[Federal Register Volume 68, Number 124 (Friday, June 27, 2003)]
[Notices]
[Pages 38411-38413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48072; File No. SR-Amex-2003-64]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by American Stock Exchange LLC 
Relating to the Automatic Execution of Option Linkage Orders

June 20, 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 June 19, 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 the Amex. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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 is proposing to amend Amex Rule 941(e) for the purpose 
of permitting the automatic execution of Linkage Orders even though the 
Exchange's Auto-Ex system (``Auto-Ex'') has been (i) disengaged because 
of an influx of orders or (ii) by-passed whenever a locked market 
causes an inversion in the quote.
    The text of the proposed rule change is available at the Office of 
the Secretary, Amex, and at the Commission.

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 IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 38412]]

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

1. Purpose
    Currently, when an order on the Amex is not eligible for automatic 
execution through Auto-Ex,\3\ the specialist is required to manually 
address and execute the order. The Exchange is proposing to amend Amex 
Rule 941(e) \4\ in order to provide that Linkage Orders \5\ may be 
automatically executed in certain cases even if Auto-Ex is not 
available for non-Linkage Orders.
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    \3\ Amex Rule 933(f)(i) sets forth the situations where Auto-Ex 
may be disengaged or operated in a manner other than the normal 
manner. The circumstances of Auto-Ex disengagement outlined in the 
Rule include market data delays, unusual markets, unusual market 
conditions, system malfunctions, influx of order executions and for 
certain market activity such as book bids or offers and locked or 
crossed markets.
    \4\ Amex Rule 941(e) entitled ``Receipt of Linkage Orders,'' 
sets forth the manner in which Linkage Orders will be executed given 
the Exchange's disseminated quotation and the size of the particular 
order.
    \5\ ``Linkage Order'' means an order routed through the Linkage 
as permitted under the Linkage Plan. There are three types of 
Linkage Orders as follows: (i) ``Principal Acting as Agent (``P/A'') 
Order,'' which is an order for the principal account of a specialist 
(or equivalent entity on another Participant Exchange that is 
authorized to represent Public Customer orders), reflecting the 
terms of a related unexecuted Public Customer order for which the 
specialist is acting as agent; (ii) ``Principal Order,'' which is an 
order for the principal account of an Eligible Market Maker (or 
equivalent entity on another Participant Exchange) and is not a P/A 
Order; and (iii) ``Satisfaction Order,'' which is an order sent 
through the Linkage to notify a Participant Exchange of a Trade-
Through and to seek satisfaction of the liability arising from that 
Trade-Through.
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    The proposed amendment to Amex Rule 941(e) will allow the Exchange 
to automatically execute certain Linkage Orders even though the 
Exchange's Auto-Ex system has been disengaged or by-passed as a result 
of (i) an influx of orders or (ii) when a locked market has cause an 
inversion in the quote. Under these circumstances, an Exchange 
specialist would be able to provide an automatic execution for a 
Linkage Order even though a non-Linkage Order would continue to be 
ineligible for Auto-Ex.
    The Amex is proposing this change because with respect to Linkage 
Orders, especially in those option classes experiencing high volume and 
activity, manual handling of such orders in situations when Auto-Ex is 
not available has created difficulty for specialists in meeting their 
regulatory obligations under Amex Rule 941(e).\6\ The result has been 
that a portion of all Linkage Orders received by the Amex have not been 
executed. The Exchange believes that this proposal permitting an 
automatic execution for certain orders that would otherwise be 
ineligible for an automatic execution will help to increase the 
Exchange's executions of Linkage Orders.
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    \6\ Amex Rule 941(e) provides that if a Linkage Order is not 
eligible for automatic execution, the specialist must address the 
order within 15 seconds to provide an execution for at least the 
Firm Customer Quote Size or Firm Principal Quote Size, respectively. 
See also The Plan for the Purpose of Creating and Operating an 
Intermarket Options Market Linkage (the ``Linkage Plan'' or 
``Plan''), Securities Exchange Act Release No. 47297 (January 31, 
2003), 68 FR 6526 (February 7, 2003).
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    The Amex, along with the other options exchanges, launched Phases I 
and II of the Linkage on January 31, 2003 and April 25, 2003, 
respectively. Phase I is limited to automatic executions while Phase II 
was expanded to include manual handling of Linkage Orders and 
satisfaction liability. Pursuant to an exemption granted by the 
Commission on May 30, 2003, the deadline for final implementation of 
Phase II of the Linkage Plan has been extended until June 27, 2003.\7\ 
The Exchange believes that the proposal will help specialists execute a 
larger percentage of their Linkage Orders consistent with the Plan.
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    \7\ See letter from Robert L.D. Colby, Deputy Director, Division 
of Market Regulation, Commission, to Michael Ryan, Executive Vice 
President and General Counsel, Amex, Joanne Moffic-Silver, General 
Counsel and Corporate Secretary, Chicago Board Options Exchange, 
Inc., Kathryn L. Beck, Senior Vice President, General Counsel and 
Corporate Secretary, Pacific Exchange, Inc. and Lanny Schwartz, 
Executive Vice President and General Counsel, Philadelphia Stock 
Exchange, Inc., dated May 30, 2003.
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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) \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, 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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    \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 proposed rule change will impose no 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has been filed by the Exchange 
as a ``non-controversial'' rule change pursuant to Section 19(b)(3)(A) 
of the Act \10\ and paragraph (f)(6) of Rule 19b-4 thereunder.\11\ 
Consequently, because the proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for thirty days from the date on 
which it was filed or such shorter time as the Commission may designate 
if consistent with the protection of investors and the public interest, 
and the Exchange provided the Commission with written notice of its 
intent to file the proposed rule change along with a brief description 
and text of the proposed rule change at least five days prior to the 
filing date, it has become effective pursuant to Section 19(b)(3)(A) of 
the Act and Rule 19b-4(f)(6) thereunder.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(i).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ The Commission has waived the requirement that the Exchange 
provide written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change.
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    A proposed rule change filed under Rule 19b-4(f)(6) may not become 
operative prior to thirty (30) days after the date of filing. However, 
pursuant to Rule 19b-4(f)(6)(iii) the Commission may designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange seeks to have the 
thirty (30) day waiting period waived in order for this proposed rule 
change to be operative immediately. Consistent with the protection of 
investors and the public interest, the Commission has determined to 
make the proposed rule change operative as of the date of this 
order.\13\ The Commission believes that the proposed rule change will 
assist specialists in automatically executing a greater number of their 
Linkage Orders, consistent with the final

[[Page 38413]]

implementation of Phase II of the Linkage.
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    \13\ For purposes of only accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within sixty (60) days of the filing of the proposed 
rule change, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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. SR-Amex-2003-64 and 
should be submitted by July 18, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16336 Filed 6-26-03; 8:45 am]
BILLING CODE 8010-01-P