[Federal Register Volume 67, Number 233 (Wednesday, December 4, 2002)]
[Notices]
[Pages 72241-72243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46916; File No. SR-AMEX-2002-36]


Self-Regulatory Organizations; American Stock Exchange L.L.C.; 
Notice of Filing of Proposed Rule Change To Establish Resolution Times 
for Uncompared Transactions

November 26, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 72242]]

(``Act''),\1\ notice is hereby given that on April 22, 2002, American 
Stock Exchange LLC (``Amex'') 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 primarily by 
Amex. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested parties.\2\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Amex staff informed the Commission staff on October 23, 
2002, that it had satisfactorily concluded its discussions with the 
National Securities Clearing Corporation regarding the filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to amend Amex's rule 731 
and to adopt Commentary .08 to rule 731 to provide flexibility in 
establishing resolution times for uncompared transactions in equities, 
including shares of exchange traded funds and shares of trust-issued 
receipts.

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 these 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by Amex.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The resolution of uncompared trades (``DKs'') has gone through 
substantial revision as the nature of trade comparison has changed. In 
1966, standardized forms were adopted for the timely and efficient 
resolution of DKs. The primary responsibility for DK resolution at that 
time was entrusted to floor members.\4\ In 1978, the time limit for 
replying to a DK notice was set at 3:45 p.m. on trade date plus three 
business days (``T+3'') or prior to 10 a.m. on trade date plus five 
business days (``T+5'') if a specialist or independent member was 
involved. Upon a change in the opening to 9:30 a.m. in 1985, members 
were then required to reply to a DK notice involving a specialist or 
independent member prior to 9:30 a.m. on T+5.
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    \4\ A separate rule for uncompared options trades, rule 970, was 
adopted when options commenced trading at the Amex in 1975. Rule 970 
sets forth the procedures for settling uncompared options trades 
through the Rejected Option Transaction Notice.
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    The Commission's 1987 Market Break Report \5\ resulted in a major 
initiative to shorten the comparison process, including the development 
in 1990 of Amex's Intra-Day Comparison system (``IDC'').\6\ In 1990, 
Amex also implemented rule 719, Comparison of Exchange Transactions, 
which required that any transactions effected on the exchange must be 
compared or otherwise closed out by Amex's close of business on the 
business day following the day of the contract.\7\ Amex adopted further 
rule changes in 1991 to formalize the operational procedures for full 
implementation of Amex's electronic equity trade comparison 
facility.\8\ Among the new rules adopted was rule 731, Resolution of 
Uncompared Transactions, that expressly required that member 
organizations resolve uncompared trades no later than 3 p.m. on T+1 or 
3:30 p.m. on T+1 if an agent was involved.
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    \5\ Commission, Division of Market Regulation, The October 1987 
Market Break (February 1988).
    \6\ Exchange Act Release No. 28069 (May 29, 1990), 55 FR 23324 
(June 7, 1990), (SR-Amex-90-01) (order approving IDC for post-trade 
processing of transactions in equity securities).
    \7\ Exchange Act Release No. 27851 (March 27, 1990), 55 FR 12759 
(April 5, 1990), (SR-Amex-89-05) (order permanently approving rule 
requiring regular way trades be compared or closed out by close of 
business on T+1). In 1994, the SEC approved trade date submission of 
comparison data at the Amex. Exchange Act Release No. 34298 (July 1, 
1994), 59 FR 35397 (July 11, 1994), (SR-Amex-94-13)(order approving 
program to compare equity trades on trade date). Today Rule 719(a) 
requires members and member organizations to submit comparison data 
to their clearing firm for any transaction executed on Amex within 
two hours of the trade.
    \8\ Exchange Act Release No. 29157 (May 2, 1991), 56 FR 21510 
(May 9, 1991), (SR-Amex-90-16)(order approving rule detailing 
mechanics of resolving uncompared equity trades through IDC).
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    Because of the inherent risks in the settlement process and in 
uncompared trades, Amex believes it should have the flexibility to 
change the time periods for the resolution of DKs. For example, market 
conditions and systemic changes may require Amex to implement different 
cut-off time periods for the resolution of DKs depending on the 
particular product, such as stocks, bonds, ETFs, or TIRs. Accordingly 
Amex proposes to amend rule 731 to allow Amex to establish DK 
resolution time periods for equities, bond, ETFs, and TIRs as 
appropriate.
    Specifically, the proposed rule change will amend rule 731 by 
providing Amex flexibility in determining cut-off times and dates for 
member organizations to make any necessary additions, deletions, or 
changes to its DK data and in determining cut-off times for resolution 
and acceptance of DKs remaining uncompared in the system. The proposed 
rule change also will adopt Commentary .08 to rule 731 that extends the 
applicability of the rule to Portfolio Depositary Receipts, Index Fund 
Shares, and Trust Issued Receipts orders to buy or sell a security 
where the price is derivatively based upon another security or index of 
securities.\9\ The proposed Commentary also provides that Amex may 
establish separate times to review and resolve DKs in these products.
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    \9\ Orders to buy or sell an option will continue to be covered 
by rule 950(f) and the applicable Commentary to rule 950.
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    The proposed rule change is consistent with section 6(b) of the Act 
\10\ in general and furthers the objectives of section 6(b) in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, remove impediments to and perfect the mechanisms of a free 
and open market and a national market system, and in general, protect 
investors and the public interest.
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    \10\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will 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

    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 self-regulatory organization 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.

[[Page 72243]]

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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of Amex. All submissions 
should refer to File No. SR-Amex-2002-36 and should be submitted by 
December 26, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30676 Filed 12-3-02; 8:45 am]
BILLING CODE 8010-01-P