[Federal Register Volume 61, Number 140 (Friday, July 19, 1996)]
[Notices]
[Pages 37782-37783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18295]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37429; File No. SR-Amex-96-26]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by American Stock Exchange, Inc.
Relating to the Unbundling of Auto-Ex Orders
July 12, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder, 17 CFR
240.19b-4, notice is hereby given that on July 11, 1996, the American
Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the
Securities and Exchange Commission the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Amex. The Commission is publishing this notice to solicit
comments on the proposed rule change form interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt new Amex Rule 933 to prohibit the
unbundling of customer option orders in order to make them eligible for
entry into the Exchange's Automatic Execution System (``Auto-Ex''). The
text of the proposed rule change is available at the Office of the
Secretary, 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 Amex 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 Amex 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 the
Statutory Basis for, the Proposed rule Change
(1) Purpose
The Exchange proposes to adopt new Amex Rule 933 which is designed
to prohibit the unbundling (splitting up or dividing up) of customer
option orders in order to make them eligible to fit the size parameters
of the Exchange's Auto-Ex system, an automatic execution system
intended for small orders of customers. The Exchange believes that
Auto-Ex should give near instantaneous single price execution of such
orders at prevailing bid/offer prices. Currently, the size parameters
for customer Auto-Ex orders are generally 10 contracts for equity
options with larger amounts available for certain index options.
Automatic execution systems were introduced more than 10 years ago
by the Amex and other option exchanges in response to member firm
suggestions that customers would be helped in gaining confidence in the
listed options markets if quick, single price executions at posted
(prevailing) prices were available. The Amex initiated Auto-Ex in
certain index options in the mid-1980s and later extended its
applicability to equity options.
Over the past several years, due in large part to enhancements in
technology and market minding systems, more customers and other market
participants have obtained the ability to use a combination of high
speed automated market watch systems and computer generated orders to
enter orders directly or indirectly into the automatic execution
systems of options exchanges. In order to fit within the size
parameters of such systems, large size orders are frequently spilt up
into small size orders which give rise to a series of sequential (or
near sequential) orders being entered.
For example, a member with a customer order to buy 20 contracts at
the prevailing market price in an Auto-Ex eligible equity option, could
structure the order so it is split up and transmitted as two orders to
buy 10 contracts each. The Exchange believes that such unbundling
compromises the basic purpose for which automatic execution systems
were adopted.
[[Page 37783]]
Accordingly, the Exchange now proposes to adopt new Rule 933 (Automatic
Execution of Options Orders) that would prohibit the unbundling of
customer option orders in order to make them eligible for entry into
the Exchange's Auto-Ex system.
The adoption of this rule would be consistent with similar rules
already in force at the Chicago Board Options Exchange and the Pacific
and Philadelphia Stock Exchanges.\1\ Further, the adoption of this rule
will not affect a member firm's ability to directly route large size
customer option orders (that is, orders in excess of Auto-Ex size
parameters) to the trading floor as such firms can choose to either (i)
use the Exchange's electronic order routing AMOS system which will
cause the order (for up to 30 contracts in the case of equity options)
to appear on an AUTO-AMOS display terminal where it is then subject to
execution, or (ii) route the order (without any size limitation)
through the firm's own order delivery system for execution by a floor
broker.
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\1\ See CBOE Rule 6.8(a)(i); PSE Rule 6.87(c); and Phlx Rule
1015(vii).
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(2) Basis
The proposed rule change is consistent with Section 6(b) of the Act
in general and furthers the objectives of Section 6(b)5 in particular
in that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and is
not designed to permit unfair discrimination between customers,
issuers, brokers or dealers.
B. Self-Regulatory Organization's Statement on Burden on Competition
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
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
(3) was provided to the Commission for its review at least five days
prior to the filing date; and (4) does not become operative for 30 days
from July 11, 1996, the date on which it was filed, the rule change has
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule
19b-4(e)(6) thereunder.\2\ In particular, the Commission believes the
proposal qualifies as a ``noncontroversial filing'' in that the
proposed standards do not significantly affect the protection of
investors or the public interest and do not impose any significant
burden on competition. At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in the furtherance of the purposes of the Act.
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\2\ 17 CFR 240.19b-4(e)(6).
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IV. 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, 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 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 in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-96-26 and should be
submitted by August 9, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\3\
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\3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18295 Filed 7-18-96; 8:45 am]
BILLING CODE 8010-01-M
