[Federal Register Volume 68, Number 105 (Monday, June 2, 2003)]
[Notices]
[Pages 32782-32785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13608]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47914; File No. SR-AMEX-2002-112]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating to Its Performance Evaluation and Allocations Procedures

May 23, 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 December 19, 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 Amex. On May 1, 
2003, the Amex amended 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, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated April 30, 2003 
(``Amendment No. 1''). In Amendment No. 1 the Exchange submitted a 
new Form 19b-4 which replaced the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to revise its performance evaluation and 
allocations procedures. Below is the text of the proposed rule change. 
Proposed new text is italicized and proposed deleted text is 
[bracketed].\4\
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    \4\ The Exchange requested that the Commission correct a 
typographical error in Amex rule 26(e) and Amex rule 29(d) of the 
proposed rule language. Telephone discussion between William Floyd-
Jones, Assistant General Counsel, Amex, Christopher B. Stone, 
Special Counsel, and Mia C. Zur, Attorney, Division, Commission 
(January 30, 2003).
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* * * * *
Performance Committee
    Rule 26. (a) The Committee on Floor Member Performance (the 
``Performance Committee'') shall consist of twelve [16] persons 
comprised as follows: three [four] representatives of upstairs member 
firms and nine [twelve] Floor members divided as equally as possible 
among specialists, registered traders and brokers provided, however, 
that in situations where specialist relations with listed companies or 
sponsors of Exchange Traded Funds (``ETFs'') are in issue a 
representative of issuers or ETF sponsors as applicable shall be 
substituted for one of the nine Floor members. The Performance 
Committee shall be drawn from a roster of not less than 32 persons 
representing issuers and ETF sponsors, upstairs member firms, 
specialists, registered traders and brokers. The minimum quorum for the 
transaction of business by the Performance Committee shall be seven 
[nine] persons including at least one representative of an upstairs 
member firm. The Performance Committee shall be chaired by a Floor 
Governor who may not vote except to make or break a tie. In the event 
that no Floor Governor is able to chair the Committee, a Senior Floor 
Official may chair the Committee.
    The Performance Committee may delegate any or all of its 
responsibilities to one or more subcommittees consisting of four [six] 
persons including at least one representative of an upstairs member 
firm, provided, however, that a subcommittee only may take the 
following actions: (1) Send admonitory letters, (2) refer matters to 
the Minor Floor Violation Disciplinary Committee for possible action 
pursuant to Exchange rule 590, (3) refer matters to the full 
Performance Committee with or without a recommendation, (4) prohibit 
registered option traders from effecting opening transactions for 
specific periods of time for failing to meet zone requirements, or (5) 
counsel members on how to improve their performance. The minimum quorum 
for the transaction of business by a subcommittee shall be three [four] 
persons including one representative of an upstairs member firm.
    (b) through (d) No change.
    (e) The Performance Committee may meet with one or more 
specialists, specialist units, registered traders or brokers that may 
have failed to meet minimum performance standards. In such an event, 
the member or members shall be notified in writing of the grounds to be 
considered by the Performance Committee and afforded an opportunity to 
make a presentation of relevant information in rebuttal. Such member or 
members shall deliver to the Amex staff coordinator for the Performance 
Committee copies of all materials that they will provide to the 
Performance Committee and the names of any persons that they intend to 
present to the Performance Committee at least three business days prior 
to the meeting. Such member or members, likewise, shall be given access 
to all written material to be provided by the Amex staff to [reviewed 
by] the Performance Committee and the names of all persons that the 
staff will present to the Committee at least three business days prior 
to the meeting. [, and a]All persons appearing before the Performance 
Committee may be represented by counsel. However, formal rules of 
evidence shall not apply in Performance Committee meetings. A failure 
to meet minimum performance standards may form the basis for 
Performance Committee remedial action against one or more specialists, 
specialist units, registered traders or brokers. Any member or member 
organization affected by a decision of the Performance Committee shall 
be informed in writing of the decision, which decision shall include 
the findings, conclusions, any remedial

[[Page 32783]]

action to be taken (hereinafter ``written notification'').
    (f) through end. No change.
Allocations Committee
    Rule 27. (a) through (i) No change.
    * * * Commentary
    .01 No change.
    .02 Contacts with Unlisted Companies. [Specialists and other 
members must submit a ``Notice of Marketing Interest'' (``NOMI'') (1) 
prior to contacting an unlisted company, or (2) within five business 
days of any unanticipated contact with an unlisted company where 
discussions regarding listing occur or are contemplated by the 
specialist or other member. The NOMI must identify the company that the 
specialist or other member would like to contact and is valid for no 
more than 12 months after Amex staff has given written approval to the 
request (the ``contact period''). Amex staff may decline to approve a 
specialist's or other member's request to contact an unlisted company 
where it is felt that such activity could hinder the Exchange's overall 
listing efforts. For example, a request to contact an unlisted company 
generally will not be granted where Amex staff have begun discussions 
with the company.]
    [A specialist or other member may request one extension of the 
contact period. The request must be in writing and must describe the 
specific activities that the specialist or other member has undertaken 
which it believes will result in a favorable listing decision. If the 
request is deemed sufficient by Amex staff, the contact period may be 
extended up to an additional six months. After the expiration of the 
contact period and any extension, a specialist or other member may not 
request permission to again contact the company until six months have 
elapsed from the expiration of the contact period or extension as 
applicable. Amex staff may contact an unlisted company as to which 
there is an approved NOMI, provided the staff notify the subject 
specialist or other member prior to contacting the company.]
    [Only one NOMI can be on file for any company. A designated senior 
officer of the Exchange, however, may approve a second NOMI with 
respect to a particular company when (1) sufficient evidence warrants a 
determination that the second NOMI would assist the Exchange's listing 
program, and (2) the second NOMI includes the written consent of the 
first specialist or other member to the approval of the second NOMI.]
    Once an unlisted company has requested a listing qualification 
review, specialists and other members are prohibited from making any 
direct or indirect contact with the company for the purpose of 
influencing its decision in the choice of a specialist. This 
prohibition includes the company's investment bankers or other 
advisors, or any other person in a position to influence the company's 
management.
    The Allocations Committee only will be advised of a company's 
preference for a particular specialist where a specialist's or member's 
efforts actually have been instrumental in securing the listing as 
evidenced by the company filing a written preference with the Exchange 
for the specialist within two weeks of the Exchange initiating a 
listing qualification review. The Allocations Committee, however, is 
not obligated to honor such requests.
    Once the Allocations Committee has prepared the list of six 
specialists to be submitted to the new listing candidate, specialists 
and other members may not initiate any direct or indirect 
communications with management, the company's investment banker or 
other advisors, or any person in a position to influence the company. 
If the company wishes to interview individual specialists, the Exchange 
will arrange for such interviews. The Chief Executive Officer of the 
Exchange or his or her designee may require a member of the Exchange 
staff to attend such interviews to ensure that any statements by 
specialists and their representatives are consistent with the 
Exchange's policies on communications with unlisted companies. 
Inappropriate communications include, but are not limited to, apparent 
misrepresentations as to market making capabilities or promises 
unrelated to the specialist's role in making a market in the issuer's 
stock. Specialists and their representatives also may not supply 
information concerning another specialist either orally or in writing, 
except they may refer to overall floor-wide statistics.
    .03 through end. No change.
Market Quality Committee
    Rule 29. (a) through (c) No change.
    (d) The Market Quality Committee may meet with a UTP Specialist 
that may have failed to meet minimum performance standards with respect 
to UTP Securities. In such an event, the UTP Specialist shall be 
notified in writing of the grounds to be considered by the Market 
Quality Committee and afforded an opportunity to make a presentation of 
relevant information. Such UTP Specialist shall deliver to the Amex 
staff coordinator for the Market Quality Committee copies of all 
materials that they will provide to the Market Quality Committee and 
the names of any persons that they intend to present to the Market 
Quality Committee at least three business days prior to the meeting. 
Such UTP Specialist, likewise, shall be given access to all written 
material to be provided by the Amex staff to [reviewed by] the Market 
Quality Committee and the names of all persons that the staff will 
present to the Committee at least three business days prior to the 
meeting. [, and a]All persons appearing before the Market Quality 
Committee may be represented by counsel. However, formal rules of 
evidence shall not apply in meetings of the Market Quality Committee. A 
failure to meet minimum standards relating to: (1) Quality of markets, 
(2) competition with other market centers, (3) administrative matters, 
or (4) willingness to promote the Exchange as a marketplace may form 
the basis for remedial action by the Market Quality Committee against a 
UTP Specialist. Any UTP Specialist affected by a decision of the Market 
Quality Committee shall be informed in writing of the decision, which 
decision shall include the findings, conclusions, and any remedial 
action to be taken (hereinafter ``written notification'').
    (e) through end. No change.
* * * * *

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 Amex 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose \5\
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    \5\ The Amex requested that the Commission make minor non-
substantive modifications to language in the purpose section. 
Telephone discussions between William Floyd-Jones, Assistant General 
Counsel, Amex, Christopher B. Stone, Special Counsel, and Mia C. 
Zur, Attorney, Division, Commission (January 30 and 31, 2003).
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    The Committee on Floor Member Performance and Market Quality 
Committee review specialist performance may take remedial action

[[Page 32784]]

up to terminating a specialist's registration as such or reallocating 
securities when it identifies inadequate performance. The Committees 
protect 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).\6\ The Allocations Committee allocates securities to 
qualified specialists. It, too, protects the interests of investors and 
the Exchange by ensuring that only qualified specialists receive 
allocations.
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    \6\ See In the Matter of the Application of Pacific Stock 
Exchange's Options Floor Post X-17, Administrative Proceeding File 
No. 3-7285, Exchange Act Release No. 31666 (December 29, 1992) which 
states:
    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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Performance Committee Size

    The Exchange is proposing to reduce the size of the Performance 
Committee and to add issuer and ETF sponsor representatives to the 
Committee pool. Currently, the Performance Committee operates more 
slowly and less flexibly than it should due to the difficulties in 
coordinating the schedules of 16 persons (the current size of the 
Performance Committee). The Exchange also believes that issuer and ETF 
sponsor representatives should be added to the Performance Committee 
pool and used in situations where specialist relations with listed 
companies or ETF sponsors are in issue. This would occur, for example, 
where an issuer has expressed concerns regarding a possible lack of 
continuity and depth in the market for its securities. This would 
ensure that the perspective of issuers and sponsors is available to the 
Performance Committee in situations where it would be appropriate. The 
Amex, accordingly, is proposing to reduce the size of the Performance 
Committee from 16 to 12 persons. In line with that reduction, the 
Exchange proposes to reduce the size of any related subcommittees, the 
Performance Committee's minimum quorum, and the numbers of types of 
representatives on the Performance Committee. It also is proposing to 
add an issuer or ETF sponsor representative to the Performance 
Committee (in place of a floor member) in matters involving a 
specialist's relations with an issuer or ETF sponsor.

Exchange of Documents and Names

    Exchange rules 26(e) and 29(d) provide that persons who are subject 
to a performance review receive a written notice of the matters to be 
considered by the Performance Committee or Market Quality Committee, 
and are given an opportunity to address the Committee and make a 
presentation of relevant information in support of their position. 
Persons that are the subject of performance reviews have a reasonable 
amount of time between delivery of the written notice and the 
Committee's meeting to prepare their presentation to the Committee.\7\ 
With the addition of upstairs member firm personnel to the Performance 
Committee, and the proposed addition of an issuer or ETF sponsor 
representative to the Performance Committee in certain circumstances, 
the Exchange believes that it should establish deadlines for persons to 
submit materials to the Amex staff so that these materials may be 
distributed prior to the meeting to persons that participate in 
Committee meeting by telephone. The Exchange, accordingly, is proposing 
to amend its rules to require persons appearing before either the 
Performance Committee or Market Quality Committee to disclose the names 
of the persons whom they intend to present to the Committee and the 
materials that they wish to submit to the Committee, at least three 
business days prior to the Committee meeting. This is an administrative 
proposal intended to accommodate the transmission of these materials to 
persons participating by telephone and would allow either Committee to 
gauge the length of time required for a meeting. It also would be 
consistent with current Amex practice in which the Exchange staff 
provides specialists with the materials that the staff furnishes either 
Committee prior to the meeting. The pre-meeting disclosure rules for 
staff and persons appearing before either Committee would be identical.
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    \7\ A mutually convenient date for the performance review is 
selected by the person being reviewed and the Committee. Telephone 
discussions between William Floyd-Jones, Assistant General Counsel, 
Amex, Christopher B. Stone, Special Counsel, and Mia C. Zur, 
Attorney, Division, Commission (January 30 and 31, 2003).
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Elimination of NOMI Process

    The Exchange's rules currently require equity specialists to submit 
a Notice of Marketing Interest (``NOMI'') and receive written approval 
from the Exchange prior to contacting an unlisted company. Once a 
specialist has been approved to contact an unlisted company, no other 
specialist may contact that company without the consent of the first 
specialist. There is a 12-month sunset on the NOMI approval, which may 
be extended for one six month period. After the NOMI has expired, it 
can be resubmitted after six months have elapsed.
    The original purpose of the NOMI process was to prevent an unseemly 
rush of specialists to contact unlisted companies. In practice, 
however, it has resulted in some specialist firms requesting NOMIs for 
companies without then undertaking substantial contact with them. The 
NOMI process, thus, has had the perverse result in some situations of 
inhibiting the Exchange's listing efforts. Management, accordingly, is 
proposing to eliminate the NOMI process.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\8\ in general, and furthers 
the objectives of section 6(b), \9\ in particular, in that they are 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest; and are not designed to permit unfair discrimination 
between customers, issuers, brokers and dealers.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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

[[Page 32785]]

any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of 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 Amex consents, the Commission will:
    (A) By order approve the 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 Amex. All submissions should refer to File No. 
SR-Amex-2002-112 and should be submitted by June 23, 2003.

    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).


Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-13608 Filed 5-30-03; 8:45 am]
BILLING CODE 8010-01-P