[Federal Register Volume 66, Number 183 (Thursday, September 20, 2001)]
[Notices]
[Pages 48495-48499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23466]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44803; File No. SR-Amex-2001-78]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the American 
Stock Exchange LLC; New York Stock Exchange, Inc.; Boston Stock 
Exchange, Inc.; Cincinnati Stock Exchange, Inc., Chicago Stock 
Exchange, Inc.; Pacific Exchange Inc.; Philadelphia Stock Exchange, 
Inc.; and National Association of Securities Dealers, Inc. Regarding 
the Temporary Use by the American Stock Exchange LLC of the Facilities 
of the New York Stock Exchange, Inc.

September 17, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') and Rule 19b-4 thereunder, notice is hereby given that on 
September 16, 2001, the American Stock Exchange LLC (``Amex'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule changes as described in Items I.A. and II below. In 
addition to the Amex, the New York Stock Exchange (``NYSE'') filed with 
the SEC the proposed rule change described in Item II below; and the 
Boston Stock Exchange (``BSE''), Cincinnati Stock Exchange, Inc. 
(``CSE''). Chicago Stock Exchange (``CHX''), NYSE, Pacific Exchange, 
Inc. (``PCX''), Philadelphia Stock Exchange (``Phlx''), and the 
National Association of Securities Dealers, Inc. on behalf of Nasdaq 
(``Nasdaq Intermarket'' or ``ITS/CAES'') (collectively, ``ITS 
Participants''), filed with the SEC the proposed rule changes as 
described in Items I.B. and II below.
    The proposed rule change concern temporary arrangements made for 
Amex's continued trading of Amex listed securities and exchange traded 
funds (``ETFs'') due to the structural damage to its trading floor 
caused by the recent terrorist attacks. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons. As discussed below, the Commission is also granting 
accelerated approval to the proposal.

I. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Changes

A. Amex

    The Amex proposes to amend its rules to trade Amex listed equity 
securities and ETFs on and through facilities provided by the NYSE. The 
NYSE proposes to provide such facilities to

[[Page 48496]]

Amex, subject to certain acknowledgments of limitation of liability. 
The text of the proposed rule changes follows. New text is in italics.

    Temporary Rule 1--On an emergency basis, the American Stock 
Exchange temporarily modifies its rules, pursuant to the terms of 
Securities Exchange Act Release No. 44803 (September 17, 2001) 
(Self-Regulatory Organizations; Notice of Filing and Order Granting 
Accelerated Approval of a Proposed Rule Change by the American Stock 
Exchange LLC, et. al. Regarding the Temporary Use of the New York 
Stock Exchange, Inc. Facilities), and Securities Exchange Act 
Release No. 44797 (September 16, 2001) (emergency order pursuant to 
Section 12(k)(2) of the Securities Exchange Act of 1934 taking 
temporary action to respond to market developments concerning the 
American Stock Exchange LLC).
    (a) Pursuant to Rule 232(b) whenever an Exchange specialist, in 
arranging an opening transaction on the Exchange in any Eligible 
Listed Security, anticipates that the opening transaction on the 
Exchange will be at a price that represents a change from the 
security's previous day's consolidated closing price of more than 
the ``applicable price change'' set forth in Rule 232, he shall 
notify the other Participant markets of the situation by sending a 
``pre-opening notification'' through the System. Market makers 
registered in that security in other Participant markets may access 
the Amex/NYSE facility when responding to a ``pre-opening 
notification'' in that security by placing an order with a member or 
member organization for routing through the common message switch to 
the Amex Order File (``AOF''). Members and member organizations 
shall not accept a principal order from such a market maker for 
entry through AOF on the same side of any market imbalance.
    (b) An Exchange specialist in any Eligible Listed Security shall 
use best efforts to (i) avoid ``Exchange trade-throughs'' and 
``Locked Markets'' as those terms are defined in Rule 236; and (ii) 
respond to ``commitments to trade'' during the time period chosen by 
the sender of the commitment as required by the Intermarket Trading 
System Plan and Exchange rules. No liability will arise solely as a 
result of a failure by an Exchange specialist to respond to a 
commitment to trade.
* * * * *

B. ITS Participants

    The BSE, CSE, CHX, NYSE, PCX, Phlx, and Nasdaq Intermarket propose 
to amend their Intermarket Trading System (``ITS'') rules on a 
temporary basis, consistent with the terms of this order, to conform to 
Amex's proposed Temporary Rule 1(b).

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, the individual ITS 
Participants included statements concerning the purpose of, and basis 
for, the proposed rule changes. Some or all of the ITS Participants 
have prepared summaries set forth in Section A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Base for, the Proposed Rule Changes

1. Purpose
    On September 11, 2001, the United States equities and options 
markets determined not to open in light of the attacks that morning on 
the World Trade Center and the Pentagon. The United States equities and 
options markets have remained closed since that time. On Monday 
September 17, 2001, the markets plan to reopen for trading.
    Some of the nation's securities exchanges may have incurred 
physical damage or disruption that require relocation of trading 
facilities and personnel to another suitable physical location. The 
Amex, in particular, has reported that it will be unable to occupy its 
trading floor at this time. Amex anticipates that its electronic order 
routing systems will function as they did prior to September 11, 2001. 
However, due to the severe damage to the infrastructure surrounding its 
own building, Amex proposes to relocate part of its operations to the 
floor of the NYSE. Amex's physical space at the NYSE will be limited; 
and the number of Amex member firm personnel will also be limited. As a 
result, specialists will have to perform their usual functions as well 
as the functions of floor brokers. In addition, the Amex will need to 
modify or suspend certain of its rules, as described below.
    Specifically, the Amex proposes to amend its rules to trade Amex 
listed stocks and ETFs on the NYSE floor and through facilities of the 
NYSE (``Amex/NYSE facility'') pursuant to Amex temporary rules. The 
Amex proposes that, beginning on September 17, 2001, and continuing 
until such time as the Amex is able to resume trading under its 
permanent rules, the Amex equity limit order book (known as Point of 
Sale or ``POS'') would be available for Amex specialists' use on 
hardware provided by the NYSE. Further, the Amex proposes that all 
limit orders currently residing on the Amex book would continue to be 
on the book for those stocks and ETFs traded on the Amex/NYSE facility. 
Amex proposes that member firms would be able to submit orders and 
cancellations through the Common Message Switch to the Amex book, and 
executions would be reported as Amex trades on Tape B. The Amex 
represents that this emergency use of the Amex/NYSE facility is 
necessary because of the September 11th terrorist attack on the World 
Trade Center in New York City and the consequent limitation on the use 
of the Amex trading floor and facilities.
    a. Limitation of Liability. By accepting this arrangement with the 
NYSE to conduct Amex operations on the floor of the NYSE, the Amex, its 
members, and their employees who are authorized to enter onto the NYSE 
floor to carry out trading as described herein, shall accept the same 
limitations on the liability of the NYSE for use of its facilities for 
the conduct of business that normally apply to any NYSE member, member 
organizations, or employee thereof in the conduct of his or its 
business on the NYSE.
    b. Intermarket Trading System. As mentioned above, the relocation 
of the Amex has resulted in logistical and technical difficulties. The 
Amex represents that the Amex/NYSE facility will be operating in much 
more limited space and fewer specialists and clerks than is usual. For 
example, rather than the normal 134 screens, all Amex securities will 
be represented on 71 screens. As each specialist will be responsible 
for many more securities than normal, they will have limited capacity 
to respond to individual messages received through the ITS, including 
commitments and administrative messages such as ``trade or move'' 
messages and complaints regarding trade-throughs. In addition, for a 
number of securities with lower trading volume, the specialists will 
have limited access to National Best Bid and Offer (``NBBO'') 
information. Also, although during the pre-opening, the Amex/NYSE 
facility will be able to send pre-opening indications and receive pre-
opening responses at a single price, the Amex/NYSE facility will have a 
limited ability to view or to respond to pre-opening responses at 
multiple price points.
    Therefore, Amex proposes a temporary rule under which each of the 
ITS Participants could individually elect to participate in the ITS 
linkage with the Amex/NYSE facility, with the following modifications. 
For 30 days or as long as the technical and logistical difficulties 
exist at the Amex/NYSE facility, whichever is sooner, the BSE, CSE, 
CHX, NYSE, PCX, Phlx, and Nasdaq Intermarket (i.e., ITS/CAES) have each 
individually agreed to a reciprocal arrangement with Amex that for the 
temporary period of time specified in this order, notwithstanding

[[Page 48497]]

any provision of the ITS Plan: (i) Amex specialists will use their best 
efforts to respond to ITS messages, including ITS commitments; and (ii) 
specialists on the BSE, CSE, CHX, NYSE, PCX, and Phlx, and ITS/CAES 
market makers will in turn use their best efforts to respond to ITS 
messages, including ITS commitments, from Amex. Under this arrangement, 
the terms of the ITS Plan will continue to govern commitments that are 
executed between any of the parties to this arrangement. Further, this 
arrangement is a bilateral agreement between each of the parties 
mentioned above and the Amex. Should any exchange choose not to enter 
into this arrangement, that exchange will be unable to send or receive 
ITS messages, including ITS commitments, to or from Amex, and will not 
be subject to the terms of the ITS Plan with respect to Amex; and Amex 
will not be subject to the terms of the ITS Plan with respect to those 
exchanges. Finally, the ITS Plan will continue to govern commitments 
and all other transactions effected through ITS that do not involve 
Amex.
    With regard to pre-opening trading, Amex proposes a temporary rule 
whereby Amex will take orders through AOF (previously known as PERS) 
from other exchanges. In the case of a market imbalance, the proposed 
rule would prohibit all market makers accessing the Amex/NYSE facility 
from entering proprietary orders in AOF that are on the same side of 
the market as the imbalance. The proposed rule would apply following 
the first pre-opening indication.
    To the extent that Amex's current technical and logistical problems 
make compliance with Amex's permanent ITS rules impractical or 
impossible for trading on the Amex/NYSE facility, the Amex proposes to 
temporarily suspend any inconsistent portions of those rules that 
relate to ITS and, in particular, Amex Rules 230, 231, 232, 233, 234, 
235, and 236. The Amex, however, has proposed a new temporary rule that 
would impose an obligation on specialists participating in the Amex/
NYSE facility to use best efforts to avoid trade-throughs and locked 
and crossed markets. Amex has also represented that it will have an 
official on the floor that is available by telephone to address obvious 
errors and other ITS situations.
    c. Order Types. The Amex represents that the Amex/NYSE facility 
will be unable to accommodate order types that rely on a printer 
capability at the specialists post. These include: Market on Close 
(MOC) under Amex Rule 131(e); Limit on Close under Amex Rule 131(e); 
Immediate or Cancel under Amex Rule 131(k); Fill or Kill under Amex 
Rule 131(i); ``Opening Only'' Market Orders under Amex Rule 131(f); and 
market ``all or none'' orders under Amex Rule 131(c). Consequently, 
Amex proposes a temporary rule, notwithstanding any provision in the 
Amex's rules to the contrary, that contemplates that Amex will not be 
able to accommodate these order types.
    In addition, the Amex believes that there will be some limitations 
on odd-lot orders in the Amex/NYSE facility. Specifically, market and 
marketable limit odd-lot orders are normally executed through the AOF 
and will continue to be executed on the Amex/NYSE facility. Non-
marketable odd-lot limit orders, due to the constraints on network 
printers, will not be accepted. Consequently, the Exchange proposes to 
amend Amex Rule 205, and any other rule or portion thereof applicable 
to non-marketable odd-lot limit orders, on a temporary basis to 
preclude these order types.
    d. Floor Brokers. The Exchange notes that Amex floor brokers will 
not have access to the Amex/NYSE facility. The Amex therefore proposes 
a temporary rule that would permit NYSE floor brokers to be deputized 
as Amex members for the purposes of delivering and representing orders 
in Amex stocks and ETFs to the Amex/NYSE facility. The Exchange 
proposes that these deputized Amex members would be subject to Amex 
rules and disciplinary jurisdiction. (The NYSE will obtain an 
acknowledgement from its floor brokers to this effect.) The Amex 
proposes to waive specific compliance with, and the deputized NYSE 
floor brokers would be deemed in compliance with, Amex Article I, 
Section 3(c), Amex Article IV, Section 1, and other Amex rules relating 
to exchange membership. Amex states that such deputization is 
consistent with prior Commission-approved practices respecting the use 
of another exchange facility to trade options. Deputization of NYSE 
floor brokers will provide an additional method for the submission and 
execution of orders.
    Specifically, deputized NYSE floor brokers representing orders in 
securities traded on the Amex/NYSE facility would be subject to all 
provisions in Amex rules that would apply on an Amex member acting as a 
floor broker in the same securities, with one exception. Deputized NYSE 
floor brokers, as such, will be deemed to have satisfied, and the Amex 
will waive specific compliance with, rules governing or applying to the 
maintenance of a person's or a firm's status as an Amex member, 
including all dues, fees, and charges imposed generally upon Amex 
members based on their status as such. Amex believes that the overall 
regulatory framework of the NYSE adequately addresses the subject 
matter of these rules.
    e. Order Size Limitation. The Exchange represents that, in 
connection with the operation of the Amex/NYSE facility, the Amex's 
systems would allow the routing of orders up to 99,900 shares for ETFs, 
and 30,000 shares for equity securities. Consequently, the Amex 
proposes to temporarily suspend its current policy prohibiting the 
breaking up of orders of more than 99,900 or 30,000 shares, as the case 
may be, to fit within these size parameters.
    f. Specialist Obligations.The Amex represents that, due to limited 
physical space at the Amex/NYSE facility, Amex specialists will have to 
perform not only their usual functions, but also the functions of floor 
brokers. As a result, the Exchange proposes to suspend the application 
of several trading rules applicable to specialists. In addition, the 
Exchange proposes to suspend the Auto-Ex function for ETFs.
    The Amex proposes to suspend application of its current rules that 
prohibit specialists from receiving orders from members and member 
organizations, including but not limited to Amex Rules 126(g), 154, 
190, and 220. However, the portions of any current rules, including but 
not limited to Amex Rules 154, 190, and 220, that do not pertain to 
specialists' receipt of orders from members and member organizations, 
will remain operative. In addition, Amex proposes to suspend 
application of its current rules that prohibit specialists with off-
floor facilities from receiving orders at these off-floor facilities 
for routing to the trading floor. Further, the Amex proposes a 
temporary rule that would suspend the provisions of Amex Rule 154, 
limiting the types of orders that a specialist may accept. Amex 
proposes a temporary rule that would, notwithstanding any provision to 
the contrary in Amex's current rules, allow specialists to accept ``not 
held orders'' and ``price and time'' discretionary orders of 50,000 
shares or more.
    The Exchange represents that, due to space constraints, trading by 
registered options traders (``ROTs'') will not be accommodated on the 
NYSE floor. Consequently, the Exchange proposes a temporary rule to 
suspend various provisions of Amex Rule 958, which sets forth the 
obligations of ROTs, as these provisions relate to the trading of ETFs. 
The Amex proposes that a ROT entering orders in securities in which it 
is registered from off the floor will continue to be designated as a 
specialist on the Amex for all purposes under the

[[Page 48498]]

Act, so that the ROT may continue to receive favorable margin and other 
treatment.
    g. Trading Hours. Finally, the Amex notes that there will be no 
after-hours trading or trading of non-convertible corporate debt on the 
Amex/NYSE facility. Therefore, the Exchange proposes a temporary rule 
would suspend Amex Rules 1300 through 1306, and any other rules or 
portion thereof relating to after-hours trading and the trading of non-
convertible corporate debt.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act, in general, and furthers the objectives of 
Section 6(b)(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 regulating, clearing, settling, processing 
information with respect to, and facilitating transaction in 
securities, and, in general to protect investors and the public 
interest. The NYSE, CSE, CHX, BSE, PCX, Phlx, and Nasdaq Intermarket 
believe that their proposed rule changes identified in this order are 
consistent with Section 6(b) of the Act.

B. Self-Regulatory Organizations' Statement on Burden on Competition

    The Amex believes that the proposed rule changes will impose no 
burden on competition. The NYSE, CSE, CHX, BSE, PCX, Phlx, and Nasdaq 
Intermarket believe that their proposed rule changes identified in this 
order will not impose any burden on completion

C. Self-Regulatory Organizations' Statement on Comments on the Proposed 
Rule Changes Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule changes.

III. Date of Effectiveness of the Proposed Rule Changes and Timing 
for Commission Action

    The Amex and the other ITS Participants have requested that the 
Commission find good cause, pursuant to Section 19(b)(2) of the Act, 
for approving the proposed rule change so that Amex may restore 
operations and reopen for trading despite its inability to use its own 
building and trading floor due to the physical damage to the 
infrastructure surrounding its premises.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning for 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 changes 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 ITS Participants. All submissions should refer 
to the File No. SR-Amex-2001-78 and should be submitted by October 11, 
2001.

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

    The United States securities markets are the world's strongest and 
most vibrant. The Commission believes that the terrorist attacks of 
September 11, 2001, will have little lasting market impact. To that 
end, the Commission seeks to serve investors and the markets through 
all available means to facilitate the reopening of fair and orderly 
markets.
    Some of the nation's securities exchanges may have incurred 
physical damage or disruption that require relocation of trading 
facilities and personnel to another suitable physical location. The 
Amex, in particular, has reported that it will be unable to occupy its 
trading floor at this time. The Amex anticipates that its electronic 
order routing systems will function as they did prior to September 11, 
2001, with the exception of the ETF Auto-Ex system. Due to the severe 
damage to the infrastructure surrounding its own building, however, 
Amex will relocate part of its operations to the floor of the NYSE. 
Amex's physical space and its personnel at this location will be 
limited.
    In light of the technical and logistical limitations of the Amex/
NYSE facility, the Commission finds that the Amex's proposal to trade 
Amex equity securities and ETFs on the Amex/NYSE facility is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange. Specifically, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act in that the arrangement between the Amex and 
NYSE 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 regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities. Most important, the proposed 
temporary rules will allow Amex specialists and member firms to resume 
trading on September 17, 2001, despite the damage to Amex's permanent 
trading facilities--thereby potentially serving as an important source 
of liquidity for investors. The Commission notes that the Amex 
represents that it will be responsible for, and will conduct 
surveillance of, trading on the Amex/NYSE facility, including the 
deputized NYSE floor brokers, as described above. The Commission also 
expects that the Amex will aggressively work to implement solutions to 
the issues identified in this order, especially as they relate to ITS, 
in order to resume trading under Amex's permanent rules as soon as 
practicable.
    While specialists may have to perform the functions of floor 
brokers in addition to their usual functions under Amex's temporary 
rules, the Commission notes that their activities will be limited by 
the terms of Securities Exchange Act Release No. 44797 (September 16, 
2001) (emergency order pursuant to Section 12(k)(2) of the Securities 
Exchange Act of 1934 taking temporary action to respond to market 
developments concerning the American Stock Exchange LLC). Further, Amex 
Rule 190, entitled ``Specialist's Transactions with Public Customers'' 
will continue to apply. This Rule prohibits specialists from directly 
or indirectly effecting any business transactions with a company or any 
officer, director or 10% stockholder of a company in which stock the 
specialist is registered. The rule further prohibits specialists from 
accepting any orders for the purchase or sale of any stock in which the 
specialist is registered directly from: (1) The company issuing the 
stock; (2) any officer, director or 10% stockholder of that company; 
(3) from any pension or profit-sharing fund; or (4) any bank, trust 
company,

[[Page 48499]]

insurance company, investment company or similar institution.
    The Commission also finds that Amex's proposed temporary rules 
regarding ITS access are a reasonable accommodation to address the 
physical constraints of the Amex/NYSE facility. Amex specialists, as 
well as specialists on BSE, CSE, CHX, PCX, NYSE, Phlx, and ITS/CAES 
market makers, will use their best efforts to avoid trade-throughs and 
locked markets, and to respond to commitments to trade during the time 
period chosen by the sender of the commitment as currently required by 
the ITS Plan. The Commission notes that, under Exchange Act Rule 11Aa3-
2(d), a ``reasonable justification or excuse'' exists for Amex not to 
enforce compliance with the ITS Plan by its members and persons 
associated with its members for this temporary period, consistent with 
the terms of this order. Likewise, a ``reasonable justification or 
excuse'' exists under the Rule for the parties to the bilateral 
agreement (BSE, CSE, CHX, PCX, NYSE, Phlx, and Nasdaq Intermarket) not 
to enforce compliance with the ITS Plan by their members and persons 
associated with their members with respect to Amex for this temporary 
period, consistent with the terms of this order. Should any exchange 
choose not to enter into this arrangement, that exchange will be unable 
to send or receive ITS messages, including ITS commitments, to or from 
the Amex, and will not be subject to the terms of the ITS Plan with 
respect to the Amex; also, Amex will not be subject to the terms of the 
ITS Plan with respect to those exchanges. These arrangements may 
continue for 30 days or when the technical and logistical difficulties 
no longer exist at the Amex/NYSE facility, whichever is sooner. 
Finally, the ITS Plan will continue to govern commitments and all other 
transactions effected through ITS that do not involve Amex.
    The Commission finds good cause for granting Amex and the other ITS 
Participants' request to approve the proposed rule changes prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register. The Commission believes that granting 
accelerated approval to the proposal is in the public interest and for 
the protection of investors in order to maintain and restore fair and 
orderly securities markets, and in time for Amex to resume trading on 
September 17, 2001.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-Amex-2001-78) is approved on 
an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-23466 Filed 9-19-01; 8:45 am]
BILLING CODE 8010-10-M