[Federal Register Volume 70, Number 131 (Monday, July 11, 2005)]
[Notices]
[Pages 39812-39814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3622]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51955; File No. SR-Amex-2005-057]


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 the ANTE System on a Pilot Basis

June 30, 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 24, 2005, the American Stock Exchange LLC. (``Amex'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'')

[[Page 39813]]

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 24, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made a clarifying change to Section III of 
the filing.
    \4\ Amendment No. 2 changed the proposed rule text to clarify 
that the specialist has an obligation to execute or display customer 
options limit orders immediately or in no event later than 30 
seconds after receipt.
    \5\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend Rule 950-ANTE (g) and 958A-ANTE (e) 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 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

1. Purpose
    Exchange Rule 958A-ANTE (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\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 51062 (January 21, 
2005), 70 FR 4163 (January 28, 2005).
---------------------------------------------------------------------------

    In order to assist the specialists in complying with Amex Rule 
958A-ANTE (e) as described above, the ANTE System \7\ provides 
specialists with an automated quote assist feature on a pilot basis. 
The quote assist feature automatically displays eligible limit orders 
within a configurable time that can be set on a class-by-class 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-ANTE (g) currently requires the 
specialist to maintain and keep active the limit order quote assist 
feature. The specialist may establish 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-ANTE (e). The specialist may deactivate the 
quote assist feature provided Floor Official approval is obtained. The 
specialist must obtain Floor Official approval as soon as practicable 
but in no event later than three minutes after deactivation. If the 
specialist does not receive approval within three minutes after 
deactivation, the Exchange will review the matter as a regulatory 
issue. Floor Officials will grant approval only in instances when there 
is an unusual influx of orders or movement of the underlying that would 
result in gap pricing or other unusual circumstances. The Exchange will 
document all instances where a Floor Official has granted approval.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 49747 (May 20, 
2004), 69 FR 30344 (May 27, 2004).
---------------------------------------------------------------------------

    The Exchange now proposes to extend the quote assist feature on a 
pilot basis until April 30, 2006. The Exchange also proposes to move 
the text of Commentary .01 to Amex Rule 958A-ANTE (e), since the 
approval of the Amex's limit order display rule negates the need for 
the application of the specialist's due diligence obligation found in 
Amex Rule 156 and made applicable to options trading by Amex Rule 950-
ANTE (g).
    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-ANTE (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 Rule 958A-ANTE (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. The Exchange commits to conduct 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 violation of Amex Rule 958A-ANTE (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, as amended, is 
consistent with Section 6 of the Act, in general,\8\ and furthers the 
objectives of Section 6(b)(5) of the Act, in particular,\9\ 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.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).

---------------------------------------------------------------------------

[[Page 39814]]

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 \10\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\11\ 
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 \12\ and Rule 19b-4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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 on 
the ANTE System uninterrupted. The Exchange states that the proposed 
rule is substantially similar to comparable rules the Commission has 
approved for the Amex,\14\ the Chicago Board Options Exchange 
(``CBOE''),\15\ and the New York Stock Exchange (``NYSE'').\16\ 
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.
---------------------------------------------------------------------------

    \14\ See Securities Act Release No. 42952 (June 16, 2000), 65 FR 
39210 (June 23, 2000).
    \15\ See Securities Act Release No. 47701 (April 18, 2003), 68 
FR 22426 (April 28, 2003).
    \16\ See Securities Act Release No. 41386 (May 10, 1999), 64 FR 
26809 (May 17, 1999).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\17\ 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.
---------------------------------------------------------------------------

    \17\ 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).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if it 
appears to the Commission that the action is necessary or appropriate 
in the public interest, for the protection of investors, or would 
otherwise further the purposes of the Act.\18\
---------------------------------------------------------------------------

    \18\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the proposal to have been filed on June 24, 
2005, the date the Amex filed Amendment No. 2.
---------------------------------------------------------------------------

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-2005-057 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-2005-057. 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-2005-057 and should be submitted on or before 
August 1, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3622 Filed 7-8-05; 8:45 am]
BILLING CODE 8010-01-P