[Federal Register Volume 68, Number 229 (Friday, November 28, 2003)]
[Notices]
[Pages 66898-66906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29659]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48813; File No. SR-Amex-2003-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments 1, 2, and 3 thereto by the American Stock 
Exchange LLC Relating to At-the-Close Orders and Auxiliary Opening 
Procedures

November 20, 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 March 27, 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, II 
and III below, which Items have been prepared by the Amex. On September 
10, 2003, the Amex amended the proposed rule change.\3\ On October 20, 
2003, the Amex amended the proposed rule change.\4\ On November 14, 
2003, the Amex amended the proposed rule change.\5\ 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.
    \3\ See letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
September 9, 2003 (``Amendment No. 1''). In Amendment No. 1, the 
Amex restated the proposed rule change in its entirety.
    \4\ See letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, 
Division, Commission, dated October 17, 2003 (``Amendment No. 2''). 
In Amendment No. 2, the Amex restated the proposed rule change in 
its entirety.
    \5\ See letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, 
Division, Commission, dated November 13, 2003 (``Amendment No. 3''). 
In Amendment No. 3, the Amex restated the proposed rule change 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 (1) to adopt new Rule 131A to set forth Exchange 
rules and procedures regarding ``at the close'' orders; (2) to amend 
Amex Rules 131 and 156 relating to on-close orders (also known as ``at-
the-close'' orders); (3) to implement additional procedures, relating 
to daily on-close procedures and expiration day auxiliary opening 
procedures; and (4) to adopt new Rule 118(m) to reflect procedures 
applicable to ``at the close'' orders in Nasdaq securities traded on 
the Exchange pursuant to unlisted trading privileges (``UTP''). The 
text of the proposed rule change is set forth below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Types of Orders

Rule 131
    (a) through (d) No change.
    (e) [An at the close order is a market order which is to be 
executed at or as near to the close as practicable. The term ``at the 
close order'' shall also include a limit order that is entered for 
execution at the closing price, on the Exchange, of the stock named in 
the order pursuant to such procedures as the Exchange may from time to 
time establish.] A market at the close (MOC) order is an order to buy 
or sell a stated amount of a security at the Exchange's closing price. 
If the MOC order cannot be so executed in its entirety at the Exchange 
closing price it will be cancelled. A limit at the close (LOC) order is 
an order to buy or sell a stated amount of a security at the Exchange's 
closing price if that closing price is at the order's limit price, or 
better. If the LOC order can not be so executed, in whole or in part, 
the amount of the order not so executed is to be cancelled. 
Cancellation of MOC and LOC orders will only occur in certain 
circumstances such as (1) when trading has been halted in the security 
and does not reopen prior to the close of the market; (2) for tick 
sensitive orders whose execution will violate customer instructions 
(i.e., to buy only on a minus or zero minus tick or to sell only on a 
plus or zero plus tick) or Exchange Rule 7; (3) for LOC orders, when 
the Amex closing price is not at the limit price or better, or (4) for 
tick sensitive MOC/LOC orders and LOC orders, all of which are limited 
to the closing price, the limited quantity of shares to be traded and 
the rules of priority as to which orders would trade first left these 
orders unexecuted in whole or in part.
    (f) through (t) No change.
* * * * *

Market on Close Policy and Expiration Procedures

    Rule 131A. The following procedures apply to stocks and do not 
apply to options or to any security the pricing of which is based on 
another security or an index (e.g., Exchange Traded Funds or Trust 
Issued Receipts, securities listed under Section 107 of the Exchange 
Company Guide, warrants and convertible securities).
    (a) In an attempt to minimize price volatility on the close, all 
market-on-close (MOC) and limit-on-close (LOC)

[[Page 66899]]

orders should be entered as early in the day as possible to provide 
market participants an opportunity to better ascertain possible order 
imbalances that might exist at the close.
    Between 3:00 and 3:40 p.m. (Eastern Time), imbalances of any size 
may be published with Floor Official approval. These are informational 
only and do not limit MOC/LOC order entry before 3:40 p.m.
    At 3:40 p.m. or as close to this time as possible, MOC order 
imbalances of 25,000 shares or more must be published on the 
consolidated tape. In addition, an order imbalance below 25,000 shares 
may also be published by a specialist, with the concurrence of a Floor 
Official, if the specialist (i) anticipates that the execution of the 
MOC orders will result in a closing price which exceeds the price 
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule), 
or (ii) believes that an order imbalance should otherwise be published 
in an attempt to minimize price volatility on the close. A ``No 
Imbalance'' notice will only be published for any stock at 3:40 p.m. if 
there had been a prior informational imbalance publication.
    (1) MOC Imbalance Calculation Policy (3:40 p.m. calculation): 
Marketable LOC orders to buy (that is, LOC buy orders with limit prices 
above the last sale at 3:40 p.m.) are added to MOC orders to buy. 
Marketable LOC orders to sell (that is, LOC orders with limit prices 
below the last sale at 3:40 p.m.) are added to MOC orders to sell. The 
buy orders are then matched against sell orders. If there is a buy 
imbalance, it is offset and reduced by any tick-sensitive MOC orders to 
sell and tick-sensitive, marketable LOC orders to sell (including 
orders to sell short). If there is a sell imbalance it is offset and 
reduced by any tick-sensitive MOC orders to buy and tick-sensitive, 
marketable LOC orders to buy.
    At 3:50 p.m. or as close to this time as possible, MOC order 
imbalances of 25,000 shares or more must be published on the 
consolidated tape. In addition, an order imbalance below 25,000 shares 
may also be published by a specialist, with the concurrence of a Floor 
Official, if the specialist (i) anticipates that the execution of the 
MOC orders will result in a closing price which exceeds the price 
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule), 
or (ii) believes that an order imbalance should otherwise be published 
in an attempt to minimize price volatility on the close. If there had 
been an imbalance publication at 3:40 p.m. and the imbalance at 3:50 
p.m. is less than 25,000 shares, either a ``No Imbalance'' notice will 
be published, or the size and side of the imbalance may be published 
with Floor Official approval.
    MOC Imbalance Calculation Policy (3:50 p.m. calculation): 
Procedures for the 3:50 p.m. calculation are the same as the 3:40 p.m. 
calculation, except that the Exchange last sale at 3:50 p.m. would be 
used to determine whether or not a LOC order is marketable.
    (2) Between 3:40 p.m. and 3:50 p.m., no MOC or LOC orders may be 
entered except to offset a published MOC imbalance at 3:40 p.m. A 
broker may represent an MOC or LOC order in the crowd, but must state 
irrevocable MOC interest by 3:40:00 p.m. After 3:40:00 p.m., an MOC 
order may not be taken from the book to be represented by a broker in 
the crowd.
    Between 3:40 p.m. and 3:50 p.m., MOC and LOC orders are 
irrevocable, except to correct an error (e.g., incorrect stock, side, 
size, or price, or a duplication of a previously entered order). 
Properly cancelled MOC and LOC orders may not be replaced after 3:40 
p.m. unless the replacement order offsets a published MOC imbalance.
    After 3:50 p.m., no MOC or LOC orders may be entered except to 
offset a published MOC imbalance at 3:50 p.m.
    Cancellation or reduction in size of MOC and/or LOC orders after 
3:50 p.m. will not be permitted for any reason, including in case of 
legitimate error.
    (3) Publication of Imbalances Following Trading Halt of Any Type: 
MOC order imbalances of 25,000 shares or more are required to be 
published by the specialist, if practicable, in the event a stock 
reopens after 3:50 p.m. following a trading halt of any type. An 
imbalance of less than 25,000 shares may be published with the 
concurrence of a Floor Official. Trading will not resume in the event a 
trading halt in a stock occurs after 3:55 p.m., and MOC/LOC orders in 
that stock will not be executed.
    (4) Entry of MOC/LOC Orders During a Regulatory Halt. If a 
regulatory halt is in effect at 3:40 p.m. or occurs after that time, 
the entry of MOC/LOC orders is permitted until 3:50 p.m. or until the 
security reopens, whichever occurs first. If an order imbalance is 
published following a regulatory halt and reopening after 3:40 p.m., 
the entry of MOC/LOC orders is permitted only to offset the published 
imbalance.
    (5) Cancellation of MOC/LOC Orders During a Regulatory Halt. When a 
regulatory halt (news pending or news dissemination) is in effect at 
3:40 p.m. or occurs after that time, cancellation of MOC/LOC orders is 
permitted until 3:50 p.m. or the reopening of the security, whichever 
occurs first. This policy does not apply to non-regulatory (e.g., order 
imbalance or equipment changeover) halts, and cancellation of orders in 
such cases is prohibited after 3:40 p.m. except to correct an error. 
Cancellation or reduction in size of MOC and/or LOC orders after 3:50 
p.m. will not be permitted for any reason, including in case of 
legitimate error.
    (b) Printing the Close: In accordance with Rule 109(d), the 
imbalance of MOC and marketable LOC orders are printed against the bid 
or the offer as the case may be.
    Following the printing of the imbalance, and in accordance with 
Rule 109, the specialist shall stop the remaining buy and sell orders 
against each other and pair them off at the price of the immediately 
preceding sale described above. The ``pair off'' transaction shall be 
reported to the tape as ``stopped stock''. Where the aggregate size of 
the MOC (and marketable LOC, i.e., orders with limits above the closing 
price) orders to buy equals the aggregate size of the MOC (and 
marketable LOC, i.e., orders with limits below the closing price) 
orders to sell, the buy orders and sell orders shall be stopped against 
each other and paired-off at the price of the last sale regular-way on 
the Exchange prior to the close of trading in that stock on that day. 
The transaction shall be reported to the consolidated last sale 
reporting system as ``stopped stock''. Any stop orders and percentage 
orders that would be elected and become executable as a result of the 
closing transaction should also be included in the close.
    (c) Order of Execution of MOC and LOC Orders.
    On the close orders are to be executed in the following order.

    1. MOC orders (including ``G'');
    2. Tick-sensitive, marketable (as defined in Rule 131A(b) above) 
MOC orders (not including sell short ``G'');
    3. Tick-sensitive, marketable (as defined in Rule 131A(b) above) 
market orders and marketable (as defined in Rule 131A(b) above) limit 
orders;
    4. Marketable (as defined in Rule 131A(b) above) LOC orders 
(including ``G'');
    5. Tick-sensitive, marketable (as defined in Rule 131A(b) above) 
LOC orders (not including sell short ``G'');
    6. Limit orders on the book and in the crowd limited to the closing 
price;
    7. LOC orders limited to the closing price;
    8. Tick-sensitive MOC orders limited to the closing price (not 
including sell short ``G'');

[[Page 66900]]

    9. Tick-sensitive LOC orders limited to the closing price (not 
including sell short ``G'');
    10. All other ``G'' orders on book and in the crowd.

    Item numbers 1-5 above (Order of Execution of MOC Orders) are 
treated like MOC orders. Accordingly, the buy side is matched against 
the sell side to determine the imbalance. That imbalance will be 
executed against the prevailing bid or offer, as appropriate. (An 
imbalance of buy orders would be executed against the offer. An 
imbalance of sell orders would be executed against the bid.) The order 
of execution of the orders limited to that bid or offer (i.e., the 
orders that the imbalance will trade against) is set forth above in 
item numbers 6 through 10. The specialist then stops the remaining buy 
and sell ``MOC'' orders (i.e., those not part of the imbalance) against 
each other and pairs them off at the price of the imbalance trade. The 
``pair off'' transaction is to be reported as a ``stopped stock'' 
transaction.
    (d) Auxiliary Opening Procedures.
    For each expiration settlement value day on which derivative, 
index-related products (e.g., options, futures, options on futures) 
settle against opening prices, several auxiliary procedures are 
necessary to integrate stock orders relating to expiring contracts into 
Amex's opening procedures in a manner that assures an efficient market 
opening in each stock as close to 9:30 a.m. as possible. An expiration 
settlement value day is a trading day prior to the expiration of index-
related derivative products whose settlement value is based upon 
opening prices on the Exchange, as identified by a qualified clearing 
corporation (e.g., the Options Clearing Corporation). The twelve 
expiration days are ``Expiration Fridays'' which generally fall on the 
third Fridays in every month. If that Friday is an Exchange holiday, 
there will be an expiration Thursday in such a month.

Order Entry

    Stock orders relating to index-related derivative contracts whose 
settlement pricing is based upon 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.) All other orders may be entered before or after 9 a.m.
    To facilitate early order entry, AOF will begin accepting orders at 
7:30 a.m. and will accept market orders of 99,900 shares or less. 
``Limit-at-the-opening'' (``limit OPG'') orders are permitted, 
including delivery through Exchange systems. Ordinary limit and market 
orders may also be entered.

Order Identification

    Stock orders relating to expiring derivatives whose settlement 
pricing is based on opening prices must be identified ``OPG''.
    Firms entering these orders through AOF, but unable to use ``OPG'' 
in the order instructions, may use a unique AOF branch code or a 
separate AOF subscription mnemonic to identify these orders. The Amex 
Market Surveillance Department must be advised in writing of the branch 
code or subscription mnemonics by the business day following the 
expiration trade date.
    Firms unable to identify these orders in any of the above three 
ways, and firms not using AOF, must submit a list of all these orders 
and related details to the Amex Market Surveillance Department by the 
business day following the expiration trade date.

Dissemination of Order Imbalances

    As soon as practicable after 9:00 a.m. on expiration days, the 
Exchange will publish market order imbalances of 25,000 shares or more 
in all stocks. In addition, imbalances of less than 25,000 shares may 
be published at that time with Floor Official approval. A ``no 
imbalance'' status will not be published for any stock.
* * * * *

Representation of Orders

Rule 156 (a) through (b) No change.
    (c) The acceptance of a market [an] at the close (MOC) order by a 
broker [does not make him] makes the broker responsible for an 
execution at the Exchange's closing price, and if the order can not be 
so executed, it is to be cancelled. A broker handling a limit at the 
close (LOC) order is to use due diligence to execute the order at the 
Exchange's closing price if that closing price is at the order's limit 
price, or better, and if the order can not be so executed, in whole or 
in part, the amount of the order not so executed is to be cancelled. 
[Bids or offers qualified as at the close cannot be publicly made in 
the Trading Crowd.] Cancellation of MOC and LOC orders will only occur 
in certain circumstances such as (1) when trading has been halted in 
the security and does not reopen prior to the close of the market; (2) 
for tick sensitive orders whose execution will violate customer 
instructions (i.e., to buy only on a minus or zero minus tick or to 
sell only on a plus or zero plus tick) or Exchange Rule 7; (3) for LOC 
orders, when the Amex closing price is not at the limit price or 
better, or (4) for tick sensitive MOC/LOC orders and LOC orders, all of 
which are limited to the closing price, the limited quantity of shares 
to be traded and the rules of priority as to which orders would trade 
first left these orders unexecuted in whole or in part.
    (d) through (e) No change.
* * * * *

Trading in Nasdaq National Market Securities

Rule 118
    (a) through (k) No change.
    (l) Reserved.
    (m) Market-on-Close and Limit-on-Close Orders `` The following 
procedures apply to market-on-close (MOC) and limit-on-close (LOC) 
orders in Nasdaq National Market securities
    (i) A market at the close (MOC) order is an order to buy or sell a 
stated amount of a security at the Exchange's closing price. If the MOC 
order cannot be so executed in its entirety at the Exchange closing 
price it will be cancelled. A limit at the close (LOC) order is an 
order to buy or sell a stated amount of a security at the Exchange's 
closing price if that closing price is at the order's limit price, or 
better. If the LOC order can not be so executed, in whole or in part, 
the amount of the order not so executed is to be cancelled. 
Cancellation of MOC and LOC orders will only occur in certain 
circumstances such as (1) When trading has been halted in the security 
and does not reopen prior to the close of the market; (2) for tick 
sensitive orders whose execution will violate customer instructions 
(i.e., to buy only on a minus or zero minus tick or to sell only on a 
plus or zero plus tick) or Exchange Rule 7; (3) for LOC orders, when 
the Amex closing price is not at the limit price or better, or (4) for 
tick sensitive MOC/LOC orders and LOC orders, all of which are limited 
to the closing price, the limited quantity of shares to be traded and 
the rules of priority as to which orders would trade first left these 
orders unexecuted in whole or in part.
    (ii) In an attempt to minimize price volatility on the close, all 
market-on-close (MOC) and limit-on-close (LOC) orders should be entered 
as early in the day as possible to provide market participants an 
opportunity to better ascertain possible order imbalances that might 
exist at the close.
    Between 3:00 and 3:40 p.m. (Eastern Time), imbalances of any size 
may be

[[Page 66901]]

published with Floor Official approval. These are informational only 
and do not limit MOC/LOC order entry before 3:40 p.m.
    (a) At 3:40 p.m. or as close to this time as possible, MOC order 
imbalances of 25,000 shares or more must be published in a manner 
specified by the Exchange. In addition, an order imbalance below 25,000 
shares may also be published by a specialist, with the concurrence of a 
Floor Official, if the specialist (i) anticipates that the execution of 
the MOC orders will result in a closing price which exceeds the price 
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule), 
or (ii) believes that an order imbalance should otherwise be published 
in an attempt to minimize price volatility on the close. A ``No 
Imbalance'' notice will only be published for any stock at 3:40 p.m. if 
there had been a prior informational imbalance publication.
    (1) MOC Imbalance Calculation Policy (3:40 p.m. calculation): 
Marketable LOC orders to buy (that is, LOC buy orders with limit prices 
above the consolidated last sale at 3:40 p.m.) are added to MOC orders 
to buy. Marketable LOC orders to sell, (that is, LOC orders with limit 
prices below the last sale at 3:40 p.m.) are added to MOC orders to 
sell. The buy orders are then matched against sell orders to calculate 
the imbalance.
    At 3:50 p.m. or as close to this time as possible, MOC order 
imbalances of 25,000 shares or more must be published in a manner 
specified by the Exchange. In addition, an order imbalance below 25,000 
shares may also be published by a specialist, with the concurrence of a 
Floor Official, if the specialist (i) anticipates that the execution of 
the MOC orders will result in a closing price which exceeds the price 
change parameters of Rule 154, Commentary .08 (the $2, $1, $.50 Rule), 
or (ii) believes that an order imbalance should otherwise be published 
in an attempt to minimize price volatility on the close. If there had 
been an imbalance publication at 3:40 p.m. and the imbalance at 3:50 
p.m. is less than 25,000 shares, either a ``No Imbalance'' notice will 
be published, or the size and side of the imbalance may be published 
with Floor Official approval.
    MOC Imbalance Calculation Policy (3:50 p.m. calculation): 
Procedures for the 3:50 p.m. calculation are the same as the 3:40 p.m. 
calculation, except that the consolidated last sale at 3:50 p.m. would 
be used to determine whether or not a LOC order is marketable.
    (2) Between 3:40 p.m. and 3:50 p.m., no MOC or LOC orders may be 
entered except to offset a published MOC imbalance at 3:40 p.m. A 
broker may represent an MOC or LOC order in the crowd, but must state 
irrevocable MOC interest by 3:40 p.m. After 3:40 p.m., an MOC order may 
not be taken from the book to be represented by a broker in the crowd.
    Between 3:40 p.m. and 3:50 p.m., MOC and LOC orders are 
irrevocable, except to correct an error (e.g., incorrect stock, side, 
size, or price, or a duplication of a previously entered order). 
Properly cancelled MOC and LOC orders may not be replaced after 3:40 
p.m. unless the replacement order offsets a published MOC imbalance.
    After 3:50 p.m., no MOC or LOC orders may be entered except to 
offset a published MOC imbalance at 3:50 p.m.
    Cancellation or reduction in size of MOC and/or LOC orders after 
3:50 p.m. will not be permitted for any reason, including in case of 
legitimate error.
    (b) Prohibition of Tick-Sensitive Orders--Tick-sensitive MOC and 
LOC orders (e.g., buy ``minus'' or sell ``plus'') shall not be entered. 
(Sell short MOC and LOC orders in Nasdaq securities are exempt from 
tick restrictions on the Amex and may be entered.)
    (c) Publication of Imbalances Following Trading Halt of Any Type: 
MOC order imbalances of 25,000 shares or more are required to be 
published by the specialist, if practicable, in the event a stock 
reopens after 3:50 p.m. following a trading halt of any type. An 
imbalance of less than 25,000 shares may be published with the 
concurrence of a Floor Official. Trading will not resume in the event a 
trading halt in a stock occurs after 3:55 p.m., and MOC/LOC orders in 
that stock will not be executed.
    (d) Entry of MOC/LOC Orders During a Regulatory Halt. If a 
regulatory halt is in effect at 3:40 p.m. or occurs after that time, 
the entry of MOC/LOC orders is permitted until 3:50 p.m. or until the 
security reopens, whichever occurs first. If an order imbalance is 
published following a regulatory halt and reopening after 3:40 p.m., 
the entry of MOC/LOC orders is permitted only to offset the published 
imbalance.
    (e) Cancellation of MOC/LOC Orders During a Regulatory Halt. When a 
regulatory halt (news pending or news dissemination) is in effect at 
3:40 p.m. or occurs after that time, cancellation of MOC/LOC orders is 
permitted until 3:50 p.m. or the reopening of the security, whichever 
occurs first. This policy does not apply to non-regulatory (e.g., order 
imbalance or equipment changeover) halts, and cancellation of orders in 
such cases is prohibited after 3:40 p.m. except to correct an error. 
Cancellation or reduction in size of MOC and/or LOC orders after 3:50 
p.m. will not be permitted for any reason, including in case of 
legitimate error.
    (iii) Printing the Close: In accordance with Rule 109(d), the 
imbalance of MOC and marketable LOC orders are printed against the 
Exchange bid or the Exchange offer as the case may be. Following the 
printing of the imbalance, and in accordance with Rule 109, the 
specialist shall stop the remaining buy and sell orders against each 
other and pair them off at the price of the immediately preceding sale 
described above. The ``pair off'' transaction shall be reported as 
stopped stock in accordance with Exchange Rule 109, Commentary .02. 
Where the aggregate size of the MOC (and marketable LOC, i.e., orders 
with limits above the closing price) orders to buy equals the aggregate 
size of the MOC (and marketable LOC, i.e., orders with limits below the 
closing price) orders to sell, the buy orders and sell orders shall be 
stopped against each other and paired-off at the price of the last 
regular-way consolidated sale prior to the close of trading in that 
stock on that day. The transaction shall be reported as stopped stock 
in accordance with Exchange Rule 109, Commentary .02. Stop orders and 
percentage orders elected by the execution of the MOC imbalance should 
be included in the close.
    (iv) Order of Execution of MOC and LOC Orders.
    On the close orders are to be executed in the following order.
    1. MOC orders (including ``G'');
    2. Marketable (as defined in Rule 118(m)(iii) above) LOC orders 
(including ``G'');
    3. Limit orders on the book and in the crowd limited to the closing 
price;
    4. LOC orders limited to the closing price;
    5. All other ``G'' orders on book and in the crowd.
    Item numbers 1 and 2 above (Order of Execution of MOC Orders) are 
treated like MOC orders. Accordingly, the buy side is matched against 
the sell side to determine the imbalance. That imbalance will be 
executed against the prevailing bid or offer, as appropriate. (An 
imbalance of buy orders would be executed against the offer. An 
imbalance of sell orders would be executed against the bid.) The order 
of execution of the orders limited to that bid or offer (i.e., the 
orders that the imbalance will trade against) is set forth above in 
item numbers 3 through 5. The specialist then stops the remaining buy 
and sell ``MOC'' orders (i.e., those not part of the imbalance) against 
each other and pairs them off at the price of the imbalance trade. The 
``pair off'' transaction is to be reported as stopped

[[Page 66902]]

stock in accordance with Exchange Rule 109, Commentary .02.
    (v) See Rule 156(c), which sets forth the responsibilities of a 
broker accepting MOC and LOC orders.

Specialist's Reports of MOC and LOC Orders

    (vi) A Nasdaq UTP specialist is required to notify an Amex Floor 
Supervisor between 4:00 p.m. and 4:15 p.m. whenever the specialist (1) 
reports a trade at or after 4:00 p.m. that does not involve the 
execution of an MOC or LOC order, or (2), after reporting an MOC or LOC 
transaction(s) at or after 4:00 p.m., reports a trade after 4:00 p.m. 
(e.g., report of a ``sold'' sale) that is not, of course, a transaction 
involving the execution of MOC or LOC orders. This notification will be 
on an Exchange-approved form, with a duplicate copy for the 
specialist's records.
* * * * *

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, as 
amended, 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 Commission has previously approved rules and procedures 
governing market on close (``MOC'') and limit on close (``LOC'') orders 
entered on the Exchange.\6\ The Exchange proposes to amend these rules 
and procedures as described below. The amended rules and procedures set 
forth in this proposal would supersede the procedures previously 
approved by the Commission as described in the releases cited above, 
with the exception of Rule 109 which would continue to apply. Further, 
the Exchange proposes to consolidate current Exchange procedures 
relating to MOC and LOC orders, other than orders in Nasdaq securities 
traded pursuant to unlisted trading privileges, in new Rule 131A, which 
would include procedures previously approved by the Commission as well 
as the proposed procedures set forth herein. In addition, the Exchange 
proposes to adopt Rule 118(m) to establish MOC and LOC procedures for 
Nasdaq securities, which procedures would be substantially similar to 
those in proposed Rule 131A.\7\
---------------------------------------------------------------------------

    \6\ See, e.g., Securities Exchange Act Release Nos. 41877 
(September 14, 1999), 64 FR 51566 (September 23, 1999) (SR-Amex-99-
32); 40123 (June 24, 1998), 63 FR 36280) (July 2, 1998) (SR-Amex-98-
10); 35660 (May 2, 1995), 60 FR 22592 (May 8, 1995) (SR-Amex-95-09); 
29312 (June 14, 1991), 56 FR 28583 (June 21, 1991) (SR-Amex-95-09).
    \7\ The Commission approved certain procedures for ``at the 
close'' orders in Nasdaq securities in Securities Exchange Act 
Release 47658 (April 10, 2003), 68 FR 19041 (April 17, 2003) (SR-
Amex-2003-18). The procedures and rules proposed herein are in 
addition to, and do not supersede, those approved in Release No. 34-
47658. Auxiliary opening procedures for Nasdaq securities were filed 
and became effective in Securities Exchange Act Release No. 48000 
(June 6, 2003), 68 FR 35469 (June 13, 2003) (SR-Amex-2003-55).
---------------------------------------------------------------------------

Proposed Rule 131A (Market on Close Policy and Expiration Procedures)

    In an attempt to minimize price volatility on the close, Amex 
procedures currently provide that all MOC and LOC orders in stocks 
should be entered as early in the day as possible to provide market 
participants an opportunity to better ascertain possible order 
imbalances that might exist at the close. Under these procedures, Amex 
represents that, at 3:40 p.m. (Eastern Time) or as close to this time 
as possible, MOC order imbalances of 25,000 shares or more must be 
published on the tape. In addition, an order imbalance below 25,000 
shares may also be published by a specialist, with the concurrence of a 
Floor Official, if the specialist (i) anticipates that the execution of 
the MOC orders on the book will result in a closing price which exceeds 
the price change parameters of Rule 154, Commentary .08 (the $2, $1, 
$.50 rule),\8\ or (ii) believes that an order imbalance should 
otherwise be published in an attempt to minimize price volatility on 
the close. After 3:40 p.m., no MOC or LOC orders in stocks may be 
entered except to offset a published MOC imbalance.
---------------------------------------------------------------------------

    \8\ Amex Rule 154, Commentary .08 provides that no transaction 
in a stock at a price of $20 or more, $10 or more (but less than 
$20) or less than $10 per share may be at $2, $1, or $.50 or more, 
respectively, away from the last previous sale, without the prior 
approval of a Floor Official.
---------------------------------------------------------------------------

    New Rule 131A would incorporate existing Amex MOC/LOC procedures 
for stocks during the regular trading session as well as proposed new 
procedures, as described herein. These procedures would not be 
applicable to options or any security the pricing of which is based on 
another security or an index, such as Exchange-Traded Funds, Trust 
Issued Receipts, structured products, warrants and convertible 
securities. These procedures, however, would be applicable to closed-
end funds.
    The Exchange proposes to implement a MOC Imbalance Calculation 
Policy, and to adopt changes to the MOC Imbalance Publication Policy 
similar to those approved for the New York Stock Exchange (``NYSE'') in 
Release No. 34-40094,\9\ and stated in NYSE Rule 123C(5). The most 
salient feature of these revised policies is the additional imbalance 
dissemination at 3:50 p.m. The Exchange believes additional 
dissemination at 3:50 p.m. would provide useful information to market 
participants, who would be able to determine to enter offsetting buy or 
sell interest based on the latest imbalance information. Amex believes 
that this would enhance the value of imbalance publications in 
tempering market volatility at or near the close. In addition, the 
Exchange believes that implementing MOC/LOC procedures that are more 
similar to NYSE procedures in this area would enhance their utility for 
member organizations.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 40094 (June 15, 
1998), 63 FR 33975 (June 22, 1998) (SR-NYSE-97-36).
---------------------------------------------------------------------------

    The Exchange proposes to require a 3:50 p.m. MOC imbalance 
calculation in addition to the current 3:40 p.m. calculation. For the 
3:40 p.m. calculation, marketable buy LOCs (that is, LOCs with limit 
prices above the Exchange last sale at 3:40 p.m.) would be added to buy 
MOCs. Marketable sell LOCs (LOCs with limit prices below the Exchange 
last sale at 3:40 p.m.) would be added to sell MOCs. The buys would 
then be matched against the sells. If there were to be a buy imbalance, 
it would be offset and reduced by any tick-sensitive sell MOCs and 
tick-sensitive, marketable sell LOCs (including orders to sell short). 
If there were to be a sell imbalance, it would be offset and reduced by 
any tick-sensitive buy MOCs and tick-sensitive, marketable buy LOCs. A 
``no imbalance'' notice would only be published for any stock at 3:40 
p.m. if there had been a prior informational imbalance publication. 
Between 3 p.m. and 3:40 p.m., MOC/LOC imbalances of any size would be 
permitted to be published with Floor Official approval. These 
publications would be informational only and would not limit MOC/LOC 
order entry before 3:40 p.m. Amex represents that these proposed 
changes are similar to procedures currently in place at the NYSE and 
included in NYSE Rule 123C except as

[[Page 66903]]

follows. In view of the generally lower trading volume and different 
trading characteristics of Amex stocks compared to NYSE issues, the 
Exchange believes it would be appropriate to continue to require 
dissemination of imbalances of 25,000 shares or more rather than 50,000 
shares or more, as is required by NYSE Rule 123C.
    At 3:50 p.m., or as close to this time as possible, any MOC order 
imbalances of 25,000 shares or more would be required by the Exchange 
to be published on the consolidated tape (Tape B). In addition, as with 
current 3:40 p.m. imbalance procedures, an order imbalance below 25,000 
shares would also be permitted to be published by a specialist, with 
the concurrence of a Floor Official, if the specialist (i) anticipates 
that the execution of the MOC orders on the book would result in a 
closing price which exceeds the price change parameters of Rule 154, 
Commentary .08 (the $2, $1, $.50 rule),\10\ or (ii) believes that an 
order imbalance should otherwise be published in an attempt to minimize 
price volatility on the close. If there was an imbalance publication at 
3:40 p.m. and the imbalance at 3:50 p.m. were to be less than 25,000 
shares, either a ``no imbalance'' notice would be published, or the 
size and side of the imbalance would be permitted to be published with 
Floor Official approval. The 3:50 p.m. calculation policy would be the 
same as that applicable to the 3:40 p.m. calculation, except the 
Exchange last sale at 3:50 p.m. would be used to determine whether or 
not a LOC order is marketable.
---------------------------------------------------------------------------

    \10\ See supra note 8 for a discussion of Amex Rule 154.
---------------------------------------------------------------------------

    The Exchange proposes that after 3:50 p.m., no MOC or LOC orders in 
stocks would be permitted to be entered except to offset a published 
MOC imbalance in effect after 3:50 p.m. Amex represents that this is 
comparable to current procedures, whereby, after 3:40 p.m., no MOC or 
LOC orders in stocks may be entered except to offset a published MOC 
imbalance in effect after 3:40 p.m. Amex states that this restriction 
is intended to alleviate increased pricing pressure that may occur 
following an imbalance dissemination of buy or sell interest. Amex 
represents that this restriction is also the same as that imposed by 
the NYSE under NYSE Rule 123C.
    A broker would be permitted to represent an MOC or LOC order in the 
trading crowd of a stock, but would be required to state irrevocable 
MOC interest by 3:40 p.m. Amex represents that this requirement is the 
same as that imposed by the NYSE under NYSE Rule 123C. After 3:40 p.m., 
no MOC or LOC order in a stock would be permitted to be taken from the 
book to be represented by a broker in the crowd. Amex states that these 
restrictions are intended to apply procedures for crowd orders 
consistent with MOC/LOC procedures generally. Policy regarding 
cancellation or reduction in size of MOC and/or LOC orders after 3:40 
p.m. would remain the same (i.e., between 3:40 p.m. and 3:50 p.m., MOC 
and LOC orders would be irrevocable, except to correct an error) except 
cancellation or reduction in size of MOC and/or LOC orders after 3:50 
p.m. would not be permitted for any reason, including in case of 
legitimate error. Amex represents that this restriction is the same as 
that imposed by the NYSE under NYSE Rule 123C.
    Proposed Rule 131A(a)(3) would require that the specialist publish 
an MOC order imbalance of 25,000 shares or more, if practicable, if a 
stock reopens after 3:50 p.m. following any type of trading halt. 
Paragraphs (a)(4) and (a)(5) propose procedures applicable to entry or 
cancellation of MOC/LOC orders during a regulatory halt in effect at or 
after 3:40 p.m. Amex represents that this rule text reflects procedures 
filed and made effective in Release No. 34-41877.\11\ Amex states that 
this proposed rule change would supersede that filing and approval.
---------------------------------------------------------------------------

    \11\ See Release No. 34-41877, supra note 6.
---------------------------------------------------------------------------

    Procedures regarding printing the close would be amended to provide 
that stop orders and percentage orders elected by the execution of the 
MOC imbalance should be included in the close. Amex represents that 
this requirement is the same as that imposed by the NYSE under NYSE 
Rule 123C.
    In the interest of providing for an orderly and consistent 
execution of various MOC and LOC order types at the close, proposed 
Rule 131A(c), would specify that on the close orders would be executed 
in the following order: (1) MOC orders (including ``G'');\12\ (2) tick-
sensitive (e.g., buy minus, sell plus, and sell short, for securities 
subject to the ``tick test'' in Exchange Rule 7), MOC orders (not 
including sell short ``G''); (3) tick-sensitive, marketable market 
orders and marketable limit orders; (4) marketable LOC orders 
(including ``G''); (5) tick-sensitive, marketable LOC orders (not 
including sell short ``G''); (6) limit orders on the specialist's book 
and in the crowd limited to the closing price; (7) LOC orders limited 
to the closing price; (8) tick-sensitive MOC orders limited to the 
closing price; (9) tick-sensitive LOC orders limited to the closing 
price; (10) all other ``G'' orders on the specialist's book and in the 
crowd. Amex represents that the requirement for sell short ``G'' orders 
to yield is the same as that imposed by the NYSE under NYSE Rule 123C.
---------------------------------------------------------------------------

    \12\ ``G'' orders are entered for an account of either a member 
or member organization, or an associated person of a member or 
member organization, or for an account over which a member or member 
organization or associated person exercises investment discretion. 
Section 11(a) of the Act prohibits all orders for these accounts 
from being executed on the floor without an exemption. 15 U.S.C. 
78k(a). The exemptions are contained in subparagraphs (1)(A) through 
(1)(I) of Section 11(a) of the Act. 15 U.S.C. 78k(a)(1)(A)--
78k(a)(1)(I). The exemption in ``G'' requires that the member or 
member organization be primarily engaged in underwriting and/or 
brokerage (as opposed to effecting proprietary trades on the Floor) 
and that the ``exempt'' transaction yield priority, parity, and 
precedence to orders for those who are not members or associated 
with members.
---------------------------------------------------------------------------

    The first five categories above would be treated like MOC orders. 
Accordingly, the buy side would be matched against the sell side to 
determine the imbalance. That imbalance would be executed against the 
prevailing bid or offer, as appropriate. (An imbalance of buy orders 
would be executed against the offer. An imbalance of sell orders would 
be executed against the bid.) The order of execution of the orders 
limited to that bid or offer (i.e., the orders that the imbalance would 
trade against) would be as set forth in numbers 6 through 10. The 
specialist then would stop the remaining buy and sell ``MOC'' orders 
(i.e., those not part of the imbalance) against each other and pair 
them off at the price of the imbalance trade. The ``pair off'' 
transaction would be reported as ``stopped stock'' so that those who 
entered orders limited to the closing price which were not executed 
would know that they were not entitled to participate on the ``stopped 
stock'' trade. Amex represents that the execution of the imbalance 
against the prevailing bid or offer followed by the printing of the 
``paired off'' quantity as ``stopped stock'' is the Exchange's current 
procedure for executing and printing on-close orders as described in 
Amex Rule 109(d).

Rules 131(e) and 156(c)

    Rule 131(e), which defines ``at the close order,'' would be amended 
to specify that a MOC order is to be executed in its entirety at the 
Amex closing price or cancelled. Rule 131(e) would also be amended to 
specify that a limit at the close (LOC) order--an order to buy or sell 
a stated amount of a security at the Amex closing price if at the limit 
price or better `` would have to be cancelled if not executed in whole 
or in part. Amex represents that these amendments are similar to NYSE 
Rule

[[Page 66904]]

123C procedures, and believes that they set forth more specifically 
members' responsibilities in executing or canceling MOC/LOC orders.
    Rule 156(c), which relates to broker representation of an ``at the 
close order,'' currently provides that a broker is not responsible for 
executing at the closing price an ``at the close order'' that the 
broker accepts. The Exchange believes that it is appropriate for the 
broker to be responsible for execution at the Amex closing price of a 
MOC order he or she accepts, and amended Rule 156(c) would so state. 
Rule 156(c) would further specify that a broker handling a LOC would 
have to use due diligence to execute the order at the Amex closing 
price if at the limit price or better, and to cancel the portion of the 
order that cannot be so executed.
    Aside from the customer ordering the cancellation of an MOC or LOC 
order before 3:40 p.m. or for a legitimate error between 3:40 and 3:50 
p.m., it should be noted with respect to both MOC and LOC orders that 
are to be cancelled if not executed in whole or in part, that such 
cancellations would occur only in the following circumstances and not 
at the discretion of either the specialist or floor broker. 
Cancellation of MOC and LOC orders would occur when (1) trading has 
been halted in the security and does not reopen prior to the close of 
the market; (2) tick sensitive orders, as described above, whose 
execution will violate customer instructions (i.e., to buy only on a 
minus or zero minus tick or to sell only on a plus or zero plus tick) 
or Amex Rule 7; (3) for LOC orders, the Amex closing price is not at 
the limit price or better, or (4) for tick sensitive MOC/LOC orders and 
LOC orders all of which are limited to the closing price, the limited 
quantity of shares to be traded and the rules of priority as to which 
orders would trade first left these orders unexecuted in whole or in 
part.

Auxiliary Opening Procedures

    The Exchange proposes to adopt Rule 131A(d) implementing the 
following auxiliary opening procedures for index options/futures 
expiration settlement value days.\13\ Amex represents that these 
procedures are similar to NYSE Expiration Friday auxiliary opening 
procedures contained in NYSE Rule 123C(6). Amex represents that for 
each expiration day on which derivative, index--related products expire 
against opening prices, several auxiliary procedures are necessary to 
integrate stock orders relating to expiring contracts into Amex's 
opening procedures in a manner that assures an efficient market opening 
in each stock as close to 9:30 a.m. as possible. The index products 
include, but are not limited to the following: S&P 500 Index options 
and futures, Nasdaq 100 Index options, S&P MidCap 400 Index options and 
futures, Russell 1000 Index options and futures and Russell 2000 Index 
options and futures.
---------------------------------------------------------------------------

    \13\ The term ``expiration settlement value day'' refers to the 
days on which certain expiring index options and/or futures (see 
list below for examples) have settlement values determined. These 
index options and futures have settlement values based on the 
opening prices of their component securities on the trading day 
preceding their expiration. Index options and futures expire on the 
Saturday following the third Friday of each expiration month. The 
expiration settlement value day is the last trading day preceding 
expiration, which is normally a Friday.
---------------------------------------------------------------------------

    Amex represents that stock orders relating to index contracts whose 
settlement pricing is based upon opening prices would have to be 
received by the Amex Order File (AOF) or by the specialist by 9:00 a.m. 
These orders would be permitted to 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 would be required to preserve it as Rule 
153 provides.) All other orders would be permitted to be entered before 
or after 9 a.m.
    To facilitate early order entry, AOF would begin accepting orders 
at 7:30 a.m. and would accept market orders of 99,900 shares or less. 
``Limit-at-the-opening'' (``limit OPG'') orders would be permitted, 
including delivery through Exchange systems. Ordinary limit and market 
orders also would be permitted to be entered. Stock orders relating to 
expiring derivatives whose settlement pricing is based on opening 
prices would be required to be identified ``OPG.''
    As soon as practicable after 9:00 a.m. on expiration days, the 
Exchange would publish market order imbalances of 25,000 shares or more 
in all listed stocks. In addition, imbalances of less than 25,000 
shares would be permitted to be published at that time with Floor 
Official approval. A ``no imbalance'' status would not be published for 
any stock. Amex represents that these proposed changes are similar to 
procedures currently in place at the NYSE and included in NYSE Rule 
123C except as follows. In view of the generally lower trading volume 
and different trading characteristics of Amex stocks compared to NYSE 
issues, the Exchange believes it is appropriate to continue to require 
dissemination of imbalances of 25,000 shares or more rather than 50,000 
shares or more, as is required by NYSE Rule 123C. In addition, Amex 
systems accept market orders of 99,900 shares or less rather than 
orders of 500,000 shares or less accepted by the NYSE.

MOC/LOC Procedures for Nasdaq UTP Trading

    In Release No. 34-47658,\14\ the Commission approved rules relating 
to execution of MOC and LOC orders in Nasdaq securities traded on the 
Amex pursuant to unlisted trading privileges. These procedures, with 
certain exceptions described in Release No. 34-47658,\15\ continue to 
apply previously approved rules and procedures governing MOC and LOC 
orders entered on the Exchange.\16\ The procedures include publication 
of order imbalances beginning at 3:40 p.m. (or as close to this time as 
possible) in Nasdaq securities of 25,000 shares or more, and a 
prohibition on entry of MOC and 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.
---------------------------------------------------------------------------

    \14\ See Release No. 34-47658, supra note 7.
    \15\ In Release No. 34-47658, the Commission approved amendments 
to Amex Rule 109 (Stopping Stock), Amex Rule 118 (Trading in Nasdaq 
National Market Securities), Amex Rule 131 (Types of Orders) and 
Amex Rule 156 (Representation of Orders), relating to ``at the 
close'' orders (1) to specify that these rules apply to Amex trading 
in 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 Amex 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 to accommodate printing 
of such transactions as ``stopped stock.'' It should be noted, 
however, with respect to point number (3), that, effective September 
15, 2003, the Nasdaq UTP Plan Processor was able to accommodate 
printing of pair-off transactions as ``stopped stock.'' Thus, 
effective October 8, 2003, the temporary exemption from Amex Rule 
109(d) was eliminated.
    \16\ See supra, note 6.
---------------------------------------------------------------------------

    The Exchange is proposing to incorporate into new Rule 118(m) 
current procedures relating to the 3:40 p.m. calculation and 
dissemination of order imbalances and entry of MOC and LOC orders in 
Nasdaq securities. The Exchange also proposes to modify current MOC and 
LOC procedures by adding an additional publication of MOC/LOC order 
imbalances of 25,000 shares or more at 3:50 p.m. These modifications 
would also be included in Rule 118(m). Once again, Amex represents that 
the amended rule and procedures would supersede the rules and 
procedures previously approved by the Commission as described in the 
releases referenced above with the

[[Page 66905]]

exception of Release No. 34-47658,\17\ and Release No. 34-48000.\18\
---------------------------------------------------------------------------

    \17\ See supra note 7.
    \18\ Id.
---------------------------------------------------------------------------

    The Exchange believes an additional publication is necessary at 
3:50 p.m. in light of the price volatility in Nasdaq stocks, 
particularly near the close of trading. An additional imbalance 
publication at 3:50 p.m. would reflect any offsetting interest as well 
as any legitimate cancellations entered after the 3:40 p.m. publication 
and would reflect any shift in the imbalance from a buy to sell 
imbalance or vice versa. The 3:50 p.m. publication would provide 
additional, more timely market information to market participants, 
which Amex states is intended to encourage possible buy or sell 
interest offsetting the imbalance after 3:50 p.m., thereby promoting 
greater pricing stability at the close.
    Proposed Rule 118(m) provides that at 3:40 p.m. and at 3:50 p.m., 
or as close to these times as possible, MOC order imbalances of 25,000 
shares or more would be published in a manner specified by the 
Exchange. That is, the Exchange would utilize a structured 
communication process established with major news vendors (e.g., 
Bloomberg and Dow Jones), utilizing, among other things, e-mail and 
file transfer protocol technology to permit public dissemination of 
order imbalance information at 3:50 p.m., or as soon thereafter as 
practicable.\19\
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    The imbalance calculation policy for the 3:40 p.m. calculation 
would be as follows: marketable LOC orders to buy (that is, LOC buy 
orders with limit prices above the consolidated last sale at 3:40 p.m.) 
would be added to MOC orders to buy. Marketable LOC orders to sell 
(that is, LOC sell orders including those to sell short, with limit 
prices below the consolidated last sale at 3:40 p.m.) would be added to 
MOC orders to sell. The buy orders are then matched against sell orders 
to calculate the imbalance and side. Procedures for the 3:50 p.m. 
imbalance calculation would be the same as those for the 3:40 p.m. 
calculation, except that the consolidated last sale at 3:50 p.m. would 
be used to determine whether or not a LOC order is marketable. After 
3:50 p.m., no MOC or LOC orders would be permitted to be entered except 
to offset the latest published MOC imbalance. Between 3:40 p.m. and 
3:50 p.m., MOC and LOC orders would be irrevocable, except to correct 
an error. Cancellation or reduction in size of MOC and/or LOC orders 
after 3:50 p.m. would not be permitted for any reason, including in 
case of legitimate error.
    The Exchange proposes to prohibit entry of tick-sensitive MOC or 
LOC orders (e.g., buy ``minus'' or sell ``plus'') in Nasdaq stocks. 
(Sell short orders in Nasdaq securities, which are exempt from ``tick'' 
restrictions on the Amex, would be accepted.) Such orders, (e.g., buy 
``minus'' or sell ``plus'') which account for less than one percent of 
``at the close'' orders entered in Nasdaq stocks, may impede the 
specialist in providing an orderly and timely close, in so far as they 
are processed manually, which makes such orders more difficult to 
process in a timely manner.
    An order imbalance at 3:40 p.m. or 3:50 p.m. below 25,000 shares 
also would be permitted to be published by a specialist, with the 
concurrence of a Floor Official, if the specialist (i) anticipates that 
the execution of the MOC orders on the book would result in a closing 
price which exceeds the price change parameters of Rule 154, Commentary 
.08 (the $2, $1, $.50 Rule), or (ii) believes that an order imbalance 
should otherwise be published in an attempt to minimize price 
volatility on the close. For 3:40 p.m. imbalance disseminations, a ``No 
Imbalance'' notice would only be published at 3:40 p.m. if there had 
been a prior informational imbalance publication between 3:00 p.m. and 
3:40 p.m. For 3:50 p.m. imbalance disseminations, if there was an 
imbalance publication at 3:40 p.m. and the imbalance at 3:50 p.m. were 
to be less than 25,000 shares, either a ``No Imbalance'' notice will be 
published, or the size and side of the imbalance may be published with 
Floor Official approval.
    Rule 118(m)(i), like Rule 131(e) as it is proposed to be amended, 
provides that a MOC order must be executed in its entirety at the 
Exchange closing price or is to be cancelled. Rule 118(m)(v) would 
reference Rule 156(c) as it is proposed to be amended, and would make 
the broker representing a MOC order in the Trading Crowd responsible 
for an execution at the Exchange's closing price. Aside from the 
customer ordering the cancellation of an MOC or LOC order before 3:40 
p.m. or for a legitimate error between 3:40 and 3:50 p.m., it should be 
noted with respect to both MOC and LOC orders that are to be cancelled 
if not executed in whole or in part, that such cancellations would 
occur only in the following circumstances and not at the discretion of 
either the specialist or floor broker. Cancellation of MOC and LOC 
orders would occur when (1) trading has been halted in the Nasdaq UTP 
stock on the Amex and does not reopen prior to the close of the market; 
(2) for LOC orders, the Amex closing price is not at the limit price or 
better, or (3) for LOC orders which are limited to the closing price, 
the limited quantity of shares to be traded and the rules of priority 
as to which orders would trade first left these orders unexecuted in 
whole or in part.
    Proposed Rule 118(m)(ii)(c) provides for identical MOC/LOC 
procedures to those in Rule 131A(a)(3) in the context of trading halts, 
discussed above. Rule 118(m)(iii), which references procedures in Rule 
109(d) applicable to printing the close, would provide that stop orders 
and percentage orders elected by the execution of the MOC imbalance 
should be included in the close.
    Procedures set forth in proposed Rule 118(m)(iv) (Order of 
Execution of MOC and LOC Orders) would be the same as those set forth 
in proposed Rule 131A(c), except that tick-sensitive orders would not 
be referenced in so far as entry of such orders would be prohibited for 
Nasdaq UTP securities.

Procedures for Reporting the Amex Official Closing Price and ``M'' 
Modifier

    The Amex has received Commission approval for use of the ``M'' sale 
condition modifier on the UTP Trade Data Feed (``UTDF'') to identify 
the Amex's Official Closing Price (``AOCP'') in a Nasdaq security.\20\ 
Amex represents that, as described in File No. SR-Amex-2003-18, at the 
close orders are subject to ``pair off'' procedures in Amex Rule 
109(d)(1), which requires a member holding both buy and sell MOC orders 
to pair them off against each other and execute any imbalance against 
the prevailing Amex bid or offer at the close. Any imbalance at the 
close is executed at the current bid or offer, or as close as 
practicable to 4:00 p.m., and remaining buy and sell orders are stopped 
against each other and paired off at that same bid or offer price. Amex 
reports the first trade (execution of the imbalance) and second pair 
off trade separately at the same price, and then sends a third report 
with only the price of those transactions with an ``M'' identifier via 
UTDF as the Official Closing Price for the stock on the Amex.
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

    The Exchange would disseminate an AOCP for a security only when the 
closing price for that security on the Amex has been determined as the 
result of the execution of MOC or LOC orders entered on the Exchange. 
If no MOC/LOC orders were to be executed, Amex would not disseminate an 
AOCP using the ``M'' modifier. The Exchange believes this is necessary 
in establishing an ``official'' close because MOC and

[[Page 66906]]

LOC orders are the only order types that must be executed at the 
Exchange closing price or not at all. Amex believes that restricting 
the use of the ``M'' modifier to executions of MOC and LOC orders would 
ensure that the closing price in the Exchange auction market accurately 
reflects buy and sell interest at the close.
    In connection with dissemination of the ``M'' modifier, between 
4:15 p.m. and 4:25 p.m. each trading day, an Exchange Floor Supervisor 
would review each Nasdaq transaction appearing on the tape at or after 
4:00 p.m. to determine if that trade involved the execution of MOC/LOC 
orders. As the Exchange's systems are programmed to capture as ``M'' 
all Nasdaq transactions which appeared on the tape at or after 4:00 
p.m. the Exchange Floor Supervisor would correct the list by removing 
all such trades not involving the execution of MOC/LOC orders to ensure 
that an ``M'' is disseminated only when the Amex closing price is the 
result of execution of MOC or LOC orders. By 4:25 p.m., Amex would 
finalize and complete dissemination of AOCP prices with the ``M'' 
modifier to the Nasdaq UTP Processor. At 4:30 p.m., the Processor would 
disseminate a closing trade recap message with the final AOCP prices. 
The 4:30 p.m. dissemination would be implemented as part of an 
enhancement to the Processor implemented on September 15, 2003.
    In order to ensure that transactions reported by specialists at or 
after 4:00 p.m. that are not the result of executions of MOC or LOC 
orders are not reported as the AOCP with the ``M'' modifier, the 
Exchange would require Nasdaq UTP specialists to notify an Amex Floor 
Supervisor between 4:00 p.m. and 4:15 p.m. whenever the specialist (1) 
reports a trade at or after 4:00 p.m. that does not involve the 
execution of MOC/LOC orders, or (2), after reporting an MOC/LOC 
transaction(s) at or after 4:00 p.m., reports a trade after 4:00 p.m. 
(e.g., report of a ``sold'' sale) that is, of course, not a transaction 
involving the execution of MOC or LOC orders. This notification would 
be on an Exchange-approved form, with a duplicate copy for the 
specialist's records.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act,\21\ in general, and Section 6(b)(5),\22\ 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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.
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    \21\ 15 U.S.C. 78f(b).
    \22\ 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, 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

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

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 self-regulatory organization consents, the Commission will:
    A. by order approve such proposed rule change, as amended, or
    B. institute proceedings to determine whether the proposed rule 
change, as amended, 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-2003-21 and should be submitted by December 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29659 Filed 11-26-03; 8:45 am]
BILLING CODE 8010-01-P