[Federal Register Volume 67, Number 141 (Tuesday, July 23, 2002)]
[Notices]
[Pages 48230-48231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18491]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46210; File No. SR-Amex-2001-08]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the American Stock Exchange LLC To Relax 
Certain Restrictions on Specialist Affiliates

July 16, 2002.

I. Introduction

    On February 14, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposal to provide an exemption to the general rule against a 
specialist affiliate serving as an officer or director of a company for 
which that specialist is registered. On March 14, 2001, the Commission 
published the proposed rule change in the Federal Register.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 44048 (March 7, 
2001), 66 FR 14945.
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II. Description of the Proposal

    Amex and the New York Stock Exchange (``NYSE'') each have a general 
rule that prohibits a director of an issuer from being an approved 
person of a member organization that specializes in that issuer's 
securities.\4\ The exchanges differ, however, in that the NYSE's rules 
allow for exemptions to this general prohibition,\5\ but Amex's rules 
do not. Amex has stated that, since investment banks frequently have 
personnel serving as directors of private and public companies, the 
absence of an exemption from Amex Rules 186(a) and 950(i) may create a 
disincentive for investment banks to establish or maintain a specialist 
affiliate on the Exchange. Amex, accordingly, has proposed to provide 
an exemption from Amex Rules 186(a) and 950(i) for specialist 
affiliates that establish Exchange-approved information barriers.
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    \4\ See NYSE Rule 460(b) (``No member or his member organization 
or any other member, allied member, or approved person in such 
member organization or officer or employee of the member 
organization shall be a director of a company if such member 
specializes in the stock of that company''); Amex Rule 186(a) (``No 
specialist or any member in his member organization, officer, 
employee or approved person therein shall be an officer or director 
of a corporation which has a security admitted to trading on the 
Exchange in which security the specialist is registered''). See also 
Amex Rule 950(i) (extending the provisions of Amex Rule 186 to the 
trading of option contracts).
    \5\ See NYSE Rule 98, Guidelines for Approved Persons Associated 
with a Specialist's Member Organization.
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    The Exchange also has proposed a technical correction to Amex Rule 
193 to clarify that one of the exemptions provided for by that rule 
applies to options specialists as well as equity specialists. 
Currently, Amex Rule 193(c) explicitly provides an exemption to the 
restrictions in Amex Rule 170 only for approved persons of equity 
specialists, although the rule implicitly extends this exemption to 
options specialists.\6\ The proposed rule change would explicitly do 
so.
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    \6\ Amex Rule 170(e) provides that no approved person who is 
affiliated with a specialist may purchase or sell any security in 
which such specialist is registered for any account in which that 
the approved person has a direct or indirect interest. Amex Rule 
950(n) states that Amex Rule 170 (and Commentaries .03 and .04 
thereto) apply to option transactions on the Exchange.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with

[[Page 48231]]

the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\7\ In particular, the Commission finds 
that the proposal is consistent with section 6(b)(5) of the Act \8\ 
which requires, among other things, that the rules of an exchange be 
designed to promote just and equitable principles of trade; to 
facilitate transactions in securities; to remove impediments to and 
perfect the mechanisms 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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    \7\ In approving the proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
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    In 1986, the Commission approved Amex Rule 193 and NYSE Rule 98, 
which allow an approved person of a specialist organization to be 
exempt from a number of exchange restrictions, provided there are 
exchange-approved informational firewalls between that person and the 
affiliated specialist.\9\ In 1993, the Commission approved an 
additional exemption under NYSE Rule 98 which allows an approved person 
of a specialist organization to serve as an officer or director of an 
issuer in whose securities the specialist is registered, provided the 
firewall requirement is met.\10\ Amex now proposes to adopt the same 
exemption for which the NYSE received approval in 1993.
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    \9\ See Securities Exchange Act Release No. 23768 (November 3, 
1986), 51 FR 41183 (November 13, 1986).
    \10\ See Securities Exchange Act Release No. 33080 (October 20, 
1993), 58 FR 57654 (October 26, 1993).
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    In its 1993 approval order, the Commission stated that the 
exemption which allows an approved person to serve as a director or 
officer is ``appropriate * * * so as not to place insurmountable 
restrictions on full-service member organizations.''\11\ The Commission 
continues to believe that such an exemption is appropriate and 
consistent with the requirements of the Act. The informational 
firewalls, which must be approved by the Exchange, are a reasonable 
means of ensuring that approved persons do not misuse their 
informational advantage and, thus, help protect investors and the 
public interest.\12\
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    \11\ :58 FR at 57655.
    \12\ Amex has provided the Commission with a letter describing 
the means by which it would surveil these informational firewalls. 
See Letter from Bill Floyd-Jones, Assistant General Counsel, Amex, 
to Alton Harvey, Office Head, Office of Market Watch, Commission, 
dated January 14, 2002. The Commission's Office of Compliance 
Inspections and Examinations intends to review these surveillance 
procedures during its next inspection of Amex.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Amex-2001-08) is approved.
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    \13\ :15 U.S.C. 78s(b)(2).

    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. 02-18491 Filed 7-22-02; 8:45 am]
BILLING CODE 8010-01-P