[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Notices]
[Pages 69124-69126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33272]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38077; File No. SR-Amex-96-43]
Self-Regulatory Organizations; Order Granting Accelerated
Approval of a Proposed Rule Change by the American Stock Exchange,
Inc., Relating to Extending Trading Hours to Permit the Execution of
Matched Orders for Exchange-Listed Securities Which Are Part of a
Basket Trade Being Done in Large Part on the New York Stock Exchange's
Crossing Session II
December 23, 1996.
I. Introduction
On November 12, 1996, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') filed a proposed rule change with the Securities and
Exchange Commission (``SEC'' or ``Commission''), pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ to extend its trading hours to permit the
execution of aggregate-price orders for Exchange-listed securities
which are part of a basket trade being done in large part on the New
York Stock Exchange's (``NYSE'') Crossing Session II.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Notice of the proposal was published for comment and appeared in
the Federal Register on November 26, 1996.\3\ No comment letters were
received on the proposed rule change. This order approves the
Exchange's proposal, on an accelerated basis.
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\3\ See Securities Exchange Act Release No. 37965 (November 19,
1996), 61 60135 (November 26, 1996) (``Release No. 37965'').
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II. Description of the Proposal
When the Exchange implemented an After-Hours Trading (``AHT'')
facility for single-sided and matched closing price orders,\4\ it
determined that it would not, at that time, establish an after-hours
crossing session for aggregate-price basket trades similar to the
NYSE's Crossing Session II.\5\ Some member organizations, however, have
noted that the Exchange's lack of such a facility has impaired their
ability to effect program trades which include Amex-listed stocks. For
example, if a firm wanted to do an after-hours program trade based on
the S&P 500 Index, it would cross the component stocks listed on the
NYSE during Crossing Session II; it would cross those listed on Nasdaq
in-house; but it would have to cross most of the Amex-listed component
stocks overseas. Because most of the Amex-listed stocks included in the
S&P 500 Index are not 19c-3 securities (that is, they were exchange-
listed on or prior to April 26, 1979), Exchange Rule 5 (Off Board
Trading) applies and prohibits member firms from acting as principal in
an upstairs trade in these securities executed in the United States.
Due to the time differences, the Exchange believes that executing the
Amex component of the basket trade overseas creates administrative
difficulties and increased costs for member firms engaging in these
transactions.
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\4\ See Securities Exchange Act Release Nos. 29515 (August 2,
1991), 56 FR 37736 (August 8, 1991); 23263 (May 25, 1993), 58 FR
31558 (June 3, 1993); 33561 (February 1, 1994), 59 FR 5789 (February
8, 1994); and 33993 (May 2, 1994), 59 FR 23902 (May 9, 1994).
\5\ As part of its overall after-hours trading plan, the NYSE
created a facility for the execution of aggregate-price basket
orders involving at least 15 NYSE-listed securities with an
aggregate minimum value of one million dollars (``Crossing Session
II''). In this facility, which is available from 4:00 p.m. to 5:15
p.m., New York time, a member transmits matched buy and sell orders
to the NYSE on a facsimile form listing the number of stocks and
shares to be traded and the total dollar value of the basket trade.
Transactions effected during Crossing Session II are aggregated and
reported on Tape A as an administrative message at the close of the
session. Only the aggregate share volume and dollar amount of all
programs executed during the session are reported. No reports are
printed with respect to the individual stocks comprising the
baskets. Notwithstanding the foregoing, members and member
organizations effecting trades in Crossing Session II are required
to submit to the NYSE's Market Surveillance by T+3 the names and the
number of shares of each NYSE-listed stock comprising each basket.
See Securities Exchange Act Release Nos. 33992 (May 2, 1994), 59 FR
23907 (May 9, 1994); and 29237 (May 31, 1991), 56 FR 24853 (June 3,
1991) (``NYSE Crossing Session II Approval Orders'').
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The Exchange is proposing to create a facility to permit members
and member organizations to execute on the Exchange, after normal
trading hours, aggregate-price orders for Amex-listed securities which
are part of a larger aggregate-price basket trade otherwise being done
in the NYSE's Crossing Session II.\6\ Operationally, the Exchange's AHT
facility for aggregate-price orders would work in the same manner as
the NYSE's Crossing Session II. The Exchange's AHT facility for
aggregate-price orders would be available from 4 p.m. to 5:15 p.m. (New
York p.m. (New York time). After the
[[Page 69125]]
close of the 9:30 a.m. to 4 p.m. trading session, dual Amex/NYSE
members and member organizations using the facility would transmit to
the NYSE Service Desk a facsimile form to which would specify the
number of stocks, aggregate number of shares and the dollar value of
the securities to be crossed. NYSE personnel will review the order, and
if eligible, execute the NYSE portion of the basket. NYSE Service Desk
personnel then will fax the order to the Amex Service Desk. Amex
personnel will review the order and execute the Amex portion of the
basket.\7\ The trade would be executed, and a report transmitted by
facsmile to the initiating firm. At the end of the session (5:15 p.m.
New York time) the total number of shares \8\ and the dollar value of
all baskets traded during the session would be aggregated separately by
Amex and NYSE personnel for their respective Exchange-listed and NYSE-
listed components of the baskets, and the totals would be transmitted
to the SIAC for publication on the ``Tape'' as administrative messages.
A print of the NYSE listed portion of the basket would appear on Tape B
reflecting the Exchange-listed portion of the basket transactions.
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\6\ The Exchange anticipates commencing operation of the
facility no earlier than January 2, 1997. The Exchange will provide
notice to, and educate, its membership regarding the rules of the
facility prior to their implementation. See Letter from William
Floyd-Jones, Assistant General Counsel, Legal & Regulatory Policy
Division, Amex, to John Ayanian, Attorney, Office of Market
Supervision (``OMS''), Division of Market Regulation (``Market
Regulation''), Commission, dated December 18, 1996 (``Date of
Implementation Letter'').
\7\ See Letter from William Floyd-Jones, Assistant General
Counsel, Legal & Regulatory Policy Division, Amex, to John Ayanian,
Attorney, OMS, Market Regulation, Commission, dated December 10,
1996 (``Amex Letter'').
\8\ The Amex erroneously indicated in its original filing that
the number of stocks in the basket would be transmitted to the
Securities Industry Automation Corporation (``SIAC'') for
publication on the Tape as administrative text messages. The Amex
states that, as is currently the case with NYSE's Crossing Session
II facility, only the total number of shares and dollar value of
such shares in the basket will be transmitted to SIAC on trade date
for dissemination. See Amex Letter, supra note 7.
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On T+3 members will report to the Exchange the names and number of
shares of each Amex-listed stock included in the basket. On T+4, the
Exchange will publish this information in its Daily Sales Report.
The Amex will waive all transaction fees in connection with the
execution of aggregate price orders for Amex-listed securities which
are part of an aggregate-price basket trade otherwise being done in the
NYSE's Crossing Session II.
III. Commission Finding and Conclusions
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, and, in
particular, the requirements of section 6(b)(5) \9\ and 11A \10\ of the
Act. The Commission believes that the Exchange's proposal to extend its
trading hours to permit the execution of matched orders for Exchange-
listed securities which are part of a basket trade being done in large
part on the NYSE Crossing Session II, is reasonably designed to promote
just and equitable principles of trade, prevent fraudulent and
manipulative acts and practices, and 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)(5).
\10\ 15 U.S.C. 78k-1.
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The Commission believes that the Exchange's proposal will benefit
investors by providing members and member organizations the ability to
cross the Amex component(s) of the larger basket trade on the
Exchange's AHT facility. The Commission notes that for the Amex-listed
portion of the basket to be eligible for execution as an aggregate
price order on the Exchange's AHT facility, as proposed herein, the
larger basket must be eligible for NYSE's Crossing Session II, \11\ and
submitted for execution as an aggregate-price order in that exchange's
Off-Hours Trading Facility.
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\11\ See NYSE Crossing Session II Approval Orders, supra note 5.
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Although the execution of an aggregate-price order on the
Exchange's AHT facility does not provide a traditional auction market
for basket trades, the reality of the marketplace is that these trades
currently are being effected off-exchange and, frequently, overseas. By
bringing these institutional trades within the purview of U.S.
regulatory bodies, the marketplace and the investing public generally
benefits, for example, through the Commission and Exchange oversight,
trade reporting, and consolidated surveillance.
The Amex has also requested exemptive relief from the requirement
of Rule 11Aa3-1(b)(2)(iv) under the Act that the Exchange disseminate
on a consolidated basis trading volume for each of the Amex-listed
component securities in the aggregate-price order executed on the
Exchange's AHT facility.\12\ The Amex has proposed a plan under which
the Exchange would collect the required trade detail information by T+3
and would publish this information in the Daily Sales Report on T+4.
The Commission staff is currently reviewing the Exchange's request for
exemptive relief from certain provisions of Rule 11Aa3-1(b)(2)(iv)
under the Act. The Commission's approval of the proposed rule change is
contingent upon the Commission's granting of the necessary Rule 11Aa3-
1(b)(2)(iv) exemptive relief.
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\12\ See Letter from William Floyd-Jones, Assistant General
Counsel, Legal & Regulatory Policy Division, Amex, to Larry
Bergmann, Senior Associate Director, Office of Risk Management and
Control, Market Regulation, Commission, dated November 11, 1996
(``Exemptive Relief Letter'').
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The Amex also requested an exemption from Rule 10a-1 under the Act
to permit, subject to certain conditions, short sales of certain orders
during the AHT session without complying with the ``tick'' provisions
of the Rule.\13\ The Commission is currently reviewing the Exchange's
request.
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\13\ See Exemptive Relief Letter, supra note 12. See also Letter
from William Floyd-Jones, Assistant General Counsel, Legal &
Regulatory Policy Division, Amex, to Blair Corkran, Senior Special
Counsel, Office of Risk Management and Control, Market Regulation,
Commission, dated December 4, 1996.
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The Commission expects the Exchange, through the use of its
surveillance procedures, to monitor for, and report to the Commission,
any patterns of manipulation or trading abuses or unusual trading
activity resulting from the AHT facility.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register. The Commission notes
that Exchange represents that operationally, the Exchange's AHT
facility for aggregate-price orders would work in the same manner as
the NYSE's Crossing Session II, which the Commission approved in
1994.\14\ The Commission also notes that the Exchange will implement
the AHT facility for aggregate-price orders no earlier than January 2,
1997.\15\ The Commission believes that by granting accelerated approval
the Exchange may, in a timely manner, notify and educate its membership
regarding the rules of the AHT facility approved in this release, prior
to their implementation. Additionally, no comments were received on the
proposal, which was subject to the full 21 day notice and comment
period.\16\
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\14\ See NYSE Crossing Session II Approval Orders, supra note 5.
\15\ See Date of Implementation Letter supra note 6.
\16\ See Release No. 37965, supra note 3.
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Accordingly, the Commission believes it is consistent with Sections
6(b)(5) and 19(b)(2) of the Act to approve the proposed rule change on
an accelerated basis.
IV. Conclusion
Based on the foregoing, the Commission finds that approval of the
Exchange's proposal to extend its
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trading hours to permit the execution of aggregate-price orders for
Exchange-listed securities which are part of a basket trade being done
in large part on the New York Stock Exchange's (``NYSE'') Crossing
Session II is consistent with the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (File No. SR-Amex-96-43) is
approved, contingent upon the Commission's granting of the necessary
Rule 11Aa3-1(b)(2)(iv) exemptive relief, on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-33272 Filed 12-30-96; 8:45 am]
BILLING CODE 8010-01-M
