[Federal Register Volume 67, Number 132 (Wednesday, July 10, 2002)]
[Notices]
[Pages 45773-45775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-17132]



[[Page 45773]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46148; File No. SR-Amex-2002-56]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by American Stock Exchange LLC Relating to Odd-Lots in Nasdaq 
Securities

June 28, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
June 17, 2002, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. 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.
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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 Amex Rule 118 (Trading in Nasdaq 
National Market Securities) and Rule 205 (Manner of Executing Odd-Lot 
Orders) to describe odd-lot execution procedures applicable to trading 
Nasdaq Market securities. These procedures are proposed to be 
implemented on a six-month pilot program basis. The text of the 
proposed rule change is below. Proposed new language is in italics.

Trading in Nasdaq National Market Securities

    Rule 118. (a) through (i) No change.
    (j) Odd-Lot Orders--Odd lot orders in Nasdaq National Market 
securities shall be executed in the following manner:
    (i) Market and Executable Limit Orders--A market or executable 
limit order shall receive automatic execution, unless otherwise 
provided herein, at the price of the adjusted national best offer (in 
the case of an order to buy) or qualified national best bid (in the 
case of an order to sell) in the security at the time the order has 
been received at the trading post or through the Amex Order File.
    All market and executable limit odd-lot orders entered prior to the 
opening of trading of Nasdaq National Market securities on the Exchange 
shall receive automatic execution at the price of the first round--lot 
or Part of Round Lot (PRL) transaction on the Exchange.
    For purposes of this subparagraph (j)(i), the qualified national 
best bid or offer for a Nasdaq National Market security shall mean the 
highest bid and lowest offer, respectively, disseminated (i) by the 
Exchange or (ii) by another market center participating in the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq Listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges Basis (``Plan''); provided, however, that 
the bid and offer in another such market center will be considered in 
determining the qualified national best bid or offer in a stock only if 
(A) the (bid or offer) is no more than 25 cents above the bid (or below 
the offer), respectively, disseminated by the Exchange, (B) the 
quotation conforms to the requirements of Rule 127 (``Minimum Price 
Variations''), (c) the quotation does not result in a locked or crossed 
market, (D) the market center is not experiencing operational or system 
problems with respect to the dissemination of quotation information, 
and (E) the bid or offer is ``firm,'' that is, members of the market 
center disseminating the bid or offer are not relieved of their 
obligations with respect to such bid or offer under paragraph (c)(2) of 
Rule 11Ac1-1 pursuant to the ``unusual market'' exception of paragraph 
(b)(3) of Rule 11Ac1-1.
    (ii) Limit Orders; Stop Orders; Stop-Limit Orders; Other Order 
Types--Unless otherwise provided herein, non-executable limit, stop, 
and stop limit orders shall be executed in accordance with Rule 205, 
Parts A(2), A(3), and A(4), respectively. Orders to buy or sell ``at 
the close'' shall be filled at the price of the closing round-lot sale 
on the Exchange. An odd-lot order received prior to the close but not 
filled either before the close or on the close may be filled after the 
close in accordance with the provisions of Rule 205, Part C(1).
    (iii) Non-Regular Way Trades--Non-regular way trades shall be 
effected in accordance with the provisions of Rule 205, Part C(2).
    (iv) Locked and Crossed Market Conditions
    (a) For market and executable limit orders entered after the 
opening, when the national best bid and offer is in a locked market 
condition (i.e., the bid and offer are the same), odd-lot buy and sell 
orders will be executed at that locked market price.
    (b) Crossed Market Condition--When a crossed market condition 
exists (i.e., bid higher than offer) and the national best displayed 
bid is higher than the national best displayed offer by $.05 or less, 
market and executable limit orders will receive automatic execution at 
the mean of the bid and offer prices. If the mean is in a subpenny 
increment, the price of execution would be rounded up to the nearest 
$.01. When the national best displayed bid is higher than the offer by 
more than $.05, an odd-lot order will not receive automatic execution 
and is to be executed manually at the time a locked or crossed market 
condition no longer exists, in accordance with subparagraph (i) of this 
paragraph (j).
    (v) No odd-lot differential may be charged on any odd-lot orders, 
except for non-regular way trades effected under Rule 118 (j)(iii).
    (vi) Odd-lot orders in Nasdaq National Market securities are 
permitted to be marked (``short'') and are acceptable for all order 
types, and Rule 7, Commentary .02 shall apply to such orders.

Manner of Executing Odd-Lot Orders

Rule 205
Commentary
    .01 through .04  No change.
    .05  Odd-lot orders in Nasdaq National Market securities shall be 
executed in accordance with Rule 118(j).

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 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
    The Exchange has filed a proposed rule change to permit trading of 
Nasdaq National Market securities pursuant to unlisted trading 
privileges.\3\ The Exchange proposes to add new paragraph (j) to 
proposed Rule 118 to describe procedures applicable to the execution of 
odd-lot orders. The

[[Page 45774]]

Exchange currently is modifying its existing system in order to provide 
automatic execution of market and executable limit orders in Nasdaq 
National Market securities of less than 100 shares in a manner 
generally consistent with procedures set forth in Amex Rule 205. Round 
lot orders (e.g., 100 shares) and Part of Round Lot (``PRL'') orders 
(e.g., 175 shares) will not be subject to automatic execution. The 
Exchange proposes to implement these procedures on a six-month pilot 
program basis.
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    \3\ See Securities Exchange Act Release No. 45365 (January 30, 
2001), 67 FR 5626 (February 6, 2002)(SR-Amex-2001-106).
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    Market and executable odd-lot limit orders to buy (sell) will be 
executed at the price of the qualified national best offer (bid) at the 
time the order is received at the trading post or through the Amex 
Order File (AOF). Market and executable limit orders entered before the 
opening of trading in Nasdaq securities on the Exchange will receive an 
execution at the price of the first reported round-lot or PRL on the 
Amex.
    For purposes of this provision, the qualified national best bid or 
offer is the highest bid and lowest offer disseminated by the Amex or 
by another market center that is a participant in the Joint Self-
Regulatory Organization Plan Governing the Collection, Consolidation 
and Dissemination of Quotation and Transaction Information for Nasdaq 
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges 
Basis. The bid or offer of such other market center will be considered 
in determining the qualified national best bid or offer only if it 
meets the conditions specified in proposed Rule 118(j)(i), including 
that the best bid or offer is no more than 25 cents away from Amex's 
displayed bid or offer; the quotation conforms to Amex Rule 127 
(``Minimum Price Variations''), that is, the bid or offer must be in a 
one cent increment; the quotation does not result in a locked or 
crossed market; the market center is not experiencing operational or 
system problems affecting quotation dissemination; and members of the 
other market center disseminating the quotations are not relieved of 
their obligations with respect to their quotations pursuant to the 
``unusual market'' exception of Rule 11Ac1-1. These exceptions are 
similar to those applied to execution of odd-lots in Amex-listed 
securities under Rule 205, Commentary .04.
    Procedures for the execution of non-executable limit orders, stop 
orders, stop limit orders, other order types, orders filled after the 
close and non-regular way trades will be similar to existing odd-lot 
execution procedures under Amex Rule 205A(2)-A(4), B and C. Such orders 
will be processed manually and will not be automatically executed.
Locked and Crossed Market Conditions
    The Exchange will be implementing specific procedures for 
automatically executing market and executable limit odd-lot orders 
entered after the opening of Amex trading in Nasdaq securities when the 
national best bid and offer is in a locked market condition (i.e., bid 
is equal to the offer) or a crossed market condition (i.e., bid is 
higher than the offer). If a locked market exists, market orders and 
executable buy and sell limit orders will be executed at the same price 
as the locked price. If a crossed market exists, and the bid is higher 
than the offer by $.05 or less, market and executable limit orders will 
be executed at the mean of the crossed bid and offer. If the mean is 
less than $.01, the execution will be rounded up to the nearest $.01.

Examples:
    BBO is $10.04 to $10.00
    Market odd lot order to buy or sell arrives
    Execute at $10.02

    BBO is $10.05 to $10.00
    Market odd lot order to buy or sell arrives
    Execute at $10.03 ($10.025 is rounded to $10.03)

If a crossed market exists and the bid is higher than the offer by more 
than $.05, then an odd-lot order will not be automatically executed, 
but will be executed manually in accordance with proposed Rule 
118(j)(i) (i.e., filled at the price of the next unlocked and uncrossed 
qualified national bid or offer).
    The Exchange also proposes to add new Commentary .05 to Rule 205 to 
reference Rule 118(j) odd-lot procedures.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\4\ in general and furthers the objectives of Section 6(b)(5) \5\ 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, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, to protect investors and the public interest 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(6).
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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.

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 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-2002-56 and 
should be submitted by July 25, 2002.


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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-17132 Filed 7-9-02; 8:45 am]
BILLING CODE 8010-01-P