[Federal Register Volume 69, Number 57 (Wednesday, March 24, 2004)]
[Notices]
[Pages 13920-13922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6594]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49440; File No. SR-Amex-2004-07]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC Relating to ITS Trade-Throughs and 
Locked Markets

March 17, 2004.
    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 January 21, 2004, 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. The 
Exchange filed the proposal pursuant to section 19(b)(3)(A) of the 
Act,\3\ and Rule 19b-4(f)(1) \4\ thereunder, which renders the proposal 
effective upon filing with the Commission. On March 10, 2004, the Amex 
submitted Amendment No. 1 to the proposed rule change.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(1).
    \5\ See Letter from William C. Love, Jr., Associate General 
Counsel, Amex, to Nancy J. Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated March 9, 2004 (``Amendment No. 
1''). Amendment No. 1 replaced the original 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 Exchange proposes to amend Amex Rule 236 (``Trade Through 
Rule''), which incorporates certain provisions of the Intermarket 
Trading System (``ITS'') Plan. Specifically, the Exchange seeks to add 
Commentary .01 to expressly recognize a long-standing interpretation of 
Amex Rule 236 that certain executions will not be considered trade-
throughs if an ITS commitment to trade is sent contemporaneously with 
the execution to another market center to fully satisfy the other 
market's quote. In addition, the Exchange seeks to add Commentary .02 
to expressly recognize another long-standing interpretation of Amex 
Rule 236 that certain quote disseminations will not be considered to 
have caused a locked market if an ITS commitment to trade is sent 
contemporaneously with the quote dissemination to another market center 
to fully satisfy the other market's quote. A complaint in either of 
these circumstances is not valid, even if the commitment cancels or 
expires, and even if there is more stock behind the quote in the other 
market.
    The text of the proposed rule change is below. Proposed new 
language is in italics.
* * * * *

Trade Through Rule

Rule 236. (a) Definitions

    (1) An ``Exchange trade-through'', as that term is used in this 
Rule, occurs whenever a member on the Exchange initiates the purchase 
on the Exchange of a security traded through ITS (an ``ITS Security'') 
at a price which is higher than the price at which the security is 
being offered (or initiates the sale on the Exchange of such a security 
at a price which is lower than the price at which the security is being 
bid for) at the time of the purchase (or sale) in another ITS 
participating market center as reflected by the offer (bid) then being 
displayed on the Exchange from such other market center. The member 
described in the foregoing sentence is referred to in this Rule as the 
``member who initiated an Exchange trade-through''.
    (2) A ``third participating market center trade-through'', as that 
term is used in this Rule, occurs whenever a member on the Exchange 
initiates the purchase of an ITS Security by sending a commitment to 
trade through the System and such commitment results in an execution at 
a price which is higher than the price at which the security is being 
offered (or initiates the sale of such a security by sending a 
commitment to trade through the System and such commitment results in 
an execution at a price which is lower than the price at which the 
security is being bid for) at the time of the purchase (or sale) in 
another ITS participating market center as reflected by the offer (bid) 
then being displayed on the Exchange from such other market center. The 
member described in the foregoing sentence is referred to in this Rule 
as the ``member who initiated a third participating market center 
trade-through''.
    (3) A ``trade-through'', as that term is used in this Rule, means 
either an Exchange trade-through or a third participating market center 
trade-through.
    (4) A ``locked market'', as that term is used in this Rule, occurs 
whenever the Exchange disseminates a bid (offer) for an ITS Security at 
a price that equals or exceeds (is less than) the price of the offer 
(bid) for the security then being displayed from another ITS 
participating market center (the ``locked offer (bid)''). This Rule 
refers to the bid (offer) that causes the locked market as the 
``locking bid (offer)''.
    (5) through (6) No Change
* * * * *
Commentary
    .01 The terms ``Exchange trade-through'' and ``third participating 
market center trade-through'' do not include the situation where a 
member who initiates the purchase (sale) of an ITS Security, at a price 
which is higher (lower) than the price at which the security is being 
offered (bid) in another ITS participating market, sends 
contemporaneously through ITS to such ITS participating market a 
commitment to trade at such offer (bid) price or better and for at 
least the number of shares displayed with that market center's better-
priced offer (bid). A trade-through complaint sent in these 
circumstances is not valid, even if the commitment sent in satisfaction 
cancels or expires, and even if there is more stock behind the quote in 
the other market.
    .02 The term ``locked market'' does not include the situation where 
a member responsible for the dissemination of a bid (offer) for an ITS 
Security, at a price that equals or exceeds (is less than) the price of 
the offer (bid) for the security then being displayed from another ITS 
participating market, sends contemporaneously through ITS to such ITS 
participating market a commitment to trade at such offer (bid) price or 
better and for at least the number of shares displayed with that market 
center's offer (bid). A locked market complaint sent in these 
circumstances is not valid, even if the commitment sent in satisfaction 
cancels or expires, and even if there is more stock behind the quote in 
the other market.
* * * * *

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set

[[Page 13921]]

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to codify two long-standing interpretations 
of the Trade Through Rule. Commentary .01 codifies an interpretation 
relating to trade-throughs and Commentary .02 codifies an 
interpretation relating to locked markets.
    The basic concept of the Trade Through Rule is that superior priced 
quotations in a security displayed from other Participant markets 
should be protected/satisfied if, in another Participant market, an 
execution in the security occurs at an inferior price (a trade-
through). One of the remedies the Trade Through Rule provides is that, 
upon a valid complaint of a trade-through, a commitment to trade, at 
the price and for the number of shares in the disseminated quotation, 
must be sent to the other Participant market to fully satisfy such 
quotation. The interpretation in Commentary .01 being filed herewith 
has long recognized that superior quotations are fully protected/
satisfied if an ITS commitment is sent to trade with a bid/offer that 
would otherwise appear to have been traded through. That is, a trade 
will not be considered a trade-through if an ITS commitment is sent 
contemporaneously from the Participant executing the trade for the 
purpose of being executed against the better-priced displayed bid or 
offer. A complaint is not valid even if a commitment cancels or expires 
or there is more stock behind the away quote. Furthermore, the 
interpretation recognizes the impracticality of having to wait for the 
other market to revise its quotation as a result of trading with a 
satisfying commitment before trading activity may occur in other 
markets.
    The basic concept of the locked markets section of the Trade 
Through Rule is that an offer (bid) in a security displayed from other 
Participant markets should be protected/satisfied if, in another 
Participant market, a bid (offer) is disseminated at a price that 
equals or exceeds (is less than) the first quote, thereby causing a 
locked market. One of the remedies that the Trade Through Rule provides 
is that, upon a valid complaint of a quotation that is causing a locked 
market and is not immediately adjusted by the member responsible for 
the locking quotation, a commitment to trade, at the price and for the 
number of shares in the disseminated quotation, must be sent to the 
other Participant market to fully satisfy such quotation. The 
interpretation in Commentary .02 being filed herewith has long 
recognized that quotations are fully protected/satisfied if an ITS 
commitment is sent to trade with a bid/offer that would satisfy the 
quotation that would otherwise be deemed to be locked. That is, a trade 
will not be considered to have caused a locked market if an ITS 
commitment is sent contemporaneously from the Participant whose 
quotation would otherwise be deemed to have caused a locked market for 
the purpose of being executed against the quotation that would 
otherwise be deemed to be locked. A complaint is not valid even if a 
commitment cancels or expires or there is more stock behind the away 
quote. Furthermore, the interpretation recognizes the impracticality of 
having to wait for the other market to revise its quotation as a result 
of trading with a satisfying commitment before trading activity may 
occur in other markets.
2. Statutory Basis
    The Amex believes the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder that are applicable 
to a national securities exchange, and, in particular, with the 
requirements of section 6(b) of the Act.\6\ Specifically, the Amex 
believes the proposal is consistent with section 6(b)(5) of the Act,\7\ 
in that it is designed to promote just and equitable principles of 
trade, to remove impediments to, and to 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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    \6\ 15 U.S.C. 78(f)(b).
    \7\ 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 will 
result in any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change constitutes a stated 
policy, practice or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \8\ and Rule 19b-
4(f)(1) thereunder.\9\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.\10\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(1).
    \10\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to have commenced on March 10, 
2004, the date Amendment No. 1 was filed by the Amex.
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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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-Amex-2004-07. 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 Amex. All 
submissions should refer to the File No. SR-Amex-2004-07 and should be 
submitted by April 14, 2004.


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-6594 Filed 3-23-04; 8:45 am]
BILLING CODE 8010-01-P