[Federal Register Volume 69, Number 59 (Friday, March 26, 2004)]
[Notices]
[Pages 15916-15917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6766]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49441; File No. SR-Amex-2003-44]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval to Proposed Rule Change Relating to Percentages Used 
to Allocate Executed Options Contracts Between the Specialist and 
Registered Options Traders

March 17, 2004.
    On May 14, 2003, the American Stock Exchange LLC (``Amex'') 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 933 and 950 to revise the percentages used to allocate executed 
contracts between the specialist and registered options traders in 
certain trades executed on the Exchange.\3\ On November 18, 2003, Amex 
filed Amendment No. 1 to the proposed rule change.\4\ The proposed rule 
change was published for comment in the Federal Register on December 
31, 2003.\5\ The Commission received no comments on the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In addition, the Exchange proposed to correct the paragraph 
reference to the allocation provisions in Amex Rule 933 from (d) to 
(h).
    \4\ See letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated November 17, 2003.
    \5\ See Securities Exchange Act Release No. 48975 (December 23, 
2003), 68 FR 75667 (``Notice'').
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    The Exchange proposes to revise the allocation percentages set 
forth in Amex Rules 933 and 950, by which options contracts in certain 
options trades are allocated as between the specialist and registered 
options traders,\6\ in connection with the re-institution of an 
exchange-sponsored payment-for-order-flow program.\7\ The proposed rule 
change would revise the percentages allocated to the specialist and the 
registered options traders, respectively, for those options classes in 
which the Exchange does not collect a marketing fee from registered 
options traders for a payment-for-order-flow program.\8\ For those 
options classes in which the Exchange collects a marketing fee from 
registered options traders for a payment-for-order-flow program, the 
allocation percentages would comply with the percentages currently in 
place.\9\ Further, for options in which no payment-for-order-flow 
marketing fee is collected from the registered options traders, the 
Exchange proposes to vary the specialist and registered options trader 
allocation percentages depending on the type of option. Specifically, 
the allocation percentages for trading in options on Exchange Traded 
Funds, Trust Issued Receipts, and indexes would differ somewhat from 
those used for equity options.\10\
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    \6\ Specifically, the proposed rule change relates to the 
allocation of contracts when the specialist and registered options 
traders are on parity, as governed by Commentary .06 to Amex Rule 
950(d); the allocation of trades through Quick Trade, the Exchange's 
automated allocation feature, as governed by Commentary .07 to Amex 
Rule 950(d); and the allocation of trades by AutoEx, the Exchange's 
automatic execution system, as governed by Amex Rule 933(d), 
renumbered by this proposal as Amex Rule 933(h).
    \7\ See Securities Exchange Act Release No. 48053 (June 17, 
2003), 68 FR 37880 (June 25, 2003) (File No. SR-Amex-2003-50).
    \8\ See Notice for a more complete description of the revisions. 
The allocation percentages would vary depending on the type of 
option, i.e., whether it is an equity option or an option on an 
Exchange Traded Fund, Trust Issued Receipt, or index.
    \9\ In this case, there would be no distinction in the 
allocation percentages between equity options and options on 
Exchange Traded Funds, Trust Issued Receipts, and indexes.
    \10\ See Notice for a more complete description of the 
revisions.
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    The Commission finds that the proposed rule change is consistent 
with

[[Page 15917]]

the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\11\ and, in particular, 
the requirements of section 6(b)(5) of the Act.\12\ Specifically, the 
Commission believes that the Exchange's proposed revisions to its 
specialist participation guarantees to account for whether or not the 
Exchange has instituted a payment-for-order-flow program are 
appropriate, particularly as they do not alter the Exchange's 
requirement that the specialist's participation percentage be limited 
to 40% (60% when there is only one registered options trader on parity 
with the specialist or signed on to AutoEx or Quick Trade).\13\ The 
Commission has found with respect to participation guarantees in other 
contexts that a maximum guarantee of 40% (where more than one trader is 
participating with the specialist) is not inconsistent with statutory 
standards of competition and free and open markets.\14\
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    \11\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ The Commission notes that, in the context of a trade in 
which a member firm is facilitating a customer order, the total 
number of contracts guaranteed to the member firm and the specialist 
in the aggregate may not exceed 40% of the total transaction. See 
Amex Rule 950(d), Comm. 02(d)(3).
    \14\ See, e.g., Securities Exchange Act Release Nos. 42455 
(February 24, 2000), 65 FR 11388 (March 2, 2000) at 11398; and 43100 
(July 31, 2000), 65 FR 48778 (August 9, 2000) at notes 96-99 and 
accompanying text.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act\15\, that the proposed rule change (File No. SR-Amex-2003-44) be, 
and it hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6766 Filed 3-25-04; 8:45 am]
BILLING CODE 8010-01-P