[Federal Register Volume 67, Number 72 (Monday, April 15, 2002)]
[Notices]
[Pages 18274-18278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9057]



[[Page 18274]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45711; File No. SR-Amex-2001-74]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the American Stock 
Exchange LLC Relating to the Codification of Its Auto-Ex Policy and 
Calculation of the NBBO for Use in Auto-Ex

April 9, 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 September 10, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which items have been prepared by the 
Exchange. Amex submitted Amendment No. 1 to the proposed rule change on 
January 31, 2002.\3\ Amex submitted Amendment No. 2 to the proposed 
rule change on April 8, 2002.\4\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange: (1) Set forth in greater 
detail the proposed circumstances under which Auto-Ex can be 
disengaged or operated other than in the normal manner and the 
required documentation, and (2) proposed rule 933(d) which sets 
forth Amex's policy for determining that the quotes being 
disseminated by another options exchange are not reliable and 
excluding those quotes from the calculation of its NBBO. See letter 
from Claire P. McGrath, Senior Vice President and Deputy General 
Counsel, Amex, to Elizabeth King, Associate Director, Division of 
Market Regulation (``Division''), Commission, dated January 30, 2002 
(``Amendment No. 1''). Amendment No. 1 supersedes and replaces the 
original filing in its entirety.
    \4\ In Amendment No. 2, the Exchange (1) Made several 
nonsubstantive corrections to its rule text; (2) set forth specific 
parameters for when Auto-Ex could be disengaged due to an influx of 
order executions; (3) revised the circumstances that Amex may rely 
upon in determining that the quotes being disseminated by another 
options exchange are not reliable and excluding those quotes from 
the calculation of its NBBO; (4) added language to clarify that the 
duration of the disengagement of Auto-Ex and the decision to 
reengage Auto-Ex will be documented; and (5) added language to 
clarify that the exclusion of an exchange or its quotes from the 
Auto-Ex determination of the NBBO will be reported to the regulatory 
authorities at the Exchange. See letter from Claire P. McGrath, 
Senior Vice President and Deputy General Counsel, Amex, to Elizabeth 
King, Associate Director, Division, Commission, dated April 1, 2002 
(``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to codify in Amex Rule 933 its practices and 
policies by specifying (i) the circumstances under which the Exchange's 
automatic execution system (``Auto-Ex'') can be disengaged or operated 
in a manner other than the normal manner set forth in Exchange rules 
and policies; (ii) the required documentation of the reasons for any 
actions to disengage Auto-Ex or to operate in a manner other than 
normal; and (iii) the circumstances under which Amex may determine that 
the quotes being disseminated by another options exchange are not 
reliable and exclude those quotes from the calculation of the National 
Best Bid or Offer (``NBBO''). Below is the text of the proposed rule 
change. Proposed new language is italicized.

Rule 933  Automatic Execution of Options Orders

    (a) through (b) No change.
    (c) (i) Auto-Ex may be disengaged or operated in a manner other 
than the normal manner in the following circumstances:
    A. Temporary Disengagement of Auto-Ex During Market Data Delays--
Senior Market Operations staff, in conjunction with the Floor 
Governors, may determine to disengage Auto-Ex due to market data 
dissemination delays at the Options Price Reporting Authority 
(``OPRA'') or internally at the Exchange. Auto-Ex may be disengaged for 
one option class, a group of option classes, or all option classes 
floor-wide;
    B. Temporary Disengagement of Auto-Ex Pursuant to Unusual Market 
Exception--Pursuant to procedures set forth in Rule 958A(d), the Market 
Operations Division in consultation with a Floor Official may determine 
to disengage Auto-Ex if the Exchange is unable to accurately collect, 
process, and/or disseminate quotation data owing to the high level of 
trading activity or the existence of unusual market conditions which 
result in the suspension of firmquote rule obligations on the Exchange 
and its members and member organizations as set forth in Exchange Rule 
958A(d) and Rule 11Ac1-1(b)(3) under the Securities Exchange Act of 
1934;
    C. Temporary Disengagement of Auto-Ex During Unusual Market 
Conditions--The Market Operations Division, with Floor Governor or 
Senior Supervisory Official approval, may disengage Auto-Ex during 
unusual market conditions in respect of an option class(es) or their 
underlying security(ies). Unusual market conditions may include (i) 
significant or market disruptive order imbalances in the option class 
or series, or the underlying security; or (ii) unusually wide or market 
disrupting spreads between the bid and the offer in the underlying 
security.
    D. Temporary Disengagement of Auto-Ex as the Result of Systems 
Malfunctions--The Market Operations Division, with Floor Governor or 
Senior Supervisory Official approval, may disengage Auto-Ex as the 
result of systems malfunctions that affect the Exchange's ability to 
(i) disseminate or update market quotes; or (ii) deliver orders to the 
trading floor in a timely manner;
    E. Automatic Disengagement of Auto-Ex Due to an Influx of Order 
Executions--In certain option classes, Auto-Ex may be disengaged when a 
specified number of automatic executions occur in that option class. 
The specialist in each options class has the discretion to determine 
whether to allow Auto-Ex to be automatically disengaged due to the 
influx of order executions and the number of automatic order executions 
that need to occur before Auto-Ex is automatically disengaged. The 
specialist must receive Floor Governor approval to set the number of 
automatic executions at one. Use of this feature does not relieve the 
specialist or registered options traders, as the responsible broker or 
dealer, from their obligations under Rule 958A and Rule 11Ac1-1 under 
the Securities Exchange Act of 1934. Once the disengagement occurs the 
specialist and the Exchange's Post Supervisor are notified immediately 
and Auto-Ex is generally re-engaged within one to five minutes. Any 
extended use of the by-pass feature will need Floor Official approval 
and must meet the standards for either a market data delay, an Unusual 
Market Exception, unusual market conditions or systems malfunctions; 
and
    F. Automatic By-Pass of Auto-Ex in response to Certain Market 
Activity--Orders otherwise eligible for Auto-Ex may be by-passed during 
certain market situations and sent to the specialist for execution. 
Such situations include: (i) Whenever the bid or offer in a specific 
option series represents a limit order on the specialist's book; (ii) 
whenever a crossed or locked market causes an inversion in the quote; 
or (iii) whenever a better bid or offer is being disseminated by 
another options exchange and the order is not eligible for automatic 
price matching as set forth in Commentary .01(b);

[[Page 18275]]

    (ii) In all situations set forth in (c)(i) above, the Exchange will 
document in either the Systems Support Log, or the Service Desk Log, 
any action taken to disengage Auto-Ex or to operate Auto-Ex in a manner 
other than normal, the action taken, the time of the action, the option 
class(es) affected, the identity of the Exchange or Floor official 
approving the action and a brief summary of the reason for the 
decision. Auto-Ex will generally be re-engaged when Market Operations 
determines that the cause of its disengagement has ceased. The Log(s) 
will indicate when Auto-Ex is re-engaged, if such re-engagement 
occurred during the same trading day. If no time of re-engagement is 
shown on the Log(s) that indicates Auto-Ex was disengaged for the 
remainder of the trading day. The Exchange will also document the 
reason for and the Exchange or Floor Official approving the re-
engagement if such re-engagement was for a reason other than the 
cessation of the condition that led to the disengagement.
    (d) On occasion the Amex must make the determination that the 
quotes being disseminated by another options exchange are not reliable 
and exclude those quotes from the calculation of its NBBO. A Floor 
Governor or Exchange Official may make this determination based on any 
of the following circumstances: (i) the other option exchange's quotes 
are not firm based upon direct communication from that exchange or the 
dissemination through OPRA of a message indicating the quotes are not 
firm; or (ii) the other options exchange has directly communicated or 
otherwise confirmed that it is experiencing systems or other problems 
affecting the reliability of its disseminated quotes. In all such cases 
the situation will be documented by the Market Operations staff and 
reported to the regulatory authorities at the appropriate exchange.
    In all cases, where a Floor Governor or Exchange Official excludes 
an exchange or any of its quotes from the Auto-Ex determination of the 
NBBO due to quote unreliability, Market Operations staff will promptly 
notify the exchange of the action, continue to monitor the reliability 
of the excluded quotes in consultation with the Floor Governor or 
Exchange Official, and maintain records showing the date, time, 
duration, and reasons for each such action, as well as the identity of 
the Floor Governor or Exchange Official who authorized the action. Any 
determination to exclude a market or any of its quotes from the Auto-Ex 
determination of the NBBO pursuant to the above will expire at the end 
of the trading day, or at such time as the quotes are confirmed by the 
exchange to be reliable again--whichever occurs first. Exclusion of an 
exchange or its quotes from the Auto-Ex determination of the NBBO will 
be reported to Exchange member firms.

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
    Auto-Ex provides the options investor with an important and useful 
tool in today's trading environment--an efficient means of obtaining a 
rapid, guaranteed execution of a market or marketable limit order. In 
addition, automatic executions have reduced the costs of trades 
generally and have enabled traders, specialists and the Exchange itself 
to better manage the tremendous volume of transactions that our markets 
now regularly experience. Auto-Ex is available in all option classes 
traded at the Exchange for public customer orders of up to 100 
contracts.\5\ Auto-Ex accounts for approximately 6.8% of the option 
volume executed on the Exchange and approximately 24.6% of the systems-
delivered executed orders. To operate efficiently, Auto-Ex provides 
that all public customer market and marketable limit orders within the 
appropriate size parameters be executed at the prevailing best bid or 
offer with either the specialist or a registered options trader as the 
contra-party to the transaction. Since its implementation, the Exchange 
has developed certain policies regarding the use of Auto-Ex and the 
circumstances by which Auto-Ex may be disengaged or operated in a 
manner other than the normal manner. To ensure that actions taken to 
disengage Auto-Ex or to allow Auto-Ex to operate in other than the 
normal manner are done so in accordance with authority provided by 
Exchange rules, the Exchange has put in place specific procedures by 
which such actions must be taken and how such actions must be 
documented. Depending on the reason for the disengagement, the Exchange 
uses either the Systems Support Log or the Service Desk Log to document 
the action taken, the time of the action, the option class(es) 
affected, the identity of the Exchange Floor Official approving the 
disengagement and a brief summary of the reason for the decision. The 
Log(s) also indicate when Auto-Ex is re-engaged, if such re-engagement 
occurred during the same trading day. If the time of re-engagement is 
not shown on the Log(s) that indicates Auto-Ex was disengaged for the 
remainder of the trading day. The Exchange will also document the 
reason for re-engagement if such re-engagement was for a reason other 
than the cessation of the condition that led to the disengagement 
(e.g., the Exchange determined to re-engage Auto-Ex even though an 
Unusual Market Exception to the firm quote rule continued to apply.) 
Members are kept fully apprised of actions taken with respect to Auto-
Ex by announcements over the trading floor public address system, 
trading floor message boards and administrative messages via the Booth 
Automated Routing System (``BARS''). These detailed procedures together 
with the proper application of and notification to the membership when 
such actions are taken, demonstrate the Exchange's dedication to ensure 
that both members and investors are well informed about the operation 
of Auto-Ex and the circumstances when it may not be available.
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    \5\ Auto-Ex was initially approved in 1985 to allow orders of up 
to 10 contracts to be automatically executed. Over the years the 
Exchange has recognized that the order size for some option classes 
should be larger. The Exchange has obtained SEC approval to increase 
the order size for select option classes to 20, 50, 75 and most 
recently 100 contracts (See Securities Exchange Act Release No. 
43660 (December 4, 2000) 65 FR 77942 (December 13, 2000)).
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    It should be noted, however, the disengagement or by-passing of 
Auto-Ex does not mean that Auto-Ex eligible market or marketable limit 
orders fail to receive a timely and appropriate execution. Whenever 
Auto-Ex is disengaged or by-passed, orders are immediately routed by 
the Amex Order File (``AOF'') to the Amex Options Display Book 
(``AODB'') for execution. Within seconds, the market or marketable 
limit order is presented to the specialist and highlighted on the AODB 
screen. The specialist executes the order by simply ``clicking on it'' 
and the market or marketable limit order generally receives the same 
price or better (depending on the reason Auto-Ex

[[Page 18276]]

is bypassed) it would have received if executed on Auto-Ex. Indeed, the 
specialist and registered options traders, as the responsible broker or 
dealer, regardless of whether the order is automatically executed, 
continue to be obligated under the firm quote rule (Exchange Rule 958A) 
to execute the order at the disseminated quotation in an amount up to 
the published quotation size, except when an unusual market exception 
has occurred as defined in the Rule. It should also be noted, member 
firms that send orders to the Exchange and are charged with the 
responsibility of obtaining ``best execution'' for their customer 
orders are given on a monthly basis for each option class traded, a 
report indicating the average number of seconds it takes market and 
marketable limit orders to be executed on the Exchange. Thus, member 
firms are fully aware when making order routing decisions of the 
average time it takes to receive an execution on the Exchange for 
orders executed through Auto-Ex or the AODB.
    The Exchange is now proposing to codify in Amex Rule 933(c) its 
current practices and policies by specifying (i) the circumstances 
under which Auto-Ex can be disengaged or operated in a manner other 
than the normal manner set forth in Exchange rules and policies; and 
(ii) the required documentation of the reasons for any actions to 
disengage Auto-Ex or to operate in a manner other than normal. The 
following are specific instances where Auto-Ex may be disengaged or 
operated in other than the normal manner.

Temporary Disengagement of Auto-Ex During Market Data Delays

    The Exchange's Market Operations Division reviews on a case-by-case 
basis, in consultation with the Exchange's Floor Governors when 
deciding to disengage Auto-Ex due to market data delays either at the 
Options Price Reporting Authority (``OPRA'') or internally at the Amex. 
Market Operations can disengage Auto-Ex for one option class, a group 
of option classes, or all option classes floor-wide. Market data delays 
can include delays (i) in the Exchange disseminating quotations or last 
sale information to OPRA; (ii) in receiving information from OPRA to be 
displayed on the trading floor or used to calculate the best bid or 
offer; or (iii) in receiving market information regarding the 
underlying security. During the past year, market data delays have 
occurred infrequently due to significant improvements in OPRA's and the 
Exchange's message capacities and internal quote mitigation efforts. In 
previous years, when market data delays were more frequent, general 
guidelines were established by the Exchange's Floor Governors to assist 
senior Market Operations staff when making the decision to disengage 
Auto-Ex due to such a delay. Those guidelines are no longer in use; 
senior Market Operations staff together with the Floor Governors review 
each market data delay individually and make a determination to 
disengage Auto-Ex based on specific facts. Auto-Ex is generally re-
engaged as soon as the market data delay has ended.
    Disengagement of Auto-Ex due to market data delays is documented in 
each instance in the Systems Support Log. The Log notes the class(es) 
affected by the market data delay, time the disengagement started and 
ended, the reason for the determination and the Floor Governor(s) 
involved in the determination. If Auto-Ex is re-engaged during that 
trading day, the time of re-engagement is noted on the Log and if the 
re-engagement is for a reason other than the cessation of the market 
data delay, the reason is also noted in the Log.

Temporary Disengagement of Auto-Ex Pursuant to the Unusual Market 
Exception

    Rule 11Ac1-1(b)(3) under the Act \6\ and Exchange Rule 948A(d) 
(``Firm Quote Rules'') provide that if the Exchange determines that the 
level of trading activity or the existence of unusual market conditions 
is such that the Exchange is incapable of collecting, processing and 
making available quotation data in a manner that accurately reflects 
the current state of the market, the Firm Quote Rule obligations 
imposed on the Exchange and its member shall be suspended. The Market 
Operations staff in consultation with a Floor Official may determine to 
disengage Auto-Ex for the duration of the Unusual Market Exception. 
Documentation of this disengagement of Auto-Ex shall be maintained in 
either the Systems Support Log or the Service Desk Log depending on the 
cause of the unusual market condition. The Log notes the class(es) 
affected by the Unusual Market Exception, time the disengagement 
started and ended, the reason for the determination and the Floor 
Official involved in the determination. If Auto-Ex is re-engaged during 
that trading day, the time of re-engagement is noted on the Log and if 
the re-engagement is for a reason other than the cessation of the 
Unusual Market Exception, the reason is also noted in the Log.
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    \6\ 17 CFR 240.11AC1-1(b)(3).
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Temporary Disengagement of Auto-Ex During Unusual Market Conditions or 
Systems Malfunctions

    The Market Operations Division, with Floor Governor or Senior 
Supervisory Official approval, may disengage Auto-Ex during unusual 
market conditions in respect of an option class(es) or their underlying 
security(ies). Unusual market conditions may include (i) significant or 
market disruptive order imbalances in the option class or series, or 
the underlying security;\7\ or (ii) unusually wide or market disrupting 
spreads between the bid and the offer in the underlying security. 
Documentation of the disengagement of Auto-Ex due to unusual market 
conditions is made in the Service Desk Log. With respect to systems 
malfunctions that affect the Exchange's ability to (i) disseminate or 
update market quotes; or (ii) deliver orders to the trading floor in a 
timely manner, senior Market Operations staff determines whether to 
disengage Auto-Ex. Documentation of the disengagement of Auto-Ex due to 
systems malfunctions is made in the Systems Support Log. Both 
documentation Logs indicate the class(es) affected, the reason(s) for 
the disengagement, approval by the appropriate official (with respect 
to disengagement for unusual market conditions) and the time the 
disengagement started and ended. If Auto-Ex is re-engaged during that 
trading day, the time of re-engagement is noted on the Log and if the 
re-engagement is for a reason other than the cessation of the Unusual 
Market Exception, the reason is also noted in the Log.
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    \7\ Pursuant to Exchange Rules 958A and 115 and New York Stock 
Exchange Rule 60, at 3:40 p.m. each trading day order imbalances are 
required to be publicly announced. On occasion, these order 
imbalances are significant and may necessitate the disengagement of 
Auto-Ex.
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Automatic By-pass of Auto-Ex Due to an Influx of Order Executions

    In certain option classes (generally the less active classes) the 
Exchange allows Auto-Ex to be by-passed when a specified number of 
automatic executions in that option class occur. The specialist 
determines the number of executions that can occur before this by-pass 
feature is activated. The specialist's determination depends on a 
number of factors, such as the volatility of the underlying security 
and amount of activity in the option class or series. However, in order 
to set the number of automatic executions at one, the

[[Page 18277]]

specialist must receive the approval of a Floor Governor. Use of this 
feature does not relieve the specialist or registered options traders, 
as the responsible broker or dealer, from their obligations under Rule 
958A and Rule 11Ac1-1 under the Securities Exchange Act of 1934. Once 
the disengagement occurs the specialist and Post Supervisor are 
notified immediately and Auto-Ex is generally turned back on shortly 
thereafter. Any extended use of the by-pass feature will need Floor 
Official approval and must meet the standards for either a market data 
delay, an Unusual Market Exception, unusual market conditions or 
systems malfunctions. Pursuant to the firm quote rule (Rule 
958A(c)(ii)), the responsible broker or dealer, when in the process of 
effecting a transaction in an option class or series, is not obligated 
to execute a transaction when he has revised or is in the process of 
revising the bid, offer or quotation size. This by-pass feature 
provides the responsible broker or dealer with the ability to react to 
automatic executions in the option series or class by allowing the 
responsible broker or dealer to execute the order, if appropriate under 
the firm quote rule, at the revised bid or offer or in the amount of 
the revised quotation size.
    It should be noted that when Auto-Ex is by-passed or disengaged in 
this and other situations, all orders that would have otherwise been 
executed by Auto-Ex (market and marketable limit orders within the size 
parameters) are sent directly to the Amex Options Display Book (AODB) 
for execution by the specialist. As discussed above the by-passing of 
Auto-Ex in this (and other) situations does not mean that Auto-Ex 
eligible market or marketable limit orders fail to receive a timely and 
appropriate execution. The Exchange, on a monthly basis, submits to 
each firm executing options trades on the Exchange a report, which 
indicates on a class by class basis extensive information regarding the 
execution of orders including the average number of seconds it takes an 
order sent through the electronic order routing systems to receive an 
execution. Members use these reports to determine whether they are 
meeting their ``best execution'' obligations. The Exchange believes 
that the information included in this report is a more useful barometer 
of execution quality than information indicating that Auto-Ex may be 
by-passed in certain situations and executed through the AODB.
    The Exchange is currently developing a system to document each 
situation when the automatic by-pass was activated and a monthly print-
out of each situation will be kept by the Post Supervisor and the 
Market Operations Division. This information will be made available to 
the Trading Analysis Division to monitor appropriate use of this by-
pass feature.

Automatic By-Pass of Auto-Ex in Response to Certain Market Activity

    The automatic by-pass feature provides in certain market situations 
for orders that are otherwise eligible for Auto-Ex to by-pass Auto-Ex 
and be sent to the AODB for execution handling by the specialist. Auto-
Ex is by-passed in the following situations: (i) Whenever the bid or 
offer in a specific option series represents a limit order on the 
specialist's book; (ii) whenever a crossed or locked market causes an 
inversion in the quote; (iii) whenever a better bid or offer is being 
disseminated by another options exchange;\8\ and (iv) whenever a 
registered options trader or a floor broker on behalf of a customer 
order improves the quotation \9\. AOF, the Exchange's host order 
processing system, keeps a record of each instance an otherwise 
eligible Auto-Ex order by-passes Auto-Ex and is sent to the AODB for 
execution by the specialist. This information is used by the Trading 
Analysis Division to monitor appropriate use of this by-pass feature.
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    \8\ In February 2001, the Exchange received Commission approval 
to eliminate the Auto-Ex by-pass feature in certain circumstances. 
See Securities Exchange Act Release No. 44013 (February 28, 2001), 
66 FR 13816 (March 7, 2001). Commentary .01 to Amex Rule 933 now 
provides for matching of the best bid or offer displayed by a 
competing market by allowing customer market and marketable limit 
orders to be automatically executed at that best bid or offer 
provided it is within the specified number of trading increments or 
ticks of the Amex's displayed bid or offer, and the order is within 
the established order size parameters. Thus, orders will no longer 
by-pass Auto-Ex when they can be automatically executed at the 
better bid or offer being disseminated by another options exchange.
    \9\ See File No. SR-Amex-2002-09, a proposed rule change pending 
before the Commission.
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Calculation of the NBBO for Use in Auto-Ex

    As discussed above, for Auto-Ex to operate efficiently and 
effectively, all market data must be received in a timely manner, 
including market data received from other options exchanges multiply 
trading a particular option class. Although there is currently no rule 
at the Amex or at any of the other options exchanges prohibiting the 
trading through of a better market away,\10\ the Amex has committed to 
its membership and investors, that it will not automatically execute an 
order if a better market is being disseminated elsewhere. In order to 
determine whether such a better market away exists, the Amex must 
collect reliable market data from the other options exchanges in order 
to calculate the National Best Bid or Offer (``NBBO''). On occasion the 
Amex must make the determination that the quotes being disseminated by 
another options exchange are not reliable and exclude those quotes from 
the calculation of its NBBO. A Floor Governor or Exchange Official may 
make this determination based on one of the following circumstances: 
(i) The other options exchange's quotes are not firm based upon direct 
communication from that exchange or the dissemination through OPRA of a 
message indicating the quotes are not firm; or (ii) the other options 
exchange has directly communicated or otherwise confirmed that it is 
experiencing systems or other problems affecting the reliability of its 
disseminated quotes.
    In all cases where a Floor Governor or Exchange Official excludes 
an exchange or any of its quotes from the Auto-Ex determination of the 
NBBO due to quote unreliability, Market Operations staff will promptly 
notify the exchange of the action, continue to monitor the reliability 
of the excluded quotes in consultation with the Floor Governor or 
Exchange Official, and maintain records showing the date, time, 
duration, and reasons for each such action, as well as the identity of 
the Floor Governor or Exchange Official who authorized the action. Any 
determination to exclude a market or any of its quotes from the Auto-Ex 
determination of the NBBO will expire at the end of the trading day, or 
at such time as the quotes are confirmed by the exchange to be reliable 
again `` whichever occurs first. Exclusion of an exchange or its quotes 
from the Auto-Ex determination of the NBBO will be reported to Exchange 
member firms.
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    \10\ As part of the implementation of the permanent Options 
Intermarket Linkage, a uniform trade-through rule has been proposed 
by the participating options exchanges and was filed by Amex with 
the Commission on August 8, 2001. See SR-Amex-2001-64.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\11\ in general and furthers the 
objectives of Section 6(b)(5),\12\ in particular, because it is 
designed to prevent fraudulent and manipulative acts and practices and 
to promote just and equitable principles of trade.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).

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[[Page 18278]]

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.

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. 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, as amended, 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-2001-74 and should be submitted by May 6, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-9057 Filed 4-12-02; 8:45 am]
BILLING CODE 8010-01-P