[Federal Register Volume 68, Number 114 (Friday, June 13, 2003)]
[Notices]
[Pages 35469-35472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14968]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48000; File No. SR-Amex-2003-55]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Relating to Auxiliary Opening Procedures for Nasdaq National Market 
Securities

June 6, 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 May 30, 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, II, and III below, which Items have been prepared by Amex.\3\ 
Amex filed the proposed rule change pursuant to section 19(b)(3)(A) of 
the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the 
proposal effective upon filing with the Commission. The Commission is 
publishing this notice to solicit

[[Page 35470]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Commission staff made non-substance typographical changes to 
the text of the proposed rule change with the permission of Amex. 
Telephone conversation between Michael Cavalier, Associate General 
Counsel, Amex, and Andrew Shipe, Special Counsel, Division of Market 
Regulation, Commission, June 6, 2003.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to adopt Rule 118(k) relating to implementation 
of auxiliary opening procedures on expiration days in Nasdaq National 
Market securities traded pursuant to unlisted trading privileges 
(``UTP''). Below is the text of the proposed rule change. New text is 
in italics.
* * * * *

Trading in Nasdaq National Market Securities

Rule 118.
    (a) through (j) No change.

(k) Expiration Day Auxiliary Procedures for the Opening

    The Exchange has adopted auxiliary procedures for expiration days 
in order to integrate stock orders in Nasdaq securities relating to 
expiring index contracts into the Amex's opening procedures in a manner 
that will assure an efficient market opening in each stock as close to 
9:30 a.m. as possible. An expiration day is a trading day prior to the 
expiration of index-related derivative products (futures, options or 
options on futures), whose settlement pricing is based upon opening or 
closing prices in the underlying security, as identified by a qualified 
clearing corporation e.g., the Options Clearing Corporation) and the 
four end-of-calendar-quarter trading days when index options expire. 
The twelve expiration Fridays are ``Expiration Fridays'' which fall on 
the third Friday in every month. If that Friday is an Exchange holiday, 
there will be an expiration Thursday in such a month. Orders relating 
to index contracts whose settlement pricing is based upon the 
``Expiration Friday's'' or the end-of-calendar-quarter trading day's 
opening prices must be received by the Amex Order File (``AOF'') or by 
the specialist by 9 a.m. These orders may be cancelled or reduced in 
size. Firms canceling these orders or reducing them in size shall 
prepare contemporaneously a written record describing the rationale for 
the change and shall preserve it as Rule 153 provides. Stock orders 
relating to index contracts whose settlement pricing is not based upon 
the ``Expiration Friday's'' or the end-of-calendar-quarter trading 
day's opening prices may be entered before or after 9 a.m. To 
facilitate early order entry, AOF (a) will begin accepting orders at 
7:30 a.m. and (b) will accept orders of 99,900 shares or less.
    ``Limit at the opening'' (``limit OPG'') orders are permitted, 
including delivery through Exchange systems. Ordinary limit orders may 
also be entered.

Order Identification

    Stock orders relating to opening-price settling contracts must be 
identified ``OPG''. Firms entering these orders through AOF, but unable 
to identify orders as ``OPG,'' may use a unique branch code or firm 
identifier (mnemonic) to identify these orders. Firms unable to 
identify these orders in either way, and firms not using AOF, must 
submit a list of all these orders and related details to the Amex 
Market Surveillance Department.

Dissemination of Order Imbalances

    On expiration days, for any stocks having a market order imbalance 
of 25,000 shares or more at 9 a.m., the Exchange will disseminate the 
size of the order imbalance via a structured communication process 
established with major news vendors as promptly as practicable after 9 
a.m. Imbalances of less than 25,000 shares may be disseminated at that 
time with Floor Official approval. A ``no imbalance'' status will not 
be published for any stock.
    Except for the auxiliary procedures described above, all stocks are 
subject to the regular Amex opening procedures, including price 
indications where a substantial price change is anticipated. Ten 
minutes must elapse between a first indication and a stock's opening. 
However, when more than one indication is necessary, a stock may open 
five minutes after the last indication provided that ten minutes must 
have elapsed from the dissemination of the first indication.

Indications

    Indications before the opening should be disseminated at 9:15 a.m., 
if possible, but any indications disseminated prior to 9:30 a.m. 
require the approval of a Floor Governor or Exchange Official, or the 
approval of a Floor Official if it relates to a spin-off or if trading 
had been halted and not resumed the prior day. Indications will be 
disseminated via a structured communication process established with 
major news vendors.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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 Amex 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 proposes to provide procedures to accommodate handling 
opening-price orders on expiration days in Nasdaq National Market 
securities. The Exchange believes that this will enhance the Exchange's 
Nasdaq UTP program by facilitating the handling of orders routed to the 
Exchange before the Exchange opening in Nasdaq stocks on expiration 
days. Expiration days include Expiration Fridays (when some stock index 
options, index futures and options on index futures expire or settle 
concurrently), and the four end-of-calendar-quarter trading days when 
index options expire.
    Nasdaq stocks are not currently subject to auxiliary opening 
procedures in any market trading Nasdaq securities. According to the 
Exchange, the New York Stock Exchange (``NYSE'') has long implemented 
such procedures for NYSE-listed issues with the expressed aims of 
minimizing excess volatility associated with expiration days and 
allowing market participants the opportunity to react to the additional 
market information provided under NYSE's auxiliary opening procedures 
as set forth in NYSE Rule 123C.\6\ The Exchange believes similar 
procedures applicable to Nasdaq securities will provide market 
participants, including off-Floor participants, with useful information 
relating to the potential impact of index-related orders on opening 
prices of securities on expiration days.\7\ The Exchange believes that 
this will provide a model that will increase transparency, reduce 
volatility and facilitate a fair and orderly opening

[[Page 35471]]

process in Nasdaq securities on expiration days.
---------------------------------------------------------------------------

    \6\ See e.g. Securities Exchange Act Release No. 31733 (January 
14, 1993), 58 FR 6034 (January 25, 1993).
    \7\ The Exchange also has filed with the Commission another 
proposed rule change relating to auxiliary opening procedures (SR-
Amex-2003-21). Those procedures will apply to Amex-listed securities 
and the Exchange intends to clarify in an amendment to SR-Amex-2003-
21 that auxiliary opening procedures for Nasdaq securities would be 
governed by Amex Rule 118(k).
---------------------------------------------------------------------------

    Under current Amex procedures applicable to all securities traded 
on the Amex, including Nasdaq securities, an order imbalance before the 
opening may result in a delayed opening, with price indications 
disseminated where a substantial price change is anticipated. The 
Exchange believes that providing auxiliary opening procedures for 
Nasdaq securities traded on the Exchange will provide a valuable 
additional service for market participants engaging in index-related 
trading on expiration days, by allowing them to better gauge trading 
interest in Nasdaq stocks traded on the Exchange on days when there is 
the potential for additional market pressure resulting from index 
trading. The Nasdaq National Market stocks traded on the Amex are among 
the largest Nasdaq stocks and the ones most likely to be the subject of 
index-related trading on expiration days.
    Proposed Amex Rule 118(k) will provide for acceptance on expiration 
days of opening price orders of 99,900 shares or less in Nasdaq stocks 
through the Amex Order File (``AOF'') beginning at 7:30 a.m. (Eastern 
Time). Orders relating to index contracts whose settlement pricing is 
based upon the ``Expiration Friday's'' or the end-of-calendar-quarter 
trading day's opening prices would be required to be received by the 
AOF or by the specialist by 9 a.m. These orders could be cancelled or 
reduced in size. Firms canceling these orders or reducing them in size 
would be required to prepare contemporaneously a written record 
describing the rationale for the change and to preserve it as Amex Rule 
153 provides.
    On expiration days, for Nasdaq stocks having a market order 
imbalance on the Amex of 25,000 shares or more, the Exchange will 
disseminate the size of the order imbalance as promptly as practicable 
after 9 a.m. Stock orders on expiration days relating to opening-price 
settling contracts would have to be identified ``OPG.'' Firms entering 
these orders through AOF, but unable to identify orders as ``OPG,'' may 
use a unique branch code or firm identifier (mnemonic) to identify 
these orders. Firms unable to identify these orders in either way, and 
firms not using AOF, must submit a list of all these orders and related 
details to the Amex Market Surveillance Department. Imbalance 
information would be disseminated by means of a structured 
communication process established with major news vendors (e.g., 
Bloomberg, Dow Jones) utilizing, among other things, File Transfer 
Protocol to permit public dissemination of order imbalance information 
at 9 a.m. or as soon thereafter as practicable. With Floor Official 
approval, imbalances of less than 25,000 shares may be disseminated as 
soon as practicable after 9 a.m.
    With the exception of these auxiliary procedures for expiration 
days, regular Amex opening procedures for all trading days (not only 
expiration days) would apply, including price indications where a 
substantial price change is anticipated. Indications, as well as 
messages for ``opening delay'' and ``trading resumed,'' will also be 
communicated by means of the structured communication process 
referenced above. Ten minutes would be required to elapse between a 
first indication and the stock's opening. When more than one indication 
is necessary, a stock may open five minutes after the last indication 
provided that ten minutes must have elapsed from the dissemination of 
the first indication. Indications before the opening would have to be 
disseminated at 9:15 a.m., if possible. An indication disseminated 
before 9:30 a.m. would require Floor Governor or Exchange Official 
approval, or Floor Official approval if it relates to a spin-off or if 
trading had been halted and not resumed the prior day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\9\ 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, and to remove impediments to and perfect 
the mechanisms 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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

    No written comments were solicited or received in response to the 
proposed rule change.

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

    The Amex has stated that because the proposed rule change does not: 
(i) Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after filing (or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest), and because Amex provided the Commission with 
written notice of its intent to file the proposed rule change at least 
five business days prior to the filing date, the proposed rule change 
has become effective pursuant to section 19(b)(3)(A) of the Act \10\ 
and Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate the rule change if it appears to the Commission that the 
action is necessary or appropriate in the public interest, for the 
protection of investors, or would otherwise further the purposes of the 
Act.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
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 such filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to File No.

[[Page 35472]]

Amex-2003-55 and should be submitted by July 7, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-14968 Filed 6-12-03; 8:45 am]
BILLING CODE 8010-01-P