[Federal Register Volume 67, Number 221 (Friday, November 15, 2002)]
[Notices]
[Pages 69271-69273]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28991]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46779; File No. SR-Amex-2001-07]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the American Stock 
Exchange LLC Relating to the Review of a Floor Official's Market 
Decision

November 6, 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 February 14, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change, and amended such proposed 
rule change on August 27, 2001 \3\ and October 8, 2002,\4\ as described 
in Items I, II, and III below, which Items have been prepared by the 
Exchange. 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 William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated August 24, 2001, 
replacing Form 19b-4 in its entirety (``Amendment No. 1''). In 
Amendment No. 1, the Amex, in part, amended the Exchange 
Constitution to clarify that there is no right to appeal a Floor 
Official's market decision or ruling to the Board of Governors 
(``Board''); clarified the definition of ``market decision'' and 
what types of market decisions may be subject to arbitration; 
provided more detail regarding the appeal process; and clarified the 
individuals who can hold various offices and hear appeals.
    \4\ See letter from William Floyd-Jones, Jr., Assistant General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division, 
Commission, dated October 7, 2002, replacing Form 19b-4 in its 
entirety (``Amendment No. 2''). In Amendment No. 2, the Amex deleted 
the proposed amendment to the Exchange Constitution originally 
proposed in Amendment No. 1; provided a separate procedure in Amex 
Rule 22 for appealing a decision of a Floor Official that is made 
with the concurrence of a Senior Floor Official; and amended the 
rule text to state that not all decisions or rulings on the Trading 
Floor may be subject to arbitration.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend Exchange Rule 22 to change the procedure 
for reviewing a Floor Official's market decision and to eliminate the 
right of appealing a Floor Official's market decision or ruling to the 
Board. Below is the text of the proposed rule change, as amended.\5\ 
New text is italicized. Deleted text is bracketed.
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    \5\ The proposed rule text in Amendment No. 2 replaces the 
proposed rule text in the original rule filing and Amendment No. 1 
in its entirety. Telephone conversation between William Floyd-Jones, 
Jr., Assistant General Counsel, Amex, and Cyndi Nguyen, Attorney, 
Division, Commission, on November 4, 2002.
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* * * * *
Authority of Floor Officials
    Rule 22. (a) through (d). No change.
    (d) Review of Rulings.--[On request of a] Any member wishing a 
prompt (i.e., prior to scheduled settlement) on-Floor review of a Floor 
Official's market decision, [or a decision required to be made by a 
Floor Official with the concurrence of a Senior Floor Official, the 
Market Operations Division] shall, forthwith and in the presence of the 
ruling Floor Official, present the matter to an Exchange Official 
[arrange a meeting of the Senior Supervisory Officer on the Floor and 
the available Senior Floor Officials,] who shall confirm, amend, or 
overrule the decision. An Exchange Official's decision in a matter may 
be promptly presented on appeal to a Governor who shall confirm, amend, 
or overrule the decision. A Governor's decision in a matter may be 
promptly presented on appeal to a panel of three Governors who have not 
already ruled on the matter which panel shall confirm, amend, or 
overrule the decision. The Senior Supervisory Officer on the Floor may 
serve on a panel as a Governor. In the event that three Governors are 
not available, Senior Floor Officials who have not already ruled on the 
matter may serve on a panel. Any remaining vacancies on a panel may be 
filled by Exchange Officials (who have not already ruled on the matter) 
in order of their seniority as Exchange Officials. Any member wishing a 
prompt (i.e., prior to scheduled settlement) on-Floor review of a 
market decision of a Floor Official made with the concurrence of a 
Senior Floor Official shall, forthwith and in the presence of the 
ruling Floor Official and Senior Floor Official, present the matter to 
a panel of three Governors who have not already ruled on the matter.
    Any member wishing a prompt (i.e., prior to scheduled settlement) 
on-Floor review of a market decision of a Floor Official made with the 
concurrence of a Senior Floor Official shall, forthwith and in the 
presence of the ruling Floor Official and Senior Floor Official, 
present the matter to a panel of three Governors who have not already 
ruled on the matter which panel shall confirm, amend, or overrule the 
decision. The Senior Supervisory Officer on the Floor may serve on a 
panel as a Governor. In the event that three Governors are not 
available, Senior Floor Officials who have not already ruled on the 
matter may serve on a panel. Any remaining vacancies on a panel may be 
filled by Exchange Officials (who have not already ruled on the matter) 
in order of their seniority as Exchange Officials.
    The decision or ruling of a Floor Official or Officials, [or, if 
reviewed, the determination of the] Exchange Official, Governor, or 
three-Governor panel [Senior Supervisory Officer on the Floor and 
Senior Floor Officials,] shall be binding on members[, subject to any 
right of appeal under the Constitution or Rules of the Exchange]. 
Notwithstanding the foregoing, at any point after establishing a loss 
(or profit) through clearance and complying with the highest decision 
(if any) made in a matter, either party to the matter may elect to 
submit it to arbitration pursuant to Article VIII of the Constitution. 
The final decision or ruling on the Trading Floor shall not be binding 
on the arbitrators, but they may give it such weight as they feel is 
appropriate. Not all decisions or rulings on the Trading Floor may be 
subject to arbitration.
    Commentary * * * 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 Amex included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, 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.

[[Page 69272]]

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

1. Purpose
    Floor Officials are generally responsible for the supervision of 
operations on the Exchange Floor.\6\ There are four classifications of 
a Floor Official. In ascending order of responsibility, these 
classifications are: (1) Floor Official, (2) Exchange Official, (3) 
Senior Floor Official, and (4) Senior Supervisory Officer. The Vice 
Chairman of the Exchange is a Floor Governor and serves as the Senior 
Supervisory Officer.\7\ Governors of the Exchange that spend a 
substantial amount of time on the Floor are Senior Floor Officials.\8\ 
The Board, in addition, may appoint additional Senior Floor Officials 
from among the Exchange Officials who have previously served on the 
Board and who spend a substantial part of their time on the Floor.\9\ 
Three Floor Governors and three former Floor Governors currently serve 
as Senior Floor Officials. Article II, Section 3 of the Exchange 
Constitution (``Delegation of Powers'') authorizes the Board to appoint 
a number of members and persons that are associated with member 
organizations in a senior capacity as Exchange Officials. Exchange 
Officials that spend a substantial portion of their time on the Floor 
are deemed to be Floor Officials.\10\ Currently, there are 
approximately 38 on-Floor Exchange Officials that function as Floor 
Officials. Amex Rule 21(b) also authorizes the Chairman to appoint as 
Floor Officials, ``such other persons familiar with the Floor as the 
Chairman, or the Chief Executive Office if delegated by the Chairman, 
shall determine to be necessary for the effective and orderly 
supervision of the operations on the Floor.'' \11\ Currently there are 
approximately 80 ``other'' Floor Officials. Numerous provisions of the 
Exchange's rules specifically call for a Floor Official's involvement 
in the Exchange's operations.
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    \6\ See Exchange Rule 21(b).
    \7\ See Exchange Rule 21(a). Telephone conversation between 
William Floyd-Jones, Jr., Assistant General Counsel, Amex, and Cyndi 
Nguyen, Attorney, Division, Commission, on November 4, 2002 
(clarifying the applicability of a reference to Amex's 
Constitution).
    \8\ See Exchange Rule 21(a).
    \9\ See Exchange Rule 21(a).
    \10\ See Exchange Rule 21(b).
    \11\ There was a technical correction in this quoting of the 
rule text in Exchange Rule 21(b). Telephone conversation between 
William Floyd-Jones, Jr., Assistant General Counsel, Amex, and Cyndi 
Nguyen, Attorney, Division, Commission, on November 4, 2002.
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    Floor Officials make ``rulings'' or ``market decisions'' (the terms 
are synonymous) in two distinct sets of circumstances.\12\ In the first 
set of circumstances, Floor Officials make rulings on behalf of the 
Exchange on matters that require action or review by the Exchange. 
Examples of situations where Floor Officials make decisions on behalf 
of the Exchange include decisions to (1) halt or reopen trading in a 
security,\13\ (2) approve the specialist granting a stop in a minimum 
variation market,\14\ (3) approve the cancellation or revision of a 
trade,\15\ and (4) approve the specialist as a dealer electing a stop 
order by taking the offer or hitting the bid.\16\ In the second set of 
circumstances, Floor Officials rule with respect to market disputes 
submitted to them by members.\17\ An example of where Floor Officials 
may be called upon to resolve market disputes includes a situation 
where there is a disagreement between two members as to the price or 
size of a trade. In either circumstances, a Floor Official may not rule 
on a matter in which the Floor Official has a personal interest. A 
Floor Official also may not decide, or be part of a panel that decides, 
an appeal of a ruling that the same Floor Official previously made.
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    \12\ Floor Officials also may issue fines under the Exchange's 
Minor Rule Violation Fine Plan. The review of these fines is subject 
to a separate process described in Exchange Rule 590 that is not 
changed by the current proposal. See Part 2 of Exchange Rule 590. 
Telephone conversation between William Floyd-Jones, Jr., Assistant 
General Counsel, Amex, and Cyndi Nguyen, Attorney, Division, 
Commission, on November 4, 2002 (clarifying the Floor Officials' 
authority to issue fines only under Part 2 of Exchange Rule 590).
    \13\ See Exchange Rule 22(c)(2).
    \14\ See Exchange Rule 109(c).
    \15\ See Exchange Rule 135.
    \16\ See Exchange Rule 154.04.
    \17\ See Exchange Rule 22(c)(3).
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    Members are not required to submit market disputes to Floor 
Officials for rulings. However, once they do so, they must conduct 
themselves in accordance with the rulings. The Exchange believes that 
the ability of Floor Officials to make prompt rulings on market 
disputes submitted to them by members is a time honored and important 
feature both of the Exchange and other Floor-based markets. The 
Exchange believes that a Floor Official's review of member disputes 
permits the prompt (i.e., prior to settlement) resolution of trading 
disputes and thereby limits financial risk to members and their 
customers from such disputes. Therefore, the Exchange believes that the 
ability of Floor Officials to rule on member disputes is in the public 
interest and the interest of investors.
    Exchange Rule 22(d) currently provides that a member wishing a 
prompt, on-Floor review of a Floor Official's market decision (or a 
decision required to be made by a Floor Official with the concurrence 
of a Senior Floor Official) could request and Market Operations would 
``arrange a meeting of the Senior Supervisory Officer on the Floor and 
the available Senior Floor Officials, who shall confirm, amend or 
overrule the decision.'' Currently, the decisions would be binding, 
subject to a right of appeal under Article II, Section 3 of the 
Exchange Constitution.
    When the Floor Official and appeal systems were originally adopted, 
the Amex had a different mix of securities, a smaller Trading Floor, 
fewer members, and far less volume than it has currently.\18\ Aside 
from the new securities and a larger Trading Floor, the Exchange 
believes that the increased number of orders and transactions on the 
Floor and the speed with which market prices change and information 
needs to be provided to customers make the current appeals process 
unsatisfactory. Further, the Exchange believes that the ability to 
subject a ruling of a Floor Official to review by the Board or a Board 
level committee facilitated pointless rather than constructive appeals 
since, by the time the Board considered the appeal, the trade had long 
since settled and the Board could not award monetary damages.
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    \18\ In 1965, there were 650 members, 25 Floor Officials, 2 
Senior Floor Officials, and 10 Floor Governors.
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    To address these concerns, the Exchange is proposing to change the 
system of appealing Floor Official rulings. The Exchange believes that 
the proposed system takes advantage of the increased number of Exchange 
Officials as well as the speed with which an appeal could be handled if 
conducted by a single Exchange Official in the same vicinity as the 
matter in question.
    As is currently the case, a member that seeks a Floor Official 
review either of a dispute or an event that requires a Floor Official's 
approval would seek a Floor Official with an understanding of the 
matter at hand and is in close physical proximity to the member. For 
example, a member with a market dispute involving options is unlikely 
to contact a Floor Official with limited options experience to rule on 
the matter. Under the proposed system, a member concerned with the 
appropriateness of the initial Floor Official's ruling could appeal to 
an Exchange Official. Next, a

[[Page 69273]]

member aggrieved by an Exchange Official's ruling could then appeal the 
Exchange Official's ruling to a Floor Governor. The third appeal would 
be to a three-Governor panel. The proposed appeal process thus provides 
three levels of prompt review of a Floor Official's ruling. The 
Exchange believes that the several levels of review would assure that 
Floor Officials' decisions are fair and impartial as well as prompt.
    There would be a slightly different appeal process for the limited 
number of situations where a Floor Official and a Senior Floor Official 
must rule together.\19\ In these situations, the appeal would go 
directly to a three Governor panel since a Senior Floor Official either 
is a Floor Governor or is the equivalent of a Floor Governor in his or 
her authority to make rulings.
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    \19\ See Amendment No. 2, supra note . An example of a situation 
where a Floor Official must act jointly with a Senior Floor Official 
is found in Commentary .02 to Amex Rule 1. This rule provides that 
if an option trading rotation is in progress prior to 4:02 p.m., and 
a Senior Floor Official and a Floor Official determine that a final 
trading rotation is needed to assure a fair and orderly market, the 
rotation in progress shall be halted and the final rotation begun as 
promptly as possible after 4:02 p.m.
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    The proposed rule change, as amended, would eliminate the right of 
appeal to the Board which the Exchange believes only facilitates 
pointless appeals due to the time required to convene the Amex 
Adjudicatory Council to review matters.\20\ The proposed rule change, 
as amended, however, would leave unchanged any right that a member or 
its customer may have to submit a market dispute to arbitration. The 
rule filing does not seek in any way to define the matters that may be 
brought to arbitration, and the arbitrability of claims would remain a 
matter to be determined by arbitrators or the courts.
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    \20\ The Board has delegated to the Amex Adjudicatory Council, a 
board level committee, the responsibility for reviewing appeals to 
the Board.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \21\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act \22\ in particular, in 
that it is designed to promote just and equitable principles of trade 
and to protect investors and the public interest by providing for the 
prompt and fair resolution of a Floor Official's market decision.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 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

    The Exchange neither solicited nor received written comments with 
respect to the proposed rule change, as amended.

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, 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-2001-07 and should be submitted by December 6, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-28991 Filed 11-14-02; 8:45 am]
BILLING CODE 8010-01-P