[Federal Register Volume 69, Number 210 (Monday, November 1, 2004)]
[Notices]
[Pages 63417-63418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2920]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50587; SR-Amex-2004-63]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 by the American Stock Exchange LLC Relating 
to Minimum Size Guarantees for Linkage Orders

October 25, 2004.

I. Introduction

    On August 3, 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 modify the definitions of Firm Customer Quote 
Size (``FCQS'') and Firm Principal Quote Size (``FPQS'') contained in 
the Amex rules by changing certain minimum size guarantees for Linkage 
Orders to accommodate the ``natural size'' of quotations.\3\ On 
September 10, 2004, the Amex submitted Amendment No. 1 to the proposed 
rule change.\4\ Notice of the Amex's proposed rule change, as amended, 
was published in the Federal Register on September 23, 2004.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange's rule filing is intended to conform Exchange 
rules to an amendment to the Plan for the Purpose of Creating and 
Operating an Intermarket Option Linkage (``Linkage Plan'') filed by 
the Amex and the other participants of the Linkage Plan and recently 
approved by the Commission (``Joint Amendment No. 13''). See 
Securities Exchange Act Release No. 50562 (October 19, 2004) (File 
No. 4-429).
    \4\ See Letter from Jeffery P. Burns, Associate General Counsel, 
Amex, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated September 9, 2004 (``Amendment No. 
1''). In Amendment No. 1, the Amex amended the proposed rule text to 
reflect a technical change.
    \5\ Securities Exchange Act Release No. 50394 (September 16, 
2004), 69 FR 57110 (SR-Amex-2004-63).
---------------------------------------------------------------------------

    No comments were received on the proposed rule change. This order 
approves the proposed rule change, as amended.

II. Description of the Proposals

    The purpose of the proposed rule change is to amend the definitions 
of FCQS and FPQS provided in Amex Rule 940(b) to conform them to the 
definitions provided in the Linkage Plan, as amended by Joint Amendment 
No. 13.\6\ While the proposed rule change would maintain a general 
requirement in Amex Rule 940(b) that the FCQS and FPQS be at least 10 
contracts, that requirement would not apply if, pursuant to its rules, 
the Exchange were disseminating a quotation of fewer than 10 contracts. 
In that case, the Amex could establish a FCQS or FPQS equal to its 
disseminated size, or ``natural size.''
---------------------------------------------------------------------------

    \6\ See Joint Amendment No. 13, supra note 3.
---------------------------------------------------------------------------

    Under the proposed rule change, as with Linkage orders today, if an 
order is of a size eligible for automatic execution, the Amex (as the 
receiving options exchange) must provide an automatic execution of the 
Linkage order. If this is not the case (for example, the Amex's 
automatic execution system is not engaged), the Exchange may allow the 
order to drop to manual handling. However, the Amex still must provide 
a manual execution for at least the FCQS or FPQS, as appropriate (in 
this case, the size of its disseminated quotation of less than 10 
contracts).

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\7\ In particular, the Commission finds that the 
proposal, as amended, is consistent with the provisions of Section 
6(b)(5) of the Act,\8\ which requires, among other things, that a 
national securities exchange's rules be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and to perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \7\ In approving these proposals, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission notes that the Amex adopted the current definitions 
of FCQS and FPQS, which impose a ``10-up'' requirement, at a time when 
it had rules requiring that the minimum size disseminated with a 
quotation be for at least 10 contracts. Consequently, if the Amex 
received a customer limit order for fewer than 10 contracts, the 
Exchange would disseminate the price of the customer limit order with a 
size of 10 contracts and the specialist or the trading crowd would be 
responsible to make up the difference. Since implementation of the 
Linkage Plan, the Amex has amended Exchange Rule 958A to permit the 
dissemination of the ``natural size'' of customer limit orders that are 
of a size of less than 10 contracts.\9\ The Commission believes that 
approval of the proposed rule change will permit Amex to conform its 
rules relating to Linkage orders to Exchange rules that apply to non-
Linkage orders and will allow the Amex to disseminate a customer limit 
order's ``natural size,'' which should provide greater transparency to 
investors and the marketplace, and better reflect the true state of 
liquidity in the marketplace.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 48957 (December 18, 
2003), 68 FR 75294 (December 30, 2003) (SR-Amex-2003-24).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the

[[Page 63418]]

proposed rule change (SR-Amex-2004-63), as amended, is approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. E4-2920 Filed 10-29-04; 8:45 am]
BILLING CODE 8010-01-P