[Federal Register Volume 67, Number 45 (Thursday, March 7, 2002)]
[Notices]
[Pages 10460-10462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5430]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45488; File No. SR-AMEX-2001-107]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating the Allocation to Specialists of Securities Admitted to 
Dealings on an Unlisted Trading Privileges Basis

February 28, 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 December 17, 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, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange filed Amendment No. 1 to its proposal on February 1, 2002.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Geraldine Brindisi, Vice President and 
Corporate Secretary, Amex, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated January 30, 2002 
(``Amendment No. 1''). In Amendment No. 1, the Exchange clarified 
its proposal to consider potential integrated market making 
arrangements as a factor in determining the specialist allocation of 
equity securities traded on the Exchange pursuant to unlisted 
trading privileges (``UTP''), if the Amex's integrated market making 
proposal (SR-Amex-2001-75) is approved by the Commission.
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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 Amex Rule 28 to establish allocation 
procedures for securities admitted to dealings on a UTP basis. The text 
of the proposed rule change is below. Proposed new language is in 
italics.
* * * * *
Allocation of Securities Admitted to Dealings on an Unlisted Trading 
Privileges (``UTP'') Basis Rule 28. (a) The UTP Allocations Committee 
shall allocate securities admitted to dealings on an unlisted basis. 
The UTP Allocations Committee shall consist of the Chief Executive 
Officer of the Exchange who shall serve as the Chairman of the 
Committee, three members (selected from among Exchange Officials, 
Senior Floor Officials and Floor Governors), and three members of the 
Exchange's senior management as designated by the Chief Executive 
Officer of the Exchange. The Committee shall make its decisions by 
majority vote. The Chairman of the Committee may only vote to create or 
break a tie.
    (b) The UTP Allocations Committee shall select the specialist that 
appears best able in the professional judgment of the members of the 
Committee to perform the functions of a specialist in the security to 
be allocated. Factors to be considered in the allocation may include, 
but are not limited to: (1) quality of markets made by the specialist, 
(2) experience with trading the security or similar securities, (3) 
willingness to promote the Exchange as a marketplace, (4) operational 
capacity including number and quality of professional staff, (5) number 
and quality of support personnel, (6) record of disciplinary, Committee 
on Floor Member Performance (``Performance Committee'') and cautionary 
actions including significant pending enforcement matters, (7) 
Performance Committee evaluations, (8) Specialist Floor Broker 
Questionnaire ratings and data, (9) the degree of interest expressed by 
a specialist in receiving the allocation in question, (10) undertakings 
by specialist applicants with respect to market quality, (11) order 
flow statistics, (12) the existence of a common ownership or similar 
economic interest among one or more specialists and market makers, (13) 
trading expertise in the primary market for the securities to be traded 
on an unlisted basis, and (14) ability and willingness to trade with 
other markets where the securities to be allocated trade.
    (c) The UTP Allocations Committee may meet with potential 
specialists to obtain information regarding their qualifications. The 
Committee also may require specialists to submit information regarding 
their qualifications in writing.
    (d) Willingness to promote the Exchange as a market place includes 
providing financial and other support for the Exchange's program to 
trade securities on an unlisted basis, contributing to the Exchange's 
marketing effort, consistently applying for allocations, assisting in 
meeting and educating market participants (and taking time for travel 
related thereto), maintaining communications with member firms in order 
to be responsive to suggestions and complaints, responding to 
competition by offering competitive markets and competitively priced 
services, and other like activities.
    (e) The Exchange may allocate Nasdaq securities eligible for 
inclusion in the Exchange's Integrated Market Making Pilot Program 
(``Pilot Program'') prior to the commencement of the Pilot Program. If 
such securities are so allocated, upon the commencement of the Pilot 
Program, the UTP Allocations Committee shall conduct a reallocation 
proceeding in order to implement the Pilot Program at which proceeding 
the Committee may reallocate such Nasdaq securities. The UTP 
Allocations Committee shall follow the procedures described in this 
Rule 28 when it reallocates Nasdaq securities pursuant to this 
paragraph (e).
* * * * *

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 Exchange 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 Exchange has prepared summaries, set

[[Page 10461]]

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
    Presently, the Exchange allocates securities to specialists that 
are able to fulfill the responsibilities of a specialist with respect 
to the securities. Recently, the Exchange determined to admit equity 
securities to dealings on a UTP basis. Since the Exchange would not be 
the primary listing market for these securities, the Exchange's 
``issuer choice'' program (which gives issuers a role in the selection 
of their specialist) would be inapplicable to UTP securities. In 
addition, a specialist competing for order flow in securities admitted 
to dealings on a UTP basis against an established primary market would 
require a different set of qualifications than a specialist in 
securities that are listed on the Exchange. The Exchange, accordingly, 
believes that it is desirable to adopt new equity allocation procedures 
for UTP securities.
    The proposal would establish a UTP Allocations Committee and 
procedures by which it would allocate securities admitted to dealings 
on a UTP basis. Three members selected from among Exchange Officials, 
Senior Floor Officials and Floor Governors would serve on the UTP 
Allocations Committee. The Chief Executive Officer of the Exchange and 
three other senior members of the Amex staff also would serve on the 
Committee.\4\
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    \4\ This Committee structure is similar to the NYSE's UTP 
Allocations Committee. See Exchange Act Release Nos. 44272 (May 7, 
2001), 66 FR 26898 (May 15, 2001), and 44306 (May 15, 2001), 66 FR 
28008 (May 21, 2001).
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    The Exchange's UTP Allocations Committee would receive the same 
information that customarily is provided to the Exchange's Allocations 
Committee and would generally consider factors that are the same as the 
Allocations Committee. In addition to the criteria that is generally 
considered by the Allocations Committee, the UTP Allocations Committee 
would also consider the following special criteria in making allocation 
determinations: (a) trading expertise in the primary market for the 
securities to be traded on an unlisted basis; (b) ability and 
willingness to trade with other markets where the securities to be 
allocated trade; and (c) financial support of the Exchange's UTP 
technology and marketing initiatives. The UTP Allocations Committee 
also could solicit information from potential specialists. As 
previously noted, issuer choice would not be a factor in allocating 
securities admitted to dealings on a UTP basis.
    The Exchange recently filed a proposal with the Commission to 
institute a six-month pilot program to permit integrated market making 
and side-by-side trading \5\ with respect to Nasdaq stocks that meet 
specified characteristics.\6\ The Exchange wants to implement the 
Nasdaq UTP program as soon as possible, and believes that integrated 
market making would add substantial value to the Nasdaq UTP program. 
The Exchange notes, however, that Commission action on the Integrated 
Market Making Pilot Proposal may not occur until after Commission 
action on the Exchange's proposal to adopt general rules relating to 
trading Nasdaq stocks on a UTP basis.\7\ Thus, the Exchange proposes to 
allocate the securities that may be eligible for the Integrated Market 
Making Pilot Proposal on a temporary basis, and that these securities 
would then be subject to reallocation if the Commission approves the 
Integrated Market Making Pilot Proposal.\8\ In particular, the UTP 
Allocations Committee would reallocate such securities considering the 
availability of an integrated market making arrangement for Nasdaq 
securities admitted to dealing on a UTP basis.\9\
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    \5\ According to the Exchange, ``integrated market making'' 
refers to the trading of options and their underlying stocks by the 
same specialist and/or specialist firm, while ``side-by-side 
trading'' refers to the trading of options and the underlying stocks 
in the same vicinity, though not necessarily by the same specialist 
or firm.
    \6\ See SR-Amex-2001-75 (``Integrated Market Making Pilot 
Proposal'').
    \7\ See Exchange Act Release No. 45365 (January 30, 2002), 67 FR 
5626 (February 6, 2002).
    \8\ See Amendment No. 1, note 3, supra.
    \9\ Id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act, \10\ in general, and 
Section 6(b)(5) of the Act,\11\ in particular, which requires, among 
other things, that the rules of an exchange be designed 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. More 
specifically, the Exchange believes that trading securities on a UTP 
basis will provide investors with increased flexibility in satisfying 
their investment needs by providing additional choice and increased 
competition in markets to effect transactions in the securities subject 
to UTP.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 
Exchange. All

[[Page 10462]]

submissions should refer to File No. SR-AMEX-2001-107 and should be 
submitted by March 28, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-5430 Filed 3-6-02; 8:45 am]
BILLING CODE 8010-01-P