[Federal Register Volume 70, Number 171 (Tuesday, September 6, 2005)]
[Notices]
[Pages 53033-53034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4834]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52349; File No. SR-Amex-2005-048]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change Establishing a De Minimis Exception to 
the 80/20 Test

August 26, 2005.

I. Introduction

    On April 28, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change seeking to amend Amex Rule 944 to provide a de 
minimis exception to the limitation on principal order access imposed 
by the Plan for the Purpose of Creating and Operating an Intermarket 
Option Linkage (``Linkage Plan'') \3\ and related rules.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
options market linkage (``Linkage'') proposed by Amex, Chicago Board 
Options Exchange, Inc., and International Securities Exchange, Inc. 
See Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 
48023 (August 4, 2000). Subsequently, Philadelphia Stock Exchange, 
Inc., Pacific Exchange, and Boston Stock Exchange, Inc. joined the 
Linkage Plan. See Securities Exchange Act Release Nos. 43573 
(November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 
(November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 
(February 5, 2004), 69 FR 7029 (February 12, 2004).
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    The proposed rule change was noticed for comment in the Federal 
Register on July 27, 2005.\4\ The Commission received no comments on 
the proposed rule change. This order approves the proposed rule change.
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    \4\ See Securities Exchange Act Release No. 52067 (July 20, 
2005), 70 FR 43470.
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II. Description

    The purpose of this proposed rule change is to implement proposed 
Joint Amendment No. 17 to the Linkage Plan. Joint Amendment No. 17, 
together with this proposed rule change, would establish a de minimis 
exception to the ``80/20 Test'' set forth in Section 8(b)(iii) of the 
Linkage Plan and Amex Rule 944.
    Section 8(b)(iii) of the Linkage Plan provides that Eligible Market 
Makers should send Principal Orders \5\ through the Linkage on a 
limited basis and not as a primary aspect of their business. The 80/20 
Test implements this policy in the Linkage Plan and Amex Rule 944 by 
prohibiting a specialist or registered options trader (``ROT'') from 
sending Principal Orders in an eligible option class if, in the last 
calendar quarter, the specialist or ROT's Principal Order contract 
volume is disproportionate to the specialist or ROT's contract volume 
executed against customer orders in its own market.
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    \5\ A ``Principal Order'' is an order for the principal account 
of an eligible market maker that does not relate to a customer order 
the market maker is holding. See Section 2(16)(b) of the Linkage 
Plan.
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    The Exchange believes that applying the 80/20 Test has resulted in 
anomalies for ROTs with limited volume in an eligible option class. In 
particular, if a ROT has very little overall trading volume in an 
option, the execution of one or two Principal Orders during a calendar 
quarter could result in the ROT failing to meet the 80/20 Test. This 
would then prohibit the ROT from using the Linkage to send Principal 
Orders in that options class for the following calendar quarter. The 
Exchange believes that it is not the intention of the Participants to 
the Linkage Plan to prohibit ROTs with limited volume from sending 
Principal Orders through the Linkage in these circumstances since such 
trading clearly is not ``a primary aspect of their business.''
    Accordingly, the proposed rule change seeks to establish a de 
minimis exception from the 80/20 Test in Amex Rule 944 for specialists 
and ROTs that have total contract volume of less than 1,000 contracts 
in an option class for a calendar quarter.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. 
\6\ In particular, the Commission finds that the proposed rule change 
is consistent with the requirements of Section 6(b)(5) of the Act \7\ 
which requires, among other things, that the rules of an exchange 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 
to protect investors and the public interest. The Commission believes 
that the proposed rule change will increase the availability of Linkage 
to members of the Participants by limiting the applicability of the 80/
20 Test in situations where market makers have minimal trading volume 
in a particular options class.
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    \6\ 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).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission recognizes that the Exchange does not believe that 
it is necessary to bar market makers with limited volume from sending 
Principal Orders through the Linkage, as such trading does not raise 
concerns that a member is sending such orders as ``a primary aspect of 
their business.'' The Commission believes that the de minimis exemption 
from the 80/20 Test proposed by the Exchange for market makers that 
have a total contract volume of less than 1,000 contracts in an options 
class for a calendar quarter should ensure that specialists and ROTs 
with relatively low volume in a particular options class can send a 
reasonable number of Principal Orders without being barred from using 
the Linkage by application of the 80/20 Test in the following calendar 
quarter.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-Amex-2005-048) is approved.
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    \8\ 15 U.S.C. 78s(b)(2).


[[Page 53034]]


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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4834 Filed 9-2-05; 8:45 am]
BILLING CODE 8010-01-P