[Federal Register Volume 70, Number 115 (Thursday, June 16, 2005)]
[Notices]
[Pages 35140-35142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3092]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51812; File No. SR-Amex-2005-054]


Self-Regulatory Organizations; American Stock Exchange, LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendments No. 1 and 2 Thereto Relating to Continuation of a Quote 
Assist Feature in Options on a Pilot Basis

June 9, 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 May 18, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') submitted to 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 May 31, 2005, 
the Amex filed Amendment No. 1 to the proposed rule change.\3\ On June 
2, 2005, the Amex filed Amendment No. 2 to the proposed rule change.\4\ 
The Exchange filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \5\ which renders it effective upon filing with 
the Commission. 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\ Amendment No. 1 made technical changes to the proposed rule 
text and made a clarifying change to Section III of the filing.
    \4\ Amendment No. 2 made technical changes to the proposed rule 
text and to Exhibit 4 of the filing.
    \5\ 15 U.S.C. 78s(b)(3)(A).
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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 Amex Rule 950(g) to extend its pilot 
program implementing a quote-assist feature until April 30, 2006. The 
text of the proposed rule change is available on Amex's Web site 
(http://www.amex.com), at the Amex's principal office, 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 Amex included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed

[[Page 35141]]

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.

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

Purpose
    Exchange Rule 958A(e) currently requires all option specialists to 
execute or display customer limit orders that improve the bid or offer 
by price or size immediately upon receipt, unless one of the exceptions 
set forth in the rule applies. ``Immediately upon receipt'' is defined 
in the rule ``as soon as practicable which shall mean, under normal 
market conditions, no later than 30 seconds after receipt.'' \6\
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    \6\ See Securities Exchange Act Release No. 51062 (January 21, 
2005), 70 FR 4163 (January 28, 2005).
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    In order to assist the specialists in complying with Amex Rule 
958A(e) as described above, at the end of June 2004, the Exchange 
provided specialists with an automated quote assist feature as part of 
the Amex Options Display Book (also referred to as ``AODB'') on a pilot 
basis.\7\ The quote assist feature automatically displays eligible 
limit orders within a configurable time that can only be set on a 
floor-wide basis by the Exchange. While all customer limit orders are 
expected to be displayed immediately, the quote assist feature can be 
set to automatically display limit orders at or close to the end of the 
30-second time frame, or within any other shorter time frame 
established by the Exchange. In the event there are instances where the 
specialist has not yet addressed the order within the applicable 30-
second period, the quote assist feature will automatically display the 
eligible customer limit order in the limit order book at or close to 
the end of that period. The quote assist feature helps to ensure that 
eligible customer limit orders are displayed within the required time 
period then in effect. Commentary .01 to Amex Rule 950(g) requires the 
specialist to maintain and keep active the limit order quote assist 
feature. The Exchange has established the time frame within which the 
quote assist feature displays eligible customer limit orders, which 
time frame does not exceed the customer limit order display requirement 
set forth in Amex Rule 958A(e).
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    \7\ See Securities Exchange Act Release No. 49797 (June 3, 
2004), 69 FR 32637 (June 10, 2004).
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    The Exchange now proposes to extend the quote assist feature on a 
pilot program basis until April 30, 2006, or until all products are 
trading on the ANTE System,\8\ whichever occurs first. There are 
currently only three option classes not yet trading on the ANTE System. 
These products, which are all index options, will be put on the ANTE 
System once issues relating to the System's quote calculation 
methodology for these products are corrected.
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    \8\ See Securities Exchange Act Release No. 49747 (May 20, 
2004), 69 FR 30344 (May 27, 2004).
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    The Exchange notes that the quote assist feature does not relieve 
the specialists of their obligation to display customer limit orders 
immediately. To the extent that a specialist excessively relies on the 
quote assist feature to display eligible limit orders without 
attempting to address the orders immediately, the specialist could be 
violating Amex Rule 958A(e). However, brief or intermittent reliance on 
the quote assist feature by a specialist during an unexpected surge in 
trading activity in an option class would not violate Amex Rule 958A(e) 
if used when the specialist is not physically able to address all the 
eligible limit orders within 30 seconds. The Exchange has issued a 
regulatory notice discussing the issue of excessive reliance on the 
quote assist feature.
    The Exchange will continue to conduct surveillance to ensure that 
specialists comply with their obligation to execute or book all 
eligible limit orders within the time period prescribed by Exchange 
rules or policy. The Exchange commits to conducting surveillance 
designed to detect whether specialists, as a matter of course, rely on 
the quote-assist feature to display all eligible limit orders. A 
practice of excessive reliance upon the quote assist feature will be 
reviewed by Member Firm Regulation as a possible due diligence 
violation and/or a violation of Amex Rule 958A(e). The Exchange runs 
its limit order display exception report at various display intervals 
in an attempt to detect a pattern suggestive of undue reliance on the 
quote assist feature. The Exchange reports to the Commission every 
three months the statistical data it uses to determine whether there 
has been impermissible reliance on the quote assist feature by 
specialists.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\9\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\10\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to promote just and equitable principles of trade. The quote assist 
feature provides a mechanism to ensure that eligible customer limit 
orders are displayed within the appropriate time frame.
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    \9\ 15 U.S.C. 78f.
    \10\ 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 will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either 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 proposed rule change has been designated by the Amex as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A) of 
the Act \11\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\12\ 
Consequently, 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, 
and the Exchange provided the Commission with written notice of its 
intent to file the proposed rule change at least five days prior to the 
filing date, it has become effective pursuant to Section 19(b)(3)(A) of 
the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) 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 Amex has requested that the 
Commission waive the 30-day operative delay specified in Rule 19b-
4(f)(6) so that the Amex may continue the quote assist pilot program 
for three products not yet trading on the ANTE System. The Exchange 
states that the proposed

[[Page 35142]]

rule is substantially similar to comparable rules the Commission has 
approved for the Amex,\15\ the Chicago Board Options Exchange, Inc. 
(``CBOE''),\16\ and the New York Stock Exchange, Inc. (``NYSE'').\17\ 
Accordingly, the Amex believes that its proposal does not raise new 
regulatory issues, significantly affect the protection of investors or 
the public interest, or impose any significant burden on competition.
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    \15\ See Securities Exchange Act Release No. 42952 (June 16, 
2000), 65 FR 39210 (June 23, 2000).
    \16\ See Securities Exchange Act Release No. 47701 (April 18, 
2003), 68 FR 22426 (April 28, 2003).
    \17\ See Securities Exchange Act Release No. 41386 (May 10, 
1999), 64 FR 26809 (May 17, 1999).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\18\ The Commission believes that the Amex's proposal raises 
no new issues or regulatory concerns that the Commission did not 
consider in approving the Amex, CBOE, and NYSE proposals.
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    \18\ For purposes only of waiving the operative delay for 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 the 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.\19\
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    \19\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the proposal to have been filed on June 2, 
2005, the date the Amex filed Amendment No. 2.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-054 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-Amex-2005-054. 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 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-2005-054 and should be submitted on or before July 
7, 2005.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-3092 Filed 6-15-05; 8:45 am]
BILLING CODE 8010-01-P