[Federal Register Volume 69, Number 177 (Tuesday, September 14, 2004)]
[Notices]
[Pages 55479-55480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2180]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50326; File No. SR-Amex-2004-51]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the American Stock Exchange LLC To Apply the 
Current Member Firm Guarantee in Equity Options to Index Options

September 7, 2004.
    On June 30, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') 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 Commentary .02(d) to Amex Rule 950(d) to 
extend the Exchange's current member firm guarantee in facilitation 
cross transactions to index options. The proposed rule change was 
published for comment in the Federal Register on July 30, 2004.\3\ 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\ See Securities Exchange Act Release No. 50081 (July 26, 
2004), 69 FR 45856 (July 30, 2004) (``Notice'').
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    Pursuant to Commentary .02 to Amex Rule 950(d), a floor broker 
representing a member firm seeking to facilitate its own public 
customer's order is entitled to a participation guarantee of 20% if the 
order is traded at the best bid or offer (``BBO'') provided by the 
trading crowd, or 40% if the order is traded at a price that improves 
the trading crowd's market, i.e., at a price between the BBO.\4\ These 
participation guarantees currently apply only to transactions in equity 
options. The Exchange proposes to amend Commentary .02(d) to provide 
the same participation guarantees for transactions in index options.\5\
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    \4\ These guarantees apply only when the original order is equal 
to or larger than 400 contracts, or other eligible size as 
established by the Exchange, but in no case less than 50 contracts. 
See Commentary .02(d)(1)-(2) to Amex Rule 950(d).
    \5\ All other rules that apply to participation guarantees for 
transactions in equity options would also apply to transactions in 
index options. See Notice.
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    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,\6\ and, in 
particular, the requirements of Section 6(b)(5) of the Act.\7\ The 
Commission believes that participation guarantees are reasonable and 
within the business judgment of the Exchange, as long as they do not 
restrict competition and do not harm investors. The Commission has 
found, with respect to participation guarantees in other contexts, that 
guarantees of as much as 40% of an order in options trading are not 
inconsistent with statutory standards of competition and free and open 
markets.\8\
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    \6\ 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)
    \7\ 15 U.S.C. 78f(b)(5)
    \8\ See, e.g., Securities Exchange Act Release No. 42455 
(February 24, 2000), 65 FR 11388 (March 2, 2000) at 11398.
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    The Commission notes that, pursuant to Commentary .02(d) to Amex 
Rule 950(d), if a facilitation trade takes place in a situation in 
which the specialist is entitled to a participation guarantee, the 
total number of contracts guaranteed to be allocated to the floor 
broker and the specialist in the aggregate shall not exceed 40% of the 
facilitation transaction.\9\
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    \9\ See Commentary .02(d)(3) to Amex Rule 950(d). In such a 
situation, if the facilitation transaction occurs at the 
specialist's bid or offer, the specialist shall be allocated the 
greater of either (1) 20% of the executed contracts if the 
facilitating floor broker has participated in 20% of the executed 
contracts or (2) a share of the executed contracts that have been 
divided equally among the specialist and other participants to the 
trade. In each case, the specialist's participation allocation shall 
only apply to the number of contracts remaining after all public 
customer orders and the floor broker's facilitation order have been 
satisfied. See id.

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[[Page 55480]]

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\10\, that the proposed rule change (File No. SR-Amex-2004-51) be, and 
it hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2180 Filed 9-13-04; 8:45 am]
BILLING CODE 8010-01-P