[Federal Register Volume 70, Number 24 (Monday, February 7, 2005)]
[Notices]
[Pages 6473-6475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-468]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51109; File No. SR-Amex-2005-012]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment No. 1 Thereto Relating to a Revision and Extension of the 
Limitation on Trade Through Liability at the End of the Trading Day 
Pilot Program

January 31, 2005.
    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 January 26, 2005, 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 Amex. On January 28, 
2005, the Amex filed Amendment No. 1 to the proposed rule change.\3\ 
The Exchange 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.\6\ 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\ In Amendment No. 1 the Exchange made certain technical 
corrections to Exhibit 5 to the filing.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
    \6\ The Annex asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend through January 31, 2006 the 
current pilot program that limits an exchange member's trade-through 
liability to twenty-five (25) contracts per Satisfaction Order \7\ for 
the period between five minutes prior to the close of trading in the 
underlying security and the close of trading in the options class (the 
``Pilot Program''). In connection with the extension of the Pilot 
Program, the Exchange also proposes to increase the limit on trade-
through liability at the end of the day from twenty-five (25) to fifty 
(50) contracts.
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    \7\ A ``Satisfaction Order'' is an order sent through the 
Linkage to notify a Participant Exchange of a Trade-Through and to 
seek satisfaction of the liability arising from that Trade-Through. 
See Section 2(16)(c) of the Linkage Plan.
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    The text of the proposed rule change is available on the Amex's Web 
site at http://www.amex.com, at the Exchange's Office of the Secretary, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Amex 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.

[[Page 6474]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

 1. Purpose
    The purpose of this proposed rule change is to extend the Pilot 
Program that limits trade-through liability at the end of the options 
trading day. Under the current Pilot Program, an Exchange member's 
trade-through liability is limited to twenty-five (25) contracts per 
Satisfaction Order received during the period between five (5) minutes 
prior to the close of trading in the underlying security and the close 
of trading in the options class. The Commission approved the Pilot 
Program on January 31, 2003.\8\ The Commission has granted two (2) 
extensions of the Pilot Program, most recently through January 31, 
2005.\9\
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    \8\ See Securities Exchange Act Release No. 47297 (January 31, 
2003), 68 FR 6526 (February 7, 2003) (SR-Amex-2002-84).
    \9\ See Securities Exchange Act Release No. 49868 (June 15, 
2004), 69 FR 35401 (June 24, 2004) (SR-Amex-2004-36).
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    The proposed rule change, amending Amex Rule 942(a)(2)(ii)(B), will 
implement the substance of proposed Joint Amendment No. 14 to the Plan 
for the Purpose of Creating and Operating an Intermarket Option Linkage 
(the ``Linkage Plan'').\10\ Joint Amendment No. 14 will amend Section 
8(c)(ii)(B)(2)(b) of the Linkage Plan on a temporary basis so that the 
Linkage Pilot Program extends through January 31, 2006. In addition, 
Joint Amendment No. 14 also increases the limit on trade-through 
liability at the end of the day from 25 contracts to 50 contracts. 
Accordingly, this proposed rule change will implement the changes 
proposed in Joint Amendment No. 14.
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    \10\ See Amendment No. 14 to the Linkage Plan filed by the 
Exchange on January 28, 2005 in a letter from Jeffrey P. Burns, 
Associate General Counsel, Amex, to Jonathan G, Katz, Secretary, 
Commission, dated January 27, 2005.
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    The option exchanges that are participants in the Linkage Plan 
(``Participants'') are currently considering amendments to the Linkage 
Plan that may make the need for this limitation of liability 
unnecessary. In particular, the amendments would increase the ability 
for members of the Participants to receive automatic execution of P/A 
Orders \11\ and would provide tools to avoid trade-through liability 
generally, including at the end of the trading day. The Exchange 
anticipates that the amendments will be filed with the Commission in 
the near future. In the interim, the Amex believes that an extension of 
the Pilot Program is necessary until the new amendments have been 
filed, approved and implemented. This extension will allow the 
limitation to continue in effect, as amended, while the Commission 
staff and the Participants work on amendments to the Linkage Plan that 
would make this limitation of liability unnecessary.
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    \11\ A Principal Acting as Agent (``P/A'') Order is an order for 
the principal account of a Market Maker that is authorized to 
represent Customer orders, reflecting the terms of a related 
unexecuted Customer order for which the Market Maker is acting as 
agent. See Section 2(16)(a) of the Linkage Plan.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\12\ in general, and furthers the 
objectives of Section 6(b)(5),\13\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, protect investors and the public 
interest. The Exchange believes that the proposed rule change will 
enhance the national market system for options by extending and 
revising the Pilot Program, which limits the Exchange member's trade-
through liability at the end of the trading day.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 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, as 
amended, will impose any burden on competition 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

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)
    \15\ 15 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \16\ 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 five-day pre-filing requirement and the 30-day 
operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate 
the proposed rule change immediately operative.
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    \16\ 17 CFR 240.19b-4(f)(6).
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\17\ By waiving the 
pre-filing requirement and accelerating the operative date, the Pilot 
Program can continue without interruption. The Commission believes that 
allowing the pilot to continue will allow Participants to either gather 
sufficient information to justify the need for the pilot program or 
determine that the exemption from trade-through liability is no longer 
necessary. Increasing the maximum number of contracts to be satisfied 
with respect to Satisfaction Orders in the last seven minutes of 
trading in options to 50 contracts will enhance customer order 
protection.
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    \17\ For purposes of accelerating the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such 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.

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:

[[Page 6475]]

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-2005-012 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-2005-012 . 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 offices 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-2005-012 and should be 
submitted on or before February 28, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-468 Filed 2-4-05; 8:45 am]
BILLING CODE 8010-01-P