[Federal Register Volume 61, Number 145 (Friday, July 26, 1996)]
[Notices]
[Pages 39170-39172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19038]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37462; File No. SR-Amex-96-25]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the American
Stock Exchange, Inc. Relating to a Pilot Program for Execution of Odd-
Lot Orders
July 19, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 5, 1996, the American
Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the
Securities and Exchange Commission (``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 change.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to extend for four months its existing pilot
program under Amex Rule 205 requiring execution of odd-lot market
orders at the prevailing Amex quote with no differential charged.\2\
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\2\ The Exchange seeks accelerated approval of the proposed rule
change in order to allow the pilot program, which expires on August
8, 1996, to continue without interruption.
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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 III below. The self-regulatory
organization 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
Statutory Basis for, the Proposed Rule Change
1. Purpose. The Commission has approved, on a pilot basis extending
to August 8, 1996, amendments to Amex Rule 205 to require execution of
odd-lot market orders at the Amex quote with no odd-lot differential
charged.\3\ The procedures were initially approved by the Commission in
1989 \4\ and were most recently extended in February 1996.\5\
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\3\ Securities Exchange Act Release No. 35344 (Feb. 8, 1995), 60
FR 8430 (approving File No. SR-Amex-95-03).
\4\ Securities Exchange Act Release No. 26445 (Jan. 10, 1989),
54 FR 2248 (approving File No. SR-Amex-88-23).
\5\ See Securities Exchange Act Release No. 36821 (Feb. 8,
1996), 61 FR 6050 (approving File No. SR-Amex-96-06). Prior to this
release, the Commission had extended this pilot program eleven
times. See Securities Exchange Act Release Nos. 34949 (Nov. 8,
1994), 59 FR 58863 (approving File No. SR-Amex-94-47); 34496 (Aug.
8, 1994), 59 FR 41807 (approving File No. SR-Amex-94-28); 33584
(Feb. 7, 1994), 59 FR 6983 (approving File No. SR-Amex-93-45); 32726
(Aug. 9, 1993), 58 FR 43394 (approving File No. SR-Amex-93-24);
31828 (Feb. 5, 1993), 58 FR 84234 (approving File No. SR-Amex-93-
06); 30305 (Jan. 20, 1992), 57 FR 4653 (approving File No. SR-Amex-
92-04); 29922 (Nov. 8, 1991), 56 FR 58409 (approving File No. SR-
Amex-91-30); 29186 (May 19, 1991), 56 FR 22488 (approving File No.
SR-Amex-91-09); 28758 (Jan. 10, 1991), 56 FR 1656 (approving File
No. SR-Amex-90-39); 27590 (Jan. 5, 1990), 55 FR 1123 (approving File
No. SR-Amex-89-31).
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[[Page 39171]]
In approving prior extensions to the Exchange's odd-lot pilot
program, the Commission has expressed interest in the feasibility of
the Exchange utilizing the Intermarket Trading System (``ITS'') best
bid or offer, rather than the Amex bid or offer, for purposes of the
Exchange's odd-lot pricing system. In File No. SR-Amex-95-03,
requesting a further extension of the pilot program, the Exchange
stated that it had determined to proceed with systems modifications to
provide for execution of odd-lot market orders at the ITS best bid or
offer.\6\
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\6\ See Securities Exchange Act Release No. 35344 (Feb. 8,
1995), 60 FR 8430 (approving File No. SR-Amex-95-03).
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The Commission has approved amendments to Amex Rule 205 to
accommodate the prospective modifications to the Exchange's odd-lot
pricing system.\7\ Specifically, amended Amex Rule 205 would provide
that odd-lot market orders to buy or sell would be filled at the
``adjusted ITS offer'' or ``adjusted ITS bid,'' respectively, which
would be defined in Amex Rule 205, Commentary .04, as the lowest offer
and highest bid disseminated by the Amex or by another ITS participant
market.\8\ Where quotation information is not available (e.g., when
quotation collection or dissemination facilities are inoperable) odd-
lot market orders would be executed at the prevailing Amex bid or
offer, or at a price deemed appropriate under prevailing market
conditions. These procedures also will apply to odd-lot limit orders
that are immediately executable based on the Amex quote at the time the
order is received at the trading post or through PER.
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\7\ See Securities Exchange Act Release No. 36181 (Sept. 1.
1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
\8\ In order to protect against the inclusion of incorrect or
stale quotations when determining the highest bid and lowest offer,
Amex Rule 205, Commentary .04, contains seven criteria that must be
met before a quotation in a stock from another ITS market center
will be considered. If the ITS quotation fails to meet one of the
specified criteria, the best bid or offer disseminated by the
Exchange will be used. See Securities Exchange Act Release No. 36181
(Sept. 1, 1995), 60 FR 47194 (approving File No. SR-Amex-95-24).
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As the Exchange noted in SR-Amex-95-24, it will implement these
amendments upon completion of the necessary systems enhancements by the
Exchange and the Securities Information Automation Corporation
(``SIAC''). Upon implementation of the amended rule, the Exchange will
notify the Commission, as well as Exchange members and member
organizations. In order to provide the additional time necessary to
implement these systems enhancements, the Exchange proposes to extend
the existing pilot program procedures under Amex Rule 205 for an
additional four-month period.
2. Statutory Basis. The Exchange believes the proposed rule change
is consistent with Section 6(b) \9\ of the Act in general and furthers
the objectives of Section 6(b)(5) \10\ and Section 11A(a)(1) \11\ in
particular in that it is designed to facilitate the economically
efficient execution of odd-lot transactions and to improve the
execution of customers' orders.
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78k-1(a)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes 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
The Exchange has neither solicited nor received written comments
with respect to the proposed rule change.
III. 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, N.W., Washington, D.C. 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, N.W.,
Washington, D.C. 20549. Also, copies of such filing will be available
for inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-96-25 and should be
submitted by August 16, 1996.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds that the Exchange's proposal to extend its
pilot program concerning the execution of odd-lot orders to December 8,
1996, is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
Specifically, the Commission believes the proposal is consistent with
Section 6(b)(5) and Section 11A(a)(1) of the Act \12\ because the
Exchange's proposed pricing procedures are designed to facilitate
transactions in odd-lot orders, to help ensure the economically
efficient execution of these transactions, and, in general, to protect
investors and the public interest. The Commission further believes the
revised procedures should provide investors with more timely executions
of their odd-lot orders and should produce execution prices that more
accurately reflect market conditions than would otherwise be the case
under the pre-pilot pricing procedures.\13\
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\12\ 15 U.S.C. 78f(b)(5) and 78k-1(a)(1).
\13\ Prior to the 1989 pilot program, odd-lot market orders were
routed to a specialist and held in accumulation in the PER system or
by the specialist until a round-lot execution in that security took
place on the Exchange. Subsequent to the round-lot execution, the
odd-lot order received the same price as the last Exchange round-lot
transaction, plus or minus an odd-lot dealer differential. See
Securities Exchange Act Release No. 26445 (Jan. 10, 1989), 54 FR
2248 (approving File No. SR-Amex-88-23).
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Nevertheless, the Commission is concerned that the Exchange has
been unable to implement the new odd-lot pricing procedures as planned.
Under the current pilot pricing procedures, which only use the Amex
quote in establishing the execution prices, some odd-lot orders may be
receiving the best available price.\14\ Therefore, the Commission
strongly encourages the Exchange to complete the systems modifications
upon which implementation of the new odd-lot pricing procedures depend
as soon as possible.\15\ To ensure that the Commission is adequately
informed of the Exchange's progress towards such completion, the
Commission again requests that the Exchange provide the Commission with
a status report regarding this project on the first day of every month
until the necessary system modifications are completed. Finally,
[[Page 39172]]
upon completion of the systems modifications, the Exchange should give
advance notice to the Commission of the date when the new odd-lot
pricing procedures are to be implemented.\16\
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\14\ See Securities Exchange Act Release No. 35344, (Feb. 8,
1995), 60 FR 8430 (noting that the Exchange's current pricing
formula does not include quotations from other markets.)
\15\ As noted above, the new procedures provide for odd-lot
market orders to be filled at the ``adjusted ITS best bid or
offer.''
\16\ The Commission expects the Amex to implement the new off-
lot pricing procedures no later than the December 8, 1996 expiration
of this pilot extension.
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The Commission finds good causes for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. This will permit the pilot
program to continue on an uninterrupted basis while the Amex works to
implement the new procedures. In addition, the procedures the Exchange
proposes to continue using are identical to the procedures that were
published previously in the Federal Register for the full comment
period and were approved by the Commission.\17\
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\17\ See Securities Exchange Act Release No. 35344 (Feb. 8,
1995), 60 FR 8430; Securities Exchange Act Release No. 36821 (Feb.
8, 1996), 61 FR 6050.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
\18\ that the proposed rule change (SR-Amex-96-25) is approved on a
pilot basis for a four-month period ending on December 8, 1996.
\18\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 C.F.R. 200.30-3(a)(12).
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[FR Doc. 96-19038 Filed 7-25-96; 8:45 am]
BILLING CODE 8010-01-M
