[Federal Register Volume 67, Number 30 (Wednesday, February 13, 2002)]
[Notices]
[Pages 6768-6770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3491]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45418; File No. SR-Amex-2001-96]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the American 
Stock Exchange LLC Relating to Amex Rule 933

February 7, 2002.
    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 November 2, 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 Amex. 
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 amend Exchange Rule 933 to provide that: (1) 
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 15 seconds between entry of each such order in an option 
issue; and (2) members and member organizations are responsible for 
establishing procedures to prevent orders in an option issue for any 
account in which the same person is directly or indirectly interested 
from being entered at intervals of less than 15 seconds.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deleted language is [bracketed].
* * * * *

[[Page 6769]]

Amex Rule 933, Automatic Execution of Options Orders

    (a) No change.
    (b) The Exchange shall determine the size parameters of orders 
eligible for entry into 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 15 seconds between entry of each such order in a call 
class and/or a put class for the same option issue. Members and member 
organizations are responsible for establishing procedures to prevent 
orders in a call class and/or a put class for the same option issue for 
any account in which the same person is directly or indirectly 
interested from being entered at intervals of less than 15 seconds. [No 
member or member organization which transmits non-broker/dealer 
customer orders to the Exchange for entry into the Auto-Ex system shall 
unbundle (split up) such orders to take advantage of such eligibility 
parameters.]

Commentary

    .01  (a)-(g) No change
    .02  No change.
    [.03  If a member or member organization grants a non-member 
electronic access to the Exchange's order routing or execution systems 
through the member's or member organization's order routing systems, 
and if the non-member uses that access to violate Exchange rules or 
other applicable regulations, including, but not limited to, the 
Exchange's ``unbundling'' prohibition, the member or member 
organization is in violation of Exchange rules if it has either 
knowingly facilitated the violation or has failed to establish 
procedures reasonably designed to prevent access to the member or 
member organization's order routing systems from being used to effect 
such violation.]
* * * * *

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 IV below. The Amex 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 represents that it established the Auto-Ex system to 
provide small customer orders with an immediate single price execution. 
In 1996, the Exchange adopted Rule 933 to prohibit the ``unbundling'' 
(i.e., the splitting or dividing-up) of customer options orders to make 
them fit within the size parameters of the Exchange's Auto-Ex 
system.\3\
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    \3\ See Securities Exchange Act Release No. 37429 (July 12, 
1996), 61 FR 37782 (July 19, 1996) (approving SR-Amex-96-26).
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    The Exchange is proposing to amend Rule 933 (``Automatic Execution 
of Options Orders'') to provide that 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 that 15 seconds between the 
entry of each such order in a call class and/or put class for the same 
option issue. The Exchange believes that if persons were allowed to 
effectively increase the size of Auto-Ex eligible orders by entering 
more than one such order at intervals of less than 15 seconds, Amex 
specialists and Registered Options Traders would be unable to make 
markets with the same liquidity as if there were effective limits on 
the size and frequency of Auto-Ex eligible orders. Thus, the Exchange 
believes that the proposed rule change will ensure that Auto-Ex 
fulfills it intended purpose.
    The proposed amendment to Rule 933 also provides that members and 
member organizations are responsible for establishing procedures to 
prevent orders in an option issue for any account in which the same 
person is directly or indirectly interested from being entered at 
intervals of less than 15 seconds. The Exchange represents that this 
will clarify member compliance responsibilities and conform the 
Exchange's rules to those currently in place at other options 
exchanges.\4\
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    \4\ See, e.g., Chicago Board Options Exchange (``CBOE'') Rule 
6.8(e)(iii).
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    Finally, the Exchange proposes to delete Commentary .03 to Rule 
933. Commentary .03 provides that ``[i]f a member or member 
organization grants a non-member electronic access to the Exchange's 
order routing or execution systems through the member or member 
organization's order routing systems, and if the non-member uses that 
access to violate Exchange rules or other applicable regulations, 
including, but not limited to, the Exchange's ``unbundling'' 
prohibition, the member or member organization is in violation of the 
Exchange's rules if it has either knowingly facilitated the violation 
or has failed to establish procedures reasonably designed to prevent 
access to the member or member organization's order routing systems 
from being used to effect such violation.'' \5\
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    \5\ Commentary .03 was originally filed with the Commission as 
Commentary .01 (SR-Amex-00-47). Subsequently, the numbering changed 
as a result of two proposed rule changes filed by the Amex. See 
Securities Exchange Act Release No. 43516 (November 3, 2000), 65 FR 
69079 (November 15, 2000); Securities Exchange Act Release No. 44013 
(February 28, 2001), 66 FR 13816 (March 7, 2001). Also, the 
Commission is publishing in a separate release this Commentary to 
Rule 933, which was proposed in SR-Amex-00-47, but was not 
previously published for comment by the Commission. See Securities 
Exchange Act Release No. 45417 (February 7, 2002) (SR-Amex-00-47).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act \7\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, 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, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either 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 Amex requests that the proposed rule change be given 
accelerated effectiveness pursuant to Section 19(b)(2) \8\ of the Act. 
The Exchange believes that because the proposed rule change is similar 
to rules of other exchanges that the Commission has

[[Page 6770]]

previously approved,\9\ the proposed rule change does not present any 
regulatory issues that the Commission has not previously considered. 
Furthermore, the Exchange believes that early implementation of the 
proposed rule change would benefit the public interest and the 
interests of investors by clarifying member compliance responsibilities 
and conforming the Exchange's rules to those of other markets.
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    \8\ 15 U.S.C. 78(b)(2).
    \9\ In this connection, the Amex cites Amex Rule 128A (Automatic 
Execution for Exchange-Traded Funds), CBOE Rule 6.8(e) (RAES 
Operations--Order Entry Firms), and New York Stock Exchange 
(``NYSE'') Rule 1005 (Automatic Execution--NYSE 
Direct+TM).
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IV. 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 such filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to File No. SR-Amex-2001-96 and 
should be submitted by March 6, 2002.

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

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
promulgated thereunder applicable to a national securities exchange 
and, in particular, with the requirements of section 6(b).\10\ 
Specifically, the Commission finds that approval of the proposed rule 
change is consistent with section 6(b)(5) of the Act in that it is 
designed to promote just and equitable principles of trade, to remove 
impediments and to perfect the mechanism of a free and open market and 
a national market system, and in general, to protect investors and the 
public interest.
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    \10\ 15 U.S.C. 78f(b). 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).
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    In its proposal, Amex proposes to amend section (b) of Amex Rule 
933 (entitled ``Automatic Execution of Options Orders'') to limit entry 
of Auto-Ex eligible orders, in a call class and/or put class for the 
same option issue, for accounts in which the same person is directly or 
indirectly interested, to intervals of no less than 15 seconds. In 
addition, Amex proposes that members and member organizations be 
responsible for establishing procedures to prevent orders in a call 
class and/or put class for the same option issue from being entered at 
intervals of less than 15 seconds for any account in which the same 
person is directly or indirectly interested. Finally, Amex proposes to 
delete Commentary .03 to Rule 933.
    The Commission finds that paragraph (b) makes explicit the 
responsibilities and requirements of Amex members and member 
organizations with respect to the entry of multiple orders by the same 
person within intervals of less than 15 seconds. The Commission 
recognizes that the Exchange's proposal will place an explicit 
prohibition against members or member organizations entering multiple 
orders in a call class and/or put class for the same option issue 
within any period of less than 15 seconds for an account in which the 
same person is directly or indirectly interested. The Commission finds 
that this prohibition is similar to, although not exactly identical to, 
provisions that it has already approved for other options 
exchanges.\11\ The Commission also believes that the Exchange's 
establishment of a prohibition on members and member organizations 
entering multiple orders for an account in which the same person is 
directly or indirectly interested within a period of less than 15 
seconds, in lieu of a presumption regarding the unbundling of such 
orders, will add certainty and consistency to the enforcement of the 
Rule and provide members and member organizations with clarity as to 
what conduct violates the Rule.\12\ In addition, the Commission 
believes that it is appropriate for the Exchange to delete Commentary 
.03 to Rule 933. The Commission therefore finds that the proposed rule 
change is consistent with the provisions of the Act and rules 
thereunder.\13\
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    \11\ See Securities Exchange Act Release Nos. 43971 (February 
15, 2001), 66 FR 11344 (February 23, 2001) (order partially 
approving File No. SR-PCX-00-05); 44017 (February 28, 2001), 66 FR 
13820 (March 7, 2001) (order approving File No. SR-ISE-00-20); and 
44104 (March 26, 2001), 66 FR 18127 (April 5, 2001) (order approving 
File No. SR-CBOE-00-47). The Commission approved proposals by the 
Pacific Exchange (``PCX''), the International Securities Exchange 
(``ISE''), and the Chicago Board Options Exchange (``CBOE'') that 
prohibit members from entering multiple orders for the same 
beneficial account within a 15-second period.
    \12\ The Commission notes that the Amex proposal allows the 
Exchange solely to prohibit conduct expressly set forth in Amex Rule 
933(b). If in the future, the Exchange seeks to prohibit members 
from entering multiple orders for the same person outside of the 
time interval set by the rule, it must file such a revision as a 
proposed rule change with the Commission.
    \13\ In this regard, the Commission notes that the Exchange may 
not take punitive action against the customer of a particular Amex 
member in the event that the member violates Amex Rule 933(b).
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    Furthermore, the Commission believes that accelerated approval of 
this proposal is appropriate to ensure that the Exchange's market 
makers are not placed at a competitive disadvantage to those market 
makers who are trading at an exchange where a substantially similar 
requirement is currently in place. For these reasons, the Commission 
finds good cause, consistent with section 19(b)(2) of the Act,\14\ to 
approve the proposed rule change prior to the thirtieth day after 
publication in the Federal Register.
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    \14\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-Amex-2001-96) is hereby 
approved on an accelerated basis.
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    \15\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Margaret H. McFarland,
Deputy Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 02-3491 Filed 2-12-02; 8:45 am]
BILLING CODE 8010-01-P