[Federal Register Volume 69, Number 58 (Thursday, March 25, 2004)]
[Notices]
[Pages 15411-15419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6705]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49449; File No. SR-Amex-2004-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendments Nos. 1 and 2 Thereto by the American Stock 
Exchange LLC Relating to Auto-Ex for Exchange Traded Funds and Nasdaq 
Securities Traded on an Unlisted Basis

March 19, 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 20, 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 Amex. On March 4, 
2004, the Amex amended the proposed rule change.\3\ On March 11, 2004, 
the Amex amended the proposed rule change.\4\ 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\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, Office of Market 
Supervision (``OMS''), Commission, dated March 3, 2004 (``Amendment 
No. 1''). In Amendment No. 1, the Amex restated the proposed rule 
change in its entirety.
    \4\ See letter from William Floyd-Jones, Associate General 
Counsel, Amex, to Nancy Sanow, Assistant Director, OMS, Commission, 
dated March 11, 2004 (``Amendment No. 2''). In Amendment No. 2, 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 seeks to revise its Auto-Ex procedures for Portfolio 
Depository Receipts, Index Fund Shares, Trust Issued Receipts 
(collectively referred to as ``Exchange Traded Funds'' or ``ETFs''), 
and Nasdaq securities admitted to trading on an unlisted basis. The 
text of the proposed rule change is set forth below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

Trading in Nasdaq National Market Securities

    Rule 118 (a) through (k) no change
    (l) & (m) (proposed in unapproved Amex rule filings)
    (n) An institutional order is a limit order for a Nasdaq National 
Market Security of 10,000 shares or more transmitted to the order book 
electronically which is to be executed automatically in full at one 
price. If it is not executed automatically in full at one price, it is 
to be routed to the specialist for execution and may be partially 
executed. Unlike an all or none order, an institutional order has 
standing on the limit order book. An institutional order may not be 
entered for the proprietary account of a broker-dealer.

[[Page 15412]]

[Automatic Execution for Nasdaq National Market Securities (Temporary)]

    [Rule 118A-T. (a) An Auto-Ex eligible order in a Nasdaq National 
Market System security will be executed automatically at the Amex 
Published Quote (``APQ'') for such security in accordance with the 
provisions of this rule.]
    [(b) An Auto-Ex eligible order for a Tier 1 Nasdaq National Market 
security must be a round lot, or partial round lot (``PRL''), market or 
marketable limit order for 1,000 shares or less received by the 
Exchange electronically. An Auto-Ex eligible order for a Tier 2 Nasdaq 
National Market security must be a round lot, or PRL, market or 
marketable limit order for 500 shares or less received by the Exchange 
electronically. For purposes of this Rule, a ``Tier 1'' Nasdaq National 
Market security is a stock with an average daily consolidated trading 
volume of over 10 million shares during the preceding calendar quarter, 
and a ``Tier 2'' Nasdaq National Market security is a stock with an 
average daily consolidated trading volume of 10 million shares or less 
during the preceding calendar quarter.]
    [(c) The specialist will be the contra side to each Auto-Ex 
execution. In the event that the specialist trades as a result of an 
automatic execution at a price at which the specialist could have 
executed one or more limit orders on the book, the specialist shall 
immediately execute any such limit orders at the price of the Auto-Ex 
trade to the extent such booked orders would have been executed had the 
incoming order not been executed automatically.]
    [(d) An Auto-Ex eligible order will be routed to the specialist and 
will not be automatically executed in the following situations:
    (i) Auto-Ex will be turned-off for one or more securities when the 
specialist, in conjunction with a Floor Governor or two Floor 
Officials, determine that quotes are not reliable and the Exchange or 
the Nasdaq Stock Market is experiencing communications or systems 
problems, ``fast markets,'' or delays in the dissemination of quotes.
    (ii) Auto-Ex will not occur if it would cause the election of a 
stop or stop limit order on the book, or it would cause a trade to 
occur through the price of an all or none order on the book.
    (iii) Auto-Ex will not occur in a stock for 10 seconds after there 
has been an Auto-Ex trade in that security.
    (iv) Auto-Ex will not occur in a stock when the spread in the Amex 
Published Quote in that security is equal to or greater than thirty 
cents.
    (v) Auto-Ex will not occur in a stock when the Amex Published Quote 
on the opposite side of an incoming order is not at the NBBO for that 
security.
    (vi) Auto-Ex will not occur when the size displayed in the APQ on 
the opposite side of an incoming order is less than the size of the 
incoming order.
    (vii) Auto-Ex will not occur when an incoming order is larger than 
the applicable Tier 1 or Tier 2 size parameter for that stock.]
    [(e) The Auto-Ex Enhancements Committee (``Committee'') will review 
a request from a specialist with respect to one or more securities to:
    (i) Increase the size of Auto-Ex eligible orders above 1,000 share 
Tier 1 or 500 share Tier 2 parameters,
    (ii) Reduce the duration of the 10-second pause between Auto-Ex 
executions, and/or
    (iii) Increase the number of trades before the implementation of 
the 10-second pause in Auto-Ex described in paragraph (d)(iii) above.
    The Committee may approve, disapprove or conditionally approve such 
requests. The Committee will balance the interests of investors, the 
specialist, and the Exchange in determining whether to grant a 
specialist's request to modify the Auto-Ex parameters specified in (i) 
through (iii) of paragraph (e) of this Rule. The Committee also will 
consider a request from a specialist to reduce Auto-Ex parameters that 
previously had been increased, provided, however, that the Committee 
may not reduce the Auto-Ex parameters below the floors stated in 
paragraphs (b) and (d) of this Rule. The Committee may delegate its 
authority to one or more Floor Governors. The Committee will meet 
promptly to review a Governor's decision to modify Auto-Ex parameters 
in the event that a Governor acts pursuant to delegated authority.]

[Automatic Execution for Exchange Traded Funds]

    [Rule 128A. The Exchange shall determine the size and other 
parameters of orders eligible for execution by its Automatic Execution 
System (Auto-Ex). An Auto-Ex eligible order for any account in which 
the same person is directly or indirectly interested may only be 
entered at intervals of no less than 10 seconds between entry of each 
such order on the same side of the market in a security. Members and 
member organizations are responsible for establishing procedures to 
prevent orders in a security on the same side of the market for any 
account in which the same person is directly or indirectly interested 
from being entered at intervals of less than 10 seconds.]

[s s s Commentary ----------]

    [.01 Auto-Ex eligible orders for Exchange Traded Funds (``ETFs'') 
must be round lot, market or marketable limit orders for 2,000 shares 
or less received by the Exchange electronically. Orders for an account 
in which a market maker in ETFs registered as such on another market 
has an interest are ineligible for Auto-Ex for ETFs. Notice concerning 
Auto-Ex eligibility criteria will be provided to members periodically 
via Exchange circulars and will be posted on the Exchange's web site.]
    [.02 Upon the request of a specialist, the Auto-Ex Enhancements 
Committee (``Committee'') will review and approve, disapprove or 
conditionally approve requests to increase the size of Auto-Ex eligible 
orders above 2,000 shares. The Committee will balance the interests of 
investors, the specialist, Registered Options Traders in the crowd, and 
the Exchange in determining whether to grant a request to increase the 
size of Auto-Ex eligible orders above 2,000 shares. The Committee also 
will consider a request from a specialist to reduce the size of Auto-Ex 
eligible orders balancing the same interests that the Committee would 
consider in determining whether to increase the size of Auto-Ex 
eligible orders.]
    [.03 Upon the request of a specialist, a Floor Governor may reduce 
the size of Auto-Ex eligible orders below 2,000 shares or increase the 
size of Auto-Ex eligible orders up to 5,000 shares if such action is 
appropriate in view of system problems or unusual market conditions. 
Any such change in the size of Auto-Ex eligible orders will be 
temporary and will only last until the end of the unusual market 
condition or the correction of the system problem.
    Auto-Ex eligible orders will be routed to the specialist and will 
not be automatically executed in situations where the specialist in 
conjunction with a Floor Governor or two Floor Officials determine that 
quotes are not reliable and if the Exchange is experiencing 
communications or systems problems, ``fast markets,'' or delays in the 
dissemination of quotes.
    Members and member organizations will be notified when the size of 
Auto-Ex eligible orders is adjusted due to system problems or unusual 
market conditions. Members and member organizations also will be 
notified when the Exchange has determined that quotes are not reliable 
and the Exchange is experiencing communications or systems problems, 
``fast markets,'' or

[[Page 15413]]

delays in the dissemination of quotes prior to disengaging Auto-Ex.]
    [.04 When the Amex establishes the NBBO (National Best Bid or 
Offer), Auto-Ex will be programmed to execute eligible incoming ETF 
orders at the Amex Published Quote (``APQ'') plus a programmable number 
of trading increments with respect to the Amex bid (with respect to 
incoming sell orders), and less a programmable number of trading 
increments with respect to the Amex offer (with respect to incoming buy 
orders). The amount of price improvement relative to the APQ will be 
determined by the Committee.
    When the Amex does not establish the NBBO, Auto-Ex will be 
programmed to execute eligible incoming ETF orders at or better than 
the NBBO up to a specified number of trading increments relative to the 
APQ. Auto-Ex will execute eligible incoming orders at an improved price 
relative to the APQ unless a trade through would result of an away ITS 
participant market. If a trade through would result, the orders will be 
routed to the Amex specialist for execution. The extent to which Auto-
Ex will better the APQ in order to match or improve the NBBO (if the 
Amex does not establish the NBBO) will be determined by the Committee.
    Auto-Ex will be unavailable (i) with respect to incoming sell 
orders when the published bid on the Amex is for 100 shares, and (ii) 
with respect to incoming buy orders when the published offer on the 
Amex is for 100 shares. Auto-Ex also will be unavailable when the 
spread between the bid and offer on the Amex exceeds a specified 
minimum or maximum value. The Committee will determine the spread in 
the APQ at which Auto-Ex will be unavailable.
    The Committee will act upon the request of a specialist and will 
balance the interests of investors, the specialist, Registered Options 
Traders in the crowd, and the Exchange in determining (i) the amount of 
price improvement that will be programmed into Auto-Ex when the Amex 
establishes the NBBO, (ii) the extent to which Auto-Ex will better the 
APQ in order to match or improve the NBBO (if the Amex does not 
establish the NBBO), and (iii) the spread in the APQ at which Auto-Ex 
will be unavailable.]
    [.05 Specialists and Registered Options Traders that sign-on to 
Auto-Ex will be automatically allocated the contra side of Auto-Ex 
trades for ETFs according to the following schedule:

------------------------------------------------------------------------
                                                      Approximate number
                               Approximate number of       of trades
                                trades allocated to    allocated to ROTs
 Number of ROTs signed on to       the specialist     signed on to auto-
      auto-ex in a crowd         throughout the day    ex throughout the
                                 (``target ratio'')      day (``target
                                     (Percent)             ratio'')
------------------------------------------------------------------------
1............................  60...................                 40
2-4..........................  40...................                 60
5-7..........................  30...................                 70
8-15.........................  25...................                 75
16 or more...................  20...................                 80
------------------------------------------------------------------------

    At the start of each trading day, the sequence in which trades will 
be allocated to the specialist and Registered Options Traders signed-on 
to Auto-Ex will be randomly determined. Auto-Ex trades then will be 
automatically allocated in sequence on a rotating basis to the 
specialist and to the Registered Options Traders that have signed-on to 
the system so that the specialist and the crowd achieve their ``target 
ratios'' over the course of a trading session. If an Auto-Ex eligible 
order is greater than 100 shares, Auto-Ex will divide the trade into 
lots of 100 shares each. Each lot will be considered a separate trade 
for purposes of determining target ratios and allocating trades within 
Auto-Ex.]
    [.06 The Committee may delegate its authority to one or more Floor 
Governors. The Committee will meet promptly to review a Governor's 
decision in the event that a Governor acts pursuant to delegated 
authority.]

Automatic Execution

    Rule 128A. (a) An Auto-Ex Eligible Order for an Auto-Ex Eligible 
Security will be executed automatically in accordance with the 
provisions of this rule.
    (b) Definitions: Amex Published Quote (``APQ''). The Amex Published 
Quote is the highest bid and lowest offer disseminated by the American 
Stock Exchange.
    Best Bid and Offer (``BBO''). The Best Bid and Offer is the highest 
bid and lowest offer disseminated by the national securities exchanges 
and facilities of national securities associations other than the Amex. 
Auto-Ex will disregard a bid or offer of less than 200 shares 
disseminated by any national securities exchange or facility of a 
national securities association in determining the BBO.
    Auto-Ex Eligible Order. An Auto-Ex Eligible Order is a round lot or 
partial round lot market or marketable limit order delivered to the 
order book electronically. An Auto-Ex Eligible Order does not include 
an order update (e.g., a ``cancel/replace'' and ``cancel/leaves'' 
order). An Auto-Ex Eligible Order does not include an order entered 
into the order book by the specialist. Orders on the book may be 
automatically matched against incoming Auto-Ex Eligible Orders as 
provided in this Rule.
    Auto-Ex Eligible Security. Auto-Ex Eligible Securities consist of 
Portfolio Depository Receipts, Index Fund Shares, Trust Issued Receipts 
and Nasdaq National Market Securities traded on the Exchange together 
with such other securities as may be designated as Auto-Ex Eligible 
Securities from time to time by the Exchange.
    Auto-Ex. Auto-Ex is the system for automatically executing Auto-Ex 
Eligible Orders.
    Auto-Ex Step-Up. Auto-Ex Step-Up is a functionality that allows 
Auto-Ex Eligible Orders to be automatically executed against the 
Specialist/Registered Trader Quantity at the APQ plus (in the case of a 
bid) or minus (in the case of an offer) a specified number of trading 
increments designated by the Auto-Ex Enhancements Committee necessary 
to match the BBO when the APQ is inferior to the BBO. Auto-Ex Step-Up 
is not available to orders for the proprietary account of a broker-
dealer.
    Auto-Ex Step-Up Amount. The Auto-Ex Step-Up Amount is the specified 
maximum number of trading increments necessary to attempt to match the 
BBO when the APQ is inferior to the BBO.
    Auto-Ex Step-Up Size: The Auto-Ex Step-Up Size is the maximum size 
of an Auto-Ex Eligible Order that is eligible for Auto-Ex Step-Up.
    Specialist/Registered Trader Quantity: The Specialist/Registered 
Trader

[[Page 15414]]

Quantity is the number of shares that the specialist and registered 
traders in a crowd signed on to Auto-Ex will purchase or sell through 
Auto-Ex executions.
    Available Book Quantity: The Available Book Quantity is the number 
of shares on the order book at the APQ plus additional orders on the 
book that can be executed at or within the APQ minus shares on the book 
priced at or within the APQ that cannot be executed by their terms 
(e.g., all or none orders and tick sensitive orders).
    Trade Threshold: The Trade Threshold is the number of Auto-Ex 
trades that the specialist and crowd will execute through Auto-Ex.
    Maximum Spread Value: The Maximum Spread Value is the size of the 
spread at which Auto-Ex is automatically turned-off because the quote 
is too wide.
    (c) Hours of Operation: Auto-Ex will be available for an Auto-Ex 
Eligible Security following the opening or reopening of a security on 
the Exchange once a trade has occurred and a quote has been 
disseminated in the security. Auto Ex will be turned-off at 3:59 p.m. 
For securities that trade until 4:15 p.m., Auto-Ex will be re-enabled 
at 4:01 p.m. and will continue to be available until 4:14 p.m.
    (d) Interaction of Auto-Ex and Auction Market. (i) A bid or offer 
incorporated in the APQ shall not be deemed accepted by a member in the 
trading crowd and, as the result, no contract shall be created, until 
the specialist begins to enter the member's acceptance into the order 
book.
    (ii) Auto-Ex will be turned-off on the bid or offer side of the 
market (as appropriate) in the event that (1) one or more brokers or 
registered traders in the trading crowd make a bid or offer within the 
APQ (a priority bid or offer), or (2) one or more brokers in the crowd 
make a bid or offer that is on parity with the APQ (a parity bid or 
offer). Auto-Ex will be turned-on again when all members signed-on to 
Auto-Ex in the crowd are on parity and no broker is making a parity bid 
or offer.
    (e) Auto-Ex Enhancements Committee. The Auto-Ex Enhancements 
Committee will review, approve, disapprove, or conditionally approve 
specialist requests to take the following actions:
    (i) Establish the Trade Threshold;
    (ii) Establish the Specialist/Registered Trader Quantity;
    (iii) Limit the size of Available Book Quantity;
    (iv) Establish the Auto-Ex-Step-Up Size and Auto-Ex-Step-Up Amount 
in securities where there are Registered Traders in the crowd;
    (v) Establish the Maximum Spread Value;
    (vi) Establish the di-minimis trade through amount for securities 
that are listed in markets that have trade through rules.
    The Committee will balance the interests of investors, the 
specialist, registered traders signed on to Auto-Ex, and the Exchange 
in considering such requests. In the event that the Committee changes 
one or more Auto-Ex parameters, the minutes of the Committee's meetings 
will state the change in market conditions, competitive environment or 
other circumstance(s) that caused the Committee to change the 
parameter(s). The Committee may delegate its authority to one or more 
Floor Governors. The Committee will meet promptly to review a 
Governor's decision in the event that a Governor acts pursuant to 
delegated authority.
    (f) Determination of Execution Price: The price at which an Auto-Ex 
Eligible Order will be executed by Auto-Ex will be determined as 
follows:
    (i) Auto-Ex will execute an Auto-Ex eligible order at the APQ (or 
better, as provided for in this Rule) when the APQ is equal to or 
better than the BBO as determined by the Exchange's order processing 
systems. Auto-Ex will not execute an order, and the order will be 
routed to the specialist for execution, if execution of the order at 
the APQ would result in a trade through of the BBO;
    (ii) In the event that Auto-Ex Step-Up is engaged to match the BBO, 
Auto Ex will execute an Auto-Ex eligible order against the available 
Specialist/Registered Trader Quantity at the APQ plus (in the case of a 
bid) or minus (in the case of an offer) the lesser of (1) the Auto-Ex 
Step-Up Amount, or (2) the minimum number of trading increments 
necessary to match the BBO where the APQ is inferior to the BBO as 
determined by the Exchange's order processing systems. Auto-Ex will not 
execute an order, and the order will be routed to the specialist for 
execution, if (1) execution of the order at the APQ plus (or minus) the 
Auto-Ex Step-Up amount would result in a trade through of the BBO, or 
(2) the incoming order is larger than the Auto-Ex Step-Up size;
    (iii) If programmed to do so, Auto-Ex will execute an Auto-Ex 
eligible order at the APQ when the APQ is inferior to the BBO as 
determined by the Exchange's order processing systems by a specified 
number of trading increments (the ``di-minimis trade through amount''). 
Auto-Ex will not execute an order, and the order will be routed to the 
specialist for execution, if execution of the order at the APQ would 
result in a trade through of the BBO by more than the di-minimis trade 
through amount.
    Notwithstanding the foregoing, in the event that there are one or 
more executable limit orders on the order book on the opposite side of 
an Auto-Ex Eligible Order priced between the APQ, Auto-Ex will execute 
the incoming order against the order(s) on the order book at their 
limit price(s). In the event that there are one or more executable 
market orders in the order book on the opposite side of the incoming 
Auto-Ex-Eligible Order and the APQ spread is greater than the minimum 
trading variation, Auto-Ex will execute the incoming order against the 
resident market order(s) at the mid point between the best limit bid 
and offer or APQ (whichever is better), and, if this mid point value is 
not a trading interval, the price will be rounded up to the nearest 
trading interval.
    (g) Auto-Ex Coming out of an Order Book Freeze. During an Order 
Book Freeze, messages coming into the order book (e.g., orders, status 
requests, cancels, cancel/replaces) queue and do not enter the order 
book. When the Order Book Freeze ends, Auto-Ex will be re-enabled 
immediately if all incoming orders are on the same side of the market. 
Auto-Ex will not be re-enabled, however, if there are orders on both 
sides of the market to allow the specialist to pair-off the orders to 
the extent possible. Automatic execution will resume once all messages 
in the queue are processed.
    (h) Auto-Ex Size: Auto-Ex will execute Auto-Ex Eligible Orders up 
to the lesser of: (1) The size displayed in the APQ plus executable 
orders on the book within the APQ, or (2) the sum of the remaining 
Specialist/Registered Trader Quantity and Available Book Quantity. 
Notwithstanding the foregoing, Auto-Ex trades executed by the Auto-Ex 
Step-Up functionality are limited to the Auto-Ex Step-Up Size.
    The specialist may determine to allow the partial execution by 
Auto-Ex of an Auto-Ex Eligible order in the event that the incoming 
order is larger than the size available through Auto-Ex.
    The round lot portion of a partial round lot order will be executed 
as if it were a round lot order and the odd lot portion of the order 
will be executed as if it were an odd lot order.
    (i) Contra Parties to Auto-Ex Trades. Auto-Ex will first allocate 
the contra side to an Auto-Ex trade to the Available Book Quantity in 
price/time priority. Auto-Ex will then allocate any portion of the 
Auto-Ex Eligible Order that remains unexecuted to the

[[Page 15415]]

available Specialist/Registered Trader Quantity in accordance with 
participation percentages (``target ratios'') determined by the ETF 
Trading Committee.
    At the start of each trading day, the sequence in which shares will 
be allocated to the specialist and Registered Traders signed-on to 
Auto-Ex will be randomly determined. Auto-Ex shares then will be 
automatically allocated in sequence on a rotating basis to the 
specialist and to the Registered Traders that have signed-on to the 
system so that the specialist and the crowd achieve their ``target 
ratios'' over the course of a trading session. If an Auto-Ex eligible 
order is greater than 100 shares, Auto-Ex will divide the trade into 
lots of 100 shares each. Each lot will be considered a separate trade 
for purposes of determining target ratios and allocating shares within 
Auto-Ex.
    (j) Auto-Ex Unavailability. Auto-Ex will be unavailable in the 
following situations.
    (i) Auto-Ex will not occur when the APQ is crossed with the BBO 
unless Auto-Ex is programmed to disregard the BBO in the case of a 
``di-minimis trade through'' amount.
    (ii) Auto-Ex will not occur when the Trade Threshold is exhausted 
and there is no Available Book Quantity.
    (iii) Auto-Ex will not occur when the Specialist/Registered Trader 
Quantity is exhausted and there is no Available Book Quantity.
    (iv) Auto-Ex will not occur when there is an open outgoing ITS 
commitment on behalf of a customer order.
    (v) Auto-Ex will not occur on the Amex bid or offer (as 
appropriate) in the event that (1) one or more brokers or registered 
traders in the trading crowd make a bid or offer within the APQ (a 
priority bid or offer), or (2) one or more brokers in the crowd make a 
bid or offer that is on parity with the APQ (a parity bid or offer). 
Auto-Ex will be turned-on again when all members signed-on to Auto-Ex 
in the crowd are on parity and no broker is making a parity bid or 
offer.
    (vi) Auto-Ex will not occur on the bid or offer (as appropriate) in 
the event that the APQ on that side of the market is for less than 200 
shares.
    (vii) Auto-Ex will not occur when there is insufficient size to 
fill the entire incoming order and partial executions of incoming Auto-
Ex Eligible Orders are disallowed.
    (viii) Auto-Ex will not occur when the order book on the Amex is 
locked or crossed with the APQ.
    (ix) Auto-Ex will not occur with respect to an incoming Auto-Ex 
Eligible All Or None or Institutional Order in the event that there is 
insufficient size to execute the order according to its terms.
    (x) Auto-Ex will not occur if the execution of the incoming order 
would elect a stop order on the order book.
    (xi) Auto-Ex will not occur if the specialist is in the process of 
executing an order in the security.
    (xii) Auto-Ex will not occur in one or more securities when the 
specialist, in conjunction with a Floor Governor or two Floor 
Officials, determine(s) that (1) quotes are not reliable, (2) the 
Exchange is experiencing communications or systems problems, ``Unusual 
Market Conditions'' as described in Amex Rule 115, or delays in the 
dissemination of quotes, or (3) the market(s) where the underlying 
securities trade (or Nasdaq with respect to Nasdaq National Market 
Securities) are experiencing communications or systems problems, 
``Unusual Market Conditions'' as described in SEC Rule 11Ac1-1, or 
delays in the dissemination of quotes.
    (xiii) Auto-Ex will not occur if it would cause a trade to occur 
through the price of an all or none order on the book.
    (xiv) Auto-Ex will not occur if there are orders on both sides of 
the market when the order book comes out of a Freeze condition to allow 
the specialist to pair-off the orders.
    (xv) Auto-Ex will not occur if the spread exceeds the Maximum 
Spread Value.
    Auto-Ex Eligible Orders that are not automatically executed will be 
routed to the specialist for handling.
* * * * *

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
    On June 19, 2001, the Commission approved the Exchange's proposal 
to permit the automatic execution of orders for Exchange Traded Funds 
(``ETFs'') on a six-month pilot program basis.\5\ Since that time, the 
Exchange has renewed the ETF Auto-Ex pilot at six month intervals. On 
April 23, 2003, the Commission approved the Exchange's temporary Rule 
118A-T to permit the automatic execution of orders for Nasdaq National 
Market securities traded on the Exchange pursuant to unlisted trading 
privileges.\6\ The Exchange intended both the ETF and Nasdaq Auto-Ex 
initiatives to be interim steps that would be superceded by enhanced 
Auto-Ex technology. The current proposal embodies the Exchange's 
enhanced Auto-Ex technology which, unlike the earlier systems, would 
permit Auto-Ex to occur against orders on the book.\7\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 44449 (June 19, 
2001), 66 FR 33724 (June 25, 2001) (approving File No. SR-Amex-2001-
29).
    \6\ See Securities Exchange Act Release No. 47728 (April 23, 
2003), 68 FR 23348 (May 1, 2003) (SR-Amex-2003-16).
    \7\ The Commission notes that Amex's proposal would not be 
sufficient for Amex to be considered an ``automated order execution 
facility,'' as defined in Rule 600(b)(3) of proposed Regulation NMS 
because, among other things, it would not provide for an immediate 
automated response to all incoming subject orders. See Securities 
Exchange Act Release No. 49325 (February 26, 2004), 69 FR 11126 at 
11203 (March 9, 2004).
---------------------------------------------------------------------------

    To implement the enhanced Auto-Ex technology, the Exchange is 
proposing to rescind both of its current Auto-Ex for equity rules: Rule 
118A-T (Automatic Execution for Nasdaq National Market Securities 
(Temporary)) and Rule 128A (Automatic Execution for Exchange Traded 
Funds and Trust Issued Receipts). In their place, the Exchange is 
proposing to adopt new Rule 128A (Automatic Execution). The proposed 
new rule would govern automatic execution of both ETFs and Nasdaq 
stocks traded on the Exchange. According to the Exchange, it does not 
intend at this time to extend the proposed new Auto-Ex procedures to 
other Amex traded equities although, according to the Exchange, it may 
do so in the future. The proposed new rule would not affect Auto-Ex for 
options.
    Paragraph (a) of the proposed new rule would state the general 
principle that automatic execution would be governed by the provisions 
of the rule. It would state that an Auto-Ex Eligible Order for an Auto-
Ex Eligible Security would be executed automatically in accordance with 
the terms of the rule.
    Paragraph (b) of the proposed new rule would define terms used in 
the rule. ``Amex Published Quote'' (``APQ'') would be defined as the 
highest bid and lowest offer disseminated by the American Stock 
Exchange. The ``Best Bid and Offer'' (``BBO'') would be

[[Page 15416]]

defined as the highest bid and lowest offer disseminated by the 
national securities exchanges and facilities of national securities 
associations other than the Amex. The definition of ``BBO'' would 
provide that Auto-Ex would disregard a bid or offer of less than 200 
shares disseminated by any national securities exchange or facility of 
a national securities association in determining the BBO since 100 
share quotes may indicate that the quote is exhausted at that price 
level and are not subject to protection under the ITS Trade Through 
Rule.\8\
---------------------------------------------------------------------------

    \8\ See, e.g., Amex Rule 236(b)(3)(A).
---------------------------------------------------------------------------

    Paragraph (b) of the proposed new rule would define ``Auto-Ex 
Eligible Order'' as a round lot or partial round lot market or 
marketable limit order delivered to the order book electronically. The 
definition would provide that an Auto-Ex Eligible Order would not 
include an order update (e.g., a ``cancel/replace'' and ``cancel/
leaves'' order). The definition also would provide that an order, once 
it is on the book, would be able to be automatically matched against an 
incoming Auto-Ex Eligible Order. The definition would further provide 
that an agency order entered into the order book by the specialist 
would not be eligible for Auto-Ex.\9\ ``Auto-Ex Eligible Securities'' 
would be defined by the proposed new rule as Portfolio Depository 
Receipts, Index Fund Shares, Trust Issued Receipts and Nasdaq National 
Market Securities traded on the Exchange.
---------------------------------------------------------------------------

    \9\ Specialists may not place orders for their principal account 
on the order book.
---------------------------------------------------------------------------

    Paragraph (b) of the proposed new rule would define terms used in 
connection with the ``Step-Up'' functionality of Auto-Ex. ``Auto-Ex 
Step-Up'' would be defined as a functionality that allows Auto-Ex 
Eligible Orders to be automatically executed at the APQ plus (in the 
case of a bid) or minus (in the case of an offer) a specified number of 
trading increments designated by the Auto-Ex Enhancements Committee 
\10\ necessary to match the BBO when the APQ is inferior to the BBO. 
The definition would provide that Auto-Ex Step-Up would not be 
available to orders for the principal account of a broker-dealer since 
the purpose of the functionality would be to attract customer orders to 
the Exchange. The ``Auto-Ex Step-Up Amount'' would be defined as the 
specified number of trading increments necessary to attempt to match 
the BBO when the APQ is inferior to the BBO. ``Auto-Ex Step-Up Size'' 
would be defined as the maximum size of an Auto-Ex Eligible Order 
eligible for Auto-Ex Step-Up.
---------------------------------------------------------------------------

    \10\ The Auto-Ex Enhancements 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.
---------------------------------------------------------------------------

    Paragraph (b) of the proposed new rule would define terms used in 
connection with determining the size and number of orders that would be 
able to be executed by Auto-Ex. ``Specialist/Registered Trader 
Quantity'' would be defined as the number of shares that the specialist 
and registered traders in a crowd signed on to Auto-Ex would purchase 
or sell through Auto-Ex executions. ``Available Book Quantity'' would 
be defined as the number of shares on the order book at the APQ plus 
additional orders on the book that would be able to be executed at or 
within the APQ minus shares on the book priced at or within the APQ 
that would not be able to be executed by their terms (e.g., all or none 
orders and tick sensitive orders). ``Trade Threshold'' would be defined 
as the number of Auto-Ex trades that the specialist and crowd would 
execute through Auto-Ex. ``Maximum Spread Value'' would be the size of 
the spread at which Auto-Ex would be automatically turned-off because 
the quote is too wide.
    Paragraph (c) of the proposed new rule would define the hours when 
Auto-Ex would be available. It would provide that Auto-Ex would be 
available for an Auto-Ex Eligible Security following the opening or 
reopening of a security on the Exchange once a trade has occurred and a 
quote has been disseminated in the security. It would further provide 
that Auto Ex would be turned off at 3:59 p.m. to facilitate the 
execution of at-the-close orders under the Exchange's closing 
procedures.\11\ For securities that trade until 4:15 p.m., the proposed 
new rule would provide that Auto-Ex would be turned on again at 4:01 
p.m. and would continue to be available until 4:14 p.m. when it would 
be turned off for the rest of the day to facilitate the execution of 
at-the-close orders in securities that trade until 4:15 p.m. under the 
Exchange's closing procedures.
---------------------------------------------------------------------------

    \11\ See Amex Rules 109(d), Commentary .02 to Rule 109, 
Commentary .01 to Rule 118, 131(e), Commentaries .02 and .03 to Rule 
131, Rule 156(c), and Commentary .01 to Rule 156. See also 
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); and 29312 (June 
14, 1991), 56 FR 28583 (June 21, 1991) (SR-Amex-90-32).
---------------------------------------------------------------------------

    Paragraph (d) of the proposed new rule would set forth principles 
of how Auto-Ex would operate in conjunction with the Exchange's ``open 
outcry'' auction market. Sub-paragraph (i) would provide that a bid or 
offer incorporated in the APQ would not be deemed accepted by a member 
in the trading crowd, and the acceptance, therefore, would not create a 
binding contract, until the specialist began to enter the member's 
acceptance into the order book. Amex believes that this would address 
situations where an order on the book establishes the APQ, and a member 
in the crowd (a broker, registered trader, or specialist) verbally 
accepts the bid or offer represented by the order on the book (thus 
forming a contract under the Exchange's auction market rules \12\), but 
an Auto-Ex Eligible Order takes the bid or offer before the specialist 
can process the member's acceptance. Amex believes that sub-paragraph 
(i) would address this potential double liability scenario by providing 
that a contract is not formed until the specialist begins to enter the 
member's acceptance into the book. At this point, messages would not be 
able to enter the book until the specialist finishes entering the 
acceptance, and an Auto-Ex Eligible Order would not be able to take the 
bid or offer ahead of the member who had previously accepted the bid or 
offer. According to Amex, subparagraph (i) thus is intended to limit 
the possibility of double liability in securities subject to Auto-Ex 
that would exist if a contract were formed upon the verbal acceptance 
of a bid or offer.
---------------------------------------------------------------------------

    \12\ Amex Rule 128 currently provides that: ``All bids and 
offers made and accepted in accordance with these Rules shall 
constitute binding contracts but shall be subject to the exercise by 
the Board of Governors of the powers in respect thereto vested in 
said Board by the Constitution of the Exchange and the Rules of the 
Exchange.''
---------------------------------------------------------------------------

    Sub-paragraph (ii) of Paragraph (d) would provide that Auto-Ex 
would be turned off on the bid or offer side of the market (as 
appropriate) in the event that one or more brokers or registered 
traders in the trading crowd make a bid or offer within the APQ (a 
priority bid or offer). This would allow a price improving member in 
the crowd with a priority bid or offer to obtain an execution at his or 
her improved price without having an Auto-Ex Eligible Order trade 
through the priority bid or offer. Sub-paragraph (ii) of Paragraph (d) 
also would provide that Auto-Ex would be turned off on the bid or offer 
side of the market (as appropriate) in the event that one or more 
brokers in the crowd have a bid or offer on parity with the APQ (a 
parity bid or offer). According to Amex, this would allow brokers on 
parity with the specialist and traders in the crowd to participate on 
trades where they are

[[Page 15417]]

entitled to participate. As described within, Auto-Ex would be re-
enabled when all members signed-on to Auto-Ex are on parity and no 
broker is making a parity bid or offer.
    Paragraph (e) of the proposed rule would describe the role of the 
Auto-Ex Enhancements Committee in the operation of Auto-Ex. It would 
provide that the Committee would review, approve, disapprove, or 
conditionally approve specialist requests to take the following 
actions: (i) establish the Trade Threshold, (ii) establish the 
Specialist/Registered Trader Quantity, (iii) limit the size of 
Available Book Quantity, (iv) establish the Auto-Ex-Step-Up Size and 
Auto-Ex-Step-Up Amount where there are Registered Traders in the crowd, 
(v) establish the Maximum Spread Value, and (vi) establish the de 
minimis trade through amount for securities that are listed in markets 
that have trade through rules. The proposed new rule would require the 
Committee to balance the interests of investors, the specialist, 
registered traders signed on to Auto-Ex, and the Exchange in 
considering such requests. In the event that the Committee were to 
change one or more Auto-Ex parameters, the minutes of the Committee's 
meetings would state the change in market conditions, competitive 
environment or other circumstances that caused the Committee to change 
the parameter(s) in question. The proposed rule also would provide that 
the Committee would be able to delegate its authority to one or more 
Floor Governors, and that the Committee would meet promptly to review a 
Governor's decision in the event that a Governor were to act pursuant 
to delegated authority.
    According to Amex, the Auto-Ex Enhancement Committee has existed 
since 2001 and has been responsible for reviewing Auto-Ex parameters 
for both Amex traded options, ETFs and Nasdaq UTP. \13\ According to 
Amex, the Committee consists of all Floor Governors and the heads of 
the three floor associations (or their designees). It has been the 
Exchange's experience that the Auto-Ex parameters, once set, are 
changed infrequently.
---------------------------------------------------------------------------

    \13\ The role of the Auto-Ex Enhancements Committee is described 
in Commentary .01 to Amex Rule 933 (listed options), Commentary .02 
to Amex Rule 128A (ETFs), and Amex Rule 118A-T(e) (Nasdaq securities 
traded on an unlisted basis).
---------------------------------------------------------------------------

    Paragraph (f) of the proposed new rule would describe how the price 
of Auto-Ex executions would be determined. Except as described below, 
Auto-Ex would execute an Auto-Ex eligible order at the APQ when the APQ 
is equal to or better than the BBO as determined by the Exchange's 
order processing systems. Auto-Ex would not execute an order, and the 
order would be routed to the specialist for execution, if execution of 
the order at the APQ would result in a trade through of the BBO except 
in cases where the ``de minimis trade-through'' functionality would be 
used as described below.
    In the event that Auto-Ex Step-Up was engaged, Auto Ex would 
execute an Auto-Ex eligible order at the APQ plus (in the case of a 
bid) or minus (in the case of an offer) the maximum Auto-Ex Step-Up 
Amount necessary to match the BBO where the APQ would be inferior to 
the BBO as determined by the Exchange's order processing systems. Auto-
Ex would not execute an order, and the order would be routed to the 
specialist for execution, if execution of the order at the APQ plus the 
maximum Auto-Ex Step-Up amount would result in a trade through of the 
BBO or the incoming order would be larger than the Auto-Ex Step-Up 
size.
    Under the proposed de minimis trade through functionality, Auto-Ex 
would be able to execute an Auto-Ex eligible order at the APQ when the 
APQ is inferior to the BBO as determined by the Exchange's order 
processing systems by a specified number of trading increments (the 
``de minimis trade through amount''). Auto-Ex would not execute an 
order, and the order would be routed to the specialist for execution, 
if execution of the order at the APQ would result in a trade through of 
the BBO by more than the de minimis trade through amount. The de 
minimis trade through functionality currently only would be used for 
SPY, DIA and QQQ and Nasdaq National Market Securities.
    Paragraph (f) of the proposed rule would provide that if there were 
one or more executable limit orders on the order book priced between 
the APQ on the opposite side of an incoming Auto-Ex Eligible Order, 
Auto-Ex would execute the incoming order against the order(s) on the 
order book at their limit price(s) in price time priority. In the event 
that there were one or more executable market orders in the order book 
on the opposite side of the incoming Auto-Ex-Eligible Order and the APQ 
spread was greater than the minimum trading variation, Auto-Ex would 
execute the incoming order against the resident market order(s) at the 
mid point between the best limit bid and offer or APQ (whichever is 
better) in price time priority. If this mid point value was not a 
trading interval, the price would be rounded up to the nearest trading 
interval. According to Amex, this functionality would ensure that 
customer orders would be able to automatically interact with one 
another to the greatest extent possible.
    Paragraph (g) of the proposed rule would discuss the availability 
of Auto-Ex in a security when the security is coming out of an Order 
Book Freeze. According to Amex, during the time of an Order Book 
Freeze, messages being sent to the order book (e.g., orders, status 
requests, cancels, cancel/replaces) queue and do not enter the order 
book.\14\ When the Order Book Freeze ends, Auto-Ex would be re-enabled 
immediately if all incoming orders were on the same side of the market. 
Auto-Ex would not be re-enabled, however, if there were orders on both 
sides of the market. This would allow the specialist to pair-off the 
incoming orders so that they would be able to interact to the greatest 
extent possible. Automatic execution would resume once all messages in 
the queue are processed.
---------------------------------------------------------------------------

    \14\ According to Amex, messages in the queue are not visible to 
the specialist until the Freeze ends and the messages enter the 
book.
---------------------------------------------------------------------------

    Paragraph (h) of the proposed rule would discuss Auto-Ex size. It 
would provide that Auto-Ex would execute Auto-Ex Eligible Orders up to 
the lesser of: (1) The size displayed in the APQ plus executable orders 
on the book within the APQ, or (2) the sum of the remaining Specialist/
Registered Trader Quantity and Available Book Quantity. As previously 
noted, Auto-Ex trades executed by the Auto-Ex Step-Up functionality 
would be limited to the Auto-Ex Step-Up Size.
    Paragraph (h) of the proposed rule would provide that the 
specialist would be able to determine to allow the partial execution by 
Auto-Ex of an Auto-Ex Eligible order in the event that the incoming 
order was larger than the size available through Auto-Ex. Paragraph (h) 
also would provide that the round lot portion of a partial round lot 
order would be executed as if it were a round lot order, and the odd 
lot portion of the order would be executed as if it were an odd lot 
order.
    Paragraph (i) of the proposed rule would discuss the allocation of 
the other side of Auto-Ex trades either to orders on the book or to the 
specialist and registered traders signed-on to Auto-Ex. Under the 
proposed Rule, Auto-Ex would first allocate the contra side to an Auto-
Ex trade to the Available Book Quantity in price/time priority. Auto-Ex 
would then allocate any portion of the Auto-Ex Eligible Order that 
remained unexecuted to the available Specialist/Registered Trader 
Quantity in accordance with participation percentages (``target

[[Page 15418]]

ratios'') determined by the ETF Trading Committee.\15\
---------------------------------------------------------------------------

    \15\ The ETF Trading Committee was proposed in File No. SR-Amex-
2002-35. See Securities Exchange Act Release Nos. 49058 (January 12, 
2004), 69 FR 2754 (January 20, 2004) (notice); and 49396 (March 11, 
2004), 69 FR 12719 (March 17, 2004) (approval order). The Committee 
is composed of the Exchange's four Floor Governors, the Chairmen (or 
their designee) of the Specialists Association, the Options Market 
Makers Association and the Floor Brokers Association and three 
members of the Exchange's senior staff. Since Nasdaq National Market 
Securities traded on the Amex are not traded by registered traders, 
the Specialist/Registered Trader Quantity with respect to Nasdaq 
National Market Securities traded on the Amex would consist solely 
of specialist interest.
---------------------------------------------------------------------------

    At the start of each trading day, the sequence in which shares 
would be allocated to the specialist and Registered Traders signed-on 
to Auto-Ex would be randomly determined. Auto-Ex trades then would be 
automatically allocated in sequence on a rotating basis to the 
specialist and to the Registered Traders that have signed-on to the 
system so that the specialist and the crowd achieve their ``target 
ratios'' over the course of a trading session. If an Auto-Ex eligible 
order was greater than 100 shares, Auto-Ex would divide the trade into 
lots of 100 shares each. Each lot would be considered a separate trade 
for purposes of determining target ratios and allocating shares within 
Auto-Ex.
    Paragraph (j) of the proposed Rule would discuss the situations in 
which Auto-Ex would be unavailable and would state that orders would be 
routed to the specialist for execution in these situations. 
Subparagraph (i) of paragraph (j) would provide that Auto-Ex would not 
occur when the APQ is crossed with the BBO unless (as discussed above) 
Auto-Ex was programmed to disregard the BBO in the case of a ``de 
minimis trade through'' amount. Auto-Ex would continue to occur when 
the APQ is locked with the BBO at the ``lock'' price. Subparagraph (ii) 
would provide that Auto-Ex would not occur when the Trade Threshold is 
exhausted and there is no Available Book Quantity. Subparagraph (iii) 
would provide that Auto-Ex would not occur when the Specialist/
Registered Trader Quantity is exhausted and there is inadequate 
Available Book Quantity.
    Subparagraph (iv) would provide that Auto-Ex would not occur when 
there is an open outgoing ITS commitment on behalf of a customer order. 
This would allow the specialist to send a commitment to an away market 
on behalf of a customer order without the customer order being executed 
automatically while the specialist is waiting for a response to the 
outgoing commitment. This feature would not apply to Nasdaq National 
Market Securities. Subparagraph (v) provides that Auto-Ex would not 
occur on the bid or offer (as appropriate) in the event that (1) one or 
more brokers or registered traders in the trading crowd have made a bid 
or offer within the APQ (a priority bid or offer), or (2) one or more 
brokers in the crowd have made a bid or offer that is on parity with 
the APQ (a parity bid or offer). This would allow a member in the crowd 
that improves the APQ to execute at the improved price without having 
an Auto-Ex trade occur through the improved bid or offer, and it would 
allow brokers on parity with the specialist and traders in the crowd to 
participate on trades where they are entitled to participate. 
Subparagraph (vi) would provide that Auto-Ex would not occur on the bid 
or offer (as appropriate) in the event that the APQ on that side of the 
market was for less than 200 shares. According to Amex, a quote of 100 
shares may signify that the quote is exhausted at that price level and 
is not subject to protection under the ITS Trade Through Rule.
    Subparagraph (vii) would provide that Auto-Ex would not occur when 
there is insufficient size to fill the entire incoming Auto-Ex Eligible 
Order and partial executions of incoming Auto-Ex Eligible Orders are 
disallowed. Subparagraph (viii) would provide that Auto-Ex would not 
occur when the order book on the Amex is locked or crossed with the 
APQ. This would prevent automatic executions in faulty markets. 
Subparagraph (ix) would provide that Auto-Ex would not occur with 
respect to an incoming Auto-Ex Eligible All or None or Institutional 
Order in the event that there is insufficient size to execute the All 
or None or Institutional Order according to its terms. Subparagraph (x) 
would provide that Auto-Ex would not occur if the execution of the 
incoming order would elect one or more stop orders on the order book to 
prevent the automatic election of stop orders.
    Subparagraph (xi) would provide that Auto-Ex would not occur if the 
specialist is in the process of executing an order in the security. As 
previously discussed, this would prevent double liability and allow the 
specialist to maintain an orderly market by executing trades in proper 
time sequence in accordance with the rules of the auction market. 
Subparagraph (xii) would provide that Auto-Ex would not occur in one or 
more securities when the specialist, in conjunction with a Floor 
Governor or two Floor Officials, determine(s) that (1) quotes are not 
reliable, (2) the Exchange is experiencing communications or systems 
problems, ``Unusual Market Conditions'' as described in Amex Rule 115, 
or delays in the dissemination of quotes, or (3) the market(s) where 
the underlying securities trade are experiencing communications or 
systems problems, ``Unusual Market Conditions'' as described in 
Commission Rule 11Ac1-1, or delays in the dissemination of quotes. The 
Exchange believes that Auto-Ex should not occur in these circumstances 
since the APQ and BBO may not correctly reflect the forces of supply 
and demand. Subparagraph (xiii) would provide that Auto-Ex would not 
occur if it would cause a trade to occur through the price of an all or 
none order on the book. Subparagraph (xiv) would provide that Auto-Ex 
would not occur if there are orders on both sides of the market when 
the order book comes out of a freeze condition. This would allow the 
specialist to pair-off the orders so that they can interact. 
Subparagraph (xv) would provide that Auto-Ex would not occur if the 
spread in the security exceeds the Maximum Spread Value.
    The Exchange also is proposing to amend Rule 118 to create a new 
type of limit order, called an ``institutional order'' that would be 
used for customer orders of 10,000 shares or more in Nasdaq National 
Market Securities. This new order (which is not available for other 
securities traded on the Exchange) must be executed automatically in 
full at one price. If it is not executed automatically in full at one 
price, it is to be routed to the specialist for execution and may be 
partially executed. Unlike an all or none order, an institutional order 
will have standing on the book since it may be executed in part once it 
is on the book.
    The Exchange anticipates that it may require up to three months to 
complete the implementation of the new Auto-Ex technology to all 
affected securities following Commission approval of this proposal.
2. Statutory Basis
    The Amex believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \16\ in general and furthers 
the objectives of Section 6(b)(5) \17\ 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

[[Page 15419]]

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 and dealers.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change, as amended, 
will impose no burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

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 by the Exchange on 
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. Comments may also be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. SR-Amex-2004-04. 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 in the Commission's 
Public Reference Room. Copies of the 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-2004-04 and should be 
submitted by April 15, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6705 Filed 3-24-04; 8:45 am]
BILLING CODE 8010-01-U