[Federal Register Volume 69, Number 132 (Monday, July 12, 2004)]
[Notices]
[Pages 41864-41866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-15746]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49963; File No. SR-Amex-2004-33]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change by the American 
Stock Exchange LLC Relating to the Handling of Satisfaction Orders 
Pursuant to the Plan for the Purpose of Creating and Operating an 
Intermarket Option Linkage

July 2, 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 13, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange

[[Page 41865]]

Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Amex. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and to grant accelerated 
approval to the proposed rule change.
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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 Amex is proposing to amend the requirements regarding how its 
members handle Satisfaction Orders \3\ pursuant to the Linkage Plan.
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    \3\ A ``Satisfaction Order'' is defined as an order sent through 
the Option Intermarket Linkage (``Linkage'') to notify a Participant 
of a Trade-Through and to seek satisfaction of the liability arising 
from that Trade-Through. A ``Trade-Through'' is a transaction in an 
options series at a price that is inferior to the National Best Bid 
or Offer. See Sections 2(16)(c) and 2(29) of the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan''), respectively.
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    The text of the proposed rule change is available at the Exchange 
and at the Commission.

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 and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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 purpose of this filing is to implement a proposed rule change 
related to proposed Joint Amendment No. 11 to the Linkage Plan.\4\ That 
amendment to the Linkage Plan, together with this proposed rule change, 
will enhance the manner in which the Amex processes Satisfaction Orders 
following a Trade-Through. If the displayed price that is traded 
through represents a customer order, the Amex specialist or a member of 
another participant in the Linkage Plan (``Participant'') \5\ can send 
a Satisfaction Order requiring the member on the exchange who caused 
the Trade-Through to satisfy the customer order.\6\ Based on experience 
to date with the Linkage, the options exchanges have agreed to three 
changes to Satisfaction Order processing as set forth in Joint 
Amendment No. 11 to the Linkage Plan and proposed for implementation in 
this proposed rule change.
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    \4\ See Securities Exchange Act Release No. 49691 (May 12, 
2004), 69 FR 28954 (May 19, 2004) (File No. 4-429) (Notice of filing 
of Joint Amendment No. 11 to the Linkage Plan).
    \5\ A ``Participant'' is defined as an Eligible Exchange whose 
participation in the Linkage Plan has become effective pursuant to 
Section 4(c) of the Linkage Plan. See Section 2(24) of the Linkage 
Plan. Currently, the Participants in the Linkage Plan are the 
International Securities Exchange, Inc., the Amex, the Chicago Board 
Options Exchange, Inc., the Pacific Exchange, Inc., the Philadelphia 
Stock Exchange, Inc., and the Boston Stock Exchange, Inc.
    \6\ See Sections 7(a)(ii)(D) and 8(c)(ii) of the Linkage Plan.
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    First, Section 8(c)(ii)(B)(2) of the Linkage Plan and Amex Rule 
1902 (the ``Rule'') currently permit a specialist to send a 
Satisfaction Order for the full size of the customer order traded-
through, regardless of the size of the transaction that caused the 
Trade-Through (although the Participant receiving the Satisfaction 
Order that elects to execute it must limit its execution to the size of 
the Trade-Through). This proposed rule change would provide that the 
size of the Satisfaction Order be limited to the lesser of the size of 
the customer order traded through and the size of the transaction that 
caused the Trade-Through.
    Second, the Linkage Plan \7\ and the Rule currently permit a 
specialist to reject an execution (``fill'') of a Satisfaction Order if 
the customer order that underlies the Satisfaction Order either has 
been filled on the Amex or has been canceled while the Satisfaction 
Order is being processed. However, if the order is filled or canceled, 
there is no current requirement to cancel the pending Satisfaction 
Order, which leads to the rejection of Satisfaction Order fills that 
may have been avoided had the Satisfaction Order been canceled. To 
address this issue, the proposed rule change would require the 
specialist to cancel a pending Satisfaction Order as soon as practical 
if the underlying customer order is filled or canceled.
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    \7\ See Section 8(c)(ii)(C) of the Linkage Plan.
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    Third, as noted above, a specialist can reject a Satisfaction Order 
fill if the underlying customer order is executed or canceled while the 
Satisfaction Order is pending. However, it is possible that the 
specialist itself could trade against the customer order before the 
specialist receives a notice that the Satisfaction Order has been 
filled. In this case, the Amex believes that it would be inappropriate 
to reject the fill. Accordingly, the proposed rule change would provide 
that the specialist must accept the fill of the Satisfaction Order in 
that scenario.
2. Statutory Basis
    The Amex believes that the proposed rule is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) \9\ 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 transaction in 
securities. In particular, the Exchange believes that the proposed rule 
change will enhance the national market system for options by improving 
the way all Participants handle Satisfaction Orders.
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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 Amex does not believe that the proposed rule change will impose 
any burden on competition 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 with respect to the 
proposed rule change.

III. 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-2004-33 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.

[[Page 41866]]

    All submissions should refer to File Number SR-Amex-2004-33. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Amex. 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-2004-33 and should be submitted on or before August 2, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\10\ In 
particular, the Commission finds that the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act \11\ 
which requires, among other things, that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and to protect investors and the public 
interest. The Commission believes that the proposed rule change should 
facilitate the handling of Satisfaction Orders in an efficient and fair 
manner.
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of the 
notice thereof in the Federal Register. As noted above, the proposed 
rule change incorporates changes into the Amex Rules that correspond to 
changes made to the Linkage Plan through Joint Amendment No. 11, which 
was published for public comment in the Federal Register on May 19, 
2004.\12\ The Commission received no comments in response to 
publication of Joint Amendment No. 11. The Commission believes that no 
new issues of regulatory concern are being raised by Amex's proposed 
rule change. The Commission believes, therefore, that granting 
accelerated approval of the proposed rule change is appropriate and 
consistent with Sections 6 and 19(b) of the Act.\13\
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    \12\ See supra note 4.
    \13\ 15 U.S.C. 78f and 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Amex-2004-33) is approved on 
an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    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. 04-15746 Filed 7-9-04; 8:45 am]
BILLING CODE 8010-01-P