[Federal Register Volume 66, Number 138 (Wednesday, July 18, 2001)]
[Notices]
[Pages 37507-37508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17889]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44538; File No. SR-Amex-2001-37]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change by the American 
Stock Exchange LLC To Reinstatement for 90 Days Its Pilot Program 
Relating to Facilitation Cross Transactions

July 11, 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 June 4, 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. 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 reinstate for 90 days its pilot program 
relating to facilitation cross transactions, described in detail in 
part II.A. below. The text of the proposed rule change is available at 
the Office of the Secretary, Amex, and at the Commission.

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
    The Exchange proposes to reinstatement for 90 days its pilot 
program, which expired on May 28, 2001, relating to member firm 
facilitation cross transactions. Revised Commentary .02(d) to Amex Rule 
950(d), approved by the Commission on June 2, 2000,\3\ established a 
pilot program to allow facilitation cross transactions in equity 
options.\4\ The pilot program entitles a floor broker to, under certain 
conditions, cross a specified percentage of a customer order with a 
member firm's proprietary account before market makers in the crowd can 
participate in the transaction. The provision generally applies to 
orders of 400 contracts or more. However, the Exchange is permitted to 
establish smaller eligible order sizes, on a class basis, provided that 
the eligible order size is not for fewer than 50 contracts.
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    \3\ See Securities Exchange Act Release No. 42894 (June 2, 
2000), 65 FR 36850 (June 12, 2000). The pilot program was 
subsequently extended twice. See Securities Exchange Act Release 
Nos. 43229 (August 30, 2000), 65 FR 54572 (September 8, 2000), and 
44019 (February 28, 2001), 66 FR 13819 (March 7, 2001).
    \4\ Facilitation cross transactions occur when a floor broker 
representing the order of a public customer of a member firm crosses 
that with a contra side order from the firm's proprietary account.
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    Under the program, when a trade takes place at the market provided 
by the crowd, all public customer orders on the specialist's book or 
represented in the trading crowd at the time the market was established 
must be satisfied first. Following satisfaction of any customer orders 
on the specialist's book, the floor broker is entitled to facilitate up 
to 20% of the contracts remaining in the customer order. When a floor 
broker proposes to execute a facilitation cross at a price between the 
best bid and offer

[[Page 37508]]

provided by the crowd in response to his initial request for a market--
and the crowd then wants to take part or all of the order at the 
improved price--the floor broker is entitled to priority over the crowd 
to facilitate up to 40% of the contracts. If the floor brokers has 
proposed the cross at a price between the best bid and offer provided 
by the crowd in response to his initial request for a market, and the 
trading crowd subsequently improves the floor broker's price, and the 
facilitation cross is executed at that improved price, the floor broker 
would only be entitled to priority to facilitate up to 20% of the 
contracts.
    The program also provides that if the facilitation transaction 
takes place at the specialist's quoted bid or offer, any participation 
allocated to the specialist pursuant to Amex trading floor practices 
would apply only to the number of contracts remaining after all public 
customer orders have been filled and the number firm's crossing rights 
have been exercised.\5\ However, in no case could the total number of 
contracts guaranteed to the member firm and the specialist exceed 40% 
of the facilitation transactions.
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    \5\ Amex trading floor practices provide specialists with a 
greater than equal participation in trades that take place at a 
price at which the specialist is on parity with registered options 
traders in the crowd. These practices are subject to a separate 
filing that seeks to codify specialist allocation practices. See 
Securities Exchange Act Release No. 42964 (June 20, 2000), 65 FR 
39972 (June 28, 2000).
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    In the year since the pilot program began, the Exchange has found 
it to be generally successful. The Exchange seeks to reinstate the 
pilot program for 90 days, pending consideration of a related proposed 
rule change it has filed with Commission \6\ concerning revisions to 
the program that the Amex believes will provide further incentive for 
price improvement by using different procedures to determine specialist 
and registered option trader participation. The related proposal would 
also make the program permanent.
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    \6\ See File No. SR-Amex-00-49, available for inspection at the 
Commission's Public Reference Room.
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    In order to allow the pilot program to be reinstated without 
significant interruption, the Amex has requested that the Commission 
expedite review of, and grant accelerated approval to, this proposal, 
pursuant to Section 19(b)(2) of the Act.\7\
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    \7\ 15 U.S.C. 78s(b)(2).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \9\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, and is not designed to permit 
unfair discrimination between customers, issuers, brokers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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. 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 the filing will also be 
available for inspection and copying at the principal offices of the 
Exchange. All submissions should refer to File No. SR-Amex-2001-37 and 
should be submitted by August 8, 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.\10\ In its 
original approval of the pilot program,\11\ the Commission detailed its 
reasons for finding its substantive features consistent with the Act, 
and, in particular, the requirements of Sections 6(b)(5) and 6(b)(8) of 
the Act.\12\ The Commission has previously approved rules on other 
exchanges that establish substantially similar programs on a permanent 
basis,\13\ and the reinstatement of the pilot program on the Amex--
pending review of its related proposal to revise the program and make 
it permanent--raises no new regulatory issues for consideration by the 
Commission.
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    \10\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ See supra, note 3.
    \12\ 15 U.S.C. 78f(b)(5) and (b)(8).
    \13\ See, e.g., Securities Exchange Act Release Nos. 42835 (May 
26, 2000), 65 FR 35683 (June 5, 2000), and 42848 (May 26, 2000), 65 
FR 36206 (June 7, 2000).
    \14\ 17 CFR 200.30-3(a)(12).
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    The Commission finds good cause, consistent with Sections 6(b) and 
19(b)(2) of the Act, for approving the proposed rule change prior to 
the thirtieth day after the date of publication of the notice of filing 
thereof in the Federal Register. The proposal will allow the pilot 
program to be reinstated while revisions are being considered, and does 
not raise any new regulatory issues.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change be, and hereby is, approved on an 
accelerated basis as a pilot program through October 9, 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 McFarland,
Deputy Secretary.
[FR Doc. 01-17889 Filed 7-17-01; 8:45 am]
BILLING CODE 8010-01-M