[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Pages 8464-8466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4527]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38299; File No. SR-Amex-97-01]
Self-Regulatory Organizations; Notice of Filing of, and Order
Granting Accelerated Approval to, Proposed Rule Change by the American
Stock Exchange, Inc. Relating to a Pilot Program for Execution of
Specialists' Liquidating Transactions
February 18, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 13, 1997, the
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Exchange
submitted Amendment No. 1 on February 14, 1997.\2\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to grant accelerated approval to the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ See letter from Claudia Crowley, Special Counsel, Amex, to
Anthony P. Pecora, Attorney, Division of Market Regulation, SEC,
dated February 14, 1997 (``Amendment No. 1''). Amendment No. 1
modified the proposed rule change by granting the Commission the
authority to extend the specialist liquidating pilot program for up
to three weeks as an alternative to permanent approval of the pilot
program.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex is proposing permanent approval of the pilot program that
amended Exchange Rule 170 to permit a specialist to effect a
liquidating transaction on a zero minus tick,\3\ in the case of a
``long'' position, or a zero plus tick,\4\ when covering a ``short''
position, without Floor Official approval. The pilot program also
amended Rule 170 to set forth the affirmative action that specialists
are required to take subsequent to effecting various types of
liquidating transactions. In the alternative, the Exchange is
requesting a three-week extension of the pilot program.
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\3\ A zero minus tick is a price equal to the last sale where
the last preceding transaction at a different price was at a higher
price.
\4\ A zero plus tick is a price equal to the last sale where the
last preceding transaction at a different price was at a lower
price.
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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
On November 15, 1996, the Commission approved an extension until
February 14, 1997 of a pilot program that amended Exchange Rule 170 to
permit a specialist to effect a liquidating transaction on a zero minus
tick, in the case of a ``long'' position, or a zero plus tick, when
covering a ``short'' position, without Floor Official approval.\5\ The
amendments also set forth the affirmative action that specialists are
required to take subsequent to effecting various types of liquidating
transactions.
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\5\ Securities Exchange Act Release No. 37958 (Nov. 15, 1996),
61 FR 59476 (approving File No. SR-Amex-96-42) (``November 1996
Approval Order'').
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During the course of the pilot program, the Exchange has monitored
compliance with the requirements of the Rule, and its findings in this
regard have been forwarded to the Commission under separate cover. The
Amex believes the amendments have provided specialists with flexibility
in liquidating specialty stock positions in order to facilitate their
ability to maintain fair and orderly markets, particularly during
unusual market conditions. In addition, the specialist's concomitant
obligation to participate as a dealer on the opposite side of the
market after a liquidating transaction has been strengthened.
The Exchange is therefore proposing permanent approval of the
amendments to Rule 170 or, in the alternative, a three-week extension
of the pilot program.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) of the Act \6\ in general and furthers the objectives of
Section 6(b)(5) \7\ in particular in that it is designed to promote
just and equitable principles of trade, remove impediments to and
perfect the mechanism of a free and open market, and, in general,
protect investors and the public interest. The Exchange also believes
the proposed rule change is consistent with Section 11(b) of the Act
\8\ which allows exchanges to promulgate rules relating to specialists
in order to maintain fair and orderly markets.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(15).
\8\ 15 U.S.C. 78k(b).
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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, N.W., Washington, D.C. 20549.
Copies of the
[[Page 8465]]
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.
Sec. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
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-97-01 and should be
submitted by [insert date 21 days from date of publication].
IV. Commission's Findings and Order Granting Accelerated Approval to
the Proposed Rule Change
The Commission finds that the Exchange's proposal to extend its
pilot program concerning the execution of specialists' liquidating
transactions until March 7, 1997, 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 the Section 6(b)(5) \9\ requirements that
the rules of an exchange be designed to promote just the equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market, and, in general, to protect investors and
the public interest. The Commission also believes the proposal is
consistent with Section 11(b) of the Act \10\ and Rule. 11b-1 \11\
thereunder, which allow exchanges to promulgate rules relating to
specialists in order to maintain fair and orderly markets.
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\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78k(b).
\11\ 17 CFR 240.11b-1.
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The Exchange originally proposed to amend Amex Rule 170 in File No.
SR-Amex-92-26.\12\ The proposed rule change, filed as a one-year pilot
program, amended Amex Rule 170 to permit specialists to ``reliquidate''
a dealer position by selling stock on a direct minus tick or by
purchasing stock on a direct plus tick, but only if such transactions
are reasonably necessary for the maintenance of a fair and orderly
market and only if the specialist has obtained the prior approval of a
Floor Official. Under the pilot program, a specialist, also may sell
``long'' on a zero minus tick, or by purchasing on a zero plus tick to
cover a ``short'' position, without Floor Official approval. Although
liquidations on a zero minus or on a zero plus tick can be effected
under the pilot procedures without a Floor Official's prior approval,
such liquidations are still subject to the restriction that they be
effected only when reasonably necessary to maintain a fair and orderly
market. In addition, the specialist must maintain a fair and orderly
market during the liquidation.
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\12\ See Securities Exchange Act Release No. 33957 (Apr. 22,
1994), 59 FR 22188 (``April 1994 Approval Order'') (approving File
No. SR-Amex-92-26). See also Securities Exchange Act Release No.
35635 (Apr. 21), 1995), 60 FR 20780 (approving File No. SR-Amex-95-
11); Securities Exchange Act Release No. 36014 (July 21, 1995), 60
FR 38870 (approving File No. SR-Amex-95-19); Securities Exchange Act
Release No. 37448 (July 17, 1996), 61 FR 38487 (approving File No.
SR-Amex-96-19); Securities Exchange Act Release No. 37704 (Sept. 19,
1996), 61 FR 50525 (approving File No. SR-Amex-96-33); November 1996
Approval Order, supra note 5.
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After the liquidation, the specialist is required to re-enter the
market on the opposite side of the market from the liquidating
transaction to offset any imbalances between supply and demand. During
any period of volatile or unusual market conditions resulting in
significant price movement in a specialist's specialty stock, the
specialist's re-entry into the market must reflect, a minimum, his or
her usual level of dealer participation in the speciality stock. In
addition, during such periods of volatile or unusual price movements,
re-entry into the market following a series of transactions must
reflect a significant level of dealer participation.
In the April 1994 Approval Order, the Commission requested that the
Amex Submit a report setting forth the criteria developed by the
Exchange to determine whether any reliquidation by specialist were
necessary and appropriate in connection with fair and orderly
markets.\13\ The Commission also asked, among other things, that the
Exchange provide information regarding the Exchange's monitoring of
liquidation transactions effected by specialists on any destabilizing
tick. In all of the approval orders, the Commission requested that the
Amex continue to monitor the pilot and update its report where
appropriate.\14\ In particular, the Commission asked the Amex to report
any noncompliance with the Rule and the action the Amex took as a
result of such noncompliance.
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\13\ See 1994 Approval Order, supra note 12.
\14\ See supra note 12.
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The Amex submitted its reports concerning the pilot program to the
Commission in May 1995, April 1996, and January 1997. As noted above,
the Amex believes the pilot procedures appear to be working well in
enabling specialists to reliquidate appropriately to meet the needs of
the market. After reviewing the data, the Commission agrees with the
Exchange that the pilot program generally is working well. In
particular, the Commission believes the report indicates that
specialists generally are entering the aftermarket after effecting
liquidating transactions when appropriate.
Nevertheless, the Commission believes certain issues concerning the
pilot program need to be revisited before permanent approval can be
granted. In this regard, the Exchange should continue to emphasize the
requirements of Amex Rule 170, including the necessity for Floor
Official approval of specialists' purchases and sales on direct plus or
minus ticks and that such transactions can only be effected if
reasonably necessary for the maintenance of fair and orderly markets.
In addition, where proper procedures are not followed, the Amex should
take appropriate disciplinary action.\15\
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\15\ All ``nonsubstantive'' violations of this rule (e.g.,
failure to obtain the required Floor Official approval when such
approval, if sought, would have been granted) should be referred to
the Minor Floor Violation Disciplinary Committee, as required by
Amex Rule 590. Also, as the Amex has indicated previously, all
``substantive'' violations of this rule (e.g., failure to properly
reenter the market or failure to obtain the required Floor Official
approval when such approval, if sought, would not have been granted)
will be dealt with according to the Exchange's formal disciplinary
procedures.
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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 of filing thereof. This will permit the pilot program to
continue on an uninterrupted basis. In addition, the Exchange proposes
to continue using the identical procedures contained in the pilot
program. These procedures have been published in the Federal Register
on several occasions for the full comment period,\16\ and no comments
have been received. Furthermore, the Commission approved a similar rule
change for the NYSE also without receiving comments on the
proposal.\17\ For these reasons, the Commission finds that accelerating
approval of the proposed rule change is consistent with Section
19(b)(2) of the Act.\18\ Any requests to modify this pilot program, to
extend its effectiveness, or to seek permanent approval for the pilot
program also should include an update on the disciplinary actions taken
for violations of these procedures.
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\16\ See supra note 12 and November 1996 Approval Order supra
note 5.
\17\ See Securities Exchange Act Release No. 31797 (Jan. 29,
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).
\18\ 15 U.S.C. 78s(b)(2).
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[[Page 8466]]
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-Amex-97-01), as amended, is
approved for a pilot period ending on March 7, 1997.
\19\ Id.
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4527 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M
