted from off the exchange floor; (iii) neither the 
initiating member nor any associated person participates in the 
execution of the order after it has been transmitted; and (iv) in 
transactions for accounts over which the member or associated person 
exercises investment discretion, neither the member nor associated 
person retains compensation in connection with effecting the 
transaction unless expressly provided otherwise in writing by the 
person authorized to transact business for the account. 17 CFR 
240.11a2-2(T)(a)(2).
---------------------------------------------------------------------------

    Finally, the Commission notes that the proposed rule change 
provides that Auto-Ex will be unavailable in certain situations. In 
approving the proposal, the Commission notes that in no way does Amex 
Rule 128A exempt market participants from their obligations under Rule 
11Ac1-1(c)(2) (the ``Firm Quote Rule'').\13\
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    \13\ See 17 CFR 140.11Ac1-1(c)(2).
---------------------------------------------------------------------------

    The Amex has requested that the Commission find good cause pursuant 
to Section 19(b)(2) of the Act \14\ for approving the proposed rule 
change prior to the 30th day after publication in Federal Register. The 
Amex is concerned that it would be placed at competitive disadvantage 
relative to other market centers--which, it states, have already, or 
soon will, offer automatic execution of ETF orders--if it is not 
permitted to promptly begin offering Auto-Ex for ETFs.
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    \14\ 15 U.S.c. 78s(b)(2).
---------------------------------------------------------------------------

    The Commission notes, as the Amex points out, that the Exchange 
will be using the same Auto-Ex system with which it has long provided 
automatic execution for eligible options orders. In addition, the 
Commission notes that a recent rule change to Amex's Auto-Ex system for 
options provides for price improvement and certain order-eligibility 
parameters to be determined by the same Committee that would decide 
price improvement and order-eligibility parameters in the ETC 
context.\15\ The Commission also recently considered the issue of 
restricting successive entry of orders by members of an exchange on 
behalf of the same beneficial owner within a specified time period, and 
approved exchange rules that do so.\16\
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    \15\ See Securities Exchange Act Release No. 44013 (February 28, 
2001), 66 FR 13816 (March 7, 2001).
    \16\ See. e.g., Securities Exchange Act Release No. 44017 
(February 28, 2001), 66 FR 13820 (March 7, 2001) (ordering approving 
File No. SR-ISE-00-20).
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    The Commission believes that the proposed rule change extending 
Auto-Ex to ETFs and implementing various other features, including 
price improvement and the prohibition on members submitting orders for 
the same person within 30 seconds of each other, raises no significant 
new regulatory issues. Moreover, Amex is proposing Auto-Ex for ETFs as 
six-month pilot program, which will enable the Exchange and the 
Commission to evaluate its operation before the program can be renewed. 
The Commission therefore finds good cause to accelerate approval of the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\17\ that the proposed rule change (File No. SR-Amex-2001-29) be, 
and hereby is, approved on an accelerated basis as a pilot program 
through December 19, 2001.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-15850 Filed 6-22-01; 8:45 am]
BILLING CODE 8010-01-M