[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Notices]
[Pages 10709-10711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-898]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51275; File No. SR-Amex-2005-002]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change and Amendment No. 1 Thereto Relating to the Member Firm 
Guarantee

February 28, 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 4, 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 Exchange. On February 
15, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons. In 
addition, the Commission is granting accelerated approval of the 
proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated February 15, 2005 (``Amendment No. 
1''). In Amendment No. 1, the Exchange made clarifications and 
technical corrections to the proposal and proposed rule text, which 
have been incorporated into this notice and order.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Commentary .02 to Amex Rules 950(d) 
and 950(d)--ANTE to change the current member firm guarantee for equity 
and index options traded on the Exchange. The text of the proposed rule 
change is available on the Exchange's Web site (http://www.amex.com), 
at the Amex'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, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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
    The purpose of the proposed rule change is to revise the current 
participation or member firm guarantee for equity and index options 
traded on the Exchange. The member firm guarantee provides that a floor 
broker is entitled to a participation guarantee of 20% if the order is 
traded at the best bid or offer (``BBO'') or 40% if the order is traded 
at a price that improves the market, i.e., at a price between the BBO 
(``20/40 Rule''). Amex is proposing to amend Commentary .02 to Amex 
Rules 950(d) and 950(d)--ANTE to revise the current 20/40 Rule so that 
floor brokers receive 40% of an order (after public customer orders on 
the specialist's book or represented by a floor broker in the crowd 
have been filled) if such order trades at a price that matches or 
improves the market.
    In April 2003,\4\ the Exchange received permanent approval of the 
pilot program relating to the member firm guarantee initially approved 
by the Commission on June 2, 2000.\5\ Commentary .02(d) to Amex Rules 
950(d) and 950(d)--ANTE permits facilitation cross transactions in 
equity options and sets forth the member firm guarantee percentages.\6\ 
The member firm guarantee was subsequently extended to index options in 
September 2004.\7\ In this proposed rule change, the Exchange also 
proposes that the member firm guarantee in ANTE extend to index 
options.
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    \4\ See Securities Exchange Act Release No. 47643 (April 7, 
2003), 68 FR 17970 (April 14, 2003) (approving File No. SR-Amex-
2000-49).
    \5\ See Securities Exchange Act Release No. 42894 (June 2, 
2000), 65 FR 36850 (June 12, 2000) (approving File No. SR-Amex-99-
36).
    \6\ Facilitation cross transactions occur when a floor broker 
representing the order of a public customer of a member firm crosses 
that order with a contra side order from the firm's proprietary 
account.
    \7\ See Securities Exchange Act Release No. 50326 (September 7, 
2004), 69 FR 55479 (September 14, 2004) (approving File No. SR-Amex-
2004-51).
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    Amex Rules 950(d) and 950(d)--ANTE provide, under certain 
conditions, the ability to cross a specified percentage of the customer 
order on behalf of a member firm before specialists and/or registered 
options traders in the crowd can participate in the transaction, i.e., 
the member firm guarantee. The provision generally applies to orders of 
400 contracts or more; however, the Exchange is permitted to establish 
smaller eligible order sizes, on a class-by-class basis, provided that 
size is not for fewer than 50 contracts.
    The amount of the guaranteed participation percentage depends upon 
a comparison of the original market quoted by the trading crowd in 
response to a request from the floor broker and the price at which the 
order is traded. If the order is traded at the best bid or offer 
provided by the trading crowd in response to the floor broker's initial 
request for a market, then the floor broker is entitled to cross 20% of 
the order. If the order is traded at a price that improves the market 
provided by the trading crowd in response to the floor broker's initial 
request for a market, then the floor broker is entitled to cross 40% of 
the order. In addition, the facilitating member firm may only 
participate in the executed contracts

[[Page 10710]]

after public customer orders on the specialist's book or represented by 
a floor broker in the crowd have been filled.
    Under the proposal, floor brokers would be entitled to cross 40% of 
an order provided the order trades at a price that matches or improves 
upon the price given by the trading crowd in response to the floor 
broker's initial request for a market. All other requirements set forth 
in Commentary .02 to Amex Rules 950(d) and 950(d)--ANTE would remain 
the same. The Exchange proposes to amend Commentary .02(d) to Amex 
Rules 950(d) and 950(d)--ANTE by deleting the 20/40 Rule and specifying 
that a floor broker would be entitled to cross 40% of the contracts 
remaining after public customer orders on the specialist's book or 
represented in the trading crowd have been satisfied, provided the 
order trades at or between the best bid or offer given by the trading 
crowd in response to the broker's initial request for a market. The 
procedures for facilitating orders would remain the same with the only 
change being to the size of the member firm guarantee from 20% to 40%.
    Current Commentary .02(d) to Amex Rule 950(d) entitles the 
specialist to a participation entitlement of 20% of the original order 
size when the floor broker crosses its 20% at the trading crowd's 
price. If the floor broker improves upon the crowd's price and takes 
its 40%, the specialist is not entitled to any participation guarantee. 
The Exchange retains this limitation (i.e., that the percentage of the 
specialist's entitlement when combined with the amount of the order the 
floor broker crosses may not exceed 40%), recognizing that in most 
instances the effect of the proposed rule change would be that 
specialists are not entitled to participation guarantees (because the 
member firm typically would take its 40% guaranteed amount). The rule 
text has been revised to clearly indicate this limitation.
    In order to remain competitive with other options exchanges, Amex 
believes that a change from the 20/40 Rule to a 40% member firm 
guarantee is necessary. In recent months both the Chicago Board Options 
Exchange, Inc. and the Pacific Exchange, Inc. have implemented a 40% 
member firm guarantee. In addition, the International Securities 
Exchange, Inc. (``ISE'') permits a 40% facilitation guarantee to its 
Electronic Access Members for those orders submitted through the ISE's 
Facilitation Mechanism. Accordingly, the Exchange asserts that this 
proposal is required to remain competitive.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\8\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\9\ in particular, in that it is 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, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not 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. 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-2005-002 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-2005-002. 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 publicly available. All submissions should refer to 
File Number SR-Amex-2005-002 and should be submitted on or before March 
25, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, 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.\10\ Specifically, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\11\ which requires, among other things, that an exchange's 
rules be designed to promote just and equitable principles of trade, 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. The Commission notes that the 
increase in the percentage that the floor broker is entitled to 
facilitate at the quoted market would not exceed 40% of an order. The 
Commission has found with respect to participation guarantees in other 
contexts that a maximum guarantee of 40% is not inconsistent with 
statutory standards of competition and free and open markets.\12\
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    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ See, e.g., Securities Exchange Act Release Nos. 42455 
(February 24, 2000), 65 FR 11388 (March 2, 2000) at 11398; and 43100 
(July 31, 2000), 65 FR 48778 (August 9, 2000) at notes 96-99 and 
accompanying text.

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[[Page 10711]]

    The Commission finds good cause for approving this proposed rule 
change, as amended, prior to the thirtieth day after publication of 
notice thereof in the Federal Register, pursuant to Section 19(b)(2) of 
the Act.\13\ The Commission believes that the proposed rule change is 
generally consistent with rules in place at other exchanges, and that 
acceleration of the proposed rule change, as amended, will permit the 
Exchange to implement the proposal in an expeditious manner and to 
compete with other exchanges that have similar rules without delay. The 
Commission, therefore, believes it is consistent with Sections 6(b)(5) 
\14\ and 19(b)(2) \15\ of the Act to approve the Amex's proposed rule 
change on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Amex-2005-002), as amended, 
is hereby approved on an accelerated basis.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-898 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P