[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Notices]
[Pages 25928-25929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12061]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41362; File No. 10-100]
Exempted Exchanges; AZX, Inc.; Order Amendment Exemption Order
Under Section 5 of the Securities Exchange Act of 1934; Final Order
May 3, 1999.
I. Introduction
AZX, Inc. has requested that the Securities and Exchange Commission
(``Commission'') amend the Exemption Order pursuant to which AZX, Inc.
operates the Arizona Stock Exchange (``AZX'') without registration as a
national securities exchange.\1\ The amended Exemption Order would
permit AZX to trade exchange-listed securities during regular trading
hours, conduct two additional regular hours auctions, and consolidate
its evening auctions. The proposal was published for comment in the
Federal Register on February 1, 1999.\2\ No comment letters were
received. After evaluating the proposal, the Commission concludes that
AZX will continue to meet the statutory standard for an exchange
operating pursuant to the limited volume exemption from registration
under Section 5 of the Securities Exchange Act of 1934 (``Act'').\3\
Accordingly, the Commission hereby amends AZX's Exemption Order as
requested by AZX, Inc., subject to the terms and conditions described
below.
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\1\ Securities Exchange Act Release No. 28899 (February 20,
1991), 56 FR 8377 (February 28, 1991), amended by Securities
Exchange Act Release No. 37272 (June 3, 1996), 61 FR 29145 (June 7,
1996) (collectively ``Exemption Order''). AZX also operates without
registering as a broker-dealer, clearing agency, transfer agent, or
exclusive securities information processor pursuant to a staff no-
action letter. Letter from Richard G. Ketchum, Director, Commission,
to Daniel T. Brooks, Esq., Cadwalader, Wickersham & Taft, regarding
Wunsch Auction Systems, Inc., dated February 28, 1991.
\2\ Securities Exchange Act Release No. 40961 (January 22,
1999), 64 FR 4908.
\3\15 U.S.C. 78e.
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II. AZX
AZX, Inc. operates AZX, a computerized, single-price auction system
that facilitates trading of registered equity securities by broker-
dealers and institutions. AZX operates three off-hours auctions in
Nasdaq National Market (``NNM'') and exchange-listed securities, at
9:15 a.m., 4:20 p.m., and 5:00 p.m. (ET), each trading day. AZX also
operates one auction during regular trading hours,\4\ at 10:30 a.m.
(ET). As described in its Exemption Order, AZX trades only NNM
securities during the 10:30 a.m. auction.
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\4\ ``Regular trading hours'' refers to the time period in which
the New York Stock Exchange, Inc. permits trading, which is 9:30
a.m. to 4:00 p.m. (ET) each trading day.
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III. The Proposal
On July 30, 1998, AZX, Inc. filed with the Commission pursuant to
Rule 6a-1 under the Act,\5\ an amendment to its application for
exemption from registration as a national securities exchange. In its
amendment, AZX proposes to operate two additional auctions during
regular trading hours, at 12:30 p.m. and 2:30 p.m. (ET) each trading
day. AZX also proposes to trade exchange-listed and NNM securities
during all three regular hours auctions. In addition. AZX proposes to
consolidate its two evening after-hours actions into one after-hours
auction ending at 4:30 p.m. (ET). Under the proposal, there would be
five AZX auctions--two off-hours and three regulator hours. All five
auctions would be permitted to trade both exchange-listed and NNM
securities, and will be subject to real-time transaction reporting
under National Association of Securities Dealers, Inc. (``NASD'')
rules.
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\5\ 17 CFR 240.6a-1.
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IV. Discussion
A. Volume Level
The Commission believes that the changes proposed by AZX should not
change AZX's status as an exempted exchange. The limited volume
exemption continues to be premised on AZX's average daily volume
(including both regular and after-hours auctions) remaining below the
average daily volume of the lowest volume national securities
exchange.\6\ AZX's current average daily volume is well below that of
the lowest volume national securities exchange.\7\ Moreover, given the
wide range of alternatives available to investors during regular
trading hours, AZX's proposal to trade listed securities during its
regular hours auctions (including two additional auctions) does not
seem likely to result in AZX's volume exceeding the volume of any
national securities exchange. Should AZX's volume exceed the limited
volume threshold, however, the Commission may rescind the exemption.\8\
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\6\ The Exemption Order states that the Commission would be
concerned if the volume of an exempted exchange ``exceeded that of
any of the fully regulated national securities exchanges.''
Securities Exchange Act Release No. 28899, supra note 1 at 8380.
\7\ The Philadelphia Stock Exchange (``Phlx'') is currently the
lowest volume national securities exchange. For calendar year 1998,
the average daily volume of the Phlx was approximately 6,262,127
shares. For calendar year 1998, the average daily volume of AZX was
approximately 95,168 shares--less than 2% of the volume of the Phlx.
\8\ The Exemption Order states that ``[s]hould the Commission
learn that any of the conditions set forth in this Order or
otherwise imposed upon the granting of this exemption have been
breached * * * the Commission will commence a review to determine
whether to rescind the exemption.'' Securities Exchange Act Release
No. 28899, supra note 1 at 8383. In the event the Commission
rescinds the exemption because AZX's volume exceeds the limited
volume threshold, AZX would have the option to continue operating by
registering as a national securities exchange, or registering as a
broker-dealer and complying with Regulation ATS. See Securities
Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844
(December 22, 1998).
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[[Page 25929]]
B. Other Conditions
All of the original and conditions of the Exemption Order remain in
effect. In addition, this Order imposes an additional conditions--that
AZX conduct surveillance of trading of listed securities during regular
trading hours to detect, among other things, potential insider trading
and market manipulation. As a condition of the original Exemption Order
in 1991, AZX undertook to conduct surveillance of its after-hours
trading. When it began trading NNM securities during regular trading
hours in 1996, AZX implemented additional surveillance procedures
tailored to regular hours trading in NNM stocks. AZX has now agreed to
adapt those procedures to trading in listed securities. Specifically,
AZX will compare AZX auction prices and bids and offers entered into
AZX with trading activity on the registered exchanges, and will monitor
the effects of an order cancellation or order revision on the price of
the stock on the primary exchange.
V. Conclusion
The Commission has determined that AZX will continue to qualify for
a limited volume exemption from exchange registration under the Act
even if it implements the changes described in this order. Subject to
the conditions described above, the Commission finds that, by reason of
the limited volume of transactions effected on AZX, it is not
practicable and not necessary or appropriate in the public interest or
for the protection of investors to require AZX's registration as a
national securities exchange. The Commission reserves the right to
apply further conditions or rescind the exemption if circumstances
change or if AZX does not operate as represented.
It is therefore ordered that AZX's Exemption Order be amended to
grant AZX's amended application for exemption from registration as a
national securities exchange, subject to the terms and conditions
described above.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12061 Filed 5-12-99; 8:45 am]
BILLING CODE 8010-01-M
