[Federal Register Volume 70, Number 5 (Friday, January 7, 2005)]
[Notices]
[Pages 1481-1483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-20]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50953; File No. SR-Amex-2004-104]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC Relating to Regulation SHO

December 30, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 13, 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 and 
II below, which items have been prepared by the Exchange. On December 
22, 2004, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Amex has filed the proposal as a ``non-controversial'' 
rule change pursuant to section 19(b)(3)(A) of the Act \4\ and Rule 
19b-4(f)(6) thereunder,\5\ 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\ See Amendment No. 1 to the proposed rule change (December 
22, 2004). Amendment No. 1 replaced the Exchange's original filing 
in its entirety.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6). For the purposes of determining the 
effective date and calculating the sixty-day period within which the 
Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on December 22, 2004, the date that the Exchange filed 
Amendment No. 1 to the proposed rule change. See 15 U.S.C. 
78s(b)(3)(C).
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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 Rules 7, 27, 108, 111, 118, 205, 208, 
590, 783, 784 and 957 and eliminate obsolete Rules 792, 794 and 795 to 
conform its rules to the requirements of Regulation SHO \6\ under the 
Act. The text of the proposed rule change is available for viewing at 
the places specified in item IV below.
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    \6\ See Securities Exchange Act Release No. 50103 (July 28, 
2004), 69 FR 48008 (August 6, 2004) (the ``Adopting Release''), and 
accompanying orders: Securities Exchange Act Release No. 50104 (July 
28, 2004), 69 FR 48032 (August 6, 2004) (the ``Pilot Order''), and 
Securities Exchange Act Release No. 50747 (November 29, 2004), 69 FR 
70480 (December 6, 2004) (the ``Second Pilot Order''). The Adopting 
Release, the Pilot Order and the Second Pilot Order are hereinafter 
collectively referred to as ``Regulation SHO.''
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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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has adopted Regulation SHO under the Act, thereby 
establishing new requirements relating to short sales.\7\ Among other 
things, Regulation SHO (i) requires broker-dealers to mark sales of all 
equity securities as ``long,'' ``short'' or ``short exempt,'' 
specifying the standards for each, (ii) provides for the establishment 
of a pilot program under which short sales in specific securities will 
take

[[Page 1482]]

place without application of the ``tick'' test or any other price test, 
(iii) requires short sellers in all equity securities to locate 
securities to borrow before selling, and (iv) imposes additional 
delivery requirements on broker-dealers for securities in which a 
substantial number of failures to deliver have occurred.\8\ The 
Commission has requested each SRO to review its rules and submit rule 
filings where necessary to conform its rules to the requirements of 
Regulation SHO. In order to accomplish this objective, the Exchange 
proposes to amend the following rules. The Exchange believes that these 
proposed rule changes are non-controversial and, in a number of 
instances, simply consist of incorporating by reference Regulation SHO 
or certain of its provisions or adding appropriate provisions to 
address the new ``short exempt'' order marking requirement. The 
operative date of the proposed rule change will be January 3, 2005, 
which is the operative date of the applicable provisions of Regulation 
SHO.
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    \7\ See the Adopting Release.
    \8\ Id.
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Rule 7. Short Sales
    Rule 7 is the Exchange's primary rule that applies an Exchange-
based ``tick'' test to short sales effected on the Exchange. The 
Exchange proposes to amend Rule 7 to incorporate by reference all 
appropriate exceptions and exemptions provided by the Commission, 
including those under Regulation SHO and any Commission orders issued 
pursuant thereto, such as the exemption for Exchange-listed securities 
designated as part of the Regulation SHO pilot program.\9\ Commentary 
.01 to Rule 7 currently reproduces the complete text of the 
Commission's short sale regulation, Rule 10a-1,\10\ for the convenience 
of members and member organizations. Rather than add the new text of 
Regulation SHO to this already lengthy Commentary, the Exchange 
proposes simply to reference Rule 10a-1 and Regulation SHO (including 
any Commission orders issued pursuant to Regulation SHO) in Commentary 
.01 and take this opportunity to condense the Rule by deleting the text 
of Rule 10a-1. The Exchange believes this is appropriate, given the 
opportunities that exist today for members to access the text of the 
Commission's rules electronically if necessary. Including the text of 
the Commission's regulation in the Exchange's Commentary is unusual, 
and it has the additional disadvantage of requiring the Exchange to 
submit a rule filing each time there is a change in the Commission's 
rule.
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    \9\ See the Pilot Order and the Second Pilot Order.
    \10\ See 17 CFR 240.10a-1.
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Rule 27. Allocations Committee
    Paragraph (f) of Rule 27 specifies situations under which the 
Exchange's Allocation Committee shall be convened to reallocate 
securities from one specialist to another. Paragraphs (g) and (h) of 
the Rule outline the procedures for the reallocation. Rule 203(b)(3) of 
Regulation SHO imposes a buy-in requirement with respect to certain 
``threshold securities'' that have extended delivery failures, and 
there is also a pre-borrowing requirement for additional short sales of 
a ``threshold security'' if the buy-in is not completed within the time 
period specified in Regulation SHO.\11\ These provisions of Regulation 
SHO do not provide for a specialist/market maker exception.\12\ 
Consequently, the Exchange proposes to modify paragraphs (f) and (h) of 
Rule 27 to provide for a reallocation in the event that a specialist in 
a stock, ETF or other security becomes subject to a pre-borrowing 
requirement on short sales with respect to one of its specialty 
securities or, in the case of an options specialist, with respect to 
the underlying security, and for the restoration of the security to the 
original specialist if that specialist is no longer subject to a pre-
borrowing requirement.
Rule 108. Priority and Parity at Openings
Rule 111. Commentary .04. Restrictions on Registered Traders
Rule 118. Trading in Nasdaq National Market Securities
Rule 205. Manner of Executing Odd-Lot Orders
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    \11\ See the Adopting Release.
    \12\ Id.
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Rule 208. Bunching of Odd-Lot Orders
Rule 590. Part 1 General Rule Violations
Rule 957. Accounts, Orders and Records of Registered Traders, 
Specialists and Associated Persons
    The foregoing rules all require very minor and obvious changes to 
conform to Regulation SHO. Several of these changes involve the 
addition of provisions related to ``short exempt'' orders. In the case 
of Rule 118, a provision involving odd-lot orders in Nasdaq National 
Market securities that allows such orders to be marked ``short'' is 
being revised because it would directly conflict with the provision of 
Regulation SHO requiring orders that are exempt from the ``tick'' test 
to be marked ``short exempt.'' \13\ In the case of Rule 957, a 
reference to Rule 200 of Regulation SHO will be substituted for a 
reference to Rule 3b-3 under the Act (which is being eliminated).
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    \13\ Id.
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Rule 783. Normal Buy-Ins
Rule 784. Mandatory Closing of Fails
    Rule 783 provides the procedures for normal buy-ins of securities 
traded on the Exchange, and Rule 784 provides the procedures for the 
mandatory closing of fails for Exchange-traded securities. The time 
periods and certain other provisions in these two Rules (such as the 
ability of a Floor Official to defer the execution of a normal buy-in 
under Rule 783 and the ability of the Exchange to temporarily suspend 
the mandatory closing in Rule 784 under unusual circumstances) are 
incompatible with the buy-in requirements for ``threshold securities'' 
under Regulation SHO. Consequently, the Exchange proposes to 
incorporate by reference the provisions of Regulation SHO into these 
two Rules where appropriate, making it explicit that Regulation SHO 
governs in the event of a conflict.
Rule 792. Securities Transferring Out of Town
Rule 794. ``Buy-Ins'' on Securities Located Out of Town
Rule 795. ``Buy-Ins'' Where Securities in Transfer
    Rules 792, 794 and 795 all contain buy-in provisions that, as with 
Rules 783 and 784, may be in conflict with the buy-in provisions of 
Regulation SHO under certain circumstances. However, rather than modify 
each of these rules through incorporation by reference of the 
provisions of Regulation SHO, as proposed above for Rules 783 and 784, 
the Exchange has determined that these three rules are obsolete and no 
longer in use, and we instead propose that these rules be eliminated in 
their entirety.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\14\ in general and furthers the objectives of Section 6(b)(5) of the 
Act \15\ in particular in that it is designed to prevent fraudulent and 
manipulative acts and practices and to promote just and equitable 
principles of trade.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).

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[[Page 1483]]

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 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 foregoing rule change, as amended, has been filed by the 
Exchange pursuant to section 19(b)(3)(A) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\ The Exchange requests 
that the Commission waive the 5-day notice and 30-day pre-operative 
requirements contained in Rule 19b-4(f)(6)(iii) \18\ because the 
proposed rule change does not (i) significantly affect the protection 
of investors or the public interest; (ii) impose any significant burden 
on competition; or (iii) become operative for 30 days from the date on 
which it was filed, or such shorter time frame as the Commission may 
designate. The Exchange believes that good cause exists to grant such 
waivers because of the importance of short sale regulation to the 
protection of investors. The Exchange will implement the proposed rule 
change immediately so that they will be in effect on the operative date 
of the applicable provisions of Regulation SHO.
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the 5-day notice and 30-day 
pre-operative delay is consistent with the protection of investors and 
the public interest. The Commission notes that proposed rule change 
being made herein simply conforms the Exchange's rules to the 
requirements of Regulation SHO under the Act. No new rules, policies or 
procedures are being proposed other than as required by Regulation SHO. 
The Commission believes that accelerating the operative date of the 
proposed rule change does not raise any new regulatory issues, 
significantly affect the protection of investors or the public 
interest, or impose any significant burden on competition. For these 
reasons, the Commission designates the proposed rule change as 
effective and operative immediately.
    At any time within 60 days of the filing of such proposed rule 
change pursuant to section 19(b)(3)(A) of the Act, 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-2004-104 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-2004-104. 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 such 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-2004-104 and should be submitted on or before January 28, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-20 Filed 1-6-05; 8:45 am]
BILLING CODE 8010-01-P