[Federal Register Volume 67, Number 199 (Tuesday, October 15, 2002)]
[Notices]
[Pages 63715-63716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26157]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46610; File No. SR-Amex-2002-72]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC To Extend the eQPriority Pilot Until October 11, 2002

October 7, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 13, 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 Amex. Amex has 
designed the proposed rule change as ``non-controversial'' under Rule 
19b-4(f)(6),\3\ thus rendering it immediately effective. 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\ 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 extend through October 11, 2002, 
Commentary .03 to Amex Rule 126 to continue a pilot program for 
processing electronically transmitted orders for the common stock of 
business corporations admitted to dealings on the Exchange 
(``eQPriority\sm\''). The text of the proposed rule change is available 
at the Office of the Secretary of the Exchange and from the 
Commission's Public Reference Room.

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

    In its filing with the Commission, Amex 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. 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
    On September 12, 2000, the Commission approved Amex's eQPriority 
initiative on a six-month pilot basis.\4\ The pilot program was 
extended for six-month periods in each of March 2001,\5\ August 
2001,\6\ and March 2002.\7\ Amex now seeks to extend the pilot through 
October 11, 2002.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 43284 (September 12, 
2000), 65 FR 57410 (September 22, 2000).
    \5\ See Securities Exchange Act Release No. 44049 (March 7, 
2001), 66 FR 14947 (March 14, 2001).
    \6\ See Securities Exchange Act Release No. 44702 (August 15, 
2001), 66 FR 43925 (August 21, 2001).
    \7\ See Securities Exchange Act Release No. 45536 (March 11, 
2002), 67 FR 12065 (March 18, 2002).
---------------------------------------------------------------------------

    eQPriority is intended to encourage persons to route marketable 
electronic orders to the Exchange by assuring them that orders sent to 
the specialist electronically will be filled either: (i) At the Amex 
Published Quote (``APQ'') up to the displayed size at the time the 
order is announced, or (ii) at an improved price.\8\ Amex believes that 
the program provides orders for stocks sent to the floor electronically 
with the optimal combination of speed, certainty of execution, and 
price improvement opportunities. eQPriority applies only to orders for 
common stock admitted to dealings; it is not available for orders for 
options, Exchange Traded Funds, or other Amex-listed securities. It 
also does not apply to openings and reopenings and to block trades 
executed at a ``clean-up'' price pursuant to Amex Rule 155.
---------------------------------------------------------------------------

    \8\ Amex records both the time and the quoted market at the time 
the electronic orders are received by the specialist's limit order 
book. The Exchange has an exception report that identifies 
situations where an electronic limit order is executed at a price 
that is inferior to the quoted market at the time that it is 
received by the limit order book. Amex has represented that the 
Exchange's regulatory staff reviews any situation identified by this 
exception report to determine if the specialist's actions were 
consistent with the Commission's Firm Quote Rule, 17 CFR 240.11Ac1-
1, and the Exchange's eQPriority rule.
---------------------------------------------------------------------------

    eQPriority works in the following manner. Once the specialist 
announces the electronic order, members may not withdraw or modify bids 
and offers incorporated into the APQ on the opposite side of the market 
from the incoming order except to provide price improvement. When an 
eQPriority order is executed in part at an improved price, the 
remainder of the order is executed at the APQ up to the number of 
shares then available (i.e., the size of the APQ at the time the order 
was announced, less any shares that provided price improvement). The 
eQPriority order does not have to match with any other trading interest 
on the same side of the market. In the event that an eQPriority order 
is larger than the APQ at the time the order is announced, the order is 
filled up to the size of the APQ according to the eQPriority 
procedures, and the unexecuted balance is filled according to the 
Exchange's customary auction market processes.
    The purpose of eQPriority is to provide incoming electronic orders 
with an execution at the displayed offer (or lower) in the case of an 
electronic buy order, or at the displayed bid (or higher) in the case 
of an electronic sell order. eQPriority is not intended to allow an 
incoming electronic order to obtain priority over orders that already 
have established priority in the market. Thus, an eQPriority order does 
not have priority over bids and offers that were announced prior to the 
time that the eQPriority order is represented. This arises only in 
situations where the market is quoted at the minimum fractional 
variation and is best

[[Page 63716]]

illustrated by an example provided by the Exchange:

    Assume the market is quoted 20.00 to 20.01, 5,000 x 5,000, and 
the bid represents a limit order on the book. Further assume that 
the specialist announces an eQPriority order to buy 1,000 and that a 
broker in the crowd is willing to sell 1,000 at 20.00. In this 
example, the limit order to buy on the book had established a bid of 
20.00 prior to the representation of the eQPriority order. The 
booked limit order, consequently, would buy the 1,000 shares sold by 
the broker at 20.00, and the eQPriority order would be filled at 
20.01.
2. Statutory Basis
    Amex believes that the proposed rule change is consistent with 
section 6(b) of the Act \9\ in general and furthers the objectives of 
section 6(b)(5) \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 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. Amex also 
believes that the proposed rule change is not designed to permit unfair 
discrimination between customers, issuers, brokers, and dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex has stated that the proposed rule change would impose no 
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

    Amex has stated that, because the proposed rule change does not (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed (or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest), it has become 
effective pursuant to section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Amex has requested that the Commission waive the 30-day pre-
operative period under Rule 19b-4(f)(6)(iii). Under that rule, the 
Commission may designate that the rule will become effective in less 
than 30 days if such action is consistent with the protection of 
investors and the public interest.\13\ Acceleration of the operative 
date will allow the pilot program to continue without disruption to 
market participants. Therefore, the Commission finds that waiving the 
30-day pre-operative period meets these criteria, and the proposed rule 
change may become operative immediately.\14\
---------------------------------------------------------------------------

    \13\ See id.
    \14\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

    Rule 19b-4(f)(6) also requires the self-regulatory organization to 
provide the Commission written notice of its intent to file the 
proposed rule change at least five business days before doing so (or 
such shorter time as designated by the Commission). Amex also has 
requested that the Commission waive this five-day pre-filing 
requirement. The Commission hereby waives the five-day pre-filing 
period.
    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.

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 
Exchange. All submissions should refer to File No. SR-Amex-2002-72 and 
should be submitted by November 5, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26157 Filed 10-11-02; 8:45 am]
BILLING CODE 8010-01-P