[Federal Register Volume 67, Number 77 (Monday, April 22, 2002)]
[Notices]
[Pages 19603-19605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9781]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45756; File No. SR-Amex-2002-29]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC Relating to an Increase to Five Hundred 
Contracts in the Maximum Permissible Number of Nasdaq-100 Tracking 
Stock (QQQ) Option Contracts Executable Through AUTO-EX

April 15, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on April 5, 2002, 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. On April 
8, 2002, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated April 5, 2002 (``Amendment No. 1''). 
In Amendment No. 1, the Amex amended its initial filing to limit the 
increase in AUTO-EX eligible order size to 500 contracts for QQQ 
option contracts only, and requested that the filing be re-
characterized as a ``noncontroversial'' rule change under Rule 19b-
4(f)(6) of the Act, 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Commentary .02 to Exchange Rule 933 
to increase to 500 contracts the maximum permissible number of Nasdaq-
100 Tracking Stock (``QQQ'') option contracts in an order that is 
executable through the Exchange's automatic execution system (``AUTO-
EX''). The Exchange also proposes to amend Exchange Rule 933 to add new 
Commentary .03 to permit the Exchange, under certain circumstances, to 
immediately increase its AUTO-EX eligible order size to match the size 
of orders eligible for entry into the automated execution system of any 
other options exchange.
    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *
Automatic Execution of Options Orders
Rule 933
    (a)-(b) No change.
Commentary
    .01  No change.
    .02  Auto-Ex eligible orders must be market or marketable limit 
orders for two hundred fifty or fewer contracts for series subject to 
Auto-Ex except in the case of options on the Nasdaq-100 Tracking Stock 
(QQQ) which is limited to five hundred or fewer contracts. Contract 
limits will be established on a case by case basis for an individual 
option class or for all option classes upon the approval of two Floor 
Governors or Senior Floor Officials. Notice concerning applicable size 
and types of Auto-Ex eligible orders will be provided to members 
periodically via Exchange circulars and/or posted on the Exchange's web 
site.
    .03  Notwithstanding the provisions of Commentary .02 above, the 
size of auto-ex eligible orders in one or more classes of multiply-
traded options may be increased to the extent necessary to match the 
size of orders in options of the same class or classes eligible for 
entry into the automatic execution system of any other options 
exchange, provided that the effectiveness of any such increase shall be 
conditioned upon its having been filed with the Securities and Exchange 
Commission pursuant to Section 19(b)(3)(A) of the Securities Exchange 
Act of 1934.
* * * * *

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 forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 19604]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On March 22, 2002, the Commission granted approval to an Exchange 
proposal increasing to 250 contracts, the maximum permissible number of 
equity and index option contracts in an order that can be executed 
through AUTO-EX.\4\ At the same time, the Commission also approved 
similar proposals filed by the Philadelphia Stock Exchange, Inc. 
(``Phlx'') and the Pacific Exchange, Inc. (``PCX''), although in the 
case of the Phlx proposal, the increase to 250 contracts was limited to 
options on the QQQ.\5\ In the interim, the Chicago Board Options 
Exchange, Inc. (``CBOE'') on April 4, 2002, in various press reports 
indicated that, effective immediately, orders in the QQQ options of up 
to 500 contracts were eligible for instantaneous execution on the 
CBOE's Retail Automated Execution System (``RAES''). Previously, the 
maximum order size for QQQ options on the CBOE was 100 contracts. The 
Exchange represents that the ability of the CBOE to increase their 
RAES-eligible size to 500 contracts is presumably based on an approval 
from the Commission relating to the dissemination of options quotations 
with size.\6\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 45628 (March 22, 
2002), 67 FR 15262 (March 29, 2002).
    \5\ See Securities Exchange Act Release Nos. 45629 (March 22, 
2002), 67 FR 15271 (March 29, 2002) (order approving File No. SR-
Phlx-2001-89); and 45641 (March 25, 2002), 67 FR 15445 (April 1, 
2002) (order approving File No. SR-PCX-2001-48).
    \6\ See Securities Exchange Act Release Nos. 45490 (March 1, 
2002), 67 FR 10778 (March 8, 2002) (notice of filing of File No. SR-
CBOE-2001-70); and 45676 (March 29, 2002), 67 FR 16478 (April 5, 
2002) (order approving File No. SR-CBOE-2001-70).
---------------------------------------------------------------------------

    The Exchange represents that, as a result, the CBOE amended CBOE 
Rule 6.8(c)(v) so that the eligible order size may be set as the 
disseminated size for options classes in which the Exchange 
disseminates options quotations with size. However, the Exchange states 
that, as indicated in Interpretation .09 to CBOE Rule 6.8, the number 
of contracts that may receive automatic execution on CBOE at its 
disseminated price may not exceed the disseminated size in that series. 
In addition, the Exchange understands that the number of contracts 
receiving automatic execution on CBOE for the disseminated size would 
decrease by the number of contracts that received a prior automatic 
execution at that price. At the point where the number of contracts 
receiving automatic execution on CBOE at a particular price exhausts 
the accompanying dissemination size for that series, subsequent orders 
that are otherwise eligible for CBOE's RAES would not execute 
automatically for 30-seconds. Instead, they would be re-routed to the 
designated primary market maker (``DPM'') via the CBOE's Public 
Automated Routing System (``PAR''), Booth Automated Routing System 
(``BART'') or Live Ammo, CBOE's electronic screen display of market 
orders or limit orders that improve the market.
    The Amex believes that its proposal to increase to 500 contracts 
the maximum permissible number of QQQ option contracts in an order 
executable through AUTO-EX is required to ensure a more level playing 
field among options exchanges for QQQ options. Therefore, the Exchange 
believes that the proposed rule change is immediately effective upon 
filing pursuant to Section 19(b)(3)(A)\7\ of the Act and Rule 19b-
4(f)(6) thereunder.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

    In addition, the Exchange seeks to amend Exchange Rule 933 by 
adding new Commentary .03 to permit an immediate increase in its AUTO-
EX eligible size to match the size of orders in multiply-listed options 
of the same class or classes eligible for entry into the automated 
execution system of any other options exchange, provided that a filing 
is made with the Commission under Section 19(b)(3)(A) of the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, 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, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Because the proposed rule change, as amended, (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder.
    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\10\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. The Exchange seeks to have 
the proposed rule change become operative as of April 5, 2002, in order 
to allow it to implement the increase to the maximum permissible number 
of QQQ option contracts executable through the AUTO-EX system. The Amex 
further believes that an operative date of April 5, 2001 is necessary 
so that trading in QQQ options does not hinge on a regulatory 
advantage, but instead remains competitive. In addition, under Rule 
19b-4(f)(6)(iii), the Exchange is required to provide the Commission 
with written notice of its intent to file the proposed rule change at 
least five business days prior to the filing date or such shorter time 
as designated by the Commission.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    The Commission, consistent with the protection of investors and the 
public interest, has waived the five-day pre-notice and thirty-day 
operative date requirements for this proposed rule change, and has 
determined to make the proposed rule change, as amended, become 
operative as of April 5, 2002, to allow the Amex to compete with the 
CBOE, which currently has a maximum automatic execution eligibility 
limit of 500 contracts in QQQ options contracts.\11\ At any time within 
60 days

[[Page 19605]]

of the filing of the proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.\12\
---------------------------------------------------------------------------

    \11\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rules 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \12\ For purposes of calculating the 60 day abrogation period, 
the Commission considers the period to commence on April 8, 2002, 
the date that the Exchange filed Amendment No. 1.
---------------------------------------------------------------------------

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-2002-29 and should be submitted by May 13, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-9781 Filed 4-19-02; 8:45 am]
BILLING CODE 8010-01-P