[Federal Register Volume 68, Number 24 (Wednesday, February 5, 2003)]
[Notices]
[Pages 5941-5942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2676]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47281; File No. SR-Amex-2002-48]


Self-Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change and Amendment No. 1 Thereto by the American Stock Exchange 
LLC Relating to its Marketing Performance Standards for Exchange 
Specialists

January 29, 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 May 30, 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. On 
January 27, 2003, the Exchange filed an amendment 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 William Floyd-Jones, Assistant General 
Counsel, Amex, to Katherine England, Assistant Director, Division of 
Market Regulation, Commission, dated January 14, 2003 (``Amendment 
No. 1''). Amendment No. 1 clarifies in the proposed rule text that 
contacts by exchange specialists to issuers or representatives of 
member organizations will be conducted either off the Exchange floor 
or, if on the Exchange floor, outside of normal auction market 
business hours.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt Commentary .08 to Amex Rule 26 
(``Performance Committee'') to establish marketing performance 
standards for Exchange specialists. The text of the proposed rule 
change is available at the Office of the Secretary, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Committee on Floor Member Performance (``Performance 
Committee'') reviews specialist performance and may take remedial 
action, including terminating a specialist's registration or 
reallocating securities, when it identifies inadequate performance. The 
Exchange believes that the Performance Committee protects both the 
interests of investors, by taking remedial actions to correct poor 
performance, and the institutional interests of the Exchange, by 
ensuring that the Amex is as competitive as possible with other 
markets.\4\
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    \4\ See In the Matter of the Application of Pacific Stock 
Exchange's Options Floor Post X-17, Admin. Proc. File No. 3-7285, 
Securities Exchange Act Release No. 31666 (December 29, 1992), 51 
SEC Dkt. 261. The Commission determined that performance evaluation 
processes fulfill a combination of business and regulatory interests 
at exchanges and are not disciplinary in nature. The Commission 
states in the Post X-17 case:
    We believe that the reallocation of a market maker's (or a 
specialist's) security due to poor performance is neither an action 
responding to a violation of an exchange rule nor an action where a 
sanction is sought or intended. Instead, we believe that 
performance-based security reallocations are instituted by exchanges 
to improve market maker performance and to ensure quality of 
markets. Accordingly, in approving rules for performance-based 
reallocations, we historically have taken the position that the 
reallocation of a specialist's or a market maker's security due to 
inadequate performance does not constitute a disciplinary sanction.
    We believe that an SRO's need to evaluate market maker and 
specialist performance arises from both business and regulatory 
interests in ensuring adequate market making performance by its 
market makers and specialists that are distinct from the SRO's 
enforcement interests in disciplining members who violate SRO or 
Commission Rules. An exchange has an obligation to ensure that its 
market makers or specialists are contributing to the maintenance of 
fair and orderly markets in its securities. In addition, an exchange 
has an interest in ensuring that the services provided by its 
members attract buyers and sellers to the exchange. To effectuate 
both purposes, an SRO needs to be able to evaluate the performance 
of its market makers or specialists and transfer securities from 
poor performing units to the better performing units. This type of 
action is very different from a disciplinary proceeding where a 
sanction is meted out to remedy a specific rule violation. 
(Footnotes omitted.)
    See also In re James Niehoff and Company, Administrative 
Proceeding File No. 3-6757, (November 30, 1986), and the other 
authorities cited in the Commission's Post X-17 decision.
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    The Exchange recently amended its rules to include ``competition 
with other markets'' and ``administrative factors'' among the standards 
by which the Performance Committee may evaluate specialist 
performance.\5\ Pursuant to these standards, the Exchange is proposing 
to adopt objective requirements regarding specialist communications 
with listed companies and order flow providers.\6\ The Exchange 
believes that the purpose of the proposed rule change is to enhance the 
specialist's communication function by requiring that the specialist 
maintain frequent and personal contact with the listed companies and 
member firm customers that he or she serves.
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    \5\ See Amex Rule 26(b), and Securities Exchange Act Release No. 
45260 (January 9, 2002), 67 FR 2255 (January 16, 2002) (order 
approving SR-Amex-2001-19).
    \6\ The Exchange notes that specialist communications with 
issuers, and, in particular, the scope of permissible disclosure 
between specialists and issuers, are discussed in further detail in 
Section 910 of the Amex Company Guide. ?
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    Under the proposal, specialists would be required to contact off 
the Floor or, if on the Trading Floor, outside of the Exchange's 
regular auction market business hours, listed companies and the 
sponsors or issuers of Exchange Traded Funds, structured products, 
Trust Issued Receipts, and other equity derivatives on a quarterly 
basis. These quarterly ``issuer'' contacts are expected to help foster 
an understanding of the specialist function, the operations of the

[[Page 5942]]

Exchange market, and the markets that are maintained in the issuers' 
stocks. Specialists also would be required to contact (quarterly) off 
the Floor or, if on the Trading Floor, outside of the Exchange's 
regular auction market business hours, major order flow providers to 
maintain open communications with these important customers of the 
Exchange. The purpose of these contacts with order flow providers is to 
discuss the service, operational and competitive requirements of the 
member firms. In addition, specialists would be required to maintain 
records of these contacts, which would be reviewed by Amex staff.
    The Exchange notes that the purpose of requiring contacts to be 
made by specialists off the Floor or, if on the Floor, outside of 
regular auction market business hours, is to ensure that the contacts 
can occur without the distractions of a normal business day. The 
Performance Committee would be responsible for taking appropriate 
remedial action in the event that a specialist fails to meet the 
objective marketing standards.
    A review by the Performance Committee can result in a variety of 
possible actions, ranging from recommendations for performance 
improvement, a determination not to permit a firm to seek new 
allocations, to a reallocation of one or more securities from a 
specialist. The Performance Committee is not precluded from 
reallocating securities based on a single quarter of deficient 
performance. Conversely, the Performance Committee is not required to 
take such actions. Rather, the Exchange believes that the purpose of 
these standards is to identify circumstances that warrant review by the 
Performance Committee. The nature of the appropriate remedial action is 
necessarily an issue that involves the professional judgment of the 
Performance Committee members and is dependent on such matters as the 
securities being traded, competition on other exchanges, personnel and 
systems changes, and other factors. Accordingly, such determinations 
are left to the expertise, discretion and judgment of the Performance 
Committee.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\7\ in general, and further the objectives of Section 6(b)(5) of the 
Act \8\ in particular, in that the Exchange's procedures are designed 
to promote just and equitable principles of trade and protect investors 
and the public interest by encouraging good performance and competition 
among specialists.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
burden on competition; rather, it will enhance and encourage 
competition within the Exchange, and, more significantly, among the 
Exchange and other exchanges and markets by establishing incentives for 
superior performance and thereby ensuring the maintenance of quality 
markets at the Exchange. In this respect, the Exchange believes that it 
is critical to recognize that the most important level of competition 
occurs not among specialists of the same exchange to obtain a 
particular listing (although this, too, is important), but rather among 
specialists of different exchanges trading in the same security and 
actively competing for the business of the investing public. The 
Exchange also believes the Commission has expressly recognized that the 
types of procedures set forth in the proposed rule change for reviewing 
the performance of specialists and taking remedial action where 
appropriate, are necessary to ensure quality markets.\9\
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    \9\ See Securities Exhange Act Release No. 45260 (January 9, 
2002), 67 FR 2255 (January 16, 2002) (order approving Amex-2001-19).
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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 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 Exchange.
    All submissions should refer to File No. SR-Amex-2002-48 and should 
be submitted by February 26, 2003. 
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\10\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2676 Filed 2-4-03; 8:45 am]
BILLING CODE 8010-01-P