[Federal Register Volume 68, Number 45 (Friday, March 7, 2003)]
[Notices]
[Pages 11164-11165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5422]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47419; File No. SR-AMEX-2002-36]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change To Establish Resolution 
Times for Uncompared Transactions

February 27, 2003.

I. Introduction

    On April 22, 2002, American Stock Exchange LLC (``Amex'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change File No. SR-AMEX-2002-36 pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the 
proposal was published in the Federal Register on December 4, 2002.\2\ 
No comment letters were received. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 46916, (November 26, 
2002), 67 FR 72241 (December 4, 2002).
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II. Description

    The resolution of uncompared trades (sometimes referred to as 
``DKs'') has gone through substantial revision as the nature of trade 
comparison has changed. In 1966, standardized forms were adopted for 
the timely and efficient resolution of DKs. The primary responsibility 
for DK resolution at that time was entrusted to floor members.\3\ In 
1978, the time limit for replying to a DK notice was set at 3:45 p.m. 
on trade date plus three business days (``T+3'') or prior to 10 a.m. on 
trade date plus five business days (``T+5'') if a specialist or 
independent member was involved. Upon a change in the opening to 9:30 
a.m. in 1985, members were then required to reply to a DK notice 
involving a specialist or independent member prior to 9:30 a.m. on T+5.
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    \3\ A separate rule for uncompared options trades, Rule 970, was 
adopted when options commenced trading at the Amex in 1975. Rule 970 
sets forth the procedures for settling uncompared options trades 
through the Rejected Option Transaction Notice.
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    A result of, among other things, the Commission's 1987 Market Break 
Report \4\ was a major initiative to shorten the comparison process. 
One development was the implementation in 1990 of Amex's Intra-Day 
Comparison system (``IDC'').\5\ In 1990, Amex also implemented Rule 
719, Comparison of Exchange Transactions, which required that any 
transactions effected on Amex be compared or otherwise closed out by 
Amex's close of business on the business day following the day of the 
contract.\6\ Amex adopted further rule changes in 1991 to formalize the 
operational procedures for full implementation of Amex's electronic 
equity trade comparison facility.\7\ Among the new rules adopted in 
1991 was Rule 731, Resolution of Uncompared Transactions, that 
expressly required that member organizations resolve uncompared trades 
no later than 3 p.m. on T+1 or 3:30 p.m. on T+1 if an agent was 
involved.
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    \4\ Commission, Division of Market Regulation, The October 1987 
Market Break (February 1988).
    \5\ Exchange Act Release No. 28069 (May 29, 1990), 55 FR 23324 
(June 7, 1990), [SR-Amex-90-01] (order approving IDC for post-trade 
processing of transactions in equity securities).
    \6\ Exchange Act Release No. 27851 (March 27, 1990), 55 FR 12759 
(April 5, 1990), [SR-Amex-89-05] (order permanently approving rule 
requiring regular way trades be compared or closed out by close of 
business on T+1). In 1994, the Commission approved Amex's proposed 
rule change which required trade date submission of comparison data. 
Exchange Act Release No. 34298 (July 1, 1994), 59 FR 35397 (July 11, 
1994), [SR-Amex-94-13]. Today Rule 719(a) requires members and 
member organizations to submit comparison data to their clearing 
firm for any transaction executed on Amex within two hours of the 
trade.
    \7\ Exchange Act Release No. 29157 (May 2, 1991), 56 FR 21510 
(May 9, 1991), [SR-Amex-90-16] (order approving rule detailing 
mechanics of resolving uncompared equity trades through IDC).
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    Because of the inherent risks to the settlement process from 
uncompared trades, Amex believes it should have the flexibility to 
change the time periods for the resolution of DKs. For example, market 
conditions and systemic changes may require Amex to implement different 
cut-off time periods for the resolution of DKs depending on the 
particular product, such as stocks, bonds, exchange-traded funds 
(``ETFs''), or trust-issued receipts (``TIRs''). Accordingly Amex 
proposes to amend Rule 731 to allow Amex to establish DK resolution 
time periods for equities, bond, ETFs, and TIRs as appropriate.
    Specifically, the proposed rule change will amend Rule 731 by 
providing Amex flexibility in determining (1) cut-off times and dates 
for member organizations to make any necessary additions, deletions, or 
changes to their DK data and (2) cut-off times for resolution and 
acceptance of DKs remaining uncompared in the system.

[[Page 11165]]

The proposed rule change also will adopt Commentary .08 to Rule 731 
that extends the applicability of the rule to portfolio depositary 
receipts, index fund shares, and TIRs orders to buy or sell a security 
where the price is derivatively based upon another security or index of 
securities.\8\ The proposed Commentary also provides that Amex may 
establish separate times to review and resolve DKs in these products.
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    \8\ Orders to buy or sell an option will continue to be covered 
by Rule 950(f) and the applicable Commentary to Rule 950.
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III. Discussion

    Section 6(b)(5) of the Act requires that the rules of an exchange 
are designed, among other things, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities.\9\ The proposed rule change permits Amex flexibility in 
establishing time periods for resolution of DKs and extends the 
application of the rule to additional types of securities that 
previously had not been covered by the rule. This flexibility should 
enable Amex to address issues in its comparison process that may arise 
from market conditions or from various products trading on Amex. In so 
doing, Amex should be able to improve its ability to resolve uncompared 
trades, which in turn will improve the clearance and settlement of 
securities trading on Amex. For the reasons set forth above, the 
Commission believes that the AMEX's rule change is consistent with the 
exchange's obligations under the Act.
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    \9\ 15 U.S.C. 78(f).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with the requirements of section 6(b)(5) of the Act and 
the rules and regulations thereunder.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-AMEX-2002-36) be and hereby 
is approved.
    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-5422 Filed 3-6-03; 8:45 am]
BILLING CODE 8010-01-P