[Federal Register Volume 68, Number 74 (Thursday, April 17, 2003)]
[Notices]
[Pages 19041-19043]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9476]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47658: File No. SR-Amex-2003-18]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the American 
Stock Exchange LLC Relating to ``At the Close'' Orders in Nasdaq 
Securities

April 10, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 21, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
items I and II 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 and to approve the 
proposal on an accelerated basis.
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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 Exchange proposes to amend Amex Rule 109, ``Stopping Stock,'' 
Rule 118, Trading in Nasdaq National Market Securities, Rule 131, Types 
of Orders, and Rule 156, Representation of Orders, relating to ``at the 
close'' orders (1) to specify that these rules apply to Amex trading in 
Nasdaq National Market System securities (``Nasdaq securities''); (2) 
to provide for dissemination of order imbalance information to major 
news vendors by means of a structured communication process; and (3) to 
temporarily exempt from Rule 109(d) information relating to ``pair 
off'' transactions under such rule, pending implementation of systems 
changes by the Nasdaq Unlisted Trading Privileges Plan Processor (the 
``Nasdaq UTP Processor'') to accommodate printing of such transactions 
as ``stopped stock.'' The text of the proposed rule change is set forth 
below in its entirety. Proposed new language is in italics.\3\
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    \3\ At the Exchange's request, the Commission made two non-
substantive formatting corrections to the Exchange's proposed rule 
text. Telephone conference among Michael Cavalier, Associate General 
Counsel, Amex; David Fisch, Managing Director, Rulings, Amex; 
Christopher B. Stone, Special Counsel, Division of Market 
Regulation, SEC; and Ann E. Leddy, Attorney, Division of Market 
Regulation, SEC (April 8, 2003).
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* * * * *
Rule 109 ``Stopping Stock''
    (a) through (d) No change.
Commentary
    .01 No change
    .02 Paragraph (d) of this rule shall apply to at-the-close orders 
entered on the Exchange in Nasdaq National Market securities to which 
the Exchange has extended unlisted trading privileges, except that the 
Exchange shall not disseminate information regarding ``pair off'' 
transactions reported pursuant to paragraph (d), pending implementation 
of systems changes by the Nasdaq Unlisted Trading Privileges Plan 
Processor to permit dissemination of ``pair off'' transactions as 
``stopped stock''.
* * * * *
Trading in Nasdaq National Market Securities
Rule 118
    (a) through (j) No change.
Commentary
    .01 The following rules refer to trading in Nasdaq National Market 
securities and should be consulted by members and member organizations 
trading Nasdaq National Market securities on the Floor: Rule 1 
(Commentary .05); Rule 3; Rule 7 (Commentary .02); Rule 24 (b); Rule 
109 (Commentary .02); Rule 115 (Commentary .01); Rule 131 (Commentary 
.02); Rule 156 (Commentary .01); Rule 170 (Commentary .11); Rule 175; 
Rule 190 (Commentary .06); and Rule 205 (Commentary .05).
* * * * *
Types of Orders
Rule 131
    (a) through (t) No change.
Commentary
    .01 No change
    .02 Paragraph (e) of this rule shall apply to the trading of Nasdaq 
National Market securities to which the Exchange has extended unlisted 
trading privileges.
* * * * *
Representation of Orders
Rule 156
    (a) through (e) No change.
Commentary
    .01 Paragraph (c) of this rule shall apply to at-the-close orders 
entered on the Exchange in Nasdaq National Market securities to which 
the Exchange has extended unlisted trading privileges.
* * * * *

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 III 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
    The Exchange is proposing to amend its rules relating to execution 
of market on close (``MOC'') and limit on close (``LOC'') orders in 
Nasdaq securities traded on the Exchange pursuant to unlisted trading 
privileges (``UTP''). The Commission has previously approved rules and 
procedures governing MOC and LOC orders entered on the Exchange.\4\ The 
procedures include publication of order imbalances beginning at 3:40 
p.m. (or as close to this time as possible) in listed securities of 
25,000 shares or more on the consolidated tape (Network B), and a 
prohibition on entry of MOC or LOC orders after 3:40 p.m. except to 
offset an at the close order imbalance. After 3:40 p.m., MOC and LOC 
orders are irrevocable except to correct an error. The Exchange 
proposes to amend Amex

[[Page 19042]]

Rules 109(d) (``Stopping Stock''), 131(e) (``Types of Orders'') and 
156(c) (``Representation of Orders''), which apply to handling ``at the 
close'' orders, including MOC and LOC orders in Nasdaq securities, as 
described below.
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    \4\ See, e.g., Release No. 34-41877 (September 23, 1999), SR-
Amex-99-32 (September 14, 1999); Release No. 34-40123 (July 2, 
1998), SR-Amex-98-10 (June 24, 1998); Release No. 34-35660 (May 8, 
1995), SR-Amex-95-09 (May 2, 1995); Release No. 34-29312 (June 21, 
1991), SR-Amex-90-32 (June 15, 1991).
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    Currently there is no publication of order imbalances in Nasdaq 
securities traded pursuant to UTP. Because certain Exchange MOC 
procedures are predicated on those publications, the Exchange intends 
to institute a procedure for publishing imbalances of orders entered on 
the Exchange in Nasdaq UTP securities at 3:40 p.m. Because the Nasdaq 
UTP Processor (currently operated by the Nasdaq Stock Market, Inc. 
(``Nasdaq'')) for disseminating consolidated quotation and last sale 
information does not accommodate publication of order imbalances, the 
Exchange will utilize a structured communication process established 
with major news vendors (e.g., Bloomberg and Dow Jones) utilizing, 
among other things, e-mail technology to permit public dissemination of 
order imbalance information at 3:40 p.m., or as soon thereafter as 
practicable. In addition, this information will be disseminated on the 
Amex website. Following an imbalance dissemination, all regular 
Exchange procedures for executing MOC and LOC orders will apply, 
subject to temporary modifications to Exchange ``stopped stock'' 
reporting procedures, noted below.
    Rule 109(d) requires that a member holding both buy and sell MOC 
orders simultaneously must execute any imbalance against the prevailing 
Exchange bid or offer at the close, and then must ``pair off'' 
remaining buy and sell orders at the price of the immediately preceding 
sale. Rule 109(d)(1) provides that the ``pair off'' transaction must be 
reported to the consolidated last sale reporting system as ``stopped 
stock'', to inform the public that limit and LOC orders entered before 
the close may remain unexecuted. Insofar as it would be impermissible 
to report ``pair off'' transactions in Nasdaq securities as ``stopped 
stock'' to the consolidated tape for Amex-listed securities (Tape B), 
and because the Nasdaq UTP Processor does not currently support any 
sale condition code for reporting ``stopped stock'' transactions in its 
UTP Trade Data Feed (``UTDF''), the Exchange, as an interim measure, is 
proposing to temporarily exempt ``pair-off'' transactions in Nasdaq 
securities under Rule 109(d) from reporting on the consolidated tape, 
pending the Nasdaq UTP Processor's ability to accommodate Amex's need 
to print these transactions as ``stopped stock''. On February 28, 2003, 
the Amex made a formal Change Request to the Nasdaq UTP Processor to 
facilitate reporting of ``stopped stock'' transactions, including 
``pair off'' transactions under Rule 109(d). According to a memo sent 
to the UTP Operating Committee by the Nasdaq UTP Processor on February 
7, 2003, Nasdaq would consider all enhancements requested by February 
28, 2003, and expects that the Nasdaq UTP Processor will implement 
approved enhancements by September 2003.
    Prior to implementation of this change by the Nasdaq UTP Processor, 
``pair off'' transactions will be executed at the closing price on the 
Amex and will be reported to the Nasdaq UTP Processor regular way. 
Another trade report consisting of the price of the preceding imbalance 
and ``pair-off'' transactions, with no associated volume, will be 
transmitted to the Processor utilizing the new ``M'' sale condition 
modifier on UTDF to identify the Amex's Official Closing Price in that 
stock. Nasdaq has announced that the ``M'' sale condition is expected 
to go into production on April 14, 2003.\5\ An Amex transaction report 
with a ``M'' modifier will represent the Official Closing Price for a 
Nasdaq security traded on the Amex.
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    \5\ See Release No. 34-47517 (March 25, 2003), SR-NASD-2002-158 
(March 18, 2003).
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    The following example illustrates how a ``pair off'' in a Nasdaq 
security would be reported:
    Assume ``at the close'' orders in ABCD to buy 35,000 shares and to 
sell 5,000 shares. At 3:40 p.m., a buy imbalance of 30,000 shares would 
be disseminated to vendors as described above. At 3:55 p.m., an order 
to sell 35,000 shares is entered, offsetting the imbalance. At or as 
close as practicable to 4:00 p.m., with a current bid/ask of $10.12-
$10.14 (35,000 by 40,000), the sell imbalance of 5,000 shares is 
executed against the bid with 5,000 shares from the specialist or 
orders on the specialist's book. At or as close as practicable to 4:00 
p.m., the remaining buy and sell orders are stopped against each other 
and paired off at the bid price (under Rule 109(d)); Amex will report a 
5,000 share regular trade for ABCD to the Nasdaq UTP Processor at 
$10.12. Amex will immediately report a second trade for ABCD for 35,000 
shares at $10.12. Amex would then send a third report with a ``M'' 
modifier to establish $10.12 as the official closing price for this 
stock on the Amex.
    The Exchange intends to implement the proposed exemption from 
reporting ``pair off'' transactions as ``stopped stock'' on a pilot 
basis until the Nasdaq UTP Processor can accommodate the Amex's request 
to print a transaction ``stopped stock'' (expected to be by September 
2003).
    Rule 131(e) defines ``at the close order'' as a market order which 
is to be executed at or as near to the close as practicable, as well as 
a limit order that is entered for execution at the closing price on the 
Exchange. Proposed Commentary .02 would apply Rule 131(e) to trading in 
Nasdaq securities. The Exchange also proposes to add Commentary .01 to 
Rule 156 (Representation of Orders) to make clear that Rule 156(c) 
applies to at the close orders in Nasdaq securities. Rule 156(c) 
provides that the acceptance of an ``at the close order'' by a broker 
does not make the broker responsible for an execution at the closing 
price.
    Rule 118, Commentary .01, which specifies Exchange rule referencing 
trading in Nasdaq securities, would also be amended to add references 
to Rules 109, 131, and 156.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\6\ in general, and furthers the 
objectives of section 6(b)(5),\7\ 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 facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, to protect investors 
and the public interest, and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any 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. Solicitation of Comments

    Interested persons are invited to submit written data, views and

[[Page 19043]]

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 the 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-2003-18 and 
should be submitted by May 8, 2003.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\9\ in that it will provide 
market participants with a source of closing price information for 
Nasdaq securities in addition to that disseminated by Nasdaq, which 
will enhance intermarket competition by providing an additional 
information source for market participants to assess and compare 
pricing and execution quality among different markets trading Nasdaq 
securities.
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    \8\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register to accommodate 
trading in Nasdaq securities on the Amex in accordance with existing 
Amex rules governing ``at the close'' transactions. The Commission 
believes that the establishment of MOC and LOC procedures for Nasdaq 
securities by the Exchange should benefit investors, generally, and 
that the proposal's temporary exception regarding ``pair off'' 
transactions should prevent the Exchange from being unfairly 
disadvantaged until such time as the Nasdaq UTP Processor can complete 
the necessary technical enhancements.
    Accordingly, the Commission finds good cause, pursuant to section 
19(b)(2) of the Act,\10\ for approving the proposed rule change prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register because it will permit the Amex to disseminate its 
Official Closing Price for Nasdaq securities traded on the Amex 
utilizing the ``M'' sale condition at or about the time such condition 
is utilized by Nasdaq.\11\ In addition, the proposed rule change 
regarding the exemption from reporting ``pair off'' transactions as 
``stopped stock'' will be implemented on a pilot basis, pending the 
Nasdaq UTP Processor's implementation of necessary systems changes.
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ Nasdaq has announced that it expects to place the ``M'' 
sale condition into production on April 14, 2003. The ``M'' sale 
condition will be utilized to disseminate the Nasdaq Official 
Closing Price on the Nasdaq market. See Release No. 34-47517, supra 
note 5.
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Amex-2003-18), is hereby 
approved on an accelerated basis.
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    \12\ See supra note 10.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9476 Filed 4-16-03; 8:45 am]
BILLING CODE 8010-01-P