[Federal Register Volume 68, Number 140 (Tuesday, July 22, 2003)]
[Notices]
[Pages 43409-43411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18616]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48174; File No. SR-Amex-2003-56]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC To Reestablish on a Six-Month Pilot 
Basis the Exchange's Odd-Lot Execution Procedures Applicable to Trading 
in Nasdaq Securities

July 14, 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 June 2, 2003, 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 and 
II below, which Items have been prepared by the Exchange. On June 27, 
2003, the Exchange amended the proposal.\3\ The Exchange filed the 
proposal 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.\6\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter dated June 27, 2003, from Geraldine M. Brindisi, 
Vice President and Corporate Secretary, Exchange, to Nancy Sanow, 
Assistant Director, Division of Market Regulation, Commission 
(``Amendment No. 1''). In Amendment No. 1, the Amex added language 
to clarify the proposed rule change.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ The Amex provided the Commission with written notice of its 
intent to file the proposed rule change on May 27, 2003. The 
Exchange asked the Commission to waive the 30-day operative delay. 
See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). For purposes 
of calculating the 60-day period within which the Commission may 
summarily abrogate the proposed rule change under Section 
19(b)(3)(C) of the Act, the Commission considers the period to have 
commenced on June 27, 2003, the date the Exchange filed Amendment 
No. 1. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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

    The Exchange proposes to reestablish on a six-month pilot basis 
paragraph (j) to Amex Rule 118 (Trading in Nasdaq National Market 
Securities) and Commentary .05 to Rule 205 (Manner of Executing Odd-Lot 
Orders) to describe odd-lot execution procedures applicable to trading 
Nasdaq securities. The previous six-month pilot lapsed as of February 
3, 2003, due to Amex's failure to request an extension before the 
previous pilot program expired. Amex is making no substantive changes 
to the pilot program, other than to reestablish it and extend its 
operation through December 27, 2003. The text of the proposed rule 
change is set forth below. Proposed new language is in italics.
* * * * *
Trading in Nasdaq National Market Securities
    Rule 118. (a) through (i) No change.
    (j) Odd-Lot Orders--Odd-lot orders in Nasdaq National Market 
securities shall be executed in the following manner:
    (i) Market and Executable Limit Orders--A market or executable 
limit order shall receive automatic execution, unless otherwise 
provided herein, at the price of the qualified national best offer (in 
the case of an order to buy) or qualified national best bid (in the 
case of an order to sell) in the security at the time the order has 
been received at the trading post or through the Amex Order File.
    All market and executable limit odd-lot orders entered prior to the 
opening of trading of Nasdaq National Market securities on the Exchange 
shall receive automatic execution at the price of the first round-lot 
or Part of Round Lot (PRL) transaction on the Exchange.
    For purposes of this subparagraph (j)(i), the qualified national 
best bid or offer for a Nasdaq National Market security shall mean the 
highest bid and lowest offer, respectively, disseminated (A) by the 
Exchange or (B) by another market center participating in the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq Listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges Basis (``Plan''); provided, however, that 
the bid and offer in another such market center will be considered in 
determining the qualified national best bid or offer in a stock only if 
(i) the quotation conforms to the requirements of Rule 127 (``Minimum 
Price Variations''), (ii) the quotation does not result in a locked or 
crossed market, (iii) the market center is not experiencing operational 
or system problems with respect to the dissemination of quotation 
information, and (iv) the bid or offer is ``firm,'' that is, members of 
the market center disseminating the bid or offer are not relieved of 
their obligations with respect to such bid or offer under paragraph 
(c)(2) of Rule 11Ac1-1 pursuant to the ``unusual market'' exception of 
paragraph (b)(3) of Rule 11Ac1-1.
    (ii) Limit Orders; Stop Orders; Stop-Limit Orders; Other Order 
Types--Unless otherwise provided herein, non-executable limit, stop, 
and stop-limit orders shall be executed in accordance with Rule 205, 
Parts A (2), A(3), and A(4), respectively. Orders to buy or sell ``at 
the close'' shall be filled at the price of the closing round-lot sale 
on the Exchange. An odd-lot order received prior to the close but not 
filled either before the close or on the close may be filled after the 
close in accordance with the provisions of Rule 205, Part C (1).
    (iii) Non-Regular Way Trades--Non-regular way trades shall be 
effected in accordance with the provisions of Rule 205, Part C (2).

[[Page 43410]]

    (iv) Locked and Crossed Market Conditions
    (a) For market and executable limit orders entered after the 
opening, when the national best bid and offer is in a locked market 
condition (i.e., the bid and offer are the same), odd-lot buy and sell 
orders will be executed at that locked market price.
    (b) Crossed Market Condition--When a crossed market condition 
exists (i.e., bid higher than offer) and the national best displayed 
bid is higher than the national best displayed offer by $.05 or less, 
market and executable limit orders will receive automatic execution at 
the mean of the bid and offer prices. If the mean is in a subpenny 
increment, the price of execution would be rounded up to the nearest 
$.01. When the national best displayed bid is higher than the offer by 
more than $.05, an odd-lot order will not receive automatic execution 
and is to be executed manually at the time a crossed market condition 
no longer exists, in accordance either with subparagraph (i) or (iv)(a) 
of this paragraph (j), as appropriate.
    (v) No odd-lot differential may be charged on any odd-lot orders, 
except for non-regular way trades effected under Rule 118 (j)(iii).
    (vi) Odd-lot orders in Nasdaq National Market securities are 
permitted to be marked (``short'') and are acceptable for all order 
types, and Rule 7, Commentary .02 shall apply to such orders.
* * * * *
Manner of Executing Odd-Lot Orders
    Rule 205
    Commentary
    .01 through .04 No Change.
    .05 Odd-lot orders in Nasdaq National Market securities shall be 
executed in accordance with Rule 118(j).
* * * * *

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.

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

1. Purpose
    On August 2, 2002, the Commission approved the Exchange's proposed 
rule change establishing odd-lot execution procedures with respect to 
Nasdaq National Market securities pursuant to unlisted trading 
privileges on a six-month pilot basis.\7\ The proposed rule change 
revised Amex Rule 118 to add paragraph (j) to describe procedures 
applicable to the execution of odd-lot orders. The Exchange modified 
its systems in order to provide automatic execution of market and 
executable limit orders in Nasdaq National Market securities of less 
than 100 shares in a manner generally consistent with procedures set 
forth in Amex Rule 205. (Round lot orders (e.g., 100 shares) and Part 
of Round Lot (``PRL'') orders (e.g., 175 shares) are not subject to the 
automatic execution procedures applicable to odd-lots.) The Exchange's 
previous pilot program was approved on August 2, 2002 for a six-month 
period expiring February 3, 2003.\8\ The Exchange inadvertently failed 
to request an extension of the pilot beyond that date, and now proposes 
to reestablish these procedures on a six-month pilot basis. The 
Exchange believes that these procedures have operated efficiently and 
has received no complaints from members or the public regarding odd-lot 
executions. Therefore, the Exchange is requesting that the program be 
reestablished on a six-month pilot basis while the Exchange assesses 
whether to request that the procedures be permanently approved.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 46304 (August 2, 
2002), 67 FR 51903 (August 9, 2002) (SR-Amex-2002-56).
    \8\ Id.
---------------------------------------------------------------------------

    Under this program, market and executable odd-lot limit orders to 
buy (sell) would be executed at the price of the qualified national 
best offer (bid) at the time the order is received at the trading post 
or through the Amex Order File (``AOF''). Market and executable limit 
orders entered before the opening of trading in Nasdaq securities on 
the Exchange would receive an execution at the price of the first 
reported round-lot or PRL on the Amex.
    For purposes of this provision, the qualified national best bid or 
offer would be the highest bid and lowest offer disseminated by the 
Amex or by another market center that is a participant in the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq Listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges Basis. The bid or offer of such other 
market center would be considered in determining the qualified national 
best bid or offer only if it met the conditions specified in proposed 
Rule 118(j)(i), including (i) that the quotation conform to Amex Rule 
127 (Minimum Price Variations), that is, the bid or offer be in a one 
cent increment; (ii) that the quotation not result in a locked or 
crossed market; (iii) that the market center not be experiencing 
operational or system problems affecting quotation dissemination; and 
(iv) that members of the other market center disseminating the 
quotations not be relieved of their obligations with respect to their 
quotations pursuant to the ``unusual market'' exception of Commission 
Rule 11Ac1-1.\9\ These exceptions are similar to those applied to 
execution of odd-lots in Amex-listed securities under Amex Rule 205, 
Commentary .04.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.11Ac1-1.
---------------------------------------------------------------------------

    Procedures for the execution of non-executable limit orders, stop 
orders, stop limit orders, other order types, orders filled after the 
close and non-regular way trades would be similar to existing odd-lot 
execution procedures under Amex Rule 205 A(2)-A(4), B and C. Such 
orders would be processed manually and would not be automatically 
executed.

Locked and Crossed Market Conditions

    The proposed rule change, as amended, would implement specific 
procedures for automatically executing market and executable limit odd-
lot orders entered after the opening of Amex trading in Nasdaq 
securities when the national best bid and offer is in a locked market 
condition (i.e., bid is equal to the offer) or a crossed market 
condition (i.e., bid is higher than the offer). In the case of a locked 
market, market orders and executable buy and sell limit orders would be 
executed at the same price as the locked price. In the case of a 
crossed market in which the bid is higher than the offer by $.05 or 
less, market and executable limit orders would be executed at the mean 
of the crossed bid and offer. If the mean resulted in less than $.01, 
the execution would be rounded up to the nearest $.01.
    Examples:

(1) BBO is $10.04 to $10.00, Market odd lot order to buy or sell 
arrives, Execute at $10.02

[[Page 43411]]

(2) BBO is $10.05 to $10.00, Market odd lot order to buy or sell 
arrives, Execute at $10.03 ($10.025 is rounded to $10.03)

    In the case of a crossed market in which the bid is higher than the 
offer by more than $.05, an odd-lot order would not be executed 
automatically, but would be executed manually in accordance with, as 
appropriate, either proposed Rule 118(j)(i) (i.e., filled at the price 
of the next uncrossed qualified national bid or offer), or proposed 
Rule 118(j)(iv)(a) (i.e., at the locked market price, when the national 
best bid and offer is in a locked market condition).
    Commentary .05 to Amex Rule 205 would be added to reference the 
Rule 118(j) odd-lot procedures.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with the provisions of section 6(b) of the Act,\10\ in 
general, and furthers the objectives of section 6(b)(5) \11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 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, as 
amended, 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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.

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

    Because the foregoing proposed rule change, as amended, 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 from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to section 19(b)(3)(A) of the Act \12\ and 
Rule 19b-4(f)(6) thereunder.\13\ At any time within 60 days of the 
filing of the proposed rule change, as amended, 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Amex has requested that the Commission waive the 30-day 
operative delay. The Commission believes waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Acceleration of the operative date will allow the Exchange to 
reestablish its odd-lot execution procedures applicable to trading in 
Nasdaq securities without delay. For these reasons, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\14\
    In addition, the Commission requests that the Exchange report any 
problems or complaints from members and the public regarding odd-lot 
execution procedures applicable to trading Nasdaq securities, and that 
the Amex submit any proposal to extend, or permanently approve, the 
pilot at least two months before the expiration of the six-month pilot.
---------------------------------------------------------------------------

    \14\ For purposes only of 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).
---------------------------------------------------------------------------

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 Exchange. All submissions should refer to file 
number SR-Amex-2003-56 and should be submitted by August 12, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-18616 Filed 7-21-03; 8:45 am]
BILLING CODE 8010-01-P