[Federal Register Volume 69, Number 218 (Friday, November 12, 2004)]
[Notices]
[Pages 65478-65481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3149]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50637; File No. SR-Amex-2004-86]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Trading of Exchange Traded Fund Shares Pursuant to 
Unlisted Trading Privileges

November 5, 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 October 26, 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.

[[Page 65479]]

 The Exchange filed the proposal pursuant to Section 19(b)(3)(A) of 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, as 
amended, 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 Rules 1, 118, 131 and 205 to 
accommodate the trading of Exchange Traded Fund Shares pursuant to the 
Nasdaq UTP Plan. Proposed new language is in italics; proposed 
deletions are in [brackets].
* * * * *

Rule 1. Hours of Business

    No change.
    * * * Commentary
    .01 through .04 No change.
    .05 The hours of business for a security traded on the Exchange 
pursuant to unlisted trading privileges shall generally be the same as 
the hours during which the security is traded in the primary market for 
such security. Notwithstanding the foregoing, in accordance with Rules 
1000 and 1000A, Portfolio Depositary Receipts and Index Fund Shares 
trading on the Exchange pursuant to unlisted trading privileges may 
trade until 4:00 p.m. or 4:15 p.m. as specified by the Exchange.
* * * * *

Rule 118. Trading in Nasdaq National Market Securities

    (a) through (i) No change.
    (j) Odd-Lot Orders--Odd lot orders in Nasdaq National Market 
securities, except for Portfolio Depositary Receipts or Index Fund 
Shares (collectively known as Exchange Traded Funds), shall be executed 
in the following manner:
    (i) through (vi) No change.
    (k) through (l) No change.
    (m) Market-on-Close and Limit-on-Close Orders--The following 
procedures apply to market-on-close (MOC) and limit-on-close (LOC) 
orders in Nasdaq National Market securities. Notwithstanding the 
foregoing, the following procedures will not apply to any Nasdaq 
National Market security the pricing of which is based on another 
security or an index (e.g., Exchange Traded Funds).
    (i) through (vi) No change.
    (n) through (q) No change.
    * * * Commentary
    .01 The following rules refer to trading in Nasdaq National Market 
securities and should be consulted by members and member organizations 
trading Nasdaq National Market securities on the Floor: Rule 1 
(Commentary .05); Rule 3; Rule 7 (Commentary .02); Rule 24 (b); Rule 
109 (Commentary .02); Rule 115 (Commentary .01); Rule 131 
(Commentar[y]ies .02 and .03); Rule 156 (Commentary .01); Rule 170 
(Commentary .11); Rule 175; Rule 190 (Commentary .06); and Rule 205 
(Commentary .05).
* * * * *

Rule 131. Types of Orders

    (a) through (t) No change.
    * * * Commentary
    .01 through .02 No change.
    .03 Paragraph (a) ``Market at 4:00 p.m.'' orders. An order in 
Portfolio Depositary Receipts or Index Fund Shares that trade on the 
Exchange until 4:15 p.m. (including those Portfolio Depositary Receipts 
and Index Fund Shares trading pursuant to unlisted trading privileges) 
may be designated as ``market at 4:00 p.m.'' to denote that it is a 
market order which is to be executed at or as close as practicable to 
the close of the regular equity trading session on the exchange 
(normally 4:00p.m. Eastern Time).
    (b) through (c) No change.
* * * * *

Rule 205. Manner of Executing Odd-Lot Orders

    As used in this rule, except where otherwise provided or where the 
context otherwise requires, the term ``effective transaction'' refers 
to the round lot transaction on which the execution of the odd-lot 
order is to be based. Unless otherwise provided, references to round 
lot transactions are to transactions regular way.
    No differential may be charged on any odd-lot order transactions, 
for either market or limit orders, except as otherwise specified in 
Section C(2) below.
    Odd-lot orders shall be executed in the following manner:
    A. through C. No change.
    * * * Commentary
    .01 through .04 No change.
    .05 Odd-lot orders in Nasdaq National Market securities shall be 
executed in accordance with Rule 118(j). Notwithstanding the foregoing, 
odd-lot orders in Nasdaq National Market securities that are Portfolio 
Depositary Receipts or Index Fund Shares shall be executed in 
accordance with the foregoing rule and commentary and not in accordance 
with Rule 118(j).
* * * * *

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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On August 2, 2002, the Exchange received Commission approval for 
the adoption of Rule 118 and the amendment of various other rules to 
provide for the trading of Nasdaq Stock Market, Inc (``Nasdaq'') 
National Market (``NNM'') securities pursuant to unlisted trading 
privileges (``UTP'').\5\ The Exchange has been trading NNM securities 
since August 2002 in accordance with these rules and with provisions of 
the Joint Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq-listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges basis (the ``Nasdaq UTP Plan''). Recently, 
the Exchange has considered trading pursuant to the UTP Plan certain 
Portfolio Depositary Receipts and Index Fund Shares (collectively known 
as ``Exchange Traded Fund Shares'' or ``ETFs'') that are or will be 
listed as Nasdaq NNM securities. In order to accommodate trading of 
such ETFs, the Exchange proposes to amend the following rules. It 
should be noted however that the substance of these rules would not be 
changed. The rule amendments would only clarify whether or not specific 
rules apply to ETFs trading on the Amex pursuant to the Nasdaq UTP 
Plan.
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    \5\ See Securities Exchange Act Release No. 46305 (August 2, 
2002), 67 FR 51609 (August 8, 2002) (SR-Amex-01-106).
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Rule 1. Hours of Business

    Commentary .05 to Rule 1 provides that the hours of business for 
securities

[[Page 65480]]

traded on the Exchange pursuant to UTP shall be the same as the hours 
during which the security is traded in its primary market. Exchange 
Rules 1000 and 1000A currently provide that ETFs may trade until 4:15 
p.m. each trading day, which may not coincide with the hours of trading 
in their primary market. Thus, the Exchange proposes to amend 
Commentary .05 to provide that ETFs traded pursuant to UTP may also 
have hours of trading that extend to 4:15 p.m. If the Exchange were to 
determine to trade an ETF listed on Nasdaq past the 4 p.m. closing 
hour, the Exchange is aware of and would make an accommodation for the 
requirement set forth in Section 11(B)(i) of the Nasdaq UTP Plan. 
Section 11(B)(i) requires the use of ``.T'' to designate trades in 
eligible securities occurring after normal market hours.

Rule 118 (j) Odd-Lot Orders

    Currently, the procedures for handling odd-lot orders \6\ are 
different for NNM securities traded pursuant to UTP. Odd-lot procedures 
for equities and ETFs traded on the Exchange are more automated given 
the use of the Odd-lot Holding Tank (``OLHT'') for those products. The 
OLHT allows non-executable limit, stop, and stop limit orders to be 
routed to a ``holding tank'' for accumulation until such time as they 
can be automatically executed. According to the Exchange, use of the 
OLHT has cut down considerably on the number of orders being printed at 
the specialist's post and handled manually. However, the OLHT is not 
currently available for NNM securities trading pursuant to UTP and Rule 
118(j) sets forth different procedures for handling odd-lot orders in 
such securities. The Exchange expects to expand the use of the OLHT to 
NNM securities as soon as necessary systems changes are complete. The 
Exchange had a proposal pending with the Commission to amend Rule 
118(j) once those changes were implemented; \7\ that proposal was 
withdrawn, but the Exchange will re-file it once a firm date for 
completion is established for the necessary systems changes. In the 
meantime, however, the Exchange proposes to amend Rule 118(j) to 
provide that NNM ETFs traded pursuant to UTP would use the OLHT and 
operate under the current rules and procedures for trading odd-lot 
orders in equities and ETFs.\8\ The Exchange believes this would be 
appropriate in order to give consistency to the handling of odd-lot 
orders in ETFs and to provide automated handling of odd-lot orders 
given the large number of orders the Exchange expects to receive for 
these ETFs. In addition, Rule 205, Commentary .05 is proposed to be 
amended to reflect the application of Rule 205 to the trading of NNM 
ETFs.
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    \6\ Odd-lot Orders are orders for less than the normal trading 
unit known as a round lot or 100 shares.
    \7\ See, SR-Amex 2004-01, filed January 6, 2004.
    \8\ See, Exchange Rule 205.
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Rule 118 (m) Market-on-Close and Limit-on-Close Orders

    The Exchange's policy and procedures with respect to market-on-
close and limit-on-close orders is set forth in Rule 131A for 
securities listed on the Exchange and in Rule 118(m) for NNM securities 
traded pursuant to UTP. Rule 131A specifies that its procedures do not 
apply to any security whose price is based on another security or an 
index, which would include ETFs. Thus, the Exchange proposes to amend 
Rule 118(m) to specify that its market-on-close and limit-on-close 
procedures for NNM securities in the UTP program would not apply to 
ETFs or other securities whose price is based upon another security or 
an index.

Rule 131, Commentary .03 Types of Orders

    Rule 131, Commentary .03 currently provides that an order in an ETF 
trading on the Exchange to 4:15 p.m. may be designated as a ``market at 
4 p.m.'' to denote that it is a market order which is to be executed at 
or as close as practicable to the close of the regular equity trading 
session on the Exchange (normally 4 p.m. New York Time). The Exchange 
proposes to amend this provision to reflect that it would include ETFs 
traded pursuant to UTP. Rule 118, Commentary .01 would also be amended 
to reference Commentary .03 to Rule 131.
    The Exchange believes these minor changes to its rules would be 
useful in clarifying the various procedures for trading ETFs pursuant 
to the Nasdaq UTP program. Although Rule 118(b) already applies the 
Exchange's Constitution and Rules to the trading of NNM securities, 
unless the context otherwise requires, the Exchange believes it is 
important for members and the investing public to understand 
specifically where the context requires the use of other exchange rules 
and procedures for the trading of ETFs pursuant to the Nasdaq UTP Plan.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(5)\10\ 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 facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest, and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act,\11\ 
and Rule 19b-4(f)(6) thereunder.\12\ At any time within 60 days of the 
filing of the 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). The Commission notes that the 
Exchange provided written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change at least five business days prior to the date of filing 
of the proposed rule change.
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    The Exchange has requested that the Commission waive the 30-day 
operative delay. The Commission believes that waiving the 30-day 
operative delay is consistent with the protection of

[[Page 65481]]

investors and the public interest because it will allow the Exchange to 
make clarifying changes to existing rules to cover the trading of ETFs 
pursuant to the Nasdaq UTP Plan and to ensure that those changes are 
effective upon implementation of trading of ETFs pursuant to the Nasdaq 
UTP Plan.\13\
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    \13\ For purposes only of waiving the 30-day operative delay of 
the proposed rule change, the Commission considered the proposed 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2004-86 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-2004-86. 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 Room. Copies of the 
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-2004-86 and should be submitted on or before 
December 3, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3149 Filed 11-10-04; 8:45 am]
BILLING CODE 8010-01-P