[Federal Register Volume 59, Number 11 (Tuesday, January 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1101]
[[Page Unknown]]
[Federal Register: January 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33448; File No. SR-Amex-92-10]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Various Rule Revisions
January 10, 1994.
I. Introduction
On February 28, 1992, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'')\1\ and
Rule 19b-4 thereunder,\2\ a proposal to amend various exchange rules.
On May 4, 1992, the Amex submitted to the Commission Amendment No. 1 to
the proposal.\3\ On June 2, 1992, the Amex submitted to the Commission
Amendment No. 2 to the proposal.\4\ On June 25, 1993, the Amex
submitted to the Commission Amendment No. 3 to the proposal.\5\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\The Amex submitted a letter to the Commission adding proposed
Commentary .03(d) to Rule 111, Restrictions on Registered Traders,
to state that members who are not regular members (as defined in
Article IV of the Amex Constitution) may enter orders in accordance
with Commentary .03, as described below, only in securities which
members of their class are otherwise entitled to trade while on the
Floor of the Exchange. Amendment No. 1 also would amend Rule 950(c),
Floor Rules Applicable to Options, to provide that Rule 111 and
certain of its commentaries shall apply to options transactions. See
letter from Geraldine Brindisi, Corporate Secretary, Amex, to Mary
Revell, Branch Chief, Exchange Branch, Division of Market
Regulation, Commission, dated May 1, 1992.
\4\The Amex submitted a letter to the Commission requesting that
its proposed amendment to Rule 170, Commentary .02, which would
permit specialists to liquidate positions in specialty stocks on
zero destabilizing ticks without Floor Official approval, be
withdrawn from the instant proposed rule change. See letter from
Claudia Crowley, Special Counsel, Legal and Regulatory Policy
Division, Amex, to Mary Revell, Branch Chief, Exchange Branch,
Division of Market Regulation, Commission, dated May 29, 1992.
Proposed Rule 170 was refiled in File No. SR-Amex-92-26.
\5\Amendment No. 3 proposes additional changes to Rules 7,
108(c), 115 and 131(h). The proposed changes include: minor
revisions to Rule 7, Commentary .01, in order to conform the reprint
of Exchange Act Rule 10a-1 contained in the rule to its actual text;
changes to Amex Rule 108(c), to include a citation to Section 11(a)
of the Exchange Act; minor revisions to Rule 115, Commentary .02, to
conform the reprint of Exchange Act Rule 11Ac1-1 to its actual text;
minor clarifying language changes to Amex Rule 131(h). See letter
from Geraldine Brindisi, Corporate Secretary, Amex, to Diana Luka-
Hopson, Branch Chief, Exchange Branch, Division of Market
Regulation, Commission, dated June 24, 1993.
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Notice of the proposal appeared in the Federal Register on July 9,
1993.\6\ No comments were received on the proposal. This order approves
the proposed rule changes.
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\6\See Securities Exchange Act Release No. 32572 (July 1, 1993),
58 FR 37041 (July 9, 1993).
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II. Discussion and Findings
The Exchange conducted a review of its rules and determined that
certain revisions were necessary to conform the Amex rules to recent
changes to comparable NYSE rules or to update certain rules which
contain provisions which are no longer applicable or which fail to
address current concerns.\7\
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\7\The Exchange proposed various revisions to Rules 2, 6, 7, 22,
103, 108, 110, 111, 115, 124, 126, 131, 134, 135, 154, 155, 156,
178, 179, 419, 420, 550, 560, 950 and 959.
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The Commission has carefully reviewed the Amex's proposed rule
changes and concludes that the proposed changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange and, in particular, with
sections 6(b)(5), 6(b)(8), 11(b), and 11A(a)(1) of the Act.\8\ The
Commission supports the Amex's efforts to continue to review the form
and substance of market trading regulation in response to changes in
market structure. The Commission believes that it is important to
market quality that the Exchange have a regulatory program that is
tailored to the current market structure. The Commission believes that
the proposed rule changes will be helpful in updating the Amex market
structure and trading rules and will further the purposes of the
Act.\9\ The Commission's detailed discussion regarding the significant
changes proposed by the Amex follows.
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\8\15 U.S.C. 78f(b)(5), 78f(b)(8), 78k(b), and 78k-1(a)(1)
(1988).
\9\The texts of the actual Exchange rules to be amended and
complete descriptions of the proposed amendments are set forth in
the Exchange's original filing and in Amendments No. 1, 2 and 3
thereto, all of which are available for inspection at the Commission
and at the principal office of the NYSE.
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The Amex proposes to amend several rules so that they correctly
identify exchange procedures or facilities. The Commission believes
that these rule changes are appropriate and logical revisions to the
Amex Rules.\10\
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\10\The Exchange proposes the following such changes:
Rule 2--Visitors: Currently, this rule refers to the admission
of visitors to the ``Gallery'' and the ``Trading Floor.'' The
Commission agrees that since the ``Gallery'' has been non-existent
for many years, reference to it should be deleted.
Rules 6 and 550--Execution of Bonds on Exchange and Secondary
Distributions: Currently, these rules refer to the ``Rulings and
Inquiries Department'' as the department at the Amex to be contacted
relative to those rules. Such department no longer exists
(``Rulings'' and ``Inquiries'' are separate departments). The
Commission therefore agrees that the reference should be changed to
the ``Rulings Department.''
Rule 7--Short Sales: Commentary .01 is a reprint of Exchange Act
Rule 10a-1. The Exchange states that the reprint is an outdated
version of the Commission rule and should be revised. Amendment No.
3 proposed minor language changes to conform the reprint of Exchange
Act Rule 10a-1, which is contained in Commentary .01 of the rule, to
its official format. The Commission believes that the proposed
amendment makes appropriate conforming changes and should therefore
be approved.
Rule 22--Authority of Floor Officials: This rule contains a
cross reference which lists seventeen rules upon which Floor
Officials may rule. Currently, however, there are at least three
other rules relating to the duties and powers of floor officials
which are not included in the list, and with future rule revisions,
additional rules will provide for Floor Official involvement. Rather
than attempt to provide an all-inclusive list, the Amex proposes
that the cross reference in Rule 22 be deleted. The Commission
believes that the proposed changes are appropriate and should
therefore be approved.
Rule 134--Cash and Seller's Option Transactions: This rule
requires Floor Official oversight for two transactions that are not
``regular way''--``cash'' and ``seller's option'' transactions.
Although ``next day'' transactions are also not ``regular way''
transactions, they are not included in the rule. The Exchange states
that this appears to have been an oversight at the time Rule 124 was
revised to permit ``any additional settlement periods as the
Exchange may from time to time determine.'' Therefore, the
Commission agrees that ``next day'' transactions should be referred
to in Rule 134.
Rule 178--Responsibility of Specialist: This rule establishes
the liability for losses in those situations where a member firm has
not received a report from the specialist on an order that was
executed or should have been executed. The Exchange states that
time-frames cited in the current rule are no longer appropriate in
view of the time limits set forth in Rule 719 regarding ``Next Day
Comparison of Exchange Transactions.'' The Commission agrees that
Rule 178 should therefore be revised to conform its time limits to
Rule 719.
Rule 179--Orders in Rights: Because this rule also applies to
warrants, the title of this rule should be redesignated as ``Orders
in Rights and Warrants.'' The Commission agrees that this change is
appropriate.
Rules 419 and 420--Statements of Accounts and Mailing
Statements: Commentaries to both rules refer to ``Membership
Compliance Division.'' The Exchange states that the correct title of
that division is ``Compliance and Surveillance Division'' and the
commentaries to both rules should be revised to reflect that title.
The Commission agrees that these changes are appropriate.
Rule 560 (i)--Special Offerings and Special Bids: Paragraph (i)
incorporates the provisions of former Article VI, which governed
floor brokerage commissions, into Rule 560. The Exchange states that
Paragraph (i), however, should be deleted since Article VI, to which
it relates, was rescinded in 1976. The Commission agrees that this
change is appropriate.
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The Amex proposes to amend other rules so that such rules either
conform to similar NYSE Rules, are made clear, or are responsive to
current market conditions. The Commission believes that these rule
changes are also appropriate and logical revisions to Amex Rules. These
rule changes are discussed below.
Rule 103(a)--Dealings When Option Granted or Held: Rule 103(a)
prohibits a member, while on the floor, from buying or selling any
stock if the member or his firm holds or has granted an option to buy
or sell the stock. This rule was adopted prior to 1961. In December
1985, Exchange Act Rule 175 was revised to permit a stock specialist to
hedge his stock position with options.\11\ The Exchange asserts that
Rule 103(a) should, therefore, similarly be revised to permit a stock
specialist to engage in listed options transactions to hedge his stock
position.
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\11\See Securities Exchange Act Release No. 22670 (November 27,
1985), 50 FR 49808 (December 4, 1985) (File No. SR-Amex-85-18).
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The Commission believes that this rule change is appropriate in
order to ensure uniformity among Amex Rules and in order to conform
Amex Rules to Exchange Act Rule 175. This change will serve to
facilitate transactions pursuant to section 6(b)(5) of the Act.\12\
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\12\15 U.S.C. 78f(b)(5) (1988).
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Rule 103(c)--Discretionary Transactions: This rule provision
prohibits the regular or options principal member, while on the floor,
from executing or causing to be executed on the Exchange\13\ any
transaction for the purchase or sale of any security with respect to
which transaction such member is vested with discretion as to the
choice of a security to be bought or sold, the total amount of any
security to be bought or sold, or whether any such transaction shall be
one of purchase or sale. The prohibition applies except when the member
is executing a transaction for a bona fide cash investment account or
for the account of a person who due to illness, absence, etc., is
unable to effect transactions for his own account. It is proposed that
the exceptions be deleted since they are not appropriate in today's
market. The NYSE has adopted a similar revision to a comparable
rule.\14\
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\13\This includes by means of the issuance or acceptance of a
commitment or obligation to trade.
\14\The Amex states that the proposed amendment is based on NYSE
Rule 95.
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The Commission agrees that the proposed amendment to Rule 103(c) is
substantially similar to recent revisions to NYSE Rule 95 and therefore
should be approved. In the Commission's order approving the NYSE's
amendments to Rule 95, we stated that the deletion of the exceptions
would strengthen the rule by further limiting the authority of members
to execute discretionary orders.\15\ This change will help to prevent
fraudulent and manipulative acts and practices in accordance with
section 6(b)(5) of the Act.\16\
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\15\See Securities Exchange Act Release No. 29318 (June 17,
1991), 56 FR 28937 (June 25, 1991).
\16\See supra footnote 12.
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Rule 108--Priority and Parity at Openings: Paragraph (c) discusses
parity at openings of limit orders in the crowd with orders on the
specialist's book. The Exchange states that because Exchange Act Rule
11a1-1 impacts on the types of orders which may be on parity, Rule
108(c) should include a reference to it.\17\
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\17\Amendment No. 3 further amends Rule 108(c) to include a
citation to Section 11a of the Exchange Act.
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The Commission agrees that it is appropriate for Rule 108 to
include a reference to Exchange Act Rule 11a1-1 since it specifically
deals with transactions yielding priority, parity, and precedence. This
change is designed to promote just and equitable principles of trade
pursuant to section 6(b)(5) of the Act\18\ as it will serve to clarify
Rule 108.
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\18\See supra footnote 12.
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Rules 110 and 111--Registered Traders and Restrictions on
Registered Traders: These rules, which provide that only members
registered as traders may trade for their own accounts while on the
Trading Floor, were adopted in 1964 to restrict on-floor transactions
by floor members, who, it was believed, had trading advantages due to
their presence on the trading floor when market news unfolded, and due
to their ability to quickly react to such information. The Exchange
believes that since current communications technology makes information
readily available to off-floor market participants, there is no reason
to continue to so restrict members' on-floor orders.\19\
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\19\The Amex proposes to both add and delete language from
Commentary .02 to Rule 111. Amex Rule 111, Commentary .02 says that
the Rule 111 provisions do not apply to transactions initiated by
registered traders for an account in which they have an interest,
``unless such transactions, although originated off the floor, are
deemed on-floor transactions under the provisions of these Rules.''
The Exchange proposes to delete the aforementioned quoted text from
Commentary .02. The Exchange proposes to add the following to Rule
111, Commentary .02: ``However, an off-floor order for an account in
which a member has an interest is to be treated as an on-floor order
if it is executed by the member who initiated it.'' The Commission
believes that the changes to Commentary .02 to Rule 111 are
appropriate clarifying changes to the Rule, and that these changes
will not impose any burden on competition not necessary or
appropriate in furtherance of the Act, in accordance with section
6(b)(8) of the Act.
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The Amex propose to rescind the current Rule 111, Commentary .03
and adopt a new Commentary .03 (a) through (d).\20\ Such new commentary
will permit members, while on the trading floor, to enter orders for
their own accounts provided that such orders are entered through an on-
floor communications facility and sent to an off-floor clearing firm's
order room where a time-stamped record of the order is maintained
before the order is retransmitted to the trading floor.
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\20\The Amex proposed new Commentary .03 Sections (a) through
(c) in the original proposal and added Section (d) in a May 4, 1993,
amendment to the proposal.
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Proposed Commentary .03(a) generally provides that a member using a
communication facility on the floor of the Exchange to enter an order
for his own account shall be deemed to be initiating an off-floor order
if such order is routed through a clearing firm's order room, where a
time-stamped record of the order is maintained, before such order is
re-transmitted to the floor for execution.
Proposed Commentary .03(b) generally provides that any order
entered by a member for any account in which it (or its officer, allied
member or employee) is directly or indirectly interested, or for any
discretionary account serviced by the member organization, following a
conversation with the member or employee in that organization who is on
the floor, shall be deemed to be an off-floor order, provided that such
order is transmitted to the floor through an order room or other
facility regularly used for the transmission of public orders to the
floor; where a time-stamped record of the order is maintained; or an
exception is available in Rule 111 (f), (g), or (h).
The Commission believes that proposed Commentary .03 (a) and (b) to
Rule 111 (Restrictions on Registered Traders) are substantially similar
to those made to NYSE Rule 112.10 (Orders Initiated ``Off the Floor'')
and those made to NYSE Rule 112.20 (``On the Floor'' and ``Off the
Floor''); therefore the rationale for approval of both sets of rules is
substantially the same. The Commission finds that the rules dealing
with on-floor orders provide a practical means for a member on the
floor to enter an order for his own account without having to
physically leave the floor, as is currently necessary. The Commission
further finds that the amendments to Rule 111, Commentary .03 (a) and
(b) more accurately reflect the status of on and off-floor orders. The
Commission believes that the requirement of routing on-floor orders
upstairs and then back down to the floor will continue to prevent any
undue advantage of floor immediacy from accruing to orders designated
as off-floor.\21\
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\21\The interpretation of ``off-floor'' contained in the
amendments to Rule 111, Commentary .03 only applies to Rule 111 and
does not govern or control the meaning of ``off the floor'' for
purposes of Exchange Act Rule 11a2-2(T) (the ``effect versus
execute'' rule).
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Proposed Commentary .03(c) generally provides that no member shall
execute or cause to be executed, on the Exchange, any order for any
account in which such member, member organization, or any member,
allied member, or approved person in such organization or officer or
employee thereof, is interested or for any discretionary account
serviced by the member, in contravention of any Exchange policy against
frontrunning of transactions that the Exchange may from time to time
adopt and make known to its members.
The Commission believes that, like the similar NYSE Rule
(112.20(d)), proposed Commentary .03(c) to Rule 111 promotes conduct
consistent with just and equitable principles of trade, in accordance
with section 6(b)(5) of the Act, by explicitly incorporating the
frontrunning policy into rules governing competitive trader conduct.
Proposed Commentary .03(d) generally provides that members who are
not regular members (as described in Article IV of the Exchange
Constitution) may enter orders in accordance with the Commentary .03
only in securities which members of their class are otherwise entitled
to trade while on the floor of the Exchange.
The Commission believes that Commentary .03(d) (along with Rule
950(c)) is appropriate in order to ensure that members other than
registered traders, such as limited trading option permit holders, may
enter orders for their accounts while on the floor.
Rule 110--Registered Traders: In addition to the changes made to
Rule 111, the Exchange also proposes to amend Rule 110 to add a
reference to Rule 111. As amended, Rule 110 would provide that members
may not initiate a transaction while on the floor for an account in
which they have an interest unless the member is registered as a
registered trader with the Exchange, except as provided in Rule 111,
Commentary .03. The Commission believes that this revision permits Rule
110 to maintain its proper relationship with Rule 111 as revised. The
NYSE has adopted similar revisions to its comparable rules.\22\
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\22\The Amex states that the proposed amendments are based on
NYSE Rules 111 and 112.
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The Commission believes that the changes to Rule 110 are
appropriate unifying changes in furtherance of the purposes of the Act
designed to promote just and equitable principles of trade which
generally serve to protect investors and the public interest pursuant
to section 6(b)(5) of the Act.\23\
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\23\See supra footnote 12.
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Rule 115--Exchange Procedures for Use of Unusual Market Exception:
The Exchange proposes to add a new Commentary to Rule 115. This Rule
contains exceptions to Exchange Act Rule 11Ac1-1, but currently there
is no reference in Rule 115 to the requirements of Rule 11Ac1-1. The
Exchange therefore proposes that Commentary .02 be added to Rule 115 to
incorporate the text of Rule 11Ac1-1, as has been done by the NYSE in
its Rule 60.\24\
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\24\Amendment No. 3 proposes minor revisions in order to conform
the reprint of Exchange Act Rule 11Ac1-1 which is contained in
Commentary .02 to the rule, to the actual language of the Rule.
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The Commission agrees that it is appropriate for Rule 115 to
incorporate the text of Rule 11Ac1-1 in order to create a more thorough
Rule, thereby providing the members with clearer guidance. This change
will promote just and equitable principles of trade in accordance with
section 6(b)(5) of the Act.\25\
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\25\See supra footnote 12.
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Rule 124(b)--Types of Bids and Offers: In discussing ``next day''
delivery of rights and warrants, the rule indicates that ``bids and
offers in rights and warrants shall specify `next day' in accordance
with Rule 17.'' The Exchange proposes that Rule 124 be revised to
clarify that the reference in Rule 17 relates only to expiring rights
and warrants.
The Commission believes that the addition of the word ``expiring''
to Rule 124(b) is appropriate to clarify that the next day provisions
discussed therein only refer to expiring rights and warrants. This
change will, therefore, promote just and equitable principles of trade
in accordance with section 6(b)(5) of the Act.\26\
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\26\See supra footnote 12.
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Rule 126(e)3--Precedence of Bids and Offers--Sale Removes All Bids:
Paragraph 3 generally provides, with one exception, that a sale removes
all bids from the floor.\27\ The Exchange proposes to amend paragraph 3
of Rule 126(e) to add a provision stating that the aforementioned
applies only when not in contravention of Exchange Act Rule 11Ac1-1.
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\27\Rule 126(e)3 provides that a sale shall remove all bids from
the floor except that, if the number of shares of stock or principal
amount of bonds offered exceeds the number of shares or principal
amount specified in the bid having precedence, a sale of the
unfilled balance to other bidders shall be governed by the
provisions of the Rules as though no sale had been made to the
bidder having precedence.
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The Commission believes that the aforementioned change to Rule
126(e)3 is an appropriate clarifying change to the Rule.
Rule 126(h)--Precedence of Bids and Offers--Disputes: Rule 126(h)
provides that, unless resolved by the members involved, disputes shall
be settled, if practicable, by a vote of witnesses to a trade, and if
not so settled shall be settled by a Floor Official.\28\ It is proposed
that the rule be revised (and redesignated 126(i) due to a change in
another rule filing) to provide that disputes will be settled by a
Floor Official who may, in his deliberations, consider the comments of
witnesses, and where only the amount traded was in dispute, the size of
the order held by those involved in the dispute. The NYSE has adopted a
similar revision to its comparable rule.\29\
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\28\Rule 136(h) also provides that said Floor Official may make
separate and different rulings with respect to active openings when
bids and offers are simultaneous and with respect to odd-lots.
\29\The Amex states that the proposed amendment is based on NYSE
Rule 75.
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The Commission believes that, like the changes to NYSE Rule 75, the
changes to Rule 126(i) appropriately increase the level of oversight
brought to the resolution of trade disputes by removing the membership
voting procedures and replacing them with specified factors for Floor
Official consideration. This increased oversight will thus promote just
and equitable principles of trade in accordance with section 6(b)(5) of
the Act.\30\
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\30\See supra footnote 12.
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Rule 131(a)--Types of Orders--Market Orders: Rule 131(a) provides
that a market order to buy or sell a stated amount of a security at the
most advantageous price obtainable after the order is represented in
the trading crowd. Rule 131(a) further provides that the
responsibilities of brokers handling market, limited price, at the
close, and not held orders are set forth in Rule 156. It is proposed
that ``switch orders'' be included in the reference to the orders
brokers handle. This revision follows the inclusion of such orders in
Rule 156.
The Commission believes that the addition of switch orders is
appropriate as such orders are being added to Rule 156.
Rule 131(f)--Types of Orders--At the Opening Order: It is proposed
that the phrase ``at the opening of the stock'' be revised to clarify
that an ``at the opening order'' is to be executed ``on the opening
trade in the stock.'' This revision incorporates into the rule a policy
that is currently in effect on the Exchange.
The Commission believes that because the proposed amendment would
clarify the definition of an at-the-opening order, it should be
approved. The Commission agrees with the Exchange that the
clarifications to the definition of ``at-the-opening-only'' orders
should help remove any misconceptions about when such orders are
eligible for execution. Accordingly, the proposed rule change clarifies
that while an ``at-the-opening-only'' order is eligible to be executed
only on an opening trade, such an order is not cancelled if the stock
opens with a quotation rather than a trade. In addition, the NYSE has
revised its comparable rule in the same manner.\31\
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\31\See NYSE Rule 13.
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Rule 131(h)--Do not reduce orders (``DNR''): Rule 131(h) relates to
DNR orders, which are not reduced to reflect ordinary cash dividends
but are reduced for other distributions such as when a stock goes
``ex'' a stock dividend or ex rights. Currently, the rule defines DNR
orders to include a limited order to buy, or a stop limit order to sell
a round lot or odd lot or a stop order to sell an odd lot which is not
to be reduced by the amount of an ordinary cash dividend on the ex-
dividend date. The rule further provides that a DNR order applies only
to ordinary cash dividends; it should be reduced for other
distributions such as when a stock goes ``ex'' a stock dividend or ex
rights. The proposed change would add ``a stop order to sell'' to the
list of DNR orders. The Exchange would also add ``a special cash
dividend'' to the list which provides when a DNR order should be
reduced for other distributions.\32\
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\32\The Exchange states that the amended definition of a DNR
order would be identical to the definition used by the NYSE.
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The Amex states that in 1987, the Exchange changed Rule 154 to
permit specialists to accept stop orders on round lots\33\ and
therefore, it proposed to modify Rule 131(h) to include stop orders to
sell round-lots.\34\ The Exchange would also like to add special cash
dividends to the list providing when a DNR order should be reduced for
other distributions because such dividends are unexpected and will not
have otherwise been taken into account.
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\33\See Securities Exchange Act Release No. 24021 (January 21,
1987), 52 FR 3370 (February 3, 1987) (File No. SR-Amex-84-32).
\34\Amendment No. 3 proposes minor clarifying language changes.
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The Commission believes that the changes to Rule 131(h) bring this
rule into conformance with other Amex Rules and lead to a correct
definition of DNR orders in furtherance of the purposes of the Act. The
changes promote just and equitable principles of trade in accordance
with section 6(b)(5) of the Act.
Rule 131(i)--Types of Orders--Fill or Kill: The definition of a
``fill or kill'' order in this paragraph includes a reference to two
other types of orders, ``immediate or cancel'' and ``all or none.'' The
Exchange believes that these references incorrectly suggest that such
orders are comparable in nature when these three types of orders have
unique characteristics. For instance, a ``fill or kill'' order is to be
executed in its entirety on presentation in the crowd or immediately
cancelled. ``Immediate or cancel'' orders require an immediate
execution of all or part of the order with the balance cancelled. The
``all or none'' order is to be executed in its entirety in one
transaction but is not cancelled if not executed immediately on
presentation in the crowd. It is therefore proposed that the reference
to ``immediate or cancel'' and ``all or none'' orders be deleted,
because this paragraph of the rule is not applicable to those types of
orders.
The Commission believes that, because this amendment appropriately
clarifies the definition of a fill or kill order, the amendment should
be approved. This change will promote just and equitable principles of
trade in accordance with section 6(b)(5) of the Act.\35\
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\35\See supra footnote 12.
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Rule 131(l)--Types of Orders--Not Held Order: Currently, Rule
131(l) defines a not held order as a market or limited price order
marked ``not held,'' ``disregard tape,'' ``take time,'' or which bears
any such qualifying notation. The Exchange proposes that orders marked
``buy on the print'' or ``sell on the print'' be included in the types
of orders deemed to be ``not held orders'' because by their terms,
these orders can only be executed if a print takes place at its limit.
The Exchange further asserts that as with other ``not held'' orders,
there are no assurances that the broker handling the order will be able
to execute the order at that same price.
The Commission believes that ``buy or sell on print'' orders are
appropriately classified as ``not held'' orders because brokers cannot
guarantee execution at the designated ``print' price. Classifying such
orders as ``not held'' orders should serve to put customers on notice
that they bear the price risk of an execution at a price other than the
``print'' price. The Commission approved a similar revision to the
comparable NYSE Rule.\36\ The Commission believes that these changes
will serve to protect investors and the public interest in accordance
with section 6(b)(5) of the Act\37\ by clarifying the definition of
``not held'' orders.
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\36\The Commission approved similar changes to NYSE Rule 13--
Definition of Orders.
\37\See supra footnote 12.
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Rule 135--Cancellations: Currently, Rule 135 only permits a member
or member organization to cancel a transaction if it was made in error
or for other proper reason, and unless in each case prior approval of
the cancellation is obtained from a Floor Official. The Exchange states
that this permits unilateral cancellations. The Exchange proposes that
Rule 135 be revised to provide that a member may only cancel or revise
a transaction if it was made in error or the cancellation or revision
is for other proper reason, and unless both the buying and selling
members agree to the cancellation or revision, and prior approval of
the cancellation or revision is obtained from a Floor Official. The
Exchange also proposes that the title of the rule be revised to
indicate that the rule relates to revisions in, as well as
cancellations of, transactions.
The Exchange further proposes to amend Commentary .02 to Rule 135
to require that when a transaction is not cancelled but the member
intends to assume for his or her own account the contract made for a
customer, the provisions of Rule 390 apply, and any required consent of
the Exchange under that rule is to be obtained from the Compliance and
Surveillance Division instead of through the Membership Compliance
Division.
The Commission believes that the proposal should be approved
because it will increase oversight of cancellations or revisions as
well as prevent unilateral cancellations. The proposal is modeled after
the comparable NYSE Rule (NYSE Rule 128B.10--Publication on the tape or
in the sales sheet) which requires the cancellation of a transaction to
be agreed to by both sides of the transaction in question in addition
to obtaining the approval of a Floor Official. In addition, the change
in designation in Commentary .02 to the Compliance and Surveillance
Division is necessary so that this rule identifies the appropriate
Division governing the regulated conduct.
Rule 154, Commentary .03--Orders Left With Specialist: Commentary
.03 provides that specialists may not accept ``not held'' orders or
orders with such qualifications as ``keep the best bid or offer,''
``disregard tape,'' ``take time,'' and scale orders without specific
amounts and prices orders. The Exchange proposes that Commentary .03 be
revised to include ``buy on the print'' and ``sell on the print'' as
additional types of orders which a specialist is prohibited from
accepting because under Rule 131, a ``buy on the print'' or ``sell on
the print'' order is deemed to be a ``not held'' order.
The Commission believes that this change is an appropriate
``housekeeping'' amendment that should be approved in conjunction with
approval of the proposed amendment to Rule 131.
Rule 154, Commentaries .06 and .07--Orders Left With Specialist:
Current Commentary .06 provides that all good `til cancelled
(``G.T.C.'') orders on a specialist's book must be cancelled on such
periodic dates as may be prescribed by the Exchange, unless properly
confirmed or renewed as prescribed by the Exchange. The Amex proposes
to delete current Commentary .06. Current Commentary .07 requires
specialists to return receipt stubs of G.T.C. orders, cancellations and
confirmations on the same day in which they are received and it
requires specialists to return receipt stubs of periodic confirmations
of renewals promptly as prescribed by the Exchange. Current Commentary
.07 also requires confirmations of cancellations of orders and
confirmations or renewals of G.T.C. orders to be dated, and duplicate
receipt stubs to be maintained by specialists. The Exchange proposes to
delete references to the return of receipt stubs of periodic
confirmation or renewals in Commentary .07 which will be renumbered as
.06.\38\ The Exchange also proposes to delete the requirement that
receipt stubs be signed by the specialists. In accordance with the
amendment, specialists will just have to stamp their name on such
receipts. Finally, the Exchange proposes to delete the requirements
that confirmations or renewals of G.T.C. orders be dated and duplicate
receipt stubs kept for them. The Exchange states that these proposed
changes are based upon the NYSE's recision of its Rule 123A.55 which
had required the periodic confirmation of G.T.C. orders on the
specialist's book.\39\ The Exchange also states that these provisions
are unnecessary in view of the automated recordkeeping ability of
member firms.
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\38\Rule 154, Commentaries .08 through .13 will be renumbered as
provided in the Exchange's proposal.
\39\See Securities Exchange Act Release No. 29318 (June 17,
1991), 56 FR 28937 (June 25, 1991) (File No. SR-NYSE-89-02).
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The Commission agrees that the changes to Rule 154, Commentary .06
and .07 should be enacted in order to update and streamline order
handling provisions and to bring the Amex Rules into line with
automated exchange systems. These changes are in accordance with
section 11A(a)(1) of the Act which provides that new data processing
and communications techniques create the opportunity for more efficient
and effective market operations. The changes to Commentary .06 and .07
will also promote equitable principles of trade and serve the public
good in accordance with section 6(b)(5) of the Act\40\ by helping to
create a more efficient marketplace.
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\40\See supra footnote 12.
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Rule 154, Commentary .14--Orders Left With Specialist: Commentary
.14 provides that a stop limit order to sell a round lot or odd lot,
which has been elected but not executed before the ex-dividend date is
treated the same as an open limited price order to sell and such orders
are not to be reduced by the specialist or odd-lot dealer on ex-date
unless otherwise instructed. The Exchange states that such commentary
is valid as it applies to cash dividends, but is inappropriate where
other than cash dividends are involved. The Exchange also states that
such orders, pursuant to Rule 132 (price adjustment of open orders on
``ex-date''), are to be adjusted as are all other orders to reflect
stock dividends or stock distributions. The Amex, therefore, proposes
to amend this commentary to state that such orders are not to be
reduced by the specialist or odd-lot dealer for a cash dividend but
will be adjusted for stock dividends and stock distributions on ex-date
in accordance with Rule 132 unless otherwise instructed.
The Commission believes that this amendment is a logical
``housekeeping'' amendment which should be approved as it promotes just
and equitable principles of trade pursuant to Section 6(b)(5) of the
Act.
Rule 155--Precedence Accorded to Orders Entrusted to Specialists:
This rule requires that a specialist give precedence to orders
entrusted to him as an agent in any stock in which he is registered
before executing at the same price any purchase or sale in the same
stock for an account in which the specialist has an interest. The
Exchange states that since Exchange Act Rule 11a1-1 became effective,
the aforementioned requirement is not universal and therefore several
exemptions apply. The specialist is not required to refrain from
trading for his own account when in possession of inexecutable ``G''
orders. Also, the Rule 155 requirements do not apply to on-floor orders
subject to the ``two-tick'' restriction and unelected percentage
orders. The Amex proposes that this rule be amended to state that the
general requirement that a specialist yield precedence under Rule 155
does not apply in these three situations.
The Commission believes that the amendment to Rule 155 should be
approved because it will conform Exchange Rules to Exchange Act Rule
11a1-1 and clarify the application of Rule 155, thereby promoting just
and equitable principles of trade pursuant to Section 6(b)(5) of the
Act.\41\
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\41\See supra footnote 12.
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Rule 156--Representation of Orders: Currently, Rule 156 sets forth
a broker's responsibility for the handling of ``market,'' ``limited
price,'' ``at the close'' and ``not held'' orders. The Amex proposes
that this rule be amended (by adding paragraph (e)) to include a
broker's responsibility for the handling of ``switch orders'' and to
provide that a broker may handle a ``switch order'' on a ``best
efforts'' basis. The Exchange states that this proposal recognizes the
difficulties a member may encounter in executing this type of order
since it requires the execution of orders in different securities at
the same time at a designated price difference.
The Commission believes that this amendment to Rule 156 should be
approved because ``switch orders'' are appropriately defined under the
category of ``representation of orders,'' and because allowing ``switch
orders'' to be handled on a ``best efforts'' basis reflects current
market realities, thereby helping to ensure efficient execution of
securities transactions pursuant to section 11A(a)(1) of the Act. The
NYSE has similarly revised its comparable rule.\42\
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\42\The Amex states that the proposed amendment is based on NYSE
Rule 13.
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Rule 950(c)--Floor Rules Applicable to Options--Rules of General
Applicability: This paragraph provides that, with certain exceptions,
the restrictions on Registered Traders as imposed by Rule 111 will
apply to the trading of options. The Amex proposes to extend the
proposed amendment to Rule 111, to permit members while on the Floor to
enter orders in a manner that permits them to be deemed ``off-Floor''
orders, to options trading. The Exchange states that because it has
determined that there is no reason why the proposed revisions to Rule
111 should not be applicable to transactions in non-equity securities
as well as equity securities, the Exchange proposes to revise Rule
950(c) accordingly.\43\
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\43\The Amex originally proposed to revise Rule 111 to apply
only to equity trading. The Amex, in amendment No. 1 to the rule
filing, proposed to provide that, with certain exceptions, Rule 111
and its commentaries should apply to options transactions.
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The Commission agrees that there is no reason to distinguish
between options and equities with respect to ``off-floor'' orders. And,
this equal treatment of equities and options will promote just and
equitable principles of trade in accordance with section 6(b)(5) of the
Act.\44\
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\44\See supra footnote 12.
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Rule 950(e)--Floor Rules Applicable to Options--Rules of General
Applicability: This provision sets forth the types of orders, in
addition to the orders in Rule 131, that apply to options transactions.
The Amex proposes to add a commentary to Rule 950(e) to clarify that
``at the opening'' orders in options are executable in whole or in part
at the opening rotation in the pertinent option and that any such order
or the portion thereof not so executed is to be treated as cancelled.
The Commission believes that the addition of Commentary .01 to Rule
950(e) is appropriate as it will clarify the manner in which ``at the
opening'' orders in options are executable. This change will therefore
serve to promote just and equitable principles of trade in accordance
with section 6(b)(5) of the Act.\45\
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\45\See supra footnote 12.
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Rule 950(h), Commentary .05--Floor Rules Applicable to Options--
Rules of General Applicability: Paragraph (h) of Rule 950 makes the
specialist financial requirements contained in Rule 171 applicable to
options trading. Commentary .05 to Rule 950(h), which details how the
financial requirements are computed for options specialists, requires
an option specialist to maintain twenty option contracts for each class
of options in which he or she is registered. Rule 171, however, was
revised several years ago to require specialists to ``maintain a cash
or liquid asset position in the amount of $600,000 or an amount
sufficient to assume a position of sixty trading units of each security
in which such specialist is registered * * *.''\46\ That rule
previously required specialists to assume a position of twenty trading
units. The Exchange states that, because Rule 171 now refers to sixty
rather than twenty trading units, Commentary .05 should be amended
accordingly. The Amex, therefore, proposes to amend Commentary .05 to
require that a specialist maintain sixty options contracts of each
class of options in which he or she is registered.\47\
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\46\See Securities Exchange Act Release No. 25863 (June 28,
1988), 53 FR 25225 (July 5, 1988) (File No. SR-Amex-88-14).
\47\The Amex also proposes to renumber Commentary .05 to .01 as
it is the only commentary under Rule 950(h).
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The Commission believes that the change to Rule 950(h) is necessary
in order to conform this rule with previous changes to Rule 171 thereby
promoting just and equitable principles of trade in accordance with
section 6(b)(5) of the Act.\48\
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\48\See supra footnote 12.
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Rule 959--Accommodation Transactions. This rule provides a
``cabinet'' trading facility for the trading of options which are out
of the money to the extent that there is no buying interest at the
minimum price at which options trade (\1/16\ of $1 or $.06-\1/2\ per
underlying share). Orders to sell at $1 per contract ($.01 per
underlying share) may be entered in the cabinet subject to a number of
restrictions, including the requirement that only closing orders may be
entered in the ``cabinet.'' Because the rule applies only to orders
left in the ``cabinet,'' opening orders may be crossed in the crowd.
The Rule, however, does not provide for this type of transaction. The
Amex therefore, proposes that the rule be amended to provide that
opening or closing purchase and sell orders may be executed in the
crowd in the absence of closing purchase or sale orders in the cabinet.
The Commission believe that this is an appropriate clarifying
amendment to Rule 959.
III. Conclusion
The Commission has reviewed carefully the Exchange's proposed rule
changes and concludes that, for the above stated reasons, the proposal
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
The Commission believes that the proposals developed by the Exchange
appropriately balance the competing concerns of various Exchange
constituencies in a manner consistent with just and equitable
principles of trade. Given the dynamic nature of competitive forces
shaping the national market system, the Commission strongly supports
the Amex's efforts to review and update the structure of market trading
regulation in order to maintain an efficient and meaningful regulatory
program.
Accordingly, based upon the aforementioned factors, the Commission
finds that the Exchange's proposed rule change updating its market
regulation rules is consistent with sections 6(b)(5), 6(b)(8), 11(b),
and 11A(a)(1) of the Act\49\ and the rules and regulations thereunder
applicable to a national securities exchange.
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\49\15 U.S.C. 78f(b)(5), 78f(b)(8), 78k(b), and 78k-1(a)(1)
(1988).
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It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\50\ that the proposed rule change (File No. SR-Amex-92-10) be, and
hereby is, approved.
\50\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\51\
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\51\See 17 CFR 200.30-3(a)(12) (1990).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1101 Filed 1-14-94; 8:45 am]
BILLING CODE 8010-01-M
