[Federal Register Volume 61, Number 32 (Thursday, February 15, 1996)]
[Notices]
[Pages 6050-6051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3420]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36821; File No. SR-Amex-96-06]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the American
Stock Exchange, Inc., Relating to a Pilot Program for Execution of Odd-
Lot Orders
February 8, 1996
Pursuant to Section 19(b)(1) of the Securities and Exchange Act of
1934 (``Act''),\1\ notice is hereby given that on February 5, 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 and II 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.
\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend for six months its existing pilot
program under Amex Rule 205 requiring execution of odd-lot market
orders at the prevailing Amex quote with no differential charged.\2\
\2\ The Exchange seeks accelerated approval of the proposed rule
change in order to allow the pilot program, which expires on
February 8, 1996, to continue without interruption.
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The text of the proposed rule change is available at the Office of
the Secretary, the Amex, and at the Commission.
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 III 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
The Commission has approved, on a pilot basis extending to February
8, 1996, amendments to Amex Rule 205 to require execution of odd-lot
market orders at the Amex quote with no odd-lot differential
charged.\3\ The Commission initially approved these odd-lot pricing
procedures as a pilot program in January 1989 \4\ and subsequently
extended it eleven times.\5\
\3\ Securities Exchange Act Release No. 35344 (Feb. 8, 1995), 60
FR 8430 (approving File No. SR-Amex-95-03).
\4\ Securities Exchange Act Release No. 26445 (Jan. 10, 1989),
54 FR 2248 (approving File No. SR-Amex-88-23).
\5\ See Securities Exchange Act Release Nos. 35344 (Feb. 8,
1995), 60 FR 8430 (approving File No. SR-Amex-95-03); 34949 (Nov. 8,
1994), 59 FR 58863 (approving File No. SR-Amex-94-47); 34496 (Aug.
8, 1994), 59 FR 41807 (approving File No. SR-Amex-94-28); 33584
(Feb. 7, 1994), 59 FR 6983 (approving File No. SR-Amex-93-45); 32726
(Aug. 9, 1993), 58 FR 43394 (approving File No. SR-Amex-93-24);
31828 (Feb. 5, 1993), 58 FR 8434 (approving File No. SR-Amex-93-06);
30305 (Jan. 20, 1992), 57 FR 4653 (approving File No. SR-Amex-92-
04); 29922 (Nov. 8, 1991), 56 FR 58409 (approving File No. SR-Amex-
91-30); 29186 (May 19, 1991), 56 FR 22488 (approving File No. SR-
Amex-91-09); 28758 (Jan. 10, 1991), 56 FR 1656 (approving File No.
SR-Amex-90-39); 27590 (Jan. 5, 1990), 55 FR 1123 (approving File No.
SR-Amex-89-31).
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Under the pilot procedures, odd-lot market orders with no
qualifying notations are executed at the Amex quotation at the time the
order is represented in the market, either by being received at the
trading post or through the Exchange's Post Execution Reporting
(``PER'') system.\6\ Enhancements to the PER system have been
implemented to provide for the automatic execution of odd-lot market
orders entered through PER. For the purposes of the pilot program,
limit orders that are immediately executable based on the Amex quote at
the time the order is received, at the trading post or through PER, are
executed in the same manner as odd-lot market orders.
\6\ The PER system provides member firms with the means to
electronically transmit equity orders, up to volume limits specified
by the Exchange, directly to the specialist's post on the trading
floor of the Exchange. Securities Exchange Act Release No. 34869
(Oct. 20, 1994), 59 FR 54016.
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In approving prior extensions to the Exchange's odd-lot pilot
program, the Commission has expressed interest in the feasibility of
the Exchange utilizing the Intermarket Trading System (``ITS'') best
bid or offer, rather than the Amex bid or offer, for purposes of the
Exchange's odd-lot pricing system. In its most recent request for an
extension of the pilot program, the Exchange stated that it had
determined to proceed with a systems modification to provide for
execution of odd-lot market orders at the ITS best bid or offer.\7\
\7\ See Securities Exchange Act Release No. 35344 (Feb. 8,
1995), 60 FR 8430 (approving File No. SR-Amex-95-03).
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In September 1995, the Commission approved amendments to Amex Rule
205 to accommodate the prospective modifications to the Exchange's odd-
lot pricing system.\8\ As amended, Amex Rule 205 would provide that
odd-lot market orders to buy (sell) are filled at the ``adjusted ITS
offer'' (``adjusted ITS bid''), which would be defined in Amex Rule
205, Commentary .04, as the lowest offer (highest bid) disseminated by
the Amex or by another ITS participant market.\9\ Where quotation
information is
[[Page 6051]]
not available (e.g., when quotation collection or dissemination
facilities are inoperable) odd-lot market orders would be executed at
the prevailing Amex bid or offer, or at a price deemed appropriate
under prevailing market conditions. These procedures also will apply to
odd-lot limit orders that are immediately executable based on the Amex
quote at the time the order is received at the trading post or through
PER.
\8\ See Securities Exchange Act Release No. 36181 (Sept. 1,
1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
\9\ In order to protect against the inclusion of incorrect or
stale quotations when determining the highest bid and lowest offer,
Amex Rule 205, Commentary .04, contains seven criteria that must be
met before a quotation in a stock from another ITS market center
will be considered. If the ITS quotation fails to meet one of the
specified criteria, the best bid or offer disseminated by the
Exchange will be used. See Securities Exchange Act Release No. 36181
(Sept. 1, 1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
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As the exchange noted in SR-Amex-95-24, it will implement these
amendments upon completion of the necessary systems enhancements by the
Exchange and the Securities Information Automation Corporation
(``SIAC''). Upon implementation of the amended rule, the Exchange will
notify the Commission, as well as Exchange members and member
organizations. In order to provide the additional time necessary to
implement the systems enhancements, the Exchange proposes to extend the
existing pilot program procedures under Amex Rule 205 for an additional
six-month period.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \10\ of the Act in general and furthers the objectives of
Section 6(b)(5) \11\ and Section 11A(a)(1) \12\ in particular in that
it is designed to facilitate the economically efficient execution of
odd-lot transactions and to improve the execution of customer's orders.
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments
with respect to the proposed rule change.
III. 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 and
Exchange Commission, 450 Fifth Street NW., Washington, D.C. 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 Section, 450 Fifth Street NW.,
Washington, D.C. 20549. Also, copies of such filing will be available
for inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-96-06 and should be
submitted by March 7, 1996.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the Exchange's proposal to extend its
pilot program concerning the execution of odd-lot orders to August 8,
1996, is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Specifically, the Commission believes the proposal is consistent with
Section 6(b)(5) and Section 11A(a)(1) of the Act \13\ because the
Exchange's proposed pricing procedures are designed to facilitate
transactions in odd-lot orders, to help ensure the economically
efficient execution of these transactions, and, in general, to protect
investors and the public interest. The Commission further believes the
revised procedures should provide investors with more timely executions
of their odd-lot orders and should produce execution prices that more
accurately reflect market conditions than would otherwise be the case
under the pre-pilot pricing procedures.\14\
\13\ 15 U.S.C. 78f(b)(5) and 78K-1(a)(1).
\14\ Prior to the 1989 pilot program, odd-lot market orders were
routed to a specialist and held in accumulation in the PER system or
by the specialist until a round-lot execution in that security took
place on the Exchange. Subsequent to the round-lot execution, the
off-lot order received the same price as the last Exchange round-lot
transaction, plus or minus and odd-lot dealer differential. See
Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54 FR
2248 (approving File No. SR-Amex-88-23).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. This will permit the pilot
program to continue on an uninterrupted basis. In addition, the
procedures the Exchange proposed to continue using are identical to the
procedures that were published previously in the Federal Register for
the full comment period and were approved by the Commission.\15\
\15\ See Securities Exchange Act Release No. 35344 (Feb. 8,
1995) 60 FR 8430.
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Because some odd-lot orders may not be receiving the best available
price under the current pilot pricing procedures, the Commission is
concerned that the Exchange was unable to implement the new odd-lot
pricing procedures that provide for odd-lot market orders to be filled
at the ITS best bid or offer as planned.\16\ The Commission encourages
the Exchange to complete the systems modifications upon which
implementation of the new odd-lot pricing procedures depend as soon as
possible. To ensure that the Commission is adequately informed of the
Exchange's progress towards such completion, the Commission requests
that the Exchange, beginning May 1, 1996, and every month thereafter
until the systems modifications are completed, report to the Commission
on the progress of this project. Finally upon completion of the systems
modifications, the Exchange should give advance notice to the
Commission of the date when the new odd-lot pricing procedures are to
be implemented.
\16\ See Securities Exchange Act Release No. 35344 (Feb. 8,
1995), 60 FR 8430 (noting that the Exchange's current pricing
formula does not include quotations from other markets).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-Amex-96-06) is approved on a
pilot basis for a six-month period ending on August 8, 1996.
\17\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
\18\ 17 C.F.R. 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3420 Filed 2-14-95; 8:45 am]
BILLING CODE 8010-01-M
