01-8350. Self-Regulatory Organizations; the American Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Relating to Amendments to Commentary .01 to Amex Rule 126(g) “Precedence of Bids and Offers”

March 28, 2001.

I. Introduction

On January 18, 2001, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule change that would amend Commentary .01 to Amex Rule 126(g) “Precedence of Bids and Offers” to reduce from 25,000 shares to 5,000 shares the minimum size block cross that will be permitted to establish size precedence. On January 23, 2001, the Amex amended the proposal at the Commission's request to implement the proposed rule change on a one-year pilot program basis.^[3] Notice of the proposed rule change, as amended, was published for comment in the Federal Register on February 21, 2001.^[4] The Commission received no comments on the proposal. This order approves the proposed rule change, as amended.

II. Description of the Proposal

In 1989, the Commission approved Commentary .01 to Amex Rule 126(g) “Precedence of Bids and Offers,” which provides that orders to cross 25,00 shares or more will be permitted to establish precedence over other bids and offers.^[5] Procedures under Amex Rule 126(g), Commentary .01 permits size precedence for crosses of 25,000 shares or more to be established when no other order has price or time priority. When an order has time priority, a sale removing all bids and offers from the floor must occur before parity is established, and the order to cross can be accorded precedence based on size. Thus, to obtain precedence, orders to cross 25,000 shares or more must have been presented at the specialists' post when the sale removing all bids and offers from the floor had taken place. Once size precedence has been established, the broker handling the cross must then bid and offer the security in accordance with Amex Rule 152 “Taking or Supplying Stock to Fill Customer's Order.”

The Exchange proposes to reduce from 25,000 shares to 5,000 shares the minimum size block cross that will be permitted to establish size precedence. According to the Amex, the block cross procedures under Amex Rule 126(g) have facilitated executions of large orders on the Amex as one transaction at a single price without such orders losing shares to other orders in the trading crowd or on the specialist's book due to Exchange parity rules. The Amex believes the proposed rule change will reduce member firms' incentive to route such orders to regional exchanges or the third market in order to avoid losing an excessive number of shares to other orders under existing Amex parity rules. Additionally, the Exchange believes that, with the expansion of decimal pricing in equities, and with a minimum price variation of one penny, it will be less expensive for members to break up proposed block crosses on the Amex floor, which may result in such crosses being routed to markets in which size precedence is not addressed in the manner required by Amex rules.

III. Discussion

The Commission has reviewed carefully the proposed rule change, as amended, and finds that it is consistent with the Act and the rules and regulations promulgated thereunder applicable to a national securities exchange and, in particular, with the requirements of Section 6(b).^[6] Specifically, the Commission finds that approval of the proposed rule change is consistent with Section 6(b)(5) ^[7] in that it is designed to promote just and equitable principles of trade, to remove impediments and to perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. The Commission believes that a reduction from 25,000 shares to 5,000 shares in the minimum size block cross that will be permitted to establish size precedence is reasonable, in view of the reduction in the minimum price variation resulting from the transition from fractional to decimal pricing. The Commission notes that the provision that the broker handling the cross must bid and offer for the customer side of the proposed transaction under Amex Rule 152 ensures that the customer does not lose an opportunity for price improvement.

IV. Conclusion

For the above reasons, the Commission finds that the proposed rule change, as amended, is consistent with the provisions of the Act, in general, and with Section 6(b)(5) ^[8] in particular.

It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,^[9] that the proposed rule change (SR-AMEX-01-01), as amended, be and hereby is approved on a pilot basis through March 28, 2002.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[10]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See January 23, 2001 letter from Michael Cavalier, Associate General Counsel, Legal and Regulatory, Amex, to Nancy Sanow, Assistant Director, Division of Market Regulation, SEC.

4.  Securities Exchange Act Release No. 43954 (February 12, 2001), 66 FR 11073.

5.  See Securities Exchange Act Release No. 26550 (February 15, 1989), 54 FR 7655 (February 22, 1989) (SR-Amex-88-30).

6.  15 U.S.C. 78f(b). In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).

7.  15 U.S.C. 78f(b)(5).

8.  15 U.S.C. 78f(b)(5).

9.  15 U.S.C. 78s(b)(2).

10.  17 CFR 200.30-3(a)(12).