[Federal Register Volume 69, Number 174 (Thursday, September 9, 2004)]
[Notices]
[Pages 54709-54711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2108]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50307; File No. SR-Amex-2004-75]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to Revisions to Amex 
Rule 154

September 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 August 30, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
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 154. The text of the 
proposed rule change is set forth below in its entirety. Proposed new 
language is in italics.
* * * * *

Orders Left With Specialist

    Rule 154 (a) No member or member organization shall place with a 
specialist, acting as broker, any order to effect on the Exchange any 
transaction except at the market or at a limited price.
    (b) A specialist shall not charge a commission for handling an 
order (or portion thereof) that is not executed, an order that is 
executed on an opening or reopening, or an order (or portion thereof) 
that is executed against the specialist as principal (see Amex Rule 
152(c)). Without limiting the foregoing, a specialist also shall not 
charge a commission for the execution of an off floor order delivered 
to the specialist through the Exchange's electronic order routing 
systems except in the following cases:
    (i) A limit order executed more than two minutes from the time of 
receipt on the book. In the case of a limit order partially executed in 
two minutes or less and partially executed in more than two minutes, a 
specialist shall not charge a commission for handling the portion of 
the order executed in two minutes or less.
    (ii) An on close (market or limit) order.
    (iii) A tick sensitive (market or limit) order that is not executed 
upon receipt in the book by the Exchange's automatic execution 
facilities.
    (iv) A non-regular way settlement (market or limit) order.
    (v) A stop or stop limit order.
    (vi) A market or marketable limit order stopped at one price and 
executed at a better price. In the case of an order stopped at one 
price and partially executed at a better price, a specialist shall not 
charge a commission for handling the portion of the order executed at 
the stop price.
    (vii) A fill-or-kill, immediate-or-cancel or all-or-none order that 
is not executed upon receipt in the book by the Exchange's automatic 
execution facilities.
    (viii) An order for the account of a competing market maker.
    For purposes of this paragraph (b), in all instances where an order 
received by

[[Page 54710]]

the specialist is canceled and replaced with another order, the 
replacement shall be deemed to be a new order.
    Commentary * * *. .01 through .15 No change
* * * * *

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    According to the Exchange, specialists traditionally charge a 
commission only for orders that they execute and do not bill for orders 
that they hold, but do not execute. For example, specialists do not 
charge a commission for ``day'' orders that expire unfilled or orders 
that are cancelled prior to execution. In addition, the Exchange has a 
policy (available on its AmexTrader Web site),\3\ which describes the 
circumstances under which specialists may charge members and member 
organizations a commission for executing orders. In general, 
``routine'' orders are not subject to specialist commissions while 
orders that require special handling or for which the specialist 
provides a service may be subject to a commission. Thus, specialists on 
the Amex may (but are not required to) bill for limit orders that 
remain on the book for more than two minutes, market on close or limit 
on close orders, tick sensitive orders (e.g., an order to sell short in 
a security subject to the Commission's ``tick-test''), orders for non-
regular way settlement, stop or stop limit orders, orders stopped at 
one price and executed at a better price, and fill-or-kill, immediate-
or-cancel and all-or-none orders.\4\ By rule, specialists may not 
charge a commission where they take the other side of the trade as 
principal.\5\
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    \3\ See http://www.amex.com/amextrader/tdrInfo/fees/tdrInfo Fees 
pg6.html.
    \4\ According to the Exchange, the NYSE's rules are similar to 
the Exchange's policy in this area. NYSE Rule 123B(b)(1) and 
Supplementary Material .10 generally prohibit NYSE specialists from 
charging a commission on orders sent to them electronically unless 
the order remains on the book for more than five minutes.
    \5\ Amex Rule 152(c).
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    One Amex specialist currently charges firms a commission for orders 
that are cancelled prior to execution. This specialist recently 
distributed a memorandum dated August 23, 2004, to ``all Broker-Dealers 
and Firms'' to advise that, commencing September 1, 2004, it would 
begin charging a commission for option and ETF orders that expire 
without an execution. Thus, for example, this specialist would charge a 
commission for orders for options that expire and day orders that 
expire unexecuted. The memorandum further states that the specialist 
would charge a commission for option and ETF orders, ``without regard 
to whether they are market or limit orders, and without regard to 
whether they are immediately executed upon receipt or are booked.'' 
According to the Exchange, among other consequences, this change in 
commission billing practice would result in the specialist charging 
commissions for orders that are executed automatically by the 
Exchange's systems.
    The Exchange proposes to adopt a rule that would prohibit 
specialists from charging a commission for orders, or portions of 
orders, that are not executed. This would include, but is not limited 
to, a prohibition on specialist commissions for order cancellations and 
orders that expire due to the passage of time.
    The Exchange also proposes to codify its policies regarding 
situations where specialists may charge a commission for trades that 
are executed in whole or part. Proposed Amex Rule 154(b) would prohibit 
specialists from charging a commission on off floor orders that are 
electronically delivered to the specialist except in cases of orders 
that require special handling by the specialist or the specialist 
provides a service. Thus, under the proposed rule, specialists would be 
allowed to bill a commission for a limit order that remains on the book 
for more than two minutes, a market or limit on close order, a tick 
sensitive order that is not executed upon receipt in the book by the 
Exchange's automatic execution facilities, an order for non-regular way 
settlement, a stop or stop limit order, an order stopped at one price 
and executed at a better price, a fill-or-kill, immediate-or-cancel or 
all-or-none order that is not executed upon receipt in the book by the 
Exchange's automatic execution facilities, and an order for the account 
of a competing market maker. Other off floor electronic delivered 
orders, orders where the specialist is the ``contra'' party on the 
execution, and orders executed on an opening or reopening would not be 
``billable.''
    The proposed rule would prohibit specialists from billing for 
electronically delivered orders that are executed automatically by the 
Exchange's order processing facilities upon receipt in the book. Amex 
Rule 152(c) already prohibits specialists from charging a commission 
where they act as principal on a trade, so the Exchange's rules would 
be violated if a specialist were to bill for an automatically executed 
trade where the specialist is the contra-side. If, on the other hand, 
the contra side were some other person, e.g., a registered option 
trader or a limit order on the book, the Exchange believes that it is 
hard to see what service the specialist has performed to earn a 
commission when the order is executed against this other interest when 
it first arrives in the book. The proposed rule only would allow the 
specialist to charge a commission for an order that is automatically 
executed where (i) a limit order has been on the book for more than two 
minutes, and (ii) the order is automatically executed against an 
incoming order or some trading interest other than that of the 
specialist. The Exchange believes that it may be appropriate for the 
specialist to charge a commission in these circumstances because the 
specialist has assumed responsibility for the proper execution of the 
order.
    Specialist commissions increase the cost of doing business on the 
Exchange. The Exchange believes that these increased costs weaken the 
Exchange's competitive position relative to other markets and harm 
investors as other markets do not need to compete as aggressively with 
the Exchange to cut their prices to investors. The Exchange, 
consequently, believes that the proposed rule would benefit investors 
if implemented. [FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES][NOTICE][PREAMB][AGENCY]*[/AGENCY][SUBJECT]*[/SUBJECT][/
PREAMB]
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \6\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \7\ in particular in that it is designed 
to prevent fraudulent and manipulative acts and practices, 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, in general, to protect

[[Page 54711]]

investors and the public interest; and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers. The 
Exchange also believes that the proposed rule change is consistent with 
Section 11(A)(a)(1)(C)(i) of the Act \8\ in that it is designed to 
promote the economically efficient execution of securities transactions 
by reducing the cost of such transactions to investors.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78k-1(a)(1)(C)(i).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange, in fact, believes 
that the proposed rule change may enhance competition by possibly 
reducing the cost of doing business on the Exchange.

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

    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 Exchange consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change 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 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-2004-75 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-2004-75. 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-2004-75 and should be submitted on or before September 30, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2108 Filed 9-8-04; 8:45 am]
BILLING CODE 8010-01-P