[Federal Register Volume 63, Number 127 (Thursday, July 2, 1998)]
[Notices]
[Pages 36280-36282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17561]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40123; file No. SR-AMEX-98N10]
Self-Regulatory Organizations; American Stock Exchange, Inc.,
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval to Amendment No 1. to Proposed
Rule Change Relating to Market-at-the-Close and Limit-at-the-Close
Order Handling Requirements
June 24, 1998.
I. Introduction
On February 18, 1998, the American Stock Exchange, Inc. (``Amex''
or ``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities and Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to revise the Exchange's policy
for entry of market-at-the-close orders (``MOC'') and
[[Page 36281]]
to permit the entry of limit-at-the-close orders (``LOC''). The
proposed rule change was published for comment in the Federal Register
on March 26, 1998.\3\ On May 12, 1998, the Exchange submitted Amendment
No. 1 to the proposed rule change.\4\ This order approves the proposal
as amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 39770 (Mar. 18, 1998),
63 FR 14747.
\4\ See letter from Claudia Crowley, Special Counsel, Legal &
Regulatory Policy, Amex to David Sieradzki, Attorney, Division of
Market Regulation (``Division''), Commission dated May 7, 1998
(``Amendment No. 1''). In Amendment No. 1, the Exchange clarifies
that the proposed policy regarding imbalance dissemination
requirements will be applied to the opening as well as the close,
and any applicable imbalance must be published prior to the opening
at 9:30 a.m. In addition, the Exchange represents that it does not
intend to apply the proposed order entry procedures to the opening.
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II. Description of the Proposal
Exchange Rule 109 sets for the procedures to be followed in
executing MOC orders. Paragraph (d) of Rule 109 provides that where
there is an imbalance between MOC buy and sell orders, the imbalance or
buy orders should be executed against the offer, and the imbalance of
sell orders against the bid. The remaining buy and sell orders are then
paired off and executed at the price of the immediately preceding last
sale. The ``pair off'' transaction is reported to the consolidated
last-sale reporting system as ``stopped stock.''
In May 1995, the Exchange amended Commentary .02 to Exchange Rule
109 to impose a 3:50 p.m. deadline for the entry, cancellation or
reduction of MOC orders through Amex's Post Execution Reporting system
(``PER'').\5\ After the 3:50 p.m. deadline, a member may only enter,
modify or cancel MOC orders other than through the PER system. This
change was intended to reduce the sometimes disruptive effect on the
market of MOC orders entered through the PER system shortly before the
close. Prior to the imposition of the 3:50 p.m. deadline, it often took
several minutes for a specialist to ascertain whether an imbalance
existed and to pair off buyers and sellers, with the sellers, with the
result that the executed MOC transactions did not actually print until
after the close. When this happened, it was difficult for market
participants to ascertain the closing price of the security in question
on a timely basis.
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\5\ See Securities and Exchange Act Release No. 35660 (May 2,
1995), 60 FR 22592 (May 8, 1995).
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Although the 3:50 p.m. deadline has alleviated some of the
disruptive impact of MOC orders, Amex believes that further
modifications are appropriate to reduce excess market volatility that
may arise from the liquidation of stock positions related to trading
strategies involving index derivative products, and to provide
consistency to member organizations by substantially conforming the
Amex's policy to the policy currently in effect at the New York Stock
Exchange (``NYSE'') \6\
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\6\ The Commission recently approved a proposal submitted by the
NYSE to make various changes to its policy with respect to MOC and
LOC orders. See Securities and Exchange Act Release No. 40094 (June
15, 1998) (order approving SR-NYSE-97-36).
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As a result, Amex is proposing to substantially conform its policy
to the NYSE policy. However, Amex's policy will differ from that of the
NYSE in several respects to account for the differences in the types of
stocks that trade on the Amex versus those that trade on the NYSE
(e.g., smaller float and capitalization of Amex companies). The
proposed policy is as follows:
(a) A 3:40 p.m. deadline will be imposed every day for the entry of
all MOC orders in all common stocks,\7\ other than those that trade in
units of less than 100 shares. After the 3:40 p.m. deadline, MOC orders
will only be accepted to offset published imbalances. MOC orders will
be irrevocable after that time, except to correct an error.
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\7\ This policy will not apply to any security the pricing for
which is based on another security or an index, such as derivatives,
warrants and convertible securities.
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(b) Order imbalances must be published on the tape as soon as
practicable after 3:40 p.m. if there is an imbalance of 25,000 shares
or more. In addition, an order imbalance below 25,000 shares may also
be published by a specialist, with the concurrence of a Floor Official,
if the specialist (1) anticipates that the execution price of the MOC
orders on the book will exceed the price change parameters of Amex Rule
154, Commentary .08,\8\ or (2) believes that an order imbalance should
otherwise be planned.\9\
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\8\ Commentary .08 requires a specialist to have Floor Official
approval before executing a transaction in a stock at a price (i) of
$20 or more a share at 2 points or more away from the last sale,
(ii) between $10 and $20 a share at one point or more away from the
last sale, and (iii) of less than $10 a share at \1/2\ point or more
away from the last sale.
\9\ Pursuant to Amex Rule 22(d), a specialist may request that a
Floor Governor review a determination by a Floor Official not to
permit publication of an order imbalance.
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(c) LOC orders (which Amex does not currently permit to be entered)
will now be permitted to be entered prior to the applicable deadline
(i.e., 3:40 p.m.), but after the deadline only to offset a published
imbalance. LOC orders will be irrevocable after that time, except to
correct an error.\10\
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\10\ Telephone conversation between Stuart Diamond, Director,
Rulings, Amex and David Sieradzki, Attorney, Division, Commission on
June 16, 1998.
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The Exchange is also proposing that the order imbalance
dissemination requirements described in paragraph (b) above also be
applied to the opening at 9:30 a.m.\11\
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\11\ See Amendment No. 1, supra note 3.
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III. Discussion
The Commission finds that the proposed rule change is consistent
with Section 6 \12\ of the Act the rules and regulations thereunder. In
particular, the Commission believes that the proposal is consistent
with the Section 6(b)(5) \13\ requirements that the rules of an
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.\14\
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\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(5).
\14\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78f(b).
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In recent years, the Exchange and other self-regulatory
organizations have instituted certain safeguards to minimize excess
market volatility that may arise from the liquidation of stock
positions at the end of the trading day. The Exchange has been
utilizing special closing procedures for the entry of MOC orders in
Amex-listed stocks since December 16, 1992.\15\ These procedures allow
Amex specialist to determine the buying and selling interest in MOC
orders and, if there is a substantial imbalance on one side of the
market, to provide the investing public with timely and reliable notice
of the imbalance and with an opportunity to make appropriate investment
decision in response. The Commission believes that Amex's proposal
appropriately refines and augments the current procedures.
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\15\ See Securities Exchange Act Release No. 31610 (Dec. 16,
1992), 57 FR 61131 (Dec. 23, 1992).
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The Commission believes that the proposed rule change may further
increase public awareness of MOC order imbalances and provide market
participants with more of an opportunity to make appropriate investment
decisions. Specifically, the proposal will change the deadline from
3:50 p.m. to 3:40 p.m. for entry of all MOC orders on all trading days.
In addition, the proposal will allow the entry of LOC orders prior to
the applicable deadline, but after the deadline only to offset a
published
[[Page 36282]]
imbalance. In conjunction with the prohibition on canceling or
modifying any MOC/LOC order after 3:40 p.m. the Commission believes
that this requirement should allow the specialist to make a timely and
reliable assessment, for every Amex-listed stock, of MOC/LOC order flow
and its potential impact on closing prices.
Further, the proposal would require Amex specialists to publish
order imbalances of 25,000 shares or more as close to 3:40 p.m. as
practicable. In addition, under certain circumstances, order imbalances
of less than 25,000 shares may be published as close to 3:40 p.m. as
practicable with the approval of a Floor Official. The Commission
believes that permitting order imbalance publications even though the
imbalance is under 25,000 shares should give specialists needed
flexibility to balance order flow where the specialist believes that it
may be necessary to attract contra-side interest. With respect to
changing the deadline for entering MOC orders on non-expiration days,
the Commission believes that, by giving market participants more time
to react to published MOC order imbalances, the proposal may contribute
to reducing volatility at the close.\16\
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\16\ As discussed above, LOC orders will be subject to the same
deadlines for order entry as MOC orders.
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Finally, the Exchange proposes to apply the order imbalance
dissemination requirements at the opening of trading as well as at the
close. Specifically, as discussed above, the Exchange will require
order imbalances of 25,000 shares or more to be disseminated before
9:30 a.m. Circumstances under which an imbalance of less than 25,000
shares would be published will apply to the opening as well.\17\ The
Commission believes that requiring order imbalances to be published
prior to the opening may help reduce volatility at the opening as well
as at the close of improving the specialists' ability to accurately
assess opening order flow, and attract contra-side interest to help
alleviate order imbalances. Further, the policy should help provide the
investing public with more timely and reliable information regarding
likely opening and closing prices, and thus the ability to make more
informed trading decision.
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\17\ As discussed above and in Amendment No. 1, the Commission
notes that the Exchange will not apply the order entry procedures
used for the close of trading to the opening of trading. See
Amendment No. 1, supra note 3.
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The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing of this amendment in the Federal
Register. Amendment No. 1 clarifies the proposal to indicate what the
deadline is for order imbalance publications at the opening. In
addition, Amendment No. 1 clarifies that MOC/LOC order entry procedures
will not apply to the opening of trading. As a result, the Commission
does not believe that Amendment No. 1 raises any new regulatory issues.
Further, the Commission notes that the original proposal was published
for the full 21-day comment period and no comments were received by the
Commission. Accordingly, the Commission believes there is good cause,
consistent with Sections 6(b)(5) and 19(b) \18\ of the Act, to approve
Amendment No. 1 to the Exchange's proposal on an accelerated basis.
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\18\ 15 U.S.C. 78f(b)(5) and 15 U.S.C. 78s(b).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1, including whether it 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 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 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 Amex. All
submissions should refer to File No. SR-AMEX-98-10 and should be
submitted by July 23, 1998.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-AMEX-98-10) is approved as
amended.
\19\ 15 U.S.C. 78s(b)(2).
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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. 98-17561 Filed 7-1-98; 8:45 am]
BILLING CODE 8010-01-M
