[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