[Federal Register Volume 69, Number 112 (Thursday, June 10, 2004)]
[Notices]
[Pages 32637-32639]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13089]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49797; File No. SR-Amex-2004-41]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC To Implement a Quote Assist Feature in Options on a Pilot Program 
Basis

June 3, 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 May 28, 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 and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 950(g) to implement a 
quote-assist feature on a pilot program basis until April 30, 2005. The 
text of the proposed rule change appears below. New text is in italics.

Rule 950

    (a) through (f) No change.
    (g) The provisions of Rule 156, together with the following 
additional provision, shall apply to Exchange option transactions:
    A broker who has been given a spread order, or a straddle order or 
a combination order shall not be held responsible for an execution 
based upon transaction prices that are established at the opening or 
close of trading.

* * *Commentary

    .01 The specialist shall maintain and keep active the limit order 
quote assist feature. The Exchange will establish the time frame within 
which the quote assist feature will display eligible customer limit 
orders, which in no event will be longer than 30 seconds. Use of the 
quote assist feature will be on a pilot program basis until April 30, 
2005, or until all option classes have begun trading on the Exchange's 
new trading system known as ANTE, whichever occurs first.

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 forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange currently requires all option specialists to execute 
or display customer limit orders that improve the bid or offer by price 
or size immediately upon receipt, unless an exception to the 
requirement applies. The Exchange currently looks to Amex Rule 156 
regarding the representation of orders and Article V, Section 4(h) of 
the Amex Constitution regarding conduct inconsistent with just and 
equitable principles of trade for its authority to enforce this 
requirement and will continue to do so until its proposal pending with 
the Commission to adopt a specific limit order display rule is 
approved.\3\ That pending proposed rule change amends Amex Rule 958A by 
adding a new paragraph (e), which would require specialists to either 
execute or display customer limit orders immediately upon receipt, 
unless one of the exceptions set forth in the proposed rule applies.\4\ 
The pending proposed

[[Page 32638]]

rule change defines ``immediately upon receipt'' to mean ``as soon as 
practicable which shall mean, under normal market conditions, no later 
than 30 seconds after receipt.'' \5\
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    \3\ See File No. SR-Amex-00-27.
    \4\ Id.
    \5\ See id.
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    To assist specialists in complying with their current and future 
regulatory obligations as described above, the Exchange proposes to 
provide specialists with an automated quote assist feature as part of 
the Amex Options Display Book (also referred to as ``AODB'') on a pilot 
program basis until April 30, 2005. The quote assist feature would 
automatically display eligible limit orders within a configurable time 
that can be set only on a floor-wide basis by the Exchange. While all 
customer limit orders are expected to be displayed immediately, the 
quote assist feature can be set to automatically display limit orders 
at or close to the end of the 30-second time frame or within any other 
shorter time frame established by the Exchange. In the event there are 
instances where the specialist has not yet addressed the order within 
the applicable 30-second period, the quote assist feature would 
automatically display the eligible customer limit order in the limit 
order book at or close to the end of that period. The quote assist 
feature would help to ensure that eligible customer limit orders are 
displayed within the required time period then in effect. Proposed 
commentary to Amex Rule 950(g) would require specialists to maintain 
and keep active the limit order quote assist feature. The Exchange will 
establish the time frame within which the quote assist feature will 
display eligible customer limit orders, which time frame will not 
exceed the customer limit order display requirement then in effect.
    The quote assist feature is proposed to be used on a pilot program 
basis until April 30, 2005. Thus, use of the quote assist feature will 
expire either (i) on April 30, 2005 or (ii) when all option classes 
have begun trading on the Exchange's new trading system known as the 
ANTE System,\6\ whichever occurs first.
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    \6\ See Securities Exchange Act Release No. 49747 (May 20, 2004) 
69 FR 30344 (May 27, 2004) (Order Approving File No. SR-Amex-2003-
89).
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    Unlike the quote assist feature proposed for the ANTE System, the 
specialist would not have the ability to deactivate the quote assist 
feature under the instant proposal. The Exchange would have the ability 
to deactivate the quote assist feature in AODB only on a floor-wide 
basis. Should the Exchange wish to deactivate the quote assist feature 
for a particular trading day, it would be required to do so after the 
close of trading on the previous trading day.\7\
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    \7\ The quote assist feature cannot be activated or deactivated 
while trading is in session. Telephone conversation between Claire 
McGrath, Senior Vice President and Deputy General Counsel, Amex, and 
Nathan Saunders, Attorney, Division of Market Regulation, Commission 
(May 19, 2004).
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    The Exchange notes that the proposed quote assist feature would not 
relieve the specialists of their obligation to display customer limit 
orders immediately. To the extent that a specialist excessively relies 
on the quote assist feature to display eligible limit orders without 
attempting to address the orders immediately, the specialist could be 
violating his due diligence obligation. However, brief or intermittent 
reliance on the quote assist feature by a specialist during an 
unexpected surge in trading activity in an option class would not 
violate the specialist's obligation if used when the specialist is not 
physically able to address all the eligible limit orders within 30 
seconds. Upon effectiveness of this rule filing, the Exchange will 
issue a regulatory notice discussing the issue of excessive reliance on 
the quote assist feature.
    The Exchange would continue to conduct surveillance to ensure that 
specialists comply with their obligation to execute or book all 
eligible limit orders within the time period prescribed by Exchange 
rules or policy. The Exchange commits to conduct surveillance designed 
to detect whether specialists as a matter of course rely on the quote-
assist feature to display all eligible limit orders. A practice of 
excessive reliance upon the quote assist feature would be reviewed by 
Member Firm Regulation as a possible due diligence violation. The 
Exchange commits to run its limit order display exception report at 
various display intervals in an attempt to detect a pattern suggestive 
of undue reliance on the quote assist feature. The Exchange commits to 
report to the Commission every three months the statistical data it 
uses to determine whether there has been impermissible reliance on the 
quote assist feature by specialists.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \9\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices and to 
promote just and equitable principles of trade.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 
impose any burden on competition.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and subparagraph (f)(6) of Rule 19b-4\11\ 
thereunder because it does not: (i) Significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time as the Commission may 
designate; and the Exchange has given the Commission written notice of 
its intention to file the proposed rule change at least five business 
days prior to filing. At any time within 60 days of the filing of such 
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.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    Under Rule 19b-4(f)(6)(iii) of the Act,\12\ the proposal does not 
become operative for 30 days after the date of its filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, and the Exchange is 
required to give the Commission written notice of its intention to file 
the proposed rule change at least five business days prior to filing. 
The Exchange requested that the Commission accelerate the 30-day 
operative date to May 31, 2004, so that it might implement the proposed 
rule change on that date to assist and facilitate specialists' 
compliance with their regulatory obligation and ensure that eligible 
customer limit orders are displayed in the disseminated quotations 
immediately. The Exchange

[[Page 32639]]

states that the implementation of the proposed quote-assist feature in 
the AODB will be completed on or about May 31, 2004. The Exchange 
contends that this proposed rule is substantially similar to comparable 
rules the Commission approved for the Chicago Board Options Exchange, 
Inc. (``CBOE''), and the New York Stock Exchange, Inc., (``NYSE''), 
which were published for public notice and comment.\13\ As a result, 
the Exchange believes that the proposed rule change does not raise any 
new regulatory issues. The Commission, consistent with the protection 
of investors and the public interest, has determined to accelerate the 
30-day operative date to June 3, 2004,\14\ and, therefore, the proposal 
is effective and operative on that date.
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See Securities Exchange Act Release Nos. 42952 (June 16, 
2000), 65 FR 39210 (June 23, 2000) (Commentary .10 to Amex Rule 
170); 41386 (May 10, 1999), 64 FR 26809 (May 17, 1999) 
(Supplementary Material .15 to NYSE Rule 79A); and 47701 (April 18, 
2004), 69 FR 22426 (April 28, 2004) (CBOE Rule 8.85(b)(vii)).
    \14\ For purposes only of accelerating the 30-day operative 
period for this proposal, the Commission has considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Amex-2004-41 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Amex-2004-41. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-Amex-2004-41 and should be submitted on or before July 
1, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13089 Filed 6-9-04; 8:45 am]
BILLING CODE 8010-01-P