[Federal Register Volume 59, Number 170 (Friday, September 2, 1994)]
[Notices]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21750]
[[Page Unknown]]
[Federal Register: September 2, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34611; File No. SR-Amex-93-15]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Specialist
Participation in the After-Hours Trading Facility in Portfolio
Depositary Receipts and Investment Trust Securities Based on Stock
Indexes for a One-Year Pilot Period
August 29, 1994.
I. Introduction
On April 21, 1993, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed change concerning its After-Hours Trading
(``AHT'') facility (File No. SR-Amex-93-15). As originally filed, the
proposed rule change requested permanent approval of Amex's pilot
After-Hours Trading facility and approval on a pilot basis for
specialists in investment trust securities based on stock indexes to
participate in the AHT Facility. On January 4, 1994, the Amex amended
the filing to request a three-month extension of the pilot until April
30, 1994, which the Commission approved.\3\ On May 2, 1994, the
Commission granted permanent approval to that portion of File No. SR-
Amex-93-15 concerning the Amex's After-Hours Trading facility, not
including the specialist participation request.\4\
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
\3\See Securities Exchange Act Release No. 33561 (February 1,
1994), 59 FR 5789 (February 8, 1994).
\4\See Securities Exchange Act Release No. 33993 (May 2, 1994),
59 FR 23902 (May 9, 1994).
On August 3, 1993, the Exchange amended the filing to request that
specialists in Portfolio Depository Receipts (``PDRs'') also be
permitted to participate in the AHT facility.\5\ On July 5, 1994, the
Exchange amended the proposed rule change to eliminate the migration of
limit orders for PDRs and investment trust securities from the
specialist's limit order book to the AHT facility.\6\
\5\See letter from William Floyd-Jones, Jr., Assistant General
Counsel, Amex, to Diana Luka-Hopson, SEC, dated August 3, 1993.
\6\See letter from William Floyd-Jones, Jr., Assistant General
Counsel, Amex, to Sandra Sciole, Special Counsel, SEC, dated July 1,
1994.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 34316 (July 5, 1994), 59 FR 35547 (July 12,
1994). No comments were received on the proposal. This order approves
the proposed rule change as amended for a one year period.
II. Description of the Proposal
The Exchange is amending Rules 1300 (``Applicability of 1300
Series'') and 1302 (``After-Hours Trading Orders'') for a one year
pilot period to permit specialists in PDRs and investment trust
securities listed pursuant to Section 118B of the Exchange's Listing
Guidelines\7\ to participate in the AHT facility to ``clean-up'' order
imbalances in the AHT facility by entering an order for the
specialist's account. For example, if there were single sided orders to
buy 10,000 and sell 20,000 SPDRs immediately prior to the 5:00 p.m.
close of the AHT facility, the specialist would be permitted under the
Exchange's proposed rule amendments to enter an order for its account
to buy up to 10,000 SPDRs in order to eliminate the sell side order
imbalance.
\7\The Exchange currently lists one Portfolio Depositary
Receipt, viz., Standard and Poor's Depositary Receipts (``SPDRs'');
and two investment trust securities pursuant to Section 118B of the
Exchange's Listing Guidelines: LOR Index Trust SuperUnits and LOR
Money Market SuperUnits.
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The Exchange is also amending Rule 1302(b) to eliminate the
migration of limit orders for PDRs and investment trust securities from
the specialist's limit order book to the AHT facility. Currently, Amex
Rule 1302(b) provides that a regular way good 'til cancelled order that
is designated as After-Hours eligible, that is on the specialist's
limit order book, and that is executable at the closing price or
better, shall migrate from the specialist's limit order book to the AHT
program. Any order for an account in which the specialist member
organization or any associated party has a direct or indirect interest
is prohibited from migrating to the AHT program. The rule is being
amended to provide that any order for a Portfolio Depositary Receipt or
an investment trust security listed on the Exchange pursuant to Section
118B of the Exchange's Listing Standards, Policies and Requirements
will not be permitted to migrate to the AHT program.
The Exchange is also amending Rule 1302 to permit specialists in
PDRs and investment trust securities to participate in a coupled
closing price order so long as the other side of the order is not for
an account in which a member or member organization has a direct or
indirect interest.\8\ For example, under the Exchange's amendment, the
specialist in SPDRs would be permitted to agree prior to the 4:15 close
of the regular trading session for such securities to take the other
side of a customer order to buy or sell SPDRs for execution in the AHT
facility as a closing price coupled order. The Exchange believes that
such a capability would conform the trading of PDRs and investment
trust securities to the practices of the ``basket'' market for equities
where it is customary for a dealer to agree prior to the close of the
regular trading session to take the contra side of a customer basket
order and the closing index value.
\8\As amended, Amex Rule 1300 (e)(i) defines ``closing price''
as the price established by the last regular way sale on the
Exchange prior to the official closing of the 9:30 a.m. to 4:15 p.m.
trading session, as determined by the Exchange.
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The Exchange believes that permitting specialists in PDRs and
investment trust securities to participate in the AHT facility in order
to ``clean-up'' order imbalances and effect closing price coupled
orders would benefit investors by providing additional liquidity to the
listed cash market for derivative securities based upon well known
market indexes, such as those described above. The market price of
these securities is based upon transactions largely effected in markets
other than the Amex. The Exchange states that the specialist in such
securities has no unique access to market sensitive information
regarding the market for the underlying securities or closing index
values. The Exchange, therefore, believes that specialist participation
in the AHT facility in PDRs and investment trust securities in the
manner described above does not raise any market integrity issues. In
addition, should a customer not care for an execution at the closing
price, the rules of the Exchange's AHT facility permit cancellation of
an order up to the close of the AHT session at 5:00 p.m. (orders in the
AHT facility are not executed until the 5:00 p.m. close of the after-
hours session.) A customer, therefore, will have approximately 40
minutes to determine if an execution at the closing price suits its
needs, and may cancel its order if it believes that the closing price
does not suit its objectives.
III. Discussion
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 Sections 6(b)(5) and 11 of the Act.\9\ The Commission
believes that the rule change is consistent with the Section 6(b)(5)
requirements that the rules of an exchange be designed to promote just
and equitable principles of trade, remove impediments to and perfect
the mechanism of a free and open market, and, in general, protect
investors and the public interest. The Commission also believes that
the proposal is consistent with Section 11(b) of the Act and Rule 11b-1
thereunder,\10\ which allow exchanges to promulgate rules relating to
specialists in order to maintain fair and orderly markets.
\9\15 U.S.C. Sec. 78f and 78k (1988).
\10\17 CFR 240.11b-1 (1994).
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Both the Act and Exchange rules reflect the crucial role played by
specialists in providing stability, liquidity, and continuity in the
Exchange's market. Recognizing the importance of the specialist in the
market, the Act, as well as Exchange rules, impose stringent
obligations upon specialists.\11\ Primary among these obligations is
the requirement to maintain fair and orderly markets by engaging in,
among other things, dealings for their own account to minimize the
effects of temporary disparity between supply and demand.\12\
\11\See Rule 11b-1 under the Act, 17 CFR 240.11b-1 (1994); Amex
Rule 170.
\12\See Amex Rule 170(d).
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The Commission believes that the rule change permitting specialists
in PDRs and investment trust securities listed pursuant to Section 118B
to participate in the AHT facility by entering an order for the
specialist's account only to eliminate order imbalances should assist
specialists in their obligation to minimize temporary disparity between
supply and demand. In addition, the Commission agrees with the Exchange
that permitting specialists in PDRs and investment trust securities to
participate in the AHT facility in order to ``clean-up'' order
imbalances and effect closing price coupled orders would benefit
investors by providing additional liquidity to the listed cash market
for derivative securities based upon well known market indexes.
The Commission also believes that the Amex's rule change strikes a
reasonable balance between the Exchange's need to accommodate the needs
of investors by increasing liquidity in the listed cash market for
derivative securities based on market indexes, and the need to prevent
the potential for manipulation or misuse of information. For example,
although Amex specialists will know which limit order are eligible for
execution in the AHT facility, they will not be able to use this
information to their own advantage because Rule 1302(b) is being
amended to eliminate the migration of limit orders for PDRs and
investment trust securities from the specialist's limit order book to
the AHT facility.
In addition, the Commission believes that approval of the Amex rule
change for a one year pilot period will provide the Commission and
Exchange an opportunity to monitor the operation of the amendments to
Rules 1300 and 1302. This one year period also will allow the
Commission and the Exchange the opportunity to monitor specialist
compliance with the amended rules to ensure that specialists are
properly executing their responsibilities.
Finally, in its rule filing, the Amex indicated that, during the
one year pilot period, the Exchange would study the operation of the
facility to determine if there are any additional issues that need to
be addressed. In this regard, the Commission requests that the Exchange
submit a report and analysis, by May 1, 1995, of the following
information (broken down by month): (1) trading volume (trades and
number of shares of PDRs and investment trust securities) in the after-
hours session; (2) the number of trades, if any, of (a) single-sided
orders, and (b) coupled buy and sell orders which specialists executed
in the after-hours session; (3) the number of shares, if any, of (a)
single-sided orders, and (b) coupled buy and sell orders which
specialists executed in the after-hours session; and (4) the number, if
any, of single-sided orders that remained unexecuted at the end of the
after-hours session. In addition, the Commission expects the Amex,
through use of its surveillance procedures, to monitor closely the
trading of PDRs and investment trust securities in the AHT facility to
ensure that trading in these issues is not subject to any patterns of
manipulation or trading abuses or unusual trading activity. Finally,
the Commission requests that the Amex keep the Commission apprised of
any technical problems which may arise regarding the operation of the
pilot program.
It is therefore ordered, Pursuant to Section 19(b)(2) of the
Act\13\ that the proposed rule change (SR-Amex-93-15) is hereby
approved for a one year period until August 29, 1995.
\13\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
\14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21750 Filed 9-1-94; 8:45 am]
BILLING CODE 8010-01-M
