[Federal Register Volume 62, Number 9 (Tuesday, January 14, 1997)]
[Notices]
[Pages 1936-1937]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-862]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38128; File No. SR-AMEX-96-46]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange, Inc. Relating to Amending Rule
170 to Permit Options Specialist Organizations and Their Approved
Persons to Engage in Market Making Activities on Other Options
Exchanges in the Options in Which They Are Registered on the AMEX
January 6, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
27, 1996, the American Stock Exchange, Inc. (``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 the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Exchange Rule 950(n) to permit
options specialist organizations and their approved persons to engage
in market making activities on other options exchanges in the options
in which they are registered on the AMEX.
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 self-regulatory organization
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 self-regulatory organization
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 950(n) currently prohibits AMEX options specialists
and their ``approved persons'' \1\ from effecting transactions in
specialty options except insofar as reasonably necessary to satisfy
their specialist obligations on the Exchange. Thus, among its several
consequences, Rule 950(n) prohibits an AMEX specialist organization and
its approved persons from acting as a market maker in a specialty
option on the floor of another options market.\2\ The other options
exchanges have rules that are similar to AMEX Rule 950(n) with respect
to persons that perform functions similar, or identical, to those of a
specialist.\3\ However, it is the Exchange's understanding that not all
those markets interpret their rules in the same manner as the AMEX.
Thus, the Exchange has observed Registered Options Traders (``ROTs'')
on its Floor trading as market makers in options in which affiliates of
such ROTs perform a specialist function on another exchange.
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\1\ An ``approved person'' is a person or entity that controls a
member or member organization or that is engaged in a securities or
kindred business and is controlled by or under common control with a
member or member organization. See Article I, Section 3(g) of the
Exchange Constitution.
\2\ The approved persons of Exchange specialists may obtain
relief from the restrictions of Rule 950(n) by establishing an
Exchange approved information barrier pursuant to Rule 193. In
practice, however, it has generally proven impractical for all but
the largest broker-dealers to establish information barriers that
would satisfy the requirements of Rule 193.
\3\ Chicago Board Option Exchange Rule 8.81(a), Pacific Stock
Exchange Rule 6.83(a), Philadelphia Stock Exchange Rule 1020(e).
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The restrictions on the trading activities of options specialists
and their approved persons have their origin in the Exchange's and the
New York Stock Exchange's equity trading rules. The AMEX extended these
restrictions to listed options at the outset of the Exchange's option
program in the mid-1970s in order to expeditiously commence trading
options using a combination specialist/competitive market maker system.
While these restrictions reflect historical regulatory concerns, the
federal securities laws do not require that trading by specialists and
their approved persons in specialty securities should be limited to
that necessary to the specialist function on any one market. In many
respects, moreover, the policy reasons behind the trading restrictions
on equity specialists are not compelling in the context of options due
to the derivative pricing of these securities. In addition, the
limitations contained in Rule 950(n) on principal trading by the
affiliates of options specialists predate multiple trading of listed
options. When you add to these factors the extraordinary level of self-
regulatory organization surveillance of specialists and market makers,
the Exchange believes that the
[[Page 1937]]
prophylactic restrictions on trading represented by Rule 950(n) are not
essential to ensure compliance with standards of fair dealing.
For the foregoing reasons, the Exchange believes that it is
appropriate to permit Exchange specialist organizations and their
affiliates to engage in market making in specialty options on the floor
of other options exchanges. This measure will eliminate a regulatory
disparity between the rules of the Exchange and other markets. To
ensure that specialist organizations and their affiliates do not
intentionally trade ahead of, or otherwise disadvantage, orders on the
AMEX limit order book, the Exchange will require any AMEX member
organization that seeks to act as a market maker on the floor of
another options exchange in an option in which they are a specialist on
the AMEX to implement policies and procedures designed to prevent the
misuse of information regarding limit orders on the AMEX limit order
book.\4\ These policies and procedures will not have to conform to the
specific requirements of Rule 193. Instead, the Exchange proposes to
adopt the approach used by Congress in enacting Sections 15(f) and 21A
of the Act, and by the Commission in adopting Rule 14(e)(3) under the
Act, which require firms to adopt information barriers, but do not
legislate the design of these internal controls.\5\ The Exchange
believes that specialist firms and their affiliates should have the
ability (subject to Exchange oversight) to structure information
barriers that are appropriate to the structure of their firms.
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\4\ As proposed, these policies and procedures will not be
subject to pre-approval by the Exchange. Telephone conversation
between Bill Floyd-Jones, Assistant General Counsel, AMEX, and
Heather Seidel, Attorney, Division of Market Regulation, Commission,
on January 2, 1997.
\5\ See Broker-Dealer Policies and Procedures Designed to
Segment the Flow and Prevent the Misuse of Material Nonpublic
Information, Securities and Exchange Commission Division of Market
Regulation, March 1990.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Act
in general and furthers the objectives of Section 6(b)(5) \6\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and, in general, protect
investors and the public interest.
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\6\ 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities sand
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 at the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-AMEX-96-46 and
should be submitted by January 27, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-862 Filed 1-13-97; 8:45 am]
BILLING CODE 8010-01-M
