[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Notices]
[Pages 38439-38441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18962]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40189; File No. SR-AMEX-97-39]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the American
Stock Exchange, Inc. Relating to Minimum Trading Increments (Rule 127)
July 10, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 22, 1997, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') filed with the Securities 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 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 chage.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to amend Exchange Rule 127 to add Commentary .03
to permit members to trade on the Exchange in increments smaller than
\1/16\ in order to match bids and offers displayed in other markets for
the purpose of preventing Intermarket Trading System (``ITS'') trade-
throughs. 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 IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspect of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Amex Rule 127 currently provides that the minimum fractional change
for transactions on the Exchange is \1/16\ for securities selling above
\1/4\, and \1/32\ for securities selling below \1/4\. In May 1997, the
Exchange extended trading in sixteenths to all Amex equity securities
selling at $10 or higher, having previously only traded securities
priced under $10 in sixteenths. The Exchange took this step based on
its belief that trading in increments of \1/16\ promotes investor
protection by enhancing price improvement opportunities on the
Exchange.
Since Amex's initiative and subsequent initiatives by other markets
to implement sixteenths trading, certain third market makers have
disseminated quotations in a limited number of listed securities in
fractions smaller than a sixteenth. In addition, ITS has been modified
to permit commitments to trade to be sent through ITS in fractions as
small as \1/64\. This ITS modification permits Amex members to send
orders
[[Page 38440]]
via ITS to a market displaying a quotation in \1/32\ or \1/64\.
The Exchange believes it is important to provide its members with
flexibility to effect transactions on the Exchange at a smaller
increment than \1/16\ for the purpose of matching a displayed bid or
offer in another market at such smaller increment (i.e., \1/32\ or \1/
64\) for the purpose of preventing ITS trade-thoughs.\3\ For example,
if the best bid on the Amex is 8 and a bid of 8\1/32\ is displayed
through ITS in another market center, the Amex specialist or floor
broker may execute a market or marketable limit order at 8\1/32\ in
order to match the other market's bid. Amex will retain its existing
requirement that limit orders can only be entered increments no smaller
than \1/16\.\4\
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\3\ See Amex Rule 236.
\4\ But see Amex Rule 127, Commentary .01, which provides that
Standard & Poor's Depositary Receipts and MidCap SPDRs
TM may trade on the Exchange in increments as small as
\1/64\ of one dollar.
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2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5) \5\ that an Exchange have rules that
are designed to promote just and 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.
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\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Commission's Findings and Order Granting Accelerated Approval
of the Proposed Rule Change
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, with the requirements of Section 6(b) of the Act.\6\
Specifically, the Commission believes the proposal is consistent with
the Section 6(b)(5) \7\ requirements that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public.\8\
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
\8\ In approving this rule change, the Commission has considered
the proposed rules' impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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Recently, there has been a movement within the industry to reduce
the minimum trading and quotation increments imposed by the various
self-regulatory organizations (``SROs''). Last year, the Amex, Nasdaq
Stock Market (``Nasdaq''), New York Stock Exchange (``NYSE'') and
Chicago Board Options Exchange (``CBOE'') reduced their minimum
increments.\9\ Currently, exchange rules provide for trading of most
equity securities in increments as small as \1/16\ of a dollar.\10\
Amex represents that several third market makers have begun quoting
securities in increments smaller than those approved for trading on the
primary markets. The proposed rule change will provide Amex with the
limited flexibility it needs to address this development and remain
competitive with these markets.
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\9\ Securities Exchange Act Release No. 38571 (May 5, 1997), 62
FR 25682 (May 9, 1997) (approving an Amex proposal to reduce the
minimum trading increment to \1/16\ for certain Amex-listed equity
securities); Securities Exchange Act Release No. 38678 (May 27,
1997), 62 FR 30363 (June 6, 1997) (approving a Nasdaq rule change to
reduce the minimum quotation increment to \1/16\ for certain Nasdaq-
listed securities); Securities Exchange Act Release No. 38897 (Aug.
1, 1997), 62 FR 42847 (Aug. 8, 1997) (approving a NYSE rule change
to reduce the minimum quotation increment to \1/16\ for certain
NYSE-listed securities) and Securities Exchange Act Release No.
39159 (Sept. 30, 1997), 62 FR 52365 (Oct. 9, 1997) (approving a CBOE
rule change to reduce the minimum quotation increment to \1/16\ for
stocks).
\10\ Id.
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The size of the minimum trading increment for securities traded
through the facilities of Nasdaq is determined by the technical
limitations of the Nasdaq system. Currently, Nasdaq systems are capable
of trading securities priced under $10 in increments as fine as \1/32\
of one dollar. Securities priced over $10 may be traded in increments
as fine as \1/16\ of one dollar.\11\ As a result, the Commission
recognizes that Nasdaq third market makers may trade exchange listed
securities priced at less than $10 in increments finer than sixteenths.
Nasdaq has informed the Commission that Nasdaq third market makers are
currently posting quotes for listed securities in increments finer than
sixteenths.\12\ The proposed amendment to Exchange Rule 127, will allow
Amex traders to match prices disseminated by Nasdaq market makers that
may better the Amex quote by an increment finer than the current \1/16\
minimum increment. In addition, the Commission notes that the proposal
will enable the Exchange to match prices disseminated by other
exchanges in the event that another exchange were to reduce its minimum
trading increment.\13\ The proposal should assist Exchange members to
fulfill their obligation to obtain the best price for their customers.
Accordingly, the Commission believes that it is reasonable for the
Exchange to allow trading in increments finer than sixteenths for the
limited purpose of preventing an ITS trade-through.
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\11\ The Commission notes that any change to the minimum
increment for securities traded through the facilities of the Nasdaq
system would be considered a change in an existing order-entry or
trading system of an SRO. Accordingly, the NASD would be required to
file a proposed rule change under Section 19(b)(3)(A) of the Act to
change its minimum increment.
\12\ Telephone conversation between Andrew S. Margolin, Senior
Attorney, Nasdaq, Gene Lopez, Vice President, Trading and Market
Services, Nasdaq and David Sieradzki, Attorney, Commission on July
8, 1998.
\13\ To change its minimum increment, an exchange would be
required to file a proposed rule change that would become
immediately effective under Section 19(b)(3)(A) of the Act.
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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. Approval of the proposal will
provide Amex members with the ability to match a better bid or offer
made available through ITS, thereby helping to prevent ITS trade-
throughs and ensuring the best execution of Amex customer orders. The
Commission notes that this proposal is similar to a proposal by the
NYSE that was published for the full notice and comment period, no
comments were made on that proposal.\14\ Therefore, the Commission
believes it is consistent with Section 6(b)(5) and Section 19(b)(2) of
the Act to grant accelerated approval to the proposed rule change.\15\
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\14\ See Securities Exchange Act Release No. 38897 (Aug. 1,
1997), 62 FR 42847 (Aug. 8, 1997).
\15\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal is
consistent with the Act. Persons making written submissions should file
six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 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
[[Page 38441]]
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 Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-Amex-97-39 and should be submitted by August 6, 1998.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-Amex-97-39) is approved.
\16\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18962 Filed 7-15-98; 8:45 am]
BILLING CODE 8010-01-M
