[Federal Register Volume 70, Number 169 (Thursday, September 1, 2005)]
[Notices]
[Pages 52146-52150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52334; File No. SR-Amex-2005-068]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of a Proposed Rule Change and Amendment Nos. 1 and 2 
Thereto Relating to Amendments to Amex Rules 26 and 27

August 25, 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 June 17, 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, II 
and III below, which Items have been prepared by Amex. On June 30, 
2005, Amex filed Amendment No. 1 to the proposed rule change.\3\ On 
August 19, 2005, Amex filed Amendment No. 2 to the proposed rule 
change.\4\ 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 a non-substantive 
correction to the proposed rule text of Amex Rule 26 and made a 
correction to the proposed rule text of Amex Rule 27 to reflect 
that, in the case of an equity security, the list of qualified 
specialists shall consist of five specialists.
    \4\ In Amendment No. 2, the Exchange made corrections to the 
proposed rule text of Amex Rule 27 to clarify that: (1) The 
Allocations Committee may consist of, among others, four brokers for 
equities and all other securities admitted for trading on the 
Exchange except Exchange Traded Funds and options; and (2) the 
Allocations Committee may be chaired by the Chief Executive 
Officer's designee.
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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 Amex Rules 26 and 27 for the purpose 
of: (i) Combining the Equities, Options and Special Allocations 
Committees; (ii) changing the composition of the new Allocations 
Committee; and (iii) providing the Performance Committee with the 
authority to reallocate securities in connection with specialist 
transfers.
    The text of the proposed rule change is available on the Amex's Web 
site (http://www.amex.com), at the principal office of the Amex, and at 
the Commission's Public Reference Room. The text of the proposed rule 
change also appears below. Proposed new language is italicized; 
proposed deletions are in [brackets].

Rule 26. Performance Committee

    (a) No Change.
    (b) The Performance Committee shall review, and approve, disapprove 
or conditionally approve, mergers and acquisitions of specialist units, 
transfers of one or more specialist registrations, specialist joint 
accounts, and changes in control or composition of specialist units. 
The Performance Committee shall approve a proposed transaction 
involving a specialist unit unless it determines that a countervailing 
institutional interest indicates that the transaction should be 
disapproved or conditionally approved. In determining whether there is 
a countervailing institutional interest, the Performance Committee 
shall consider the maintenance or enhancement of the quality of the 
Exchange's market, taking into account the criteria that the 
Allocations Committee may consider in making an initial allocation 
determination (Rule 27(b)) and other considerations as may be relevant 
in the particular circumstances. The Performance Committee shall be 
convened to reallocate securities when there is a business transaction 
that results in the transfer of one or more specialist registrations. 
The Performance Committee shall allocate the securities in accordance 
with the agreement of the parties unless the Committee determines that 
a countervailing institutional interest indicates that there should be 
some other allocation.
    The Performance Committee shall evaluate specialists, individually 
and/or collectively as units, to determine whether they have fulfilled 
performance standards relating to, among other things: (1) Quality of 
markets, (2) competition with other markets, (3) observance of ethical 
standards, and (4) administrative factors. The Performance Committee 
may consider any relevant information, including but not limited to the 
results of the Specialist Floor Broker Questionnaire, trading data, a 
member's regulatory history, order flow statistics, and such other 
factors and data as may be pertinent in the circumstances. The 
Performance Committee also may review specialists, individually and/or 
collectively as units, with respect to capital requirements and the 
``early warning level'' set forth in Commentary .06 to Rule 171. The 
Performance Committee may take one or more of the following actions if 
it finds that a specialist or unit has failed to properly perform as a 
specialist: (1) Send admonitory letters, (2) refer matters to the 
Exchange's Enforcement Department for investigation and possible 
disciplinary proceedings, (3) counsel specialists on how to improve 
their performance, (4) require specialists to adopt a performance 
improvement plan, (5) reorganize specialist units, (6) require the 
reallocation of securities, (7) suspend a specialist's or unit's 
registration as a specialist for a specific period of time, or (8) 
prohibit a specialist or unit from receiving allocations in a 
particular situation or for a specified period of time. In appropriate 
circumstances, the Performance Committee may confine a prohibition on 
new allocations to one of the three classes of securities traded on the 
Exchange (i.e., equities, Exchange Traded Funds or options), or 
otherwise target a remedial action to a particular

[[Page 52147]]

class of security traded by a specialist or unit.
    (c) through (h)--No Change.
Commentary
    .01 through .08--No Change.

Rule 27. Allocations Committee

    (a)[(i)] The [Options] Allocations Committee allocates equity 
securities of operating companies, equity options admitted to dealings 
on the Exchange and all other securities to be admitted for trading on 
the Exchange. [It consists of 11 persons drawn from a roster of 
approximately 75 persons and is comprised as follows: Eight Floor 
members (six Floor brokers and two Registered Options Traders) and 
three representatives of upstairs member firms. The Options Allocations 
Committee is chaired by a Floor Governor who does not vote except to 
make or break a tie. In the event that no Floor Governor is able to 
chair the Committee, a Senior Floor Official may chair the Committee. 
The minimum quorum for the transaction of business by the Options 
Allocations Committee shall be six persons including at least one 
representative of an upstairs member firm. Upstairs member firm 
representatives may attend meetings by telephone.] It consists of six 
persons drawn from a roster of approximately 75 persons and is 
comprised as follows: the Chief Executive Officer (or his or her 
designee), a representative of an upstairs member firm and either (i) 
four (4) brokers for equities and other securities admitted to trading 
on the Exchange except for Exchange Traded Funds and options; (ii) two 
(2) brokers and two (2) Registered Traders for Exchange Traded Funds; 
or (iii) two (2) brokers and two (2) Registered Options Traders for 
options. The Allocations Committee is chaired by the Chief Executive 
Officer (or his or her designee) who does not vote except to make or 
break a tie. In the absence of the Chief Executive Officer (or his or 
her designee), a Floor Governor or a Senior Floor Official may chair 
the Committee. The minimum quorum for the transaction of business by 
the Allocations Committee shall be four persons. The upstairs member 
firm representative may attend meetings by telephone.
    [(ii) The Equities Allocations Committee allocates the equity 
securities of operating companies admitted to dealings on the Exchange. 
It consists of ten persons drawn from a roster of approximately 70 
persons and is comprised as follows: six Floor brokers, one specialist, 
and three representatives of upstairs member firms. The Equities 
Allocations Committee is chaired by a Floor Governor who does not vote 
except to make or break a tie. In the event that no Floor Governor is 
able to chair the Committee, a Senior Floor Official may chair the 
Committee. The minimum quorum for the transaction of business by the 
Equities Allocations Committee shall be six persons. Upstairs member 
firm representatives may attend meetings by telephone.
    (iii) The Special Allocations Committee allocates securities that 
are not allocated by the Options or Equities Allocations Committees and 
securities with special characteristics as may be determined by the 
Chief Executive Officer or his or her designee. It consists of six 
persons drawn from a roster of approximately 30 persons and is 
comprised as follows: the Chief Executive Officer (or his or her 
designee), two brokers, two Registered Options Traders, and a 
representative of an upstairs member firm. The Special Allocations 
Committee is chaired by the Chief Executive Officer who does not vote 
except to make or break a tie. In the Chief Executive Officer's 
absence, a Floor Governor or a Senior Floor Official may chair the 
Committee. The minimum quorum for the transaction of business by the 
Special Allocations Committee shall be four persons. The upstairs 
member firm representative may attend meetings by telephone.
    The Options, Special, and Equities Allocations Committees are 
hereinafter referred to as the Allocations Committee.]
    (b) No Change.
    (c) No Change.
    (d) At regular intervals, the [Options] Allocations Committee shall 
prepare a list (the ``pre-allocation list'') of the most qualified 
option specialists on the Exchange based upon criteria enumerated in 
paragraph (b) of this Rule and interviews of all interested specialists 
conducted by the persons on the roster of the [Options] Allocations 
Committee. In the event that the Exchange determines to list an option 
following its designation by another exchange, that option shall be 
allocated to the next specialist on the pre-allocation list unless, in 
the opinion of a majority of available Floor Governors, a material 
performance situation or another relevant matter has developed with 
respect to that specialist since the preparation of the pre-allocation 
list in which case the specialist shall be bypassed and the [Options] 
Allocations Committee shall be convened as soon as possible to 
determine if the specialist should be removed from the pre-allocation 
list.
    (e) If the issuer of a listed equity security chooses to 
participate in the allocation process, the Allocations Committee shall 
prepare a list of qualified specialists based on the criteria set forth 
in paragraph (b). In the case of an equity security, the list shall 
consist of five specialists. In the case of an Exchange Traded Fund or 
Structured Product, the list shall consist of five specialists. The 
issuer may request that one or more specialists be placed on the list 
of eligible specialists. The Allocations Committee, however, is not 
obligated to honor such requests. Specialists that are subject to a 
preclusion on new allocations as a result of a disciplinary proceeding 
or action by the Performance Committee only are eligible for 
allocations of ``related securities'' as described in Commentary .05 of 
this Rule. The issuer may ask to meet with representatives of the 
specialists units on the list.
    The issuer shall select its specialist from the list within five 
business days of receiving the list by providing the Exchange with a 
letter signed by person of Secretary rank or higher indicating the 
issuer's choice of specialist. In the case of an Exchange Traded Fund 
or Structured Product, the selection may be made by a senior officer of 
the sponsor or issuer who has been authorized to make such selection. 
If the issuer does not make its selection in a timely manner, the 
Allocations Committee may select the specialist as provided in 
paragraph (b) of this Rule.
    The security shall remain with its initial specialist for at least 
120 days. After that time, but during the first 12 months after 
listing, the issuer or sponsor may request that the security be 
reallocated should it become dissatisfied with its specialist. This is 
the case whether or not the issuer or sponsor has participated in the 
selection process. The issuer or sponsor is expected to furnish an 
explanation for the basis for its dissatisfaction, and if after 
counseling the issuer or sponsor and the specialist such change is 
still desired, the Exchange shall reallocate the security within 30 
days. In any such reallocation, the Exchange shall follow the 
allocation procedures described in this paragraph (e) unless the issuer 
or sponsor requests the Allocations Committee to select the specialist 
without any issuer or sponsor input under the procedures described in 
paragraph (b) of this Rule.
    (f) The Allocations Committee shall be convened to reallocate 
securities when (1) the Committee on Floor Member Performance directs 
reallocation, (2) a specialist requests to be relieved of a particular 
security for

[[Page 52148]]

good cause, or (3) a specialist's registration in a security is 
canceled due to disciplinary action. Whenever the Allocations Committee 
reallocates a security for the reasons stated in (1) through (3) of 
this paragraph, the Allocations Committee shall follow the procedures 
described in paragraph (b) of this Rule. The Allocations Committee also 
shall be convened to reallocate securities when (4) [there is a 
business transaction that results in the transfer of one or more 
specialist registrations, (5)] a specialist dissolves or recombines, 
[(6)] (5) a specialist has been determined to be in such financial or 
operating condition that it cannot be permitted to continue to 
specialize in one or more of its specialty securities with safety to 
investors, its creditors or other members, or [(7)] (6) a specialist 
has become subject to the pre-borrowing requirement of Rule 203(b)(3) 
of Regulation SHO under the Securities Exchange Act of 1934 with 
respect to one of its specialty securities or, in the case of an 
options specialist, with respect to the underlying security. The 
Allocations Committee shall follow the procedures described in 
paragraphs (g) or (h) of this Rule, as appropriate, whenever it 
reallocates securities for the reasons stated in (4) through [(7)] (6) 
of this paragraph.
    (g) In the event that the participants in a specialist unit have 
previously entered into a written agreement as to how the ``book'' will 
be divided in the event of a dissolution or recombination, [or there is 
a transfer of specialist registrations as a result of a business 
transaction,] the Allocations Committee shall allocate the securities 
in accordance with the agreement of the parties, unless the Performance 
Committee determines that a countervailing institutional interest 
indicates that there should be some other allocation, in which case the 
Allocations Committee shall reallocate the securities according to 
instructions received from the Performance Committee or, if there are 
no instructions, as provided in paragraph (b) of this Rule. In the 
event that a specialist unit dissolves and the participants in the unit 
are unable to enter into a written agreement as to how the ``book'' 
will be divided, reallocation shall be deferred until the dispute is 
resolved through arbitration unless the Performance Committee 
determines that a countervailing institutional interest suggests that 
the securities should be reallocated prior to the conclusion of the 
arbitration in which case the Allocations Committee shall reallocate 
the securities according to instructions received from the Performance 
Committee or, if there are no instructions, as provided in paragraph 
(b) of this Rule. The Allocations Committee shall reallocate the 
securities in accordance with the decision of the arbitration panel 
unless the Performance Committee determines that a countervailing 
institutional interest indicates that there should be some other 
allocation, in which case the Allocations Committee shall reallocate 
the securities as provided in paragraph (b) of this Rule.
    (h) through (i)--No Change.
Commentary
    .01 through .05--No Change.

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, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV below. The Amex 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 Exchange proposes to combine the existing Equity, Options and 
Special Allocations Committees into a single ``Allocations Committee.'' 
In addition, the Exchange proposes to change the composition of the 
Allocations Committee and to permit the Performance Committee to 
reallocate securities in connection with specialist transfers without 
approval from the Allocations Committee.
    Article II, Section 3 of the Amex Constitution provides the Board 
of Governors (``Board'') with the authority to allocate and reallocate 
the equity securities of operating companies (``equities''), options 
and other securities listed on the Exchange. The Board in connection 
with the allocation and reallocation of equities and options classes 
has delegated this authority to the Equities Allocations Committee and 
the Options Allocations Committee, respectively.\5\ The Board, in 
connection with securities that are not allocated by the Equities 
Allocations Committee or Options Allocations Committee and securities 
with special characteristics, has delegated authority to the Special 
Allocations Committee.\6\ In addition, the Performance Committee has 
limited input in connection with the reallocation of securities 
resulting from a transfer of specialist units.
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    \5\ See Current Amex Rule 27(a)(i) and (ii).
    \6\ See Current Amex Rule 27(a)(iii).
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    The Exchange states that combining the Equities, Options and 
Special Allocations Committees into a single ``Allocations Committee'' 
and changing the composition of the Allocations Committee would 
streamline and provide greater efficiency to the process for allocating 
and reallocating equities and options classes.
    Current Amex Rule 27 provides that the Equities Allocations 
Committee consists of six (6) floor brokers, one (1) specialist and 
three (3) representatives of upstairs member firms. The Committee is 
chaired by a Floor Governor who does not vote except to make or break a 
tie. The minimum quorum requirement is six persons. The Options 
Allocations Committee consists of eight (8) floor members, which 
include six (6) floor brokers and two (2) Registered Options Traders, 
and three (3) representatives of upstairs member firms. The Committee 
is chaired by a Floor Governor who does not vote except to make or 
break a tie. The minimum quorum requirement is six persons, including 
at least one representative of an upstairs member firm. The Special 
Allocations Committee consists of the Chief Executive Officer (or his 
or her designee), two (2) brokers, two (2) Registered Options Traders 
and a representative of an upstairs member firm. The Commission notes 
that the minimum quorum requirement is four persons. The Special 
Allocations Committee is chaired by the Chief Executive Officer who 
does not vote except to make or break a tie.
    The proposed rule change would establish a single Allocations 
Committee for equities, options and other listed securities. Similar to 
the current Special Allocations Committee, the Allocations Committee 
would consist of the Chief Executive Officer (or his or her designee), 
a representative of an upstairs member firm and either: (i) Four (4) 
brokers for equities and other securities admitted to trading on the 
Exchange except for Exchange Traded Funds and options; (ii) two (2) 
brokers and two (2) Registered Traders for Exchange Traded Funds; or 
(iii) two (2) brokers and two (2) Registered Options Traders for 
options. The Allocations Committee would be chaired by the Chief 
Executive

[[Page 52149]]

Officer who does not vote except to make or break a tie. The minimum 
quorum requirement would be four persons.\7\
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    \7\ The Exchange has represented that, for the purposes of 
determining a quorum, the Chief Executive Officer shall count as one 
of the six persons, whereby four of the six persons would constitute 
a quorum. However, the Chief Executive Officer would not vote except 
to make or break a tie. Telephone conversation of August 10, 2005, 
between Jeffery Burns, Associate General Counsel, Amex and David 
Michehl, Attorney, Division of Market Regulation, Commission.
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    The Exchange also seeks to provide the current Performance 
Committee \8\ with sole authority to reallocate securities in 
connection with specialist unit transfers resulting from business 
transactions. The current procedure in Amex Rule 27 provides that the 
Allocations Committee will reallocate the securities resulting from a 
specialist unit transfer in accordance with the agreement of the 
parties unless the Performance Committee determines that a 
countervailing institutional interest dictates that there should be 
some other allocation. In such a case, the Allocations Committee will 
reallocate the securities according to instructions received by the 
Performance Committee or as it deems appropriate if no instructions are 
received. The proposal would amend Amex Rule 26 by providing the sole 
authority and power for the reallocation of securities in connection 
with the transfer of specialist units in the Performance Committee 
rather than the Allocations Committee. The Exchange believes that this 
change will establish a better process for reallocations due to 
specialist unit transfers.
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    \8\ The Board pursuant to Article II, Section 3 of the 
Constitution has delegated to the Performance Committee the 
authority to evaluate specialist, registered traders and floor 
broker performance and to take specified action in response to 
particular performance deficiencies.
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    The Exchange believes that the proposed combination of the 
Equities, Options and Special Allocations Committees and the change in 
the composition of the Allocations Committee would better serve the 
interests of the Exchange and its members by reducing potential 
inefficiencies in connection with the allocation process. The 
Exchange's experience to date has shown that the process of allocating 
and reallocating equities and options classes may be overly and 
unnecessarily bureaucratic. The Exchange believes that this is largely 
due to the number of Equities, Options and Special Allocations 
Committee members and the composition of the Equities, Options and 
Special Allocations Committees. Accordingly, the Exchange proposes to 
change the number and composition of the Allocations Committee to 
implement an improved process for allocating and reallocating equities, 
options and other securities traded on the Exchange to specialist 
units. The Exchange further states that providing the Performance 
Committee with the sole authority to reallocate securities in 
connection with specialist unit transfers would enhance the process of 
reallocation in these special circumstances.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\9\ in general, and with 
Section 6(b)(5) of the Act,\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \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, as 
amended, will 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

    The Exchange did not receive any written comments on the proposed 
rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. by order approve such proposed rule change, as amended; or
    B. institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

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-2005-068 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-2005-068. 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-2005-068 and should be submitted on or before 
September 22, 2005.


[[Page 52150]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4772 Filed 8-31-05; 8:45 am]
BILLING CODE 8010-01-P