[Federal Register Volume 67, Number 93 (Tuesday, May 14, 2002)]
[Notices]
[Pages 34502-34505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12010]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45898; File No. SR-Amex-2001-47]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto and Notice of 
Filing and Order Granting Accelerated Approval to Amendment No. 3 by 
the American Stock Exchange LLC Relating to Issuer Listing Standards 
and Procedures

May 8, 2002.

I. Introduction

    On July 16, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the Amex's issuer 
listing standards and procedures. On January 10, 2002, the Amex filed 
Amendment No. 1 to the proposed rule change,\3\ and on February 14, 
2002, filed Amendment No. 2 to the proposed rule change.\4\ The 
proposed rule change, as amended by Amendment Nos. 1 and 2, was 
published in the Federal Register on February 22, 2002.\5\ The 
Commission received two comment letters on the proposal.\6\ On May 2, 
2002, the Amex submitted Amendment No. 3 to the proposed rule 
change.\7\ This Order approves the proposed rule change, as amended. In 
addition, the Commission is publishing notice to solicit comment on and 
is simultaneously approving, on an accelerated basis, Amendment No. 3 
to the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Claudia Crowley, Assistant General Counsel-
Listing Qualifications, Amex, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
January 9, 2002 (``Amendment No. 1''). Amendment No. 1 supercedes 
and replaces the original Exchange Act Rule 19b-4 filing in its 
entirety.
    \4\ See letter from Claudia Crowley, Assistant General Counsel-
Listing Qualifications, Amex, to Florence Harmon, Senior Special 
Counsel, Division, Commission dated February 13, 2002 (``Amendment 
No. 2''). In Amendment No. 2, the Exchange corrected various 
typographical errors, elaborated on the augmentation of its 
management reporting system, clarified the procedures by which an 
issuer would be considered under the Alternative Listing Standards, 
and added rule language that had been inadvertently omitted.
    \5\ See Securities Exchange Act Release No. 45451 (February 14, 
2002), 67 FR 8326.
    \6\ The comment letters are more fully discussed below in 
Section III. See Letter from Robert M. Lam, Chairman, Pennsylvania 
Securities Commission, to Jonathan G. Katz, Secretary, Commission, 
dated March 28, 2002 (PA Letter); and Letter from Edward S. Knight, 
Executive Vice President and General Counsel, Nasdaq, to Jonathan 
Katz, Secretary, Commission, dated March 27, 2002 (Nasdaq Letter).
    \7\ See letter from Michael J. Ryan, Jr., Executive Vice 
President and General Counsel, Amex, to Nancy Sanow, Assistant 
Director, Division, Commission, dated May 1, 2002. In Amendment No. 
3, the Exchange withdrew proposed section 101(d) of the Amex Company 
Guide and designated proposed section 101(e) of the Amex Company 
Guide as section 101(d).
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II. Description of the Proposal

    The Exchange is proposing to amend the Amex Company Guide to adopt 
(i) new listing standards relating to the authority of the Amex 
Committee on Securities in respect of its review of initial listings; 
(ii) new procedures that would impose definitive time limits with 
respect to how long a non-compliant company can retain its listing; 
(iii) substantive revisions to the initial and continued listing 
standards; and (iv) changes to the appeal procedures applicable to 
staff denials of initial listing applications and staff delisting 
determinations.\8\
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    \8\ See generally, Securities Regulation: Improvements Needed in 
the Amex Listing Program (GAO-02-18, November 27, 2001).
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    The Exchange represents that it has also augmented its management 
reporting system to alert senior Exchange management to any developing 
trends emerging from the listing qualifications process, with respect 
to outstanding listing applications, recently approved companies, and 
companies failing to meet or in jeopardy of failing to meet the 
continued listing standards. The management review will also encompass 
the continued status of companies approved pursuant to the proposed 
alternative standards as compared to those approved pursuant to the 
regular standards.

A. Initial Listing Approval Process

    With regard to its initial listing standards, the Exchange is 
proposing the following:
    (1) Replace all references to listing ``guidelines'' with 
references to listing ``standards.'' \9\
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    \9\ This change would also apply to references to current 
continued listing guidelines.
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    (2) Revise and clarify the authority of Listing Qualifications 
Department management to approve a company for initial listing, to 
provide that it may approve a company under the following 
circumstances: \10\
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    \10\ The Amex had originally also proposed a new ``currently 
listed securities'' standard, by which securities that are currently 
listed on either the New York Stock Exchange, Inc. or Nasdaq 
National Market would qualify for initial listing if such securities 
satisfy the standards with respect to continued listing set forth in 
Part 10 of the Company Guide. In Amendment No. 3, however, the Amex 
withdrew the ``currently listed securities'' standard. See Section 
III, infra.
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     The company satisfies new ``Initial Listing Standard 1'' 
(existing ``Regular Listing Guidelines'').
     The company satisfies new ``Initial Listing Standard 2'' 
(existing ``Alternate Listing Guidelines'').
     The company satisfies new ``Initial Listing Standard 3'' 
(new ``Market Capitalization'' standard).\11\
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    \11\ Under the ``market capitalization'' standard, a company 
would be eligible for initial listing if it meets the following 
standards: (1) Shareholders' equity of $4 million; (2) total value 
of market capitalization of $50 million; (3) market value of public 
float of $15 million; and (4) a minimum public float of 500,000 and 
800 public shareholders; or a minimum public distribution of 
1,000,000 shares together with a minimum of 400 public shareholders; 
or a minimum of 500,000 shares publicly held, a minimum of 400 
public shareholders, and daily trading volume of 2,000 shares or 
more for the six months preceding the date of application.
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    (3) Adopt new quantitative alternative minimum listing standards 
limiting the authority of Amex Committee on Securities (``Committee'') 
panels with respect to the review of initial listings determinations, 
such that a Committee panel would be able to approve a company that did 
not satisfy one of the regular initial listing standards only if

[[Page 34503]]

(a) the company satisfies new alternative quantitative listing 
standards; (b) a Committee panel makes an affirmative finding that 
there are mitigating factors that warrant listing pursuant to the 
alternative standards; and (c) the company issues a press release 
disclosing the fact that it had been approved pursuant to the 
alternative listing standards. Committee panels would not have the 
authority to approve companies below the ``floor'' established by the 
new alternative quantitative listing standards specified in section 
1203(c).

B. Continued Listing Process

    The Exchange is proposing to adopt revised procedures that would 
impose definitive time limits with respect to how long a company that 
has fallen below the continued listing standards can remain listed 
pending corrective action. Under the new procedures, a company that 
falls out of compliance with the continued listing standards will be 
given an opportunity to submit a business plan to the Listing 
Qualifications Department detailing the action it proposes to take to 
bring it into compliance with continued listing standards within 18 
months. If the Listing Qualification Department management determines 
that the company has made a reasonable demonstration of an ability to 
regain compliance within 18 months, the plan will be accepted. The 
company would be able to continue its listing for up to 18 months if it 
issues a press release indicating that it is not in compliance with the 
continued listing standard and that it has been granted an 18-month 
extension.
    The Listing Qualifications Department will closely monitor the 
company's compliance with the plan during the 18-month plan period, and 
the company will be subject to delisting if it does not show progress 
consistent with its business plan, if further deterioration occurs, or 
based on public interest concerns. If, prior to the end of the 18-month 
plan period, the company is able to demonstrate compliance with the 
continued listing standards (or that it is able to qualify under an 
original listing standard) for a period of two consecutive quarters, 
the Exchange will deem the 18-month plan period over. At the conclusion 
of the 18-month plan period, the staff will initiate delisting 
proceedings if the company has not regained compliance with the 
continued listing standards.
    If the company, within twelve months of the end of the 18-month 
plan period (including any early termination of the 18-month plan 
period), is again determined to be below continued listing standards, 
the Exchange will examine the relationship between the two incidents of 
falling below continued listing standards and re-evaluate the company's 
method of financial recovery from the first incident. It will then take 
appropriate action, which, depending upon the circumstances, may 
include immediately initiating delisting procedures.\12\ All staff 
delisting proceedings can be appealed to a Committee panel; however, 
the Committee panel will not have the authority to continue the 
company's listing unless it determines that the company has regained 
compliance with the continued listing standards.
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    \12\ The Exchange represents that it does not view the one-year 
probation period as an extension of the 18-month plan period. 
Telephone discussion between Claudia Crowley, Assistant General 
Counsel-Listing Qualifications, Amex, and Florence E. Harmon, Senior 
Special Counsel, Division, Commission (February 14, 2002). The 
Commission agrees and emphasizes in particular that companies listed 
pursuant to the new alternative listing standards in section 1203(c) 
of the Company Guide should not view the one-year probation period 
as an opportunity to gain additional time to achieve compliance. 
Absent extraordinary circumstances, the Commission expects the 
Exchange to suspend and institute delisting proceedings for the 
security of any section 1203(c) company that falls below the section 
1203(c) criteria during the one-year probation period.
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C. Other Changes

    With respect to continued listing, the Amex is proposing to revise 
section 1003(a)(iii) of the Company Guide to provide that a company 
will continue to qualify for listing, even if it has sustained losses 
from continuing operations and/or net losses in its five most recent 
fiscal years, if it has stockholders' equity of at least $6 million. 
Currently, a company that has sustained such losses is subject to 
delisting regardless of its stockholders' equity. The Amex believes 
that this change is appropriate, in that a company which is able to 
maintain significant shareholders' equity should be able to continue 
its listing notwithstanding five or more years of losses. The Amex 
notes that many development and research-oriented companies often take 
a number of years to reach profitability. Although not all these 
companies become profitable, the ability to raise capital, as evidenced 
by significant shareholders' equity, is often an indication of a 
company's strength.
    In addition, the Amex is proposing to modify the market value of 
public float continued listing standard contained in section 
1003(b)(i)(C) of the Company Guide, to provide that a company will not 
be considered below continued listing standards unless the aggregate 
market value of its shares publicly held is less than $1 million for 
more than ninety consecutive days. Currently, a literal reading of the 
provision would result in a listed company technically falling below 
the requirement if the market value of its public float fell below $1 
million for even one day. In view of the volatility of the markets, the 
Amex believes it is appropriate to evaluate this listing standard over 
a period of time.

D. Appeal Procedures

    The proposed changes make adjustments to the procedures applicable 
to the review of initial listing determinations and revise the 
procedures applicable to the review of delisting determinations to 
conform them to initial listing procedures. The proposal provides 
issuers with the right to appeal a staff determination to deny initial 
or continued listing to a panel of at least three members of the 
Committee. The issuer has the right to appeal an adverse panel's 
decision to the full Committee.
    A panel decision will be dispositive with respect to both listing 
and delisting decisions. In the case of an appeal of an initial listing 
denial, this means that if the panel determines to ``reverse'' the 
staff determination, the issuer's securities will be approved for 
listing and listed at the convenience of the issuer. In the case of an 
appeal of a delisting determination, the delisting action will be 
stayed pending the outcome of the panel's review. Following a panel 
determination to delist, trading in the company's securities will be 
suspended. If the company does not appeal the panel's decision to the 
full Committee, its securities will be delisted following the 
expiration of the appeal period, in accordance with section 12 of the 
Act \13\ and the rules promulgated thereunder. If the company does 
appeal to the full Committee, the suspension will continue until there 
is a final decision (either by the full Committee or the Board based on 
its ``call for review''), in which case the securities will be either 
delisted or the suspension will be lifted, depending on the outcome.
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    \13\ 15 U.S.C. 78l.
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    With respect to an initial listing application in which the company 
appeals an adverse panel decision to the full Committee, if the 
Committee ``reverses'' the panel decision and approves the listing, in 
order to avoid potential market disruptions and investor confusion, the 
securities will not begin trading unless and until the

[[Page 34504]]

Board has declined to call such decision for review.
    While issuers will be able to request either an oral or written 
hearing at the panel level, appeals to the full Committee will be based 
on the written record only unless the Committee determines, in its sole 
discretion, to hold a hearing. All decisions of the full Committee will 
also be subject to a discretionary ``call for review'' by the Amex 
Board of Governors. If the Board's decision provides that the issuer's 
security or securities should be delisted, the Exchange will suspend 
trading in such security or securities as soon as practicable, if it 
has not already done so pursuant to section 1204(d), and an application 
will be submitted by the Exchange staff to the Commission to strike the 
security or securities from listing and registration in accordance with 
section 12 of the Act \14\ and the rules promulgated thereunder. In the 
event that the Board was to ``reverse'' a full Committee decision, the 
issuer's listing status would be adjusted accordingly.
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    \14\ Id.
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    Additionally, in order to recoup the costs associated with 
processing and conducting hearings in connection with issuer requests 
for review, the Amex will continue to charge a fee of $2,500 for an 
oral hearing and $1,500 for a written review. Thus, an issuer 
requesting an oral hearing before a panel will be assessed a fee of 
$2,500, while an issuer requesting a written review by a panel will be 
assessed a fee of $1,500. Should the issuer appeal the panel's decision 
to the full Committee, it will be assessed an additional fee of $2,500. 
Issuers will not be charged fees in connection with a ``call for 
review'' by the Board of Governors.

III. Comments and Response

A. Comment Letters

    The Commission received two comment letters regarding the 
proposal.\15\ Both commenters generally believed that the ``currently 
listed securities'' standard proposed in section 101(d) of the Company 
Guide is contrary to section 18 of the Securities Act of 1933 
(``Securities Act'').\16\ The commenters expressed the concern that the 
``currently listed securities'' standards would allow a company listed 
on either Nasdaq's National Market or the New York Stock Exchange to be 
approved for listing on Amex based solely upon that company's 
compliance with Amex's lower continued listing standards (rather than 
Amex's higher initial listing standards).
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    \15\ See PA Letter, Nasdaq Letter, supra at note 6.
    \16\ 15 U.S.C. 77r.
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B. Amex Response

    In Amendment No. 3, the Amex withdrew proposed section 101(d) of 
the Company Guide (``currently listed securities'' standard) and 
designated proposed section 101(e) of the Company Guide as section 
101(d).\17\ Notwithstanding the amendment, the Amex stated that it 
continues to believe strongly that their originally proposed changes to 
section 101(d) are fully consistent with section 18 of the Securities 
Act.\18\ The Amex represented that the provision would have provided a 
narrow and limited window for the securities of issuers currently 
listed on a marketplace that has been afforded the section 18 ``blue-
sky'' exemption to transfer to another section 18 marketplace. These 
issuers must have previously satisfied the initial listing standards of 
such marketplace and must have been in compliance with applicable Amex 
initial listing standards at the time of initial listing. The Amex 
maintained that the ultimate beneficiaries of the proposed ``currently 
listed securities'' standard would have been the shareholders of the 
issues in question.
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    \17\ See Amendment No. 3, supra at note 7.
    \18\ 15 U.S.C. 77r.
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IV. Discussion

    The Commission has reviewed the Amex's proposed rule change and 
finds, for the reasons set forth below, that the proposal, as amended, 
is consistent with the requirements of section 6 of the Act \19\ and 
the rules and regulations promulgated thereunder applicable to a 
national securities exchange. Specifically, the Commission believes the 
proposal is consistent with section 6(b)(5) of the Act,\20\ because 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, 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.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
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    At the outset, the Commission believes that the adoption of firm 
quantitative standards enhances the transparency of the Amex's listing 
program and provides clarity to investors. Investors are likely to 
assume that the companies listed on Amex meet the Exchange's listing 
standards, and the proposed amendments recognize that practicality. The 
Company Guide provides that the Amex staff may approve a company for 
initial listing if the company satisfies clearly delineated standards. 
The Amex Committee on Securities (``Committee'') would be able to 
approve a company that did not satisfy one of the regular initial 
listing standards only if (i) the company satisfies new alternative 
quantitative listing standards; (ii) a Committee panel makes an 
affirmative finding that there are mitigating factors that warrant 
listing pursuant to the alternative standards; and (iii) the company 
issues a press release disclosing the fact that it had been approved 
pursuant to the alternative listing standards.\21\ The Commission notes 
that Committee panels would not have authority to approve companies 
below the ``floor'' established by the new alternative quantitative 
listing standards.
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    \21\ Amex Company Guide, Section 1203(c).
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    With respect to continued listing, the Commission believes that the 
revision to section 1003(a)(iii), to provide that a company will 
continue to qualify for listing if it has stockholders' equity of at 
least $6 million, even if it has sustained losses from continuing 
operations and/or net losses in its five most recent fiscal years, is 
reasonable. In its experience, the Amex has noted that many development 
and research-oriented companies often take a number of years to reach 
profitability. Although not all these companies become profitable, the 
Amex believes that the ability to raise capital, as evidenced by 
significant shareholders' equity, is often an indication of a company's 
strength.
    The Commission similarly believes that the revision to section 
1003(b)(i)(C), to modify the market value of public float continued 
listing standard, is reasonable. The Amex is proposing that a company 
not be considered below continued listing standards unless the 
aggregate market value of its shares publicly held is less than $1 
million for more than ninety consecutive days. Currently, a literal 
reading of the provision would result in a listed company technically 
falling below the requirement if the market value of its public float 
fell below $1 million for even one day. In view of the volatility of 
the markets, the Amex believes it is appropriate to evaluate this 
listing standard over a period of time.
    The Commission also believes that the modifications to the 
Exchange's continued listing program and appeal procedures under Parts 
10 and 12 of the Amex Company Guide strike a

[[Page 34505]]

permissible balance between the Exchange's obligation to protect 
investors and their confidence in the market, with its parallel 
obligation to perfect the mechanism of a free and open market. The 
measures by which a company may return to compliance with continued 
listing standards are explicitly delineated, providing greater 
transparency to the 18-month plan process and sustaining investor 
confidence in the integrity of the markets. The Commission believes 
that the proposed changes to the appeals process are reasonable and 
afford adequate due process to issuers while at the same time bringing 
increased efficiency to the listing and delisting processes.\22\ Among 
other things, the process provides issuers with the right to appeal a 
staff determination to deny initial or continued listing to a panel of 
at least three members of the Committee. The issuer has the right to 
appeal an adverse panel's decision to the full Committee.\23\ All 
decisions of the full Committee will also be subject to a discretionary 
``call for review'' by the Amex Board of Governors.\24\
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    \22\ For example, the Committee will now follow the same review 
process for both listing and delisting determinations, rather than 
different processes for each. In addition, the Amex notes the the 
Committee, which has extensive experience and expertise in 
evaluating listing issues, will be given greater responsibility with 
respect to listing determinations, while the Board, through its 
``call for review'' rights, will retain ultimate oversight of the 
listing and delisting process as well as of listing matters in 
general.
    \23\ Amex Company Guide, Sections 1203 and 1204.
    \24\ Amex Company Guide, Section 1206.
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    Finally, the Commission believes that changes to the Amex 
management reporting process will help to protect investors and the 
public interest. The Amex represents that it has augmented its 
management reporting system to ensure that senior Exchange management 
is regularly alerted to any developing trends emerging from the listing 
qualifications process, with respect to outstanding listing 
applications, recently approved companies, and companies failing to 
meet or in jeopardy of failing to meet the continued listing standards. 
In addition, Amex states that the management review will also encompass 
the continued status of companies approved pursuant to the proposed 
alternative standards as compared to those approved pursuant to the 
regular standards. The Amex believes that this comparison will enable 
the staff to provide feedback to the Committee and the Board of 
Governors as to the effectiveness of the Amex listing standards.
    The Commission finds good cause for approving Amendment No. 3 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. In Amendment No. 
3, the Exchange withdrew proposed section 101(d), the ``currently 
listed securities'' standard, and designated proposed section 101(e) as 
section 101(d). As the changes to the proposal set forth in Amendment 
No. 3 are directly responsive to the concerns raised by the commenters, 
the Commission finds that, consistent with section 19(b)(2) of the 
Act,\25\ good cause exists for approving Amendment No. 3 on an 
accelerated basis. The Commission notes that granting accelerated 
approval to Amendment No. 3 will allow the Amex to implement its issuer 
listing standards and procedures as soon as possible.
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    \25\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 3, including whether Amendment No. 3 
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-2001-47 and should be 
submitted by June 4, 2002.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-Amex-2001-47), as amended, 
is approved.
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    \26\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12010 Filed 5-13-02; 8:45 am]
BILLING CODE 8010-01-P