[Federal Register Volume 61, Number 143 (Wednesday, July 24, 1996)]
[Notices]
[Pages 38486-38488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18716]
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[[Page 38487]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37448; File No. SR-Amex-96-16]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval of Amendment No. 1 to Proposed
Rule Change Relating to Specialists' Liquidating Transactions
July 17, 1996.
I. Introduction
On April 30, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission''), 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 to amend Amex Rule 170 to permit a specialist to
effect a liquidating transaction on a zero minus tick, in the case of a
``long'' position, or zero plus tick, when covering a ``short''
position, without Floor Official approval. The Amex also proposes to
amend this rule to set forth the affirmative action that specialists
would be required to take subsequent to affecting various types of
liquidating transactions.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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Notice of the proposed rule change, together with its terms of
substance, was provided by issuance of a Commission release on June 7,
1996, and by publication of this release in the Federal Register on
June 14, 1996.\3\ No comments were received in response to the
Commission release. On July 15, 1996, the Exchange Amendment No. 1 to
the Commission.\4\ This order approves the proposed rule change on a
pilot basis until September 23, 1996.
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\3\ Securities Exchange Act Release No. 37288 (June 7, 1996), 61
FR 30268.
\4\ Amendment No. 1 changed the proposal from a request for
permanent approval of this pilot program to an extension of this
pilot program until September 23, 1996. See letter from Claudia
Crowley, Special Counsel, Amex, to Anthony Pecora, Attorney,
Division of Market Regulation, SEC, dated July 12, 1996.
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II. Description of the Proposal
The proposed rule change amends Amex Rule 170 as it pertains to
specialists' liquidating transactions. The Commission previously
approved the amendments to this rule on a pilot basis.\5\
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\5\ See Securities Exchange Act Release No. 33957 (Apr. 22,
1994), 59 FR 22188 (``1994 Approval Order'') (approving File No. SR-
Amex-92-26); Securities Exchange Act Release No. 35635 (Apr. 21,
1995), 60 FR 20780 (``April 1995 Approval Order'') (approving File
No. SR-Amex-95-11); Securities Exchange Act Release No. 36014 (July
21, 1995), 60 FR 38870 (``July 1995 Approval Order'') (approving
File No. SR-Amex-95-19).
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The Exchange originally proposed to amend Amex Rule 170 in File No.
SR-Amex-92-26.\6\ The proposed rule change, filed as a one-year pilot
program, amended Amex Rule 170 to permit specialists to ``relinquify''
a dealer position by selling ``long'' on a zero minus tick,\7\ or by
purchasing on a zero plus tick \8\ to cover a ``short'' position,
without Floor Official approval. The proposed amendments also
emphasized the specialist's affirmative role in providing stabilizing
dealer participation to the marketplace where reliquification may be
required to facilitate the maintenance of a fair and orderly market.
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\6\ See 1994 Approval Order, supra note 5.
\7\ A zero minus tick is a price equal to the last sale where
the last preceding transaction at a different price was at a higher
price.
\8\ A zero plus tick is a price equal to the last sale where the
last preceding transaction at a different price was at a lower
price.
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The Commission granted temporary approval of the Amex's proposal on
a one-year pilot basis and requested that the Exchange submit a report
evaluating the effects of the amendments.\9\ The Commission then
granted a three-month extension of the pilot on April 21, 1995 to
enable the pilot to continue on an uninterrupted basis while the
Commission considered the Exchange's request for permanent
approval.\10\ The Commission subsequently granted an extension of the
pilot until July 21, 1996 to enable the Commission to review the Amex's
use of the pilot program procedures and to enable the pilot to continue
without interruption during the Commission's review.\11\ The reports
submitted by the Exchange concerning the pilot program noted that the
amendments to the Rule appear to be working well in enabling
specialists to reliquify appropriately to meet the needs of the market.
However, the Exchange is seeking to extend the pilot program until
September 23, 1996 so that the Exchange and the Commission can review
certain issues associated with the pilot program further.
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\9\ See 1994 Approval Order, supra note 5.
\10\ See April 1995 Approval Order, supra note 5.
\11\ See July 1995 Approval Order, supra note 5.
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III. Commission's Findings and Order Granting Accelerated Approval of
the Amended Proposed Rule Change
After careful consideration, the Commission concludes 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) and Section 11 of the Act.\12\ Specifically, the
Commission believes the proposal is consistent with the Section 6(b)(5)
\13\ requirements that the rules of an exchange be 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. The Commission also believes
the proposal is consistent with Section 11(b) of the Act \14\ and Rule
11b-1 \15\ thereunder, which allow exchanges to promulgate rules
relating to specialists in order to maintain fair and orderly markets.
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\12\ 15 U.S.C. 78f(b) and 78k.
\13\ 15 U.S.C. 78f(b)(5).
\14\ 15 U.S.C. 78k(b).
\15\ 17 CFR 240.11b-1.
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Under the pilot program, a specialist may liquidate a position by
selling stock on a direct minus tick or by purchasing stock on a direct
plus tick only if such transactions are reasonably necessary for the
maintenance of a fair and orderly market and only if the specialist has
obtained the prior approval of a Floor Official. Liquidations on a zero
minus or a zero plus tick, which previously required Floor Official
approval, can be effected under the pilot procedures without a Floor
Official's approval, but continue to be subject to the restriction that
they be effected only when reasonably necessary to maintain a fair and
orderly market. In addition, the specialist must maintain a fair and
orderly market during the liquidation.
After the liquidation, the specialist is required to reenter the
market on the opposite side of the market from the liquidating
transaction to offset any imbalances between supply and demand. During
any period of volatile or unusual market conditions resulting in
significant price movement in a specialist's specialty stock, the
specialist's re-entry into the market must reflect, at a minimum, his
or her usual level of dealer participation in the speciality stock. In
addition, during such periods of volatile or unusual price movements,
re-entry into the market following a series of transactions must
reflect a significant level of dealer participation.
In the 1994 Approval Order, the Commission requested that the Amex
submit a report setting forth the criteria developed by the Exchange to
determine whether any reliquifications by specialists were necessary
and appropriate in connection with fair and orderly markets.\16\ The
Commission also asked, among other things, that the
[[Page 38488]]
Exchange provide information regarding the Exchange's monitoring of
liquidation transactions effected by specialists on any destabilizing
tick. In both of the 1995 approval orders, the Commission requested
that the Amex continue to monitor the pilot and update its report where
appropriate.\17\ In particular, the Commission asked the Amex to report
any noncompliance with the Rule and the action the Amex took as a
result of such noncompliance.
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\16\ See 1994 Approval Order, supra note 5.
\17\ See April 1995 Approval Order and July 1995 Approval Order,
supra note 5.
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The Amex submitted its reports concerning the pilot program to the
Commission in May 1995 and April 1996. As noted above, the Amex
believes the pilot procedures appear to be working well in enabling
specialists to reliquify appropriately to meet the needs of the market.
After reviewing the data, the Commission agrees with the Exchange that
the pilot generally is working well. In particular, the Commission
believes the report indicates that specialists generally are entering
the aftermarket after effecting liquifying transactions when
appropriate.
The Commission believes, however, that certain issues concerning
the pilot need to be revisited before permanent approval can be
granted. In this regard, the Exchange should continue to emphasize the
requirements of Amex Rule 170, including the necessity for Floor
Official approval of specialists' purchases and sales on direct plus or
minus ticks, and that such transactions can only be effected if
reasonably necessary for the maintenance of fair and orderly markets.
In addition, where proper procedures are not followed, the Amex should
take appropriate disciplinary action.\18\
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\18\ Failure to obtain the required Floor Official approval when
establishing, increasing, or liquidating a position should be
enforced by the Exchange through its Minor Rule Violation Fine
System unless more serious action is warranted through full
disciplinary proceedings. See Amex Rule 590.
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The Commission finds good cause for approving Amendment No. 1 prior
to the thirtieth day after the date of publication of notice of filing
thereof. This will permit the pilot program to continue on an
uninterrupted basis. In addition, the Exchange proposes to continue
using the identical procedures contained in the pilot program. These
procedures have been published in the Federal Register on several
occasions for the full comment period, \19\ and no comments have been
received. Furthermore, the Commission approved a similar rule change
for the NYSE also without receiving comments on the proposal.\20\ For
these reasons, the Commission finds that accelerating approval of the
proposed rule change is consistent with Section 19(b)(2) of the
Act.\21\ Any requests to modify this pilot program, to extend its
effectiveness, or to seek permanent approval for the pilot program also
should include an update on the disciplinary actions taken for
violations of these procedures.
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\19\ See 1994 Approval Order, supra note 5; April 1995 Approval
Order, supra note 5; July 1995 Approval Order, supra note 5;
Securities Exchange act Release No. 37288 (June 7, 1996), 61 FR
30268 (publishing notice of File No. SR-Amex-96-16).
\20\ See Securities Exchange Act Release No. 31797 (Jan. 29,
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).
\21\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 1. 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. Sec. 552, will be available for inspection and
copying at the Commission's Public Reference Section, 450 Fifth Street,
NW., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-96-16 and should be
submitted by August 14, 1996.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-Amex-96-16) is approved for
a pilot period ending on September 23, 1996.
\22\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division, of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18716 Filed 7-23-96; 8:45 am]
BILLING CODE 8010-01-M
