[Federal Register Volume 69, Number 244 (Tuesday, December 21, 2004)]
[Notices]
[Pages 76503-76506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27835]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50843; File No. SR-Amex-2004-91]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange 
LLC Providing $5 Quotation Spread Parameters for Quotations Submitted 
Electronically to ANTE and Correcting an Inaccurate Paragraph 
Designation

December 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 November 29, 2004, the American Stock Exchange

[[Page 76504]]

(``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 Exchange. The Amex 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 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 Amex proposes to amend Amex Rule 958-ANTE to provide for quote 
spread parameters of up to $5 for quotations that are submitted 
electronically on the ANTE system and to correct the incorrect 
paragraph designation of Amex Rule 950-ANTE(e)(v). The proposed rule 
text is below. Italics indicate text to be added. [Brackets] indicate 
text to be deleted.
* * * * *
Options Transactions of Registered Options Traders
    No registered options trader shall initiate an Exchange option 
transaction on the Floor and through the facilities of the Exchange for 
any account in which he has an interest except in accordance with 
following provisions:
    (a)-(b) No change.
    (c) With respect to each class of options as to which he is 
assigned by the Exchange, a registered options trader, whenever he 
participates in the trading of an options class in other than a floor 
brokerage capacity, or is called upon by a Floor Official or a floor 
broker acting in an agency capacity, is required to make competitive 
bids and offers as reasonably necessary to contribute to the 
maintenance of a fair and orderly market and shall engage, to a 
reasonable degree under the existing circumstances, in dealings for his 
own account when there exists a lack of price continuity, a temporary 
disparity between the supply of and demand for option contracts of a 
particular series, or a temporary distortion of the price relationships 
between option contracts of the same class. Without limiting the 
foregoing, a registered options trader is expected to perform the 
following activities in the course of maintaining a fair and orderly 
market:
    (i) If the underlying security is a stock or Exchange-Traded Fund 
Share, options on classes trading on the ANTE system may be quoted 
electronically with a difference not to exceed $5 between the bid and 
offer regardless of the price of the bid. Provided, however, that the 
$5 quote widths shall only apply following the opening rotation in each 
security and shall exclude quotes given in open outcry in ANTE classes, 
during which times the quote spreads must comply with the following: 
bidding and offering so as to create differences of no more than $0.25 
between the bid and the offer for each option contract for which the 
prevailing bid is less than $2, no more than $0.40 where the prevailing 
bid is $2 but does not exceed $5, no more than $0.50 where the 
prevailing bid is more than $5 but does not exceed $10, no more than 
$0.80 where the prevailing bid is more than $10 but does not exceed 
$20, and no more than $1 where the last prevailing bid is more than 
$20. In the event the bid/ask differential in the underlying security 
is greater than the bid/ask differential set forth herein, the 
permissible price differential for any in-the-money option series may 
be identical to those in the underlying security market.
    If the underlying security is a Treasury bill or certificate of 
deposit, bidding and offering so as to create differences in premium 
quotations of no more than 0.06 between the bid and the offer for each 
option contract for which the last preceding transaction price was 0.12 
or less, no more than 0.12 where the last preceding transaction price 
was more than 0.12 but did not exceed 1.20, and no more than 0.16 where 
the last preceding transaction price was more than 1.20; and
    If the underlying security is a Treasury bond or Treasury note, 
bidding and offering so as to create differences of no more than \1/8\% 
of the principal amount of the underlying security between the bid and 
the offer for each option contract for which the last preceding 
transaction price was \1/4\% or less, no more than \1/4\% where the 
last preceding transaction price was more than \1/4\% but did not 
exceed 4%, and no more than \3/8\% where the last preceding transaction 
price was more than 4%;
    Provided that the Exchange may establish differences other than the 
above for one or more series or classes of options.
    (ii) No change.
    (d)-(i) No change.
ANTE Rules of General Applicability
    (a)-(d) No Change.
    (e) The types of orders specified in Rule 131 and the following 
additional types of orders shall be applicable to Exchange option 
transactions:
    (i)-(vi) No Change.
    (e)[(v)](vii) 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 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
    Amex Rule 958-ANTE currently contains maximum spread parameters 
(the difference between the quoted bid and offer) applicable to 
specialists' and registered options traders' quotations in options. 
Specifically, Amex Rule 958-ANTE requires that the specialists and 
registered options traders bid and offer to create differences of no 
more than $0.25 between the bid and the offer for each option contract 
for which the prevailing bid is less than $2, no more than $0.40 where 
the prevailing bid is $2 but does not exceed $5, no more than $0.50 
where the prevailing bid is more than $5 but does not exceed $10, no 
more than $0.80 where the prevailing bid is more than $10 but does not 
exceed $20, and no more than $1 where the last prevailing bid is more 
than $20. The rule further provides that in the event that the bid/ask 
differential in the underlying security is greater than these bid/ask 
differential, the permissible

[[Page 76505]]

price differential for any in-the-money option series may be identical 
to those in the underlying security market.
    The primary purpose of the quote spread requirements is to help to 
maintain narrow spreads in options. The Amex believes that these 
requirements can have the unintended consequence of requiring 
specialists and registered options traders to quote at prices that are 
unnecessarily narrow, thereby exposing them to great risk if markets 
move quickly.
    The Amex proposes to amend Amex Rule 958-ANTE to permit option 
quote spread parameters of up to $5, regardless of the price of the 
bid, on quotes that are submitted electronically on the ANTE system. 
The $5 quote width shall apply only to classes trading on the ANTE 
system and only following the opening rotation. Additionally, in open 
outcry, specialists and registered options traders in those same 
classes would be required to give verbal quotes that comply with the 
legal width requirements established in Amex Rule 958-ANTE(c)(i) and 
set forth to specifically govern the above-mentioned exceptions to the 
proposed $5 quote spread provision.
    The Amex notes that in open outcry, when a floor broker requests a 
market, specialists and registered options traders have the ability to 
evaluate all pricing information publicly available prior to responding 
with a quote. Moreover, a specialist or registered options trader 
typically responds with one quote at a time, which substantially 
lessens the likelihood of multiple executions across different series. 
The ability to evaluate pricing information prior to giving a verbal 
quote is not a luxury that a specialist or registered options trader 
enjoys on the electronic side, where the specialist or registered 
options trader could execute numerous transactions before having the 
ability to adjust his or her quotes.
    It is the Amex's position that the competitive market making 
structure of ANTE and the existence of vigorous inter-market 
competition provide strong incentives for market participants to quote 
competitively and enter quotes and orders that improve the price and 
depth of the market. The Amex notes that ANTE allows market makers to 
quote independently of the specialist, such that the Amex Best Bid and 
Offer is selected from an array of competitive bids and offers, rather 
than merely being composed of the specialist's bid and offer. The Amex 
believes that the ability of market makers to quote independently 
eradicates the need for the maximum spread parameters that currently 
apply.
    Additionally, the Amex proposes amend Amex Rule 950-ANTE to correct 
an incorrect paragraph designation. On September 23, 2004, the Exchange 
submitted a proposal amending Amex Rules 950 and 950-ANTE to allow 
ratio orders, with certain permissible ratio limits, to be executed 
through the Amex. The proposal added paragraphs defining ``Ratio 
Orders'' to both Amex Rules 950 and 950-ANTE. Both paragraphs were 
numbered (e)(v), even though the Exchange already had a rule numbered 
Amex Rule 950-ANTE(e)(v). Unfortunately, the Amex did not become aware 
of this inconsistency until after the notice for the proposal was 
issued.\5\ Accordingly, the Amex seeks to correct the paragraph 
designation of the definition of ``Ratio Orders'' in Amex Rule 950-ANTE 
by renumbering it from paragraph (e)(v) to paragraph (e)(vii).
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    \5\ See Release No. 34-50525 (October 13, 2004), 69 FR 61875 
(October 21, 2004), (notice of filing and immediate effectiveness of 
File No. SR-Amex-2004-77).
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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 perfect the mechanisms of a free and open market and the 
national market system, protect investors and the public interest, and 
promote just and equitable principles of trade.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
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 Exchange has designated the proposed rule change as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\8\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\9\ Consequently, 
because the foregoing 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 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 \10\ and Rule 19b-
4(f)(6) thereunder.\11\ 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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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay specified in Rule 19b-
4(f)(6). In this regard, the Amex notes that the proposed spread 
parameters are substantially similar to a Chicago Board Options 
Exchange, Inc. (``CBOE'') rule that the Commission approved.\12\ In 
addition, the Amex believes that the renumbering of the incorrectly 
numbered paragraph (e)(v) in Amex Rule 950-ANTE is a change in 
formatting rather than a substantive change and, as such, meets the 
requirements of Rule 19b-4(f)(6). The Amex believes that a waiver of 
the 30-day pre-operative delay will allow the Amex to remain 
competitive with the CBOE and allow expeditious and accurate 
publication of the Amex's rules.
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    \12\ See Securities Exchange Act Release No. 50079 (July 26, 
2004), 69 FR 45858 (July 30, 2004) (order approving File No. SR-
CBOE-2004-44) (``CBOE Order'').
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ The Commission notes that this proposal is similar to 
pilot programs adopted by the International Securities Exchange, Inc. 
(``ISE'') and the CBOE that the Commission approved on a permanent

[[Page 76506]]

basis,\14\ and to rule changes adopted by the Pacific Exchange, Inc. 
(``PCX''), the Boston Stock Exchange, Inc. (``BSE''), and the 
Philadelphia Stock Exchange, Inc. (``Phlx'') that were effective on 
filing.\15\ Neither the ISE's proposal nor the CBOE's proposal received 
any comments. The Commission believes that the Amex's proposal raises 
no new issues or regulatory concerns that the Commission did not 
consider in approving the ISE's and the CBOE's proposals. In addition, 
the Commission believes that allowing the Amex to implement $5 
quotation spread parameters like those adopted by ISE, CBOE, PCX, BSE, 
and Phlx will help the Amex to compete with those exchanges. The 
Commission also believes that revising the paragraph numbering in Amex 
Rule 950-ANTE will ensure that the Amex's rules are numbered correctly. 
For these reasons, the Commission designates that the proposal become 
operative immediately.
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    \13\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \14\ See Securities Exchange Act Release No. 50015 (July 14, 
2004), 69 FR 43872 (July 22, 2004) (order approving File No. SR-ISE 
2003-22); and CBOE Order, supra note 12.
    \15\ See Securities Exchange Act Release Nos. 50538 (October 14, 
2004), 69 FR 62105 (October 22, 2004) (notice of filing and 
immediate effectiveness of File No. SR-PCX-2004-89); 50669 (November 
16, 2004), 69 FR 67968 (November 22, 2004) (notice of filing and 
immediate effectiveness of File No. SR-BSE-2004-47); and 50728 
(November 23, 2004), 69 FR 69982 (December 1, 2004) (notice of 
filing and immediate effectiveness of File No. SR-Phlx-2004-74).
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    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 the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further 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-2004-91 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-2004-91. 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-2004-91 and should be submitted on or before January 11, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-27835 Filed 12-20-04; 8:45 am]
BILLING CODE 8010-01-P