[Federal Register Volume 68, Number 37 (Tuesday, February 25, 2003)]
[Notices]
[Pages 8787-8788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4356]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47374; File No. SR-Amex-2002-102]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the American Stock Exchange LLC to Create a New Percentage 
Order Type to be Called ``Immediate Execution or Cancel Election''

February 19, 2003.

I. Introduction

    On December 10, 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 (``Act'')\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its Rule 131 to create a 
new percentage order type to be called Immediate Execution or Cancel 
Election. The proposed rule change was published for public comment in 
the Federal Register on January 17, 2003.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 47177 (January 13, 
2003), 68 FR 2592.
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II. Description of the Proposal

    Currently, Amex Rule 131 provides for three types of percentage 
orders: straight limit, last sale, and ``buy minus/sell plus.'' 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. The Exchange believes that 
investors rely on last sale percentage orders as a way to trade along 
with the trend of the market without initiating price changes or 
otherwise influencing the equilibrium or buying and selling interest. 
However, executions 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. In addition, 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 amend Amex Rule 131(k) to 
adopt a percentage order type called Immediate Execution or Cancel 
Election. Under the terms of the proposal, the elected portion of a 
percentage order marked Immediate Execution or Cancel Election would be 
required to be executed immediately, in whole or in part, at the price 
of the electing transaction, or better. If the elected portion cannot 
be executed at that price or better, the election would be deemed 
canceled, and the unexecuted elected portion would revert back to a 
percentage order, subject to subsequent election or conversion.
    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, 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,\4\ and the unexecuted elected portion would revert 
back to a percentage order.
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    \4\ 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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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 6 of the Act \5\ and the rules and 
regulations thereunder applicable to a national securities exchange.\6\ 
In particular, the Commission finds that the proposal is consistent 
with Section 6(b)(5) of the Act, which requires, among other things, 
that the Exchange's procedures be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.\7\
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    \5\ 15 U.S.C. 78f(b).
    \6\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed rule change will remove 
impediments to and perfect the mechanism of a free and open market by 
providing additional flexibility to investors entering percentage 
orders. Specifically, the proposed Immediate Execution or Cancel 
Election percentage order should allow investors to achieve their 
investment goals while continuing to limit the specialist's discretion 
in representing such orders. The Commission believes that requiring the 
specialist to treat an election as canceled, unless the elected portion 
can be executed immediately at the price of the electing transaction or 
better, should ensure that the investor will not be trading ahead of, 
nor lagging behind, the market when there is insufficient interest to 
execute the elected portion of

[[Page 8788]]

the order at the price of the electing transaction.
    The Commission also believes that the proposed approach sets forth 
adequate objective criteria to guide the specialist's representation of 
the order. Although the execution of certain percentage orders, 
particularly percentage orders that have been converted by a 
specialist, may present issues relating to the proper amount of 
discretion allowed to the specialist executing such orders, Immediate 
Execution or Cancel Election percentage orders do not raise such 
concerns. Specifically, a specialist must execute an Immediate 
Execution or Cancel Election percentage order at the instructed 
election price immediately upon the occurrence of a trade at the 
electing price or better, or treat the transaction as canceled.
    In addition, the Commission notes that Amex's proposed Immediate 
Execution or Cancel Election percentage order is similar to the 
Immediate Execution or Cancel Election percentage order adopted by the 
New York Stock Exchange, Inc. (``NYSE'').\8\
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    \8\ See NYSE Rule 13; see also Securities Exchange Act Release 
No. 39837 (April 8, 1998), 63 FR 18244 (April 14, 1998) (order 
approving NYSE-97-38).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Amex-2002-102) is approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-4356 Filed 2-24-03; 8:45 am]
BILLING CODE 8010-01-P