[Federal Register Volume 70, Number 18 (Friday, January 28, 2005)]
[Notices]
[Pages 4163-4165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-317]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51062; File No. SR-Amex-00-27]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendments No. 1, 2, 3, 4, 5, and 6 Thereto, and Notice of 
Filing and Order Granting Accelerated Approval to Amendments No. 7 and 
8 Thereto by the American Stock Exchange LLC To Require the Immediate 
Display of Customer Options Limit Orders

January 21, 2005.

I. Introduction

    On May 10, 2000, 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 amend Amex Rules 958A and 958A-ANTE to require 
the immediate display of customer options limit orders. Amex filed 
amendments to the proposed rule change on March 13,

[[Page 4164]]

2002,\3\ April 3, 2003,\4\ July 15, 2003,\5\ August 19, 2003,\6\ 
October 22, 2003,\7\ and August 12, 2004.\8\ The proposed rule change, 
as amended by Amendments No. 1 through 6, was published for comment in 
the Federal Register on August 19, 2004.\9\ No comments were received 
regarding the amended proposal. Amex filed amendments to the proposed 
rule change on December 16, 2004,\10\ and January 6, 2005.\11\ This 
order approves the proposed rule change and Amendments No. 1 through 6 
and grants accelerated approval to and solicits comment on Amendments 
No. 7 and 8.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 2 17 CFR 240.19b-4
    \3\ On March 13, 2002, Amex filed a Form 19b-4, which replaced 
the original filing in its entirety (``Amendment No. 1'').
    \4\ On April 3, 2003, Amex filed a Form 19b-4, which replaced 
the original filing and Amendment No. 1 in their entirety 
(``Amendment No. 2'').
    \5\ On July 15, 2003, Amex filed a Form 19b-4, which replaced 
the original filing and all previous amendments in their entirety 
(``Amendment No. 3'').
    \6\ On August 19, 2003, Amex filed a Form 19b-4, which replaced 
the original filing and all previous amendments in their entirety 
(``Amendment No. 4'').
    \7\ See letter from Claire P. McGrath, Senior Vice President and 
Deputy General Counsel, Amex, to Nancy Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated October 21, 2003 
(``Amendment No. 5'').
    \8\ On August 12, 2004, Amex filed a Form 19b-4, which replaced 
the original filing and all previous amendments in their entirety 
(``Amendment No. 6'').
    \9\ See Securities Exchange Act Release No. 50188 (August 12, 
2004), 69 FR 51495 (``Notice of the Proposal'').
    \10\ See Amendment No. 7, dated December 16, 2004, submitted by 
Clare P. McGrath, Senior Vice President and Deputy General Counsel, 
Amex (``Amendment No. 7''). In Amendment No. 7, Amex proposes a 
minor modification to the exemptions to the Display Obligation.
    \11\ See Amendment No. 8, dated January 6, 2005, submitted by 
Clare P. McGrath, Senior Vice President and Deputy General Counsel, 
Amex (``Amendment No. 8''). In Amendment No. 8, Amex proposes a 
minor modification to the exemptions to the Display Obligation.
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II. Description of Proposed Rule

    Amex proposes to amend Amex Rules 958A and 958A-ANTE to require the 
immediate display of customer options limit orders\12\ that better the 
current market quotation (``Display Obligation''). Under the proposal, 
Amex specialists would be required to display immediately upon receipt 
the price and size of each customer options limit order held by the 
specialist that is at a price or size that would improve the displayed 
bid or offer in the option that is the subject of the limit order. Amex 
proposes to define ``immediately upon receipt'' to mean, under normal 
market conditions, as soon as practicable but no later than 30 seconds 
after receipt by the specialist.\13\
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    \12\ Amex proposes to define the term ``customer options limit 
order'' as ``an order to buy or sell an option at a specified price 
and size that is for the account of a customer as defined in 
paragraph (a)(26) of Rule 11Ac1-1 under the Securities Exchange Act 
of 1934.'' Proposed Amex Rules 958A(e)(3) and 958A-ANTE(e)(3).
    \13\ In its filing, Amex states that ``receipt'' means the time 
the order enters the Amex Order File system (``AOF''), which is 
consistent with its surveillance standard for other rules, such as 
the firm quote rule, wherein the Exchange measures compliance with 
the rule using the time the order enters the AOF. This means that 
the time of receipt is when the order is received in the AOF, even 
if the specialist does not happen to see it for several seconds.
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    Amex proposes to exempt, or partially exempt, certain orders from 
the Display Obligation. Specifically, Amex proposes to exempt orders 
executed upon receipt as well as any order where the customer who 
placed it requests that the order not be displayed if, upon receipt of 
the order, the specialist announces to the trading crowd the 
information about the order that would be displayed absent the 
customer's request. Amex further proposes that orders the terms of 
which are delivered by the specialist to another exchange for execution 
be exempted from the Display Obligation. Exempt order types would also 
include all or none orders, at the close orders, fill or kill orders, 
immediate or cancel orders, stop orders, stop limit orders, and complex 
orders (i.e., spread, straddle, switch and combination orders), orders 
received prior to or during the opening trading rotation whether at the 
beginning of the trading day or after a trading halt (although once the 
trading rotation ends such orders would then be subject to the Display 
Obligation), and orders of more than 100 contracts, unless the customer 
placing such order requests that it be displayed.\14\ Amex also 
proposes to amend Amex Rule 590 to include violations of the Exchange's 
limit order display rule in the Minor Rule Violation Fine System.
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    \14\ For a complete discussion of these exempt order types, see 
Notice of the Proposal, supra note 3.
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III. Commission Findings and Order Granting Approval

    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 
\15\ and, in particular, the requirements of section 6(b)(5) of the 
Act,\16\ which requires, among other things, that the rules of an 
exchange be 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.
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    \15\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Commission believes that the display of customer 
options limit orders that improve the price or size of the best 
disseminated Amex quote should promote transparency and enhance the 
quality of executions of customer options limit orders on Amex. The 
proposed amendments to Amex Rules 958A and 958A-ANTE introduce 
requirements for customer limit order display that are comparable to 
the requirements of the Commission's Display Rule, Rule 11Ac1-4 under 
the Act,\17\ which is applicable to customer limit orders received in 
the equity market. In addition, the Commission believes that the 
Exchange's proposal to exempt all or none, fill or kill, immediate or 
cancel, and large sized orders from the Display Obligation is 
reasonable since these order types are either identical or 
substantially similar to order types exempt from the Commission's 
Display Rule.
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    \17\ 17 CFR 240.11Ac1-4.
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    The Commission also believes that it is consistent with the Act for 
Amex to exempt stop orders and stop limit orders from the Display 
Obligation under its rules. These orders are contingent orders that are 
subject to a particular triggering event and, thus, are not available 
for execution until the triggering event occurs. A stop order becomes a 
market order when triggered and thus is not subject to the Display 
Obligation because such an order would then be immediately executable. 
A stop limit order becomes a limit order when the triggering event 
occurs. This limit order would be subject to the Display Obligation.
    At the close orders may not be represented, displayed or booked 
until as near as possible to the close of trading, and, therefore, the 
Commission believes it is reasonable to exempt such orders from the 
Display Obligation. Spread, combination, straddle, stock-option, and 
one-cancels-the-other orders are complex orders with more than one 
component and, thus, the Commission believes, are not suitable for 
display.
    During a trading rotation, Amex systems attempt to set an opening 
price for the series. Until that opening price is established, there is 
no disseminated market. Therefore, the Commission believes it is 
reasonable to exempt

[[Page 4165]]

orders received during a trading rotation from the Display Obligation. 
The Commission notes, however, that once the trading rotation ends, any 
orders not executed would then be subject to the Display Obligation.
    Finally, customer orders the terms of which are delivered by the 
specialist to another exchange for execution are exempt from the 
Exchange's Display Obligation. The Commission believes it is reasonable 
to exempt such orders since they are subject to execution upon receipt 
at the other options exchange. Moreover, the Exchange represents that 
if the order delivered to the other options exchange were canceled, in 
whole or in part, by the other exchange, then the original customer 
order would be subject to the Display Obligation immediately upon 
receipt of the cancellation notice by the Exchange.
    The Commission finds good cause for approving Amendments No. 7 and 
8 to the proposed rule change prior to the thirtieth day after their 
publication in the Federal Register, pursuant to section 19(b)(2) of 
the Act.\18\ Amendments No. 7 and 8 made minor modifications to the 
exemption for customer orders the terms of which are immediately 
delivered to another exchange for execution. Acceleration of Amendments 
No. 7 and 8 will permit the Exchange to implement the proposal in an 
expeditious manner. The Commission, therefore, believes that good cause 
exists, consistent with section 6(b)(5) \19\ and section 19(b) \20\ of 
the Act, to accelerate approval of Amendments No. 7 and 8.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ 15 U.S.C. 78f(b)(5).
    \20\ 15 U.S.C. 78s(b).
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IV. Solicitation of Comments Concerning Amendments No. 7 and 8

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendments No. 7 and 8, including whether they are 
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-00-27 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-00-27. 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 such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-00-27 and should be submitted on or before February 
18, 2005.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\21\ that the proposed rule change (File No. SR-Amex-00-27), as 
amended, be approved, and that Amendments No. 7 and 8 thereto be 
approved on an accelerated basis.
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    \21\ Id.
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-317 Filed 1-27-05; 8:45 am]
BILLING CODE 8010-01-P