[Federal Register Volume 69, Number 203 (Thursday, October 21, 2004)]
[Notices]
[Pages 61875-61877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2733]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50525; File No. SR-Amex-2004-77]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the American Stock Exchange 
LLC Relating to the Trading of Ratio Orders

October 13, 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 September 23, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
items I and II below, which items have been prepared by the Amex. The 
Amex filed the proposal pursuant to section 19(b)(3)(A) under the 
Act,\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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, ``Rules of General 
Applicability,'' and Amex Rule 950-ANTE, ``Rules of General 
Applicability'' to allow ratio orders with certain permissible ratio 
limits, as defined below, to be executed through the Amex. In addition, 
the Amex proposes to amend Commentary .01 to Amex Rule 950(d) and 
Commentary .01 to Amex Rule 950-ANTE(d) to include these types of 
permissible ratio orders in the same exception to the priority rules 
that Amex Rule 950(d), Commentary .01, and Amex Rule 950-ANTE(d), 
Commentary .01, currently provide for spread, straddle, and combination 
orders.
    The text of the proposed rule change appears below. Additions are 
italicized.

Rule 950 ``Rules of General Applicability''

(a)-(d) No Change
Commentary to (d)
    .01 When a member holding a spread order, a straddle order, ratio 
order, or a combination order and bidding or offering on the basis of a 
total credit or debit for the order has determined that the order may 
not be executed by a combination of transactions with or within the 
bids and offers established in the marketplace, then the order may be 
executed as a spread, straddle, or combination at the total credit or 
debit with one other member without giving priority to either bids or 
offers established in the marketplace that are not better than the bids 
or offers comprising such total credit or debit, provided that, (i) in 
executing a spread order, the member does not buy at the established 
bid for the option contract to be bought and sell at the established 
offer for the option contract to be sold or, (ii) in executing a 
straddle or combination order, the member does not either buy both 
sides of the order at the established bids or sell both sides of the 
order at the established offers.
Commentary .02-.07 No Change
(e)-(e)(iv) No Change
(e)(v) Ratio Order--A Ratio Order is a spread, straddle, or combination

[[Page 61876]]

order in which the stated number of option contracts to buy (sell) is 
not equal to the stated number of option contracts to sell (buy), 
provided that the number of contracts differ by a permissible ratio. 
For purposes of this section, a permissible ratio is any ratio that is 
equal to or greater than one-to-three (.333) and less than or equal to 
three-to-one (3.00). For example, a one-to-two (.5) ratio, a two-to-
three (.667) ratio, or a two-to-one (2.00) ratio is permissible, 
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is not.
(f)-(n) No Change

Rule 950-ANTE ``Rules of General Applicability''

(a)-(d) No Change
Commentary to (d)
    .01 When a member holding a spread order, a straddle order, ratio 
order, or a combination order and bidding or offering on the basis of a 
total credit or debit for the order has determined that the order may 
not be executed by a combination of transactions with or within the 
bids and offers established in the marketplace, then the order may be 
executed as a spread, straddle, or combination at the total credit or 
debit with one other member without giving priority to either bids or 
offers established in the marketplace that are not better than the bids 
or offers comprising such total credit or debit, provided that, (i) in 
executing a spread order, the member does not buy at the established 
bid for the option contract to be bought and sell at the established 
offer for the option contract to be sold or, (ii) in executing a 
straddle or combination order, the member does not either buy both 
sides of the order at the established bids or sell both sides of the 
order at the established offers.
Commentary .02-.07 No Change
(e)-(e)(iv) No Change
(e)(v) Ratio Order--A Ratio Order is a spread, straddle, or combination 
order in which the stated number of option contracts to buy (sell) is 
not equal to the stated number of option contracts to sell (buy), 
provided that the number of contracts differ by a permissible ratio. 
For purposes of this section, a permissible ratio is any ratio that is 
equal to or greater than one-to-three (.333) and less than or equal to 
three-to-one (3.00). For example, a one-to-two (.5) ratio, a two-to-
three (.667) ratio, or a two-to-one (2.00) ratio is permissible, 
whereas a one-to-four (.25) ratio or a four-to-one (4.0) ratio is not.
(f)-(n) 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 self-regulatory organization 
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 Amex 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
    Amex Rules 950(e) and 950-ANTE(e) list and define several types of 
orders that are executed through the Amex including, among others, 
three types of complex orders: Spread orders, combination orders, and 
straddle orders. The Amex proposes to add certain ratio orders within 
permissible established limits to the list of orders included in Amex 
Rules 950(e) and 950-ANTE(e). Proposed Amex Rules 950(e)(v) and 950-
ANTE(e)(v) would define a ratio order as either a spread, straddle, or 
combination order in which the stated number of option contracts to buy 
(sell) is not equal to the stated number of option contracts to sell 
(buy), provided that the number of contracts differs by a permissible 
ratio. Under Amex Rules 950(e)(v) and 950-ANTE(e)(v), a permissible 
ratio would be any ratio that is equal to or greater than one-to-three 
(.333) or less than or equal to three-to-one (3.0).
    Additionally, the Amex proposes to revise paragraph .01 of the 
Commentary to both Amex Rules 950(d) and 950-ANTE(d) to include these 
types of permissible ratio orders so that they may be afforded the same 
exception to the priority rules that Amex Rules 950(d), Commentary .01, 
and 950-ANTE(d), Commentary .01, currently provide for spread, 
straddle, and combination orders.\5\ The Amex believes that because 
ratio orders are slight variations on the types of complex orders 
currently permitted on the Amex, it is appropriate to treat ratio 
orders like spread, straddle, and combination orders for purposes of 
Amex Rules 950(d), Commentary .01, and 950-ANTE(d), Commentary .01.
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    \5\ This proposed rule is based on Chicago Board Options 
Exchange, Inc. (``CBOE'') Rule 6.45(e). See Securities Exchange Act 
Release No. 48858 (December 1, 2003), 68 FR 68128 (December 5, 2003) 
(order approving File No. SR-CBOE-2003-07) (``CBOE Order'').
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    Furthermore, the Amex believes that ratio orders within certain 
permissible ratios may provide market participants with greater 
flexibility and precision in effectuating trading and hedging 
strategies. According to the Amex, including ratio orders in the 
exception to the priority rules provided in Amex Rules 950(d), 
Commentary .01, and 950-ANTE(d), Commentary .01, serves to reduce the 
risk of incomplete or inadequate executions while increasing efficiency 
and competitive pricing by requiring price improvement before an order 
can receive priority over other orders.
    The Amex believes it is important to include the definition of 
ratio orders within the ANTE rules because, while spreads cannot 
currently be executed through the ANTE system, the Amex anticipates 
that such transactions will be executed through the ANTE system in the 
future. The ANTE rules currently include definitions of spread, 
straddle, and combination orders and provide for the priority of these 
orders in certain circumstances. As discussed above, ratio orders are a 
form of a spread, straddle or combination order, and the Amex believes 
that in the interest of consistency it is important to update all of 
the effected rules, which encompass the ANTE rules. The Amex notes that 
the Commission recently has approved similar rule amendments and 
revisions for other options exchanges, including permitting ratio 
orders to have ratios equal to or greater than one-to-three (.333) or 
less than or equal to three-to-one (3.0).\6\
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    \6\ See CBOE Order, supra, note 5. See also Securities Exchange 
Act Release No. 50184 (August 12, 2004), 69 FR 51498 (August 19, 
2004) (notice of filing and immediate effectiveness of File No. SR-
ISE-2004-20).
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2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
section 6(b) of the Act,\7\ in general, and furthers the objectives of 
section 6(b)(5) of the Act,\8\ in particular, in that it is designed to 
promote just and equitable principles of trade and to remove 
impediments to and perfect the mechanisms of a free and open market.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
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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

[[Page 61877]]

burden on competition that is 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. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Amex has filed the proposed rule change pursuant to section 
19(b)(3)(A) of the Act \9\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\10\ Because the foregoing proposed rule change: (1) Does 
not significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
and Rule 19b-4(f)(6) thereunder. As required under Rule 19b-
4(f)(6)(iii), the Amex provided the Commission with written notice of 
its intent to file the proposed rule change at least five business days 
prior to filing the proposal with the Commission or such shorter period 
as designated by the Commission.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    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.

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-2004-77 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-2004-77. 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 this 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-2004-77 and should be submitted on or before November 12, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2733 Filed 10-20-04; 8:45 am]
BILLING CODE 8010-01-P