[Federal Register Volume 68, Number 250 (Wednesday, December 31, 2003)]
[Notices]
[Pages 75670-75673]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32184]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48995; File No. SR-Amex-2003-102]


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 Extend on a Six-Month Pilot Basis 
the Exchange's Odd-Lot Execution Procedures Applicable to Trading in 
Nasdaq Securities

December 24, 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 November 21, 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 Exchange. On 
December 23, 2003, the Amex amended the proposed rule change.\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. The Commission is publishing 
this notice to solicit comments on the proposed rule

[[Page 75671]]

change, as amended, 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 Eric Van Allen, Assistant General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated December 23, 2003, replacing Form 19b-
4 in its entirety (``Amendment No. 1'').
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend paragraph (j) of Amex Rule 118 
(``Trading in Nasdaq National Market Securities'') and Commentary .05 
of Amex Rule 205 (``Manner of Executing Odd-Lot Orders'') that were 
implemented on a pilot program basis and to extend the pilot program 
for an additional six-month period ending on June 27, 2004. The text of 
the proposed rule change is set froth below. Proposed new language is 
in italics, and proposed deletions are in [brackets].
* * * * *

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 be executed [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. 
An order entered through the Amex Order File shall receive automatic 
execution at such price.
    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. 
Executable limit odd-lot orders entered prior to the opening of trading 
of Nasdaq National Market securities on the Exchange shall be executed 
manually at the price of the first round-lot or 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).
    (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 then $.05, an odd-lot market 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. An executable limit 
order will receive automatic execution at the crossed market national 
best displayed bid (in the case of an order to sell) or at the crossed 
market national best displayed offer (in the case of an order to buy).
    (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.
    (k) No change.
* * * * *

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 Amex included statements 
concerning the purpose of, and the 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 approved, and the Exchange implemented, a pilot 
program for odd-lot order \6\ executions in Nasdaq securities 
transacted on the Exchange pursuant to unlisted trading privileges.\7\ 
Paragraph (j) of Amex rule 118 describes the Exchange's odd-lot 
execution procedures for Nasdaq securities, and Commentary .05 to Amex 
Rule 205 references the odd-lot procedures described in Amex rule 
118(j).
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    \6\ An odd-lot order is an order for less than 100 shares.
    \7\ See Securities Exchange Act Release Nos. 46304 (August 2, 
2002), 67 FR 51903 (August 9, 2002) (SR-Amex-2002-56) and 48174 
(July 14, 2003), 68 FR 43409 (July 22, 2003) (SR-Amex-2003-56).
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     In connection with the due diligence required for upcoming 
enhancements to the Exchange's automatic execution procedures for 
Nasdaq odd-lot orders,

[[Page 75672]]

the Exchange represents that its staff found inconsistencies between 
the current automatic execution procedures and the text of Amex Rule 
118(j) with respect to certain order types. Accordingly, the Exchange 
proposes amendments to Amex Rule 118(j) to correct these discrepancies. 
In addition, the Exchange proposes a six-month extension for the pilot 
program.
a. Amendments to Odd-Lot Execution Procedures
    The Exchange proposes to amend subparagraph (j)(i) of Amex Rule 118 
(``Market and Executable Limit Orders'') to state that, after the 
opening, only odd-lot market orders and executable odd-lot limit orders 
received through the Amex Order file would be automatically executed at 
the qualified national best bid or offer. Odd-lot orders received at 
the trading post (e.g., handled by a floor broker) would be manually 
executed at the qualified national best bid or offer. Furthermore, the 
Exchange proposes to amend subparagraph (j)(i) of Amex Rule 118 to 
state that executable odd-lot limit orders entered before the opening 
of Exchange trading would be executed manually at the price of the 
first round-lot or Part of Round Lot (``PRL'') transaction on the 
Exchange. The Amex represents that, currently, only odd-lot market 
orders entered before the opening are held in accumulation and receive 
automatic execution at the price of the first round lot or PRL 
transaction.
    The Exchange also proposes to amend subparagraph (j)(iv)(b) of Amex 
Rule 118 to more accurately describe the Exchange's odd-lot execution 
procedures in crossed markets (i.e., where the bid is higher than the 
offer). In a crossed market, odd-lot market orders, but not executable 
odd-lot limit orders, would receive automatic executions at the mean of 
the bid and offer prices when the displayed national best bid is higher 
than the displayed national best offer by $.05 or less. When the 
displayed national best bid is higher than the displayed national best 
offer by more than $.05, odd-lot market orders, but not executable odd-
lot limit orders, would be executed manually when the crossed market no 
longer exists in accordance with subparagraph (j)(i) of Amex Rule 118. 
Executable odd-lot limit orders would be automatically executed at the 
crossed market bid price (in the case of an order to sell) or at the 
crossed market offer price (in the case of an order to buy). For 
example, if the bid and offer were to be 20.10 and 20.00, respectively, 
an executable odd-lot sell limit order priced at 20.10 or less would be 
automatically executed at 20.10, and an executable odd-lot buy limit 
order priced at 20.00 or higher would be automatically executed at 
20.00.
b. Extension of Odd-Lot Pilot Program
    In addition to the abovementioned proposed amendments to paragraph 
(j) of Amex Rule 118, the Exchange seeks an extension of its odd-lot 
pilot program for an additional six-month period ending on June 27, 
2004. The program was originally approved on August 2, 2002, for a six-
month period, and was extended on July 14, 2003, for an additional six-
month period ending on December 27, 2003.\8\ The current odd-lot 
procedures have operated efficiently, and the Exchange has received no 
complaints or adverse comments from members or the public regarding 
odd-lot executions. Accordingly, the Exchange believes that it is 
appropriate to extend the pilot program.
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    \8\ See id.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\9\ in general, and the 
provisions of section 6(b)(5) of the Act,\10\ 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, and, 
in general, to protect investors and the public interest, and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 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

    Because the foregoing proposed rule change, as amended, does not: 
(1) 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 if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ 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 purpose of 
the Act.\14\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ As required under Rule 19b-4(f)(6)(iii), the Exchange 
provided the Commission with written notice of its intent to file 
the proposed rule change at least five business days prior to the 
filing date or such shorter period as designated by the Commission.
    \14\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to commence on December 23, 
2003, the date at which the Exchange filed Amendment No. 1.
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    The Amex has requested that the Commission waive the 30-day 
operative delay. The Exchange represents that its current odd-lot 
procedures have operated efficiently, and that it has experienced 
nonoperational problems relating to odd-lot executions in Nasdaq 
securities under these procedures. Moreover, the Exchange states that 
it has received no adverse comments from its members or the public 
regarding such execution procedures, and believes that continued 
operation of the six-month pilot program beyond December 27, 2003, 
would continue to provide efficient execution of investors' odd-lot 
orders.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\15\ Acceleration of the operative date will allow the 
Exchange to continue its pilot odd-lot execution procedures applicable 
to trading in Nasdaq securities without interruption for an additional 
six months, expiring on June 27, 2004. For these reasons, the 
Commission designates the proposal, as amended, to be effective and 
operative upon filing with the Commission.
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    \15\ For purposes of accelerating the operative date of this 
proposal, as amended, the Commission has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    In addition, the Commission requests that the Exchange report any 
problems or complaints from members and the

[[Page 75673]]

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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comments letters 
should refer to File No. SR-Amex-2003-102. This file number should be 
included in the subject lien if e-mail is used. To help the Commission 
process and review your comments more efficiently, comments should be 
sent in hardcopy or by e-mail but not by both methods. 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 No. AR-Amex-2003-102 and should be 
submitted by January 21, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-32184 Filed 12-30-03; 8:45 am]
BILLING CODE 8010-01-M