[Federal Register Volume 69, Number 16 (Monday, January 26, 2004)]
[Notices]
[Pages 3622-3623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1506]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49087; File No. SR-Amex-2002-116]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment Nos. 1, 2, 3, and 4, and Notice of Filing and 
Order Granting Accelerated Approval of Amendment No. 5 to the Proposed 
Rule Change by the American Stock Exchange LLC Relating to Specialist 
Stabilization Requirements for Portfolio Depository Receipts, Index 
Fund Shares, and Trust Issued Receipts

January 15, 2004.

I. Introduction

    On December 27, 2002, 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 amend Amex Rules 170, 1000(a), and 1000A(a) to: 
(1) Eliminate certain specialist stabilization requirements and other 
technical requirements for Portfolio Depository Receipts, Index Fund 
Shares, and Trust Issued Receipts (collectively referred to as 
``Exchange Traded Funds'' or ``ETFs''), and (2) correct erroneous cross 
references in the Exchange's rules to the definition of the term 
``derivative product.''
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The Exchange filed Amendment Nos. 1, 2, 3, and 4 to the proposed 
rule change on April 23, 2003, June 3, 2003, October 3, 2003, and 
October 22, 2003, respectively.\3\ The proposed rule change, as 
amended, was published in the Federal Register on November 25, 2003.\4\ 
The Commission received no comments on the proposed rule change. On 
December 22, 2003, the Exchange submitted Amendment No. 5 to the 
proposed rule change.\5\ This order approves the proposed rule change, 
as amended, publishes notice of Amendment No. 5 and grants accelerated 
approval to Amendment No. 5.
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    \3\ See letters from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated April 22, 2003 
(``Amendment No. 1''), June 2, 2003 (``Amendment No. 2''), October 
2, 2003 (``Amendment No. 3''), and October 21, 2003 (``Amendment No. 
4'').
    \4\ Securities Exchange Act Release No. 48800 (November 17, 
2003), 68 FR 66144. (``Notice'').
    \5\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Division, 
Commission, dated December 19, 2003 (``Amendment No. 5''). Amendment 
No. 5 clarifies in the proposed rule text that the proposal to 
eliminate the specialist stabilization requirements and other 
technical requirements under Amex Rule 170 would apply to only 
Exchange Traded Funds rather than all ``derivative products.''
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\6\ 
Specifically, the Commission believes that the proposal is consistent 
with Section 6(b)(5) of the Act,\7\ which requires, among other things, 
that the Exchange's procedures be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
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    \6\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange proposes to eliminate the current restriction on the 
ability of specialists to buy on plus ticks or sell on minus ticks 
without Floor Official approval for transactions in ETFs, along with 
other requirements. The Commission previously approved a similar 
proposal that eliminated these requirements of Amex Rule 170 for 
transactions in options traded on the Exchange.\8\ The Commission notes 
that ETFs, similar to options, are priced derivatively, based on the 
value of an underlying basket of securities. Thus, the Commission 
believes that because ETFs are priced derivatively, an Exchange 
specialist would not be able to manipulate the pricing of an ETF. 
Accordingly, the Commission believes that it is appropriate to 
eliminate this restriction for Exchange Traded Funds. The Commission 
notes, however, that Exchange specialists must continue to engage in a 
course of dealings for their own account to assist in the maintenance 
of a fair and orderly market.\9\
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    \8\ See Securities Exchange Act Release No. 27235 (September 11, 
1989), 54 FR 38580 (September 19, 1989). The Exchange adopted 
maximum quote spread rules applicable to registered options traders 
in 1975 and formally extended them to options specialists in 1989. 
See Id. In its proposal, the Exchange asserted that ETFs should not 
be subject to these maximum quote spread rules because the Exchange 
believes that none of the registered exchanges, ATSs, third market 
dealers, or Nasdaq that currently trade ETFs establish, or are 
subject to, maximum quote spread differentials. See Notice supra 
note 4. Further, the Exchange represents that there is no 
restriction on the trading of ETFs in multiple market centers and 
most ETFs are multiply traded. Telephone conversation between 
William Floyd Jones, Associate General Counsel, Amex, and Lisa N. 
Jones, Special Counsel, Division, Commission, dated November 10, 
2003. As a result, the Commission does not believe that such a 
requirement is necessary at this time.
    \9\ See Amex Rule 170 and Rule 11b-1 under the Act, 17 CFR 
240.11b-1.
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    The Exchange also proposes to eliminate Commentary .06 to Amex Rule 
170 regarding short sales for ETFs to the extent that the Commission 
has granted no action relief or has otherwise exempted ETFs from the 
short sale rule.\10\ In this regard, the Commission notes that Exchange 
rules regarding short sales would continue to apply to transactions in 
an ETF unless the Commission has granted ``no action'' relief or 
otherwise exempted such ETF from the short sale rule.
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    \10\ See Rule 101 under the Act, 17 CFR 240.10a-1.
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III. Accelerated Approval of Amendment No. 5

    Pursuant to Section 19(b)(2) of the Act,\11\ the Commission may not 
approve any proposed rule change, or amendment thereto, prior to the 
30th day after the date of publication of notice of the filing thereof, 
unless the Commission finds good cause for so doing and publishes its 
reasons for so finding. The Commission hereby finds good cause for 
approving Amendment No. 5 to the proposal, prior to the 30th day after 
publishing notice of Amendment No. 5 in the Federal Register.
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    \11\ 15 U.S.C. 78s(b)(2).
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    The Commission notes that Amendment No. 5 merely clarifies that

[[Page 3623]]

the proposal to eliminate the specialist stabilization requirements and 
other technical requirements would apply to only Exchange Traded Funds 
rather than all ``derivative products.'' The Commission believes that 
this technical modification more closely mirrors the intent of the 
proposed rule change. The Commission therefore finds that the approval 
of Amendment No. 5 on an accelerated basis is appropriate because this 
technical revision does not raise new regulatory issues.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 5, including whether the proposed 
amendment 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 comment letters 
should refer to File No. SR-Amex-2002-116. This file number should be 
included on the subject line if e-mail is used. To help the Commission 
process and review 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 at 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 be submitted by February 17, 2004.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-AMEX-2002-116), as amended, 
is approved and Amendment No. 5 to the proposed rule change is hereby 
granted accelerated approval.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-1506 Filed 1-23-04; 8:45 am]
BILLING CODE 8010-01-P