[Federal Register Volume 66, Number 204 (Monday, October 22, 2001)]
[Notices]
[Pages 53456-53457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-26483]



[[Page 53456]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44924; File No. SR-Amex-2001-84]


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

October 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 October 9, 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 extend for an additional 90 days its pilot 
program relating to facilitation cross transactions, described in 
detail in Item 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 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 extend for an additional 90 days its pilot 
program relating to member firm facilitation cross transactions 
approved by the Commission on July 11, 2001.\3\ Revised Commentary 
.02(d) to Amex Rule 950(d) establishes a pilot program to allow 
facilitation cross transactions in equity options.\4\ The pilot program 
entitles a floor broker, under certain conditions, to cross a specified 
percentage of a customer order with a member firm's proprietary account 
before market makers in the crown 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 by 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. 44538 (July 11, 
2001), 66 FR 37507 (July 18, 2001). The Commission's approval in 
July 2001 permitted the reinstatement, after a brief lapse, of a 
pilot program that was originally approved on June 2, 2000, and 
subsequently extended on two occasions. See Securities Exchange Act 
Release Nos. 42894 (June 2, 2000), 65 FR 36850 (June 12, 2000); 
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 order with a contra side order from the firm's proprietary 
account.
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    Under the current program, when a trade takes place at the market 
provided by the crowd, all public customer order 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 provided by the crown in 
response to his initial request for a market--and the crown 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 broker has proposed the cross at a price 
between the best bid and offer provided by the crown in response to his 
initial request for a market, and the trading crown 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 member 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 transaction.
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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 seek 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 sixteen months since the pilot program was first 
implemented, the Exchange has found it to be generally successful. The 
Exchange seeks to extend the pilot program for an additional 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 extended without 
significant interruption, the Amex has requested that the Commission 
expedite review of, and grant accelerated approval to, the proposal to 
extend it, 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 or 
dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).

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[[Page 53457]]

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

    Interest 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-2001-84 and 
should be submitted by November 13, 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 extension 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).
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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 extend the pilot 
program without significant interruption while revisions are 
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 January 7, 2002.

    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. 01-26483 Filed 10-19-01; 8:45 am]
BILLING CODE 8010-01-M