[Federal Register Volume 68, Number 12 (Friday, January 17, 2003)]
[Notices]
[Pages 2592-2593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1104]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47177; File No. SR-Amex-2002-102]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC To Create a New Percentage 
Order Type To Be Called ``Immediate Execution or Cancel Election''

January 13, 2003.
    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 December 10, 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 the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Amex rule 131 to provide that if a 
percentage order is marked ``Immediate Execution or Cancel Election,'' 
the elected portion of a percentage order with this designation is to 
be executed immediately, in whole or in part, at the price of the 
electing transaction. If the elected portion cannot be so executed, the 
election shall be deemed cancelled, and shall revert back to the 
percentage order and be subject to subsequent election or conversion.
    The text of the proposed rule change is available at the Office of 
the Secretary, the Amex, and at the Commission.

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
    Currently, Amex rule 131 provides for three types of percentage 
orders: straight limit, last sale, and ``buy minus/sell plus.'' The 
election provisions of each type of percentage order operate as 
follows:
    [sbull] Straight Limit: When a trade takes place, an amount of 
shares equal to the size of that trade is ``elected'' as a limit order, 
and becomes a ``held'' order executable at a price within the overall 
limit on the order. Typically, the limit price is above the market when 
the order is entered (in the case of an order to buy), or below the 
market (in the case of an order to sell).
    [sbull] Last Sale: When a trade takes place, an amount of shares 
equal to the size of that trade is ``elected'' as a limit order, and 
becomes a ``held'' order executable at the price of that trade, or at a 
better price, as long as such price is within the overall limit of the 
order. Typically, the limit price is above the market when the order is 
entered (in the case of a buy order) or below the market (in the case 
of a sell order).
    [sbull] ``Buy Minus/Sell Plus'': When a trade takes place, an 
amount of shares equal to the size of the trade is elected, and becomes 
a ``held'' order executable only on stabilizing ticks within the 
overall limit of the order. An order of this type must be qualified by 
placing an overall limit price on the order.
    As described below, the Exchange believes that the application of 
the election provisions does not meet the interests of some investors 
placing percentage orders, particularly last sale percentage orders:
    [sbull] Last Sale: The Exchange believes that investors entering 
last sale percentage orders seek to trade along with the trend of the 
market, without initiating price changes or otherwise influencing the 
equilibrium of buying and selling interest. When a last sale percentage 
order is elected, it will typically receive an execution in one of two 
ways:
    (1) There is sufficient additional liquidity at the price of the 
electing transaction for the elected portion to receive an immediate 
execution at the price of the electing transaction; or
    (2) If the order cannot receive an immediate execution at the price 
of the electing transaction, it is sequenced with other limit orders at 
that price, and will receive an execution if and when there is 
sufficient contra side interest for trades to be effected at that 
price.

[[Page 2593]]

    Executions pursuant to (2) above may not always be able to be 
effected, as the market trend may continue to move away from the price 
at which the order may be executed. Elected portions of the last sale 
percentage order may lag behind movement of the market, which defeats 
the investor's purpose in entering the order.
    In response, the Exchange proposes to adopt a percentage order type 
called ``Immediate Execution or Cancel Election.'' The Exchange 
believes that, consistent with the underlying philosophy of the 
percentage order rules, any proposed approach to accommodating 
investors should limit the specialist's discretion in representing such 
orders, while still allowing a degree of flexibility to meet the needs 
of those entering the orders. The Exchange notes that ``Immediate or 
Cancel'' is a recognized order type under Exchange rule 131(k). By 
placing this designation on the percentage order, the investor would 
require the specialist to treat an election as cancelled unless the 
elected portion can be executed immediately (in whole or in part) at 
the price of the electing transaction. If the order cannot be so 
executed, the election would be cancelled, and the unexecuted elected 
portion would revert to the percentage order, subject to subsequent 
election (and execution/cancellation as above) or conversion (if that 
instruction also is specified on the order).
    For example, where an ``Immediate Execution or Cancel Election'' 
buy percentage order for 1,000 shares at 30.50 is placed with the 
specialist and the next transaction consists of 500 shares at 30.25, 
the specialist would elect 500 shares and must immediately execute the 
order at the price of the electing transaction, 30.25, or better. If 
there is liquidity sufficient to execute only 300 shares at the price 
of the electing transaction, 30.25, or better, the specialist would 
execute 300 shares at that price, and the election of the remaining 200 
shares would be canceled, and the 200 shares would revert back to an 
unelected percentage order. If, instead, there is no further market 
interest to sell at 30.25, and the market moves away from the price of 
the electing transaction to, for instance, 30.30, the entire election 
would be canceled,\3\ and the unexecuted elected portion would revert 
back to a percentage order.
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    \3\ The specialist would not execute the order at 30.30, even 
though such an execution is within the maximum limit of the 
percentage order (30.50). In this regard, an Immediate Execution or 
Cancel Election percentage order is treated similar to a last sale 
percentage order. Telephone conversation between David Fisch, 
Managing Director, Amex, and Sapna Patel, Attorney, Division of 
Market Regulation, Commission on January 10, 2003.
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    The Amex believes that this approach sets forth objective criteria 
to guide the specialist's representation of the order, while ensuring 
that the elected portion does not lead the market by initiating any 
significant price change, thereby defeating the investor's objectives. 
The investor's instructions, not the specialist's discretion, would 
dictate how the order is handled. The Exchange notes that an investor 
seeking to have a percentage order executed under current rules would 
be free to continue to do so by simply designating the order as one of 
the three currently existing order types.

2. Statutory Basis

    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \4\ in general and furthers the objectives 
of section 6(b) \5\ 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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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 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-2002-102 and 
should be submitted by February 7, 2003.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
Margaret McFarland,
Deputy Secretary.
[FR Doc. 03-1104 Filed 1-16-03; 8:45 am]
BILLING CODE 8010-01-P