[Federal Register Volume 68, Number 4 (Tuesday, January 7, 2003)]
[Notices]
[Pages 818-819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-269]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47113; File No. SR-Amex-2002-89]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by American Stock Exchange LLC Relating to 
Crossing Procedures for Clean Agency Crosses

December 31, 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 November 5, 2002, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On December 23, 2002, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ 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 Michael Cavalier, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, SEC, dated December 20, 2002, and enclosures 
(``Amendment No. 1''). Amendment No. 1 corrected a typographical 
error in the text of the proposed amendment.
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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 126(g), Commentary .02 to 
provide that orders of 5,000 shares or more for the account of a non-
member organization may be crossed at a price at or within the bid or 
offer without being broken up by a specialist or Registered Trader at 
the cross price. The text of the proposed rule is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
Rule 126(g)
Commentary
    .02 When a member has an order to buy and an order to sell an 
equivalent amount of the same security, and both orders are of 5,000 
shares or more and are for the accounts of persons who are not members 
or member organizations, the member may ``cross'' those orders at a 
price at or within the prevailing quotation. The member's bid or offer 
shall be entitled to priority at such cross price, irrespective of pre-
existing bids or offers at that price. The member shall follow the 
crossing procedures of Rule 151, and another member may trade with 
either the bid or offer side of the cross transaction only to provide a 
price which is better than the cross price as to all or part of such 
bid or offer. A member who is providing a better price to one side of 
the cross transaction must trade with all other market interest having 
priority at that price before trading with any part of the cross 
transaction. No member may break up the proposed cross transaction, in 
whole or in part, at the cross price. No specialist or Registered 
Trader may effect a proprietary transaction to provide price 
improvement to one side or the other of a cross transaction effected 
pursuant to this Commentary .02. A transaction effected at the cross 
price in reliance on this Commentary .02 shall be printed as ``stopped 
stock''.
* * * * *

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 Exchange 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
    Amex Rule 126 (Precedence of Bids and Offers) sets out rules 
governing priority and precedence of bids and offers on the Exchange 
Floor, and generally provides that bids and offers are entitled to 
precedence based on time, with a member bidding at the highest price 
(offering at the lowest price) entitled to priority, and members 
simultaneously bidding at the highest price (offering at the lowest 
price) entitled to be on parity and divide executions at their price 
after a previous sale removes all bids and offers from the Floor. 
Commentary .02 to Amex Rule 126(g) applies only to agency (that is, 
both orders for accounts of non-members) crosses (referred to herein as 
``clean crosses'') to buy and sell orders of 5,000 shares or more. This 
commentary provides that a member may cross those orders at a price at 
or within the prevailing quotation, with such orders entitled to 
priority at the cross price over previously entered bids and offers. 
When crossing these orders, the member must follow the crossing 
procedures of Amex Rule 151 and another member may trade with either 
the bid or offer side of the cross, but only to provide price 
improvement to all or part of the bid or offer. In addition, the member 
must trade with all other market interest having time priority at that 
price before trading with any part of the cross transaction.
    The Exchange implemented Commentary .02 to facilitate execution of 
block size crosses on the Amex. In implementing this exception to the 
Exchange's rules of precedence, and, in reducing minimum share size 
required to permit a clean cross from 25,000 to 5,000 shares, the 
Exchange was responding competitively to regional exchanges that were 
attracting Amex orders because orders to cross are not readily broken 
up by other trading interest in those markets, which may lack a trading 
crowd or limit orders on specialists' books.\4\
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    \4\ See File No. SR-Amex-92-41, approved in Release No. 34-
34089, May 26, 1994 and File No. SR-Amex-01-02, approved in Release 
No. 34-44123, March 28, 2001.
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    A member currently is not permitted to break up a proposed clean 
agency cross at the cross price, but may trade with the bid or offer 
side to provide price improvement to all or part of the bid or offer. 
The Exchange proposes to amend Amex Rule 126(g), Commentary .02 to 
provide that orders of 5,000 shares or more for the account of a non-
member or member organization may be crossed at a price at or within 
the bid or offer without being broken up by a specialist or Registered 
Trader acting as principal. The proposed rule would still enable 
members representing agency orders to break up the cross to provide 
price improvement to all or part of the bid or offer. The purpose of 
the rule is to continue to reduce the amount of crossing activity lost 
to regional exchanges or the third market. Because clean crosses are 
required under Amex Rule 151 to be effected at the minimum price 
variation, since the advent of decimal pricing, it is possible for the

[[Page 819]]

specialist or other members to interfere with a cross while providing 
price improvement of only $.01 to a portion of the cross. This may 
result in a perception that specialists or Registered Traders will 
break up a proposed clean cross transaction by trading for their own 
accounts at a minimally improved price ahead of a public customer on 
the other side of the cross. This perception could encourage a loss of 
crossing activity to other markets.
    Amex clean cross procedures will continue to preserve auction 
market principles by providing the possibility of price improvement 
(because members must follow Amex Rule 151 crossing procedures), and by 
requiring that members trade with other market interest having time 
priority at that price before trading with any part of the cross 
transaction. In addition, the Exchange believes the proposal will 
enhance competition among markets in the execution of agency crosses.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \5\ of the Act in general and furthers the objectives of 
Section 6(b)(5) \6\ 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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    \5\ 15 U.S.C. 78(f)(b).
    \6\ 15 U.S.C. 78(f)(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 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 number SR-Amex-2002-89 and 
should be submitted by January 28, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-269 Filed 1-6-03; 8:45 am]
BILLING CODE 8010-01-P