[Federal Register Volume 68, Number 26 (Friday, February 7, 2003)]
[Notices]
[Pages 6526-6527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3100]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47297; File No. SR-Amex-2002-84]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by American Stock Exchange LLC, Relating to Rules Governing the 
Intermarket Linkage, and Notice of Filing and Order Granting 
Accelerated Approval to Amendment No. 3 Thereto

January 31, 2003.

I. Introduction

    On October 15, 2002, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt new rules governing the 
operation of the intermarket linkage (the ``Linkage''). On December 19, 
2002, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ The proposed rule change was published for comment in the 
Federal Register on December 27, 2002.\4\ The Commission received no 
comments on the proposed rule change. On January 30, 2003, the Exchange 
filed Amendment No. 2 to the proposed rule change.\5\ On January 31, 
2003, the Exchange filed Amendment No. 3 to the proposed rule change, 
which replaces Amendment No. 2 in its entirety.\6\ This order approves 
the proposed rule change, provides notice of filing of Amendment No. 3 
and grants accelerated approval to Amendment No. 3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter to Deborah Flynn, Assistant Director, Division of 
Market Regulation (``Division''), Commission, from Jeffrey Burns, 
Assistant General Counsel, Amex, dated December 18, 2002 
(``Amendment No. 1''). In Amendment No. 1, Amex clarified that it 
was not deleting its interim linkage rules at that time.
    \4\ See Securities Exchange Act Release No. 47066 (December 20, 
2002), 67 FR 79180.
    \5\ See letter from Jeffrey Burns, Assistant General Counsel, 
Amex, to Nancy J. Sanow, Assistant Director, Division, Commission, 
dated January 28, 2003 (``Amendment No. 2''). Amendment No. 2 was 
replaced with a subsequent amendment. Telephone call between Jeffrey 
Burns, Assistant General Counsel, Amex, and Jennifer Lewis, 
Attorney, Division, Commission, on January 31, 2003.
    \6\ See letter from Jeffrey Burns, Assistant General Counsel, 
Amex, to Nancy J. Sanow, Assistant Director, Division, Commission, 
dated January 28, 2003 (``Amendment No. 3''). Amendment No. 3 
replaces Amendment Nos. 1 and 2 in their entireties. In Amendment 
No. 3, the Exchange proposes to: (1) Delete its interim linkage 
rules; (2) reorder the proposed linkage rules as Amex Rules 940 
through 944; (3) amend the definition of ``Linkage Order'' contained 
in proposed Amex Rule 940 to state that such orders are immediate or 
cancel orders; (4) amend the definition of ``Eligible Market Maker'' 
contained in proposed Amex Rule 940 to state that such market maker 
is participating in the Exchange's automatic execution system, if 
available; (5) amend proposed Amex Rule 941 to clarify the 
specialist's obligation to address a linkage order when such order 
is not eligible to be executed automatically pursuant to commentary 
.01(d) to Amex Rule 933; (6) amend proposed Amex Rule 942 to clarify 
language regarding liability for trade-throughs at the end of the 
trading day and to request approval of this provision only for a 
one-year pilot period; (7) amend proposed Amex Rule 942 to clarify 
that members may not engage in a pattern or practice of trading 
through; (8) clarify that its existing fees for specialists and 
market makers will apply to certain Linkage orders; and (9) to make 
other non-substantive grammatical revisions to the proposed rules.
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II. Description of Proposal

    In general, the proposed rules contain relevant definitions, 
establish the conditions pursuant to which market makers may enter 
Linkage orders, impose obligations on the Exchange regarding how it 
must process incoming Linkage orders, and establish a general standard 
that members should avoid trade-throughs.\7\ The proposed rules 
establish potential regulatory liability for members who engage in a 
pattern or practice of trading through other exchanges, whether or not 
the exchanges traded through participate in the Linkage, provide 
procedures to unlock and uncross markets, and codify the ``80/20 Test'' 
contained in section 8(b)(iii) of the Plan for the Purpose of Creating 
and Operating an Intermarket Options Linkage (the ``Plan''),\8\ which

[[Page 6527]]

provides that a market maker on an Exchange would be restricted from 
sending principal orders (other than P/A orders, which reflect 
unexecuted customer orders) through the Linkage if the market maker 
effects less than 80 percent of specified order flow on the Exchange. 
The proposed rule change also establishes a fee, which will apply to 
Linkage transactions except for Satisfaction Orders (which result after 
a trade-through). These fees are the same fees applicable to Amex 
specialists and market makers.
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    \7\ Trade-throughs occur when broker-dealers execute customer 
orders on one exchange at prices inferior to another exchange's 
disseminated quote.
    \8\ Approved by the Commission in Securities Exchange Act 
Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000), as 
subsequently amended. See Securities Exchange Act Release Nos. 44482 
(June 27, 2001), 66 FR 35470 (July 5, 2001); 46001 (May 30, 2002), 
67 FR 38687 (June 5, 2002); 47274 (January 29, 2003); and 47298 
(January 31, 2003).
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III. Discussion

    The Commission has reviewed the Amex's proposed rule change and 
finds that the proposal is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange,\9\ and with the requirements of section 6(b).\10\ 
In particular the Commission finds that the proposed rule change 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 for a free and open market and a national market system, and, 
in general, to protect investors and the public interest in accordance 
with section 6(b)(5) of the Act.\11\ The Commission also finds that the 
proposed fee change is consistent with section 6(b)(4) of the Act \12\ 
in that it represents an equitable allocation of reasonable dues, fees 
and other charges among its members and other persons using its 
facilities.
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    \9\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78f(b)(4).
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    The Commission believes that the rules proposed by the Amex will 
adequately govern the operation of the Linkage as envisioned in the 
Plan. The Commission believes that these rules will help to ensure that 
the Linkage is operated fairly and effectively, in accordance with the 
principles of the Act and the Plan.
    The Commission also finds good cause for approving proposed 
Amendment No. 3 prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. 
Amendment No. 3 proposes several changes to the Exchange's original 
proposal that are designed to conform the Exchange's rules governing 
linkage more closely to the Plan. The provisions of the Plan have 
already been subject to notice and comment, and have been approved by 
the Commission. The changes proposed in Amendment No. 3 do not raise 
any novel regulatory issues, and therefore, it is appropriate for the 
Commission to accelerate approval of Amendment No. 3.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 3 to the proposed rule change, 
including whether Amendment No. 3 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 Amendment No. 3 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-2002-84 and should be submitted by February 28, 
2003.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Amex-2002-84), be, and 
hereby is, approved, and that Amendment No. 3 to the proposed rule 
change be, and hereby is, approved on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3100 Filed 2-6-03; 8:45 am]
BILLING CODE 8010-01-P