[Federal Register Volume 67, Number 85 (Thursday, May 2, 2002)]
[Notices]
[Pages 22140-22142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-10868]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45828; File No. SR-Amex-2002-30]


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 2,000 
Contracts for the Two Near Term Expiration Months and to 1,000 
Contracts for All Other Expiration Months in the Maximum Permissible 
Number of Nasdaq-100 Tracking Stock (QQQ) Option Contracts Executable 
through AUTO-EX

April 25, 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 12, 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 
17, 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, as amended, 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 Jeffrey P. Burns, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated April 11, 2002 (``Amendment No. 1''). 
In Amendment No. 1, the Amex amended its initial filing to include a 
representation that the Amex was trading up to 500 contracts in QQQ 
option contracts as of April 5, 2002 (see infra note 8) prior to the 
immediate effectiveness of this filing on April 12, 2002; to include 
the rule text being amended; and to request 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).
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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 2,000 contracts for the two near term expiration months, 
and to 1,000 contracts for all other expiration months, the maximum 
permissible number of Nasdaq-100 Tracking Stock (``QQQ'') option 
contracts in an order that can be executed through the Exchange's 
automatic execution system (``AUTO-EX'').
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deleted language is [bracketed].
* * * * *
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] 2,000 or fewer contracts in the 
first two (2) near term expiration months and 1,000 or fewer contract 
for all other expiration months. 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  No change.
* * * * *

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.

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 to increase 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\
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    \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).
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    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 its RAES-eligible 
size to 500 contracts is

[[Page 22141]]

based on Commission approval of a CBOE proposed rule change to 
establish the RAES-eligible size at the size of the disseminated 
options quote size.\6\ The Exchange represents that, as a result, the 
CBOE is now able to provide immediate automatic executions of up to 500 
contracts on RAES. The Amex notes, however, that this size may not 
remain static due to the new decrement feature of the CBOE system.
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    \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).
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    On April 5, 2002, the Exchange filed with the Commission for 
immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act \7\ 
and Rule 19b-4 thereunder, to increase to 500 contracts the maximum 
permissible number of QQQ option contracts in an order executable 
through AUTO-EX.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ See Securities Exchange Act Release Nos. 45756 (April 15, 
2002) (notice of filing and immediate effectiveness of File No. SR-
Amex-2002-29). The filing was amended on April 8, 2002.
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    The Exchange represents that the International Securities Exchange 
LLC (``ISE''), on April 8, 2002, announced that SLK-Hull Derivatives 
LLC, the primary market maker (``PMM'') in QQQ options on the ISE, 
would guarantee a size of 2,000 contracts in the two near term 
expiration months and 1,000 contracts for all other expiration months 
for customer orders in QQQ options. The Exchange represents that the 
ISE, as a fully electronic exchange, automatically executes a customer 
order for the disseminated quote size once the order hits the available 
option quote. Accordingly, the Exchange represents that an ISE PMM that 
guarantees 2,000 contracts in the two near term months and 1,000 
contracts for all other expiration months provides an automatic 
execution for these amounts.
    Therefore, the Exchange, consistent with Commentary .03 to Exchange 
Rule 933, submits this proposed rule change to permit an immediate 
increase in its AUTO-EX eligible size for QQQ options to match the size 
of orders in QQQ options at the ISE that can be executed automatically 
by the ISE PMM.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \9\ in general and furthers the 
objectives of Section 6(b)(5) of the Act \10\ 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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, as 
amended, 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, as amended.

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),\11\ 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 12, 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 12, 2002 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.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    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 designate the proposed rule change, as amended, as 
operative as of April 12, 2002, to allow the Amex to compete with the 
ISE, which currently allows executions of up to 2,000 contracts in the 
two near term months and up to 1,000 contracts for all other expiration 
months in QQQ options contracts.\12\ At any time within 60 days 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.\13\
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    \12\ 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).
    \13\ For purposes of calculating the 60 day abrogation period, 
the Commission considers the period to commence on April 17, 2002, 
the date that the Exchange filed Amendment No. 1.
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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, 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-2002-30 and should be submitted by May 23, 2002.


[[Page 22142]]


    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. 02-10868 Filed 5-1-02; 8:45 am]
BILLING CODE 8010-01-P