[Federal Register Volume 68, Number 231 (Tuesday, December 2, 2003)]
[Notices]
[Pages 67496-67498]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48818; File No. SR-Amex-2003-28]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 3 to the Proposed Rule Change by the American Stock 
Exchange LLC Relating to the Elimination of the 10-Second Interval at 
Which Persons May Enter Auto-Ex Eligible Orders for Exchange-Traded 
Funds

November 21, 2003.

I. Introduction

    On April 16, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to eliminate the 10-second ``speed bump'' on the 
entry of Auto-Ex eligible orders for Exchange-Traded Funds (``ETFs'') 
and Trust-Issued Receipts (``TIRs''), while allowing it to be 
reinstated if conditions warrant its reintroduction. On May 7, 2003, 
Amex submitted Amendment No. 1 to the proposed rule change.\3\ On June 
3, 2003, Amex

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submitted Amendment No. 2 to the proposed rule change.\4\ The proposed 
rule change, as amended by Amendment Nos. 1 and 2 was published for 
comment in the Federal Register on June 16, 2003.\5\ The Commission 
received one comment letter with respect to the proposal.\6\ On October 
3, 2003, the Amex filed Amendment No. 3 to the proposed rule change.\7\ 
This Order approves the proposed rule change; grants accelerated 
approval to Amendment No. 3 to the proposed rule change; and solicits 
comments from interested persons on Amendment No. 3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission dated May 6, 2003 
(``Amendment No. 1'').
    \4\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division, 
Commission dated June 2, 2003 (``Amendment No. 2'').
    \5\ See Securities Exchange Act Release No. 48004 (June 9, 
2003), 68 FR 35741 (June 16, 2003) (``Notice'').
    \6\ See letter to Jonathan G. Katz, Secretary, Commission, from 
Patrick K. Blackburn, Executive Vice President and Lawrence J. 
Hanson, Senior Vice President, ABN AMRO Incorporated, dated June 30, 
2003.
    \7\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy J. Sanow, Assistant Director, Division, 
Commission, dated October 3, 2003 (``Amendment No. 3'').
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II. Description of the Proposal and Amendment Nos. 1 and 2 Thereto

    On June 19, 2001, the Commission approved the Exchange's proposal 
to permit the automatic execution (``Auto-Ex'') of orders for Exchange 
Traded Funds (``ETFs'') on a six-month pilot program basis.\8\ The 
Exchange extended the pilot several times for an additional six months, 
most recently on July 2, 2003.\9\ As part of an extension of the Auto-
Ex for ETFs pilot the Exchange reduced, from 30 seconds to 10 seconds, 
the interval at which member firms could enter orders on the same side 
of the market for any account in which the same person is directly or 
indirectly interested.\10\ The Exchange now proposes to eliminate the 
10-second ``speed bump'' for all ETFs. The Exchange also proposes to 
amend Amex Rule 128A to clarify that Auto-Ex for ETFs applies to both 
ETFs and TIRs.
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    \8\ See Securities Exchange Act Release No. 44449 (June 19, 
2001), 66 FR 33724 (June 25, 2001), (SR-Amex-2001-29).
    \9\ See Securities Exchange Act Release No. 48126 (July 2, 
2003), 68 FR 41189 (July 10, 2003).
    \10\ See Securities Exchange Act Release No. 47105 (December 30, 
2002), 68 FR 592 (January 6, 2003).
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    The Exchange's rules currently provide that Auto-Ex eligible orders 
on the same side of the market in an ETF for any account in which the 
same person is directly or indirectly interested may only be entered at 
intervals of 10 seconds or more. According to the Exchange, order flow 
providers have objected to this interval since it requires them to 
block their customers from entering any Auto-Ex eligible orders on the 
same side of the market in the Exchange's order routing systems for the 
affected security within 10 seconds. Accordingly, the Exchange proposes 
to eliminate the speed bump in ETFs and TIRs while allowing it to be 
reinstated on a temporary basis if conditions warrant its 
reintroduction.
    The Exchange states that the Auto-Ex Enhancements Committee 
(``Committee''), upon the request of a specialist, would review a 
request to reinstate the 10-second speed bump. The Committee consists 
of the Exchange's four Floor Governors and the Chairmen (or their 
designees) of the Specialists Association, Options Market Makers 
Association and the Floor Brokers Association. According to the 
Exchange, this Committee currently reviews requests to change various 
Auto-Ex parameters. (See Commentaries .02 and .04 to Amex Rule 128A.) 
Under Amendment No. 2, which was included in the Notice, the Exchange 
proposed to give members and member organizations ten business days' 
notice prior to reintroducing the 10-second speed bump to allow them to 
implement internal procedures to comply with this requirement. The 
Exchange also proposed to notify members and member organizations of 
the reintroduction of the 10-second speed bump through Amex Notices, 
which are distributed on the Exchange Floor and posted on the 
Exchange's ``Amex Trader'' Web site.

III. Comment Summary

    The Commission received one comment letter on the proposed rule 
change. The commenter supported the elimination of the 10-second speed 
bump, but opposed the requirement of only ten business days' notice for 
reinstatement of the speed bump.\11\ Specifically, the commenter noted 
that reinstatement of the speed bump with just ten business days' 
notice is an insufficient amount of time to prepare internal systems to 
comply with the reinstated speed bump. The commenter suggested that the 
Exchange provide a 60 to 90 day reinstatement period. On October 3, 
2003, the Exchange submitted Amendment No. 3 in response to the comment 
letter. In particular, the Exchange amended the proposal to give 
members and member organizations 30 calendar days' notice prior to 
reintroducing the 10-second speed bump to allow them to implement 
internal procedures to comply with the reinstated requirement.
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    \11\ See ABN AMRO Letter.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3 to the proposed rule change, 
including whether Amendment No. 3 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-2003-28 and should be 
submitted by December 23, 2003.

V. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the Act and the rules and 
regulations promulgated thereunder applicable to a national securities 
exchange and, in particular, with the requirements of Section 6(b) of 
the Act.\12\ Specifically, the Commission finds that approval of the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\13\ in that it is designed to facilitate transactions in 
securities; 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. 
The Commission believes that the proposed rule change should benefit 
investors by allowing the entry of multiple Auto-Ex eligible orders on 
the same side of the market without

[[Page 67498]]

regard to any ``time-out'' between entry of those orders, while 
affording the Exchange the option to reinstate the 10-second speed-bump 
if circumstances warrant such reintroduction. The Commission believes 
that 30 days is an appropriate period of time for members and member 
organizations to accommodate potential reinstatement of the 10-second 
speed bump.
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    \12\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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VI. Accelerated Approval of Amendment No. 3

    The Commission finds good cause for approving Amendment No. 3 to 
the proposed rule change prior to the thirtieth day after the amendment 
is published for comment in the Federal Register pursuant to Section 
19(b)(2) of the Act.\14\ In Amendment No. 3, Amex addresses the concern 
raised in the comment letter by increasing the required notice of 
reinstatement of the 10-second speed bump from ten business days to 30 
calendar days. As noted above, the Commission believes that this time 
period is appropriate. The Commission further believes that 
acceleration of the amendment will allow the Amex to remove the speed-
bump without delay, thereby enabling entry of multiple Auto-Ex eligible 
orders on the same side of the market without a 10-second ``time-out.''
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    \14\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Section 6(b)(5) of the Act.\15\It is therefore 
ordered, pursuant to Section 19(b)(2) of the Act,\16\ that Amendment 
No. 3 be approved on an accelerated basis, and that the proposed rule 
change (SR-Amex-2003-28) be approved, as amended.
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-29884 Filed 12-1-03; 8:45 am]
BILLING CODE 8010-01-P