[Federal Register Volume 66, Number 45 (Wednesday, March 7, 2001)]
[Notices]
[Pages 13816-13819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5540]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44013; File No. SR-AMEX-01-05]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the American Stock Exchange
LLC Relating to Price Matching and Improvement Enhancements to Auto-Ex
February 28, 2001.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
February 12, 2001, the American Stock Exchange LLC (the ``Amex'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. The Exchange has designed the proposed rule change as
constituting a ``non-controversial'' rule change under paragraph (f)(6)
of Rule 19b-4 under the Act,\3\ which renders the proposal effective
upon receipt of this filing by the Commission. On February 27, 2001,
the Exchange Commission received Amendment No. 1 to the filing.\4\
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\1\ 15 U.S.C. 78s(b)(1)
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b(f)(6).
\4\ See letter from Claire McGrath, Vice President and Special
Counsel, Amex to Nancy Sanow, Assistant Director, Division of Market
Regulation (``Division''), Commission, dated February 26, 2001
(``Amendment No. 1''). In Amendment No. 1, the Exchange deleted
Commentary .01(g) from the proposed rule text, and clarified the
circumstances under which customer orders would be routed to the
specialist instead of being automatically executed.
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The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
1. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Amex proposes to implement price improvement enhancements to
the Exchange's Automatic Execution system. Below is the text of the
proposed rule change. Proposed new language is in italics.
* * * * *
Automatic Execution of Options Orders
Rule 933
(a)-(b) No change.
Commentary
.01(a) Orders to buy or sell options that are multiply traded on
one or more options exchanges in addition to the Exchange will not be
automatically executed at prices inferior to the current best bid or
offer displayed by any other options exchange, as such best bids or
offers are identified by the Exchange's order routing system.
(b) Customer orders in those series of options that have been
specifically designated by the Auto-Ex Enhancements Committee
(``automatic price matching series''), under circumstances where the
Exchange's best bid or offer is inferior to the current best bid or
offer displayed by another options exchange by no more than the ``price
matching amount,'' as defined below, will be automatically executed at
the current best bid or offer displayed by the other options exchange.
If the Exchange's best bid or offer is inferior to the current best bid
or offer displayed by another options exchange by more than the price
matching amount, the order will be routed to the specialist and not
automatically executed. Only customer orders within the order size
parameters established by the Auto-Ex Enhancements Committee will be
eligible for automatic price matching. A customer order that exceeds
the established order size parameter will be routed to the specialist
and not automatically executed.
(c) Customer orders in those series of options that have been
specifically designed by the Auto-Ex Enhancements Committee
(``automatic price improvement series'') will be automatically executed
when the Exchange's best bid or offer is equal to the current best bid
or offer by the price improvement amount, as defined below. Only
customer orders within the order size parameters established by the
Auto-Ex Enhancements Committee will be eligible for automatic price
improvement. A customer order that exceeds the established order size
parameter will be either automatically executed at the Exchange's best
bid or offer if it is within the Auto-Ex order size parameters, or it
will be routed to the specialist and not automatically executed.
(d) Notwithstanding paragraphs (b) and (c) above, orders for
automatic price matching series or automatic price improvement series
will be routed to the specialist and not automatically executed in
situations where: (i) the current best bid or offer for one of the
series is crossed (e.g., 4.20 bid, 4 asked) or locked (e.g., 4 bid, 4
asked); (ii) the specialist in conjunction with a Floor governor or two
Floor Officials determined quotes in such options or options
exchange(s) are not reliable; or (iii) the Exchange is experiencing
communications or systems problems, ``fast markets,'' or delays in the
dissemination of quotes by the Options Price Reporting Authority
(``OPRA''). Members and member organizations will be notified when the
Exchange has determined that quotes are not reliable and prior to one
or both Auto-Ex Enhancements being shut off and customer orders being
routed to the specialist for execution. The specialist will report the
execution or non-execution of such orders to the firm that
[[Page 13817]]
originally forwarded the order to Auto-Ex.\5\
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\5\ Proposed subparagraph (d) of Commentary .01 of Amex Rule 933
is reorganized in this order to clarify that orders for automatic
price matching series or automatic price improvement series will be
routed to the specialist and will not be automatically executed if
the specialist in conjunction with a Floor Governor or two Floor
officials determines that quotes in such options or options
exchange(s) are not reliable and if the Exchange is experiencing
communications or systems problems, ``fast markets,'' or delays in
the dissemination of quotes by OPRA. Telephone conversation between
Elizabeth King, Associate Director, Nancy Sanow, Assistant Director,
and Jennifer Colihan, Special Counsel, Division, Commission, and
Claire McGrath, Vice President and Special Counsel, Amex, on
February 27, 2001.
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(e) As used in this Commentary, the term ``price matching amount''
shall mean the minimum increment for options of that series established
pursuant to Rule 952, or any greater amount established by the Auto-Ex
Enhancements Committee in respect of specified automatic price matching
series of options. As used in this Commentary, the term ``price
improvement amount'' shall mean the minimum increment for options of
that series established pursuant to Rule 952, or any greater amount
established by the Auto-Ex Enhancements Committee in respect of
specified automatic price improvement series of options.\6\
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\6\ Proposed subparagraph (e) of Commentary .01 of Amex Rule 933
provides that that Auto-Ex Enhancement Committee shall determine the
price improvement amounts and order size parameters. Telephone
conversation between Nancy Sanow, Assistant Director and Jenifer
Colihan, Special Counsel, Division, Commission, and Claire McGrath,
Vice President and Special Counsel, Amex, on February 27, 2001.
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* * * * *
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 purpose of the proposed rule change is to permit the
implementation of enhancements to the Exchange's Automatic Execution
(``Auto-Ex'') system. Auto-Ex executes, at the displayed bid or offer,
customer market and marketable limit option orders up to a specified
number of contracts routed through the Amex Order File (``AOF''). There
are, however, some situations in which orders otherwise eligible for
execution on Auto-Ex are routed to the specialist's book (known as the
Amex Options Display Book (``AODB'')) for an execution. These
situations occur when (i) the best bid or offer is represented by a
limit order on the AODB, (ii) the best bid or offer is locked or
crossed, or (iii) there is a better bid or offer being displayed by a
competing market.
The Exchange now proposes to enhance its automatic execution system
to provide automatic price matching and improvement for certain orders
executed through Auto-Ex, thus eliminating the need for these orders to
be routed to the AODB. The first proposed enhancement will provide
automatic price matching on Auto-Ex when the best bid or offer for that
series being displayed by a competing market is within a specified
number of trading increments or ``ticks'' of the bid or offer being
displayed by the Amex (i.e., the ``price matching amount''). The second
proposed enhancement will provide automatic price improvement on Auto-
Ex for orders within the established order size parameters when Amex is
displaying the best bid or offer and specialists and registered options
traders wish to improve upon their own bid or offer by a specified
number of trading increments (i.e., the ``price improvement amount'').
A newly created committee, the Auto-Ex Enhancement Committee (the
``Committee''), will review and designate which option classes or
series are eligible for either one or both of the Auto-Ex enhancements
upon the request of a specialist. The Committee will be comprised of
the Exchange's four Floor Governors and the Chairmen (or their
designees) of the Specialists Association, the Options Market Makers
Association and the Floor Brokers Association. In determining which
option classes or series are eligible for either one or both of the
Auto-Ex enhancements, the Committee may consider such factors as the
open interest in the requested option; the average daily volume of the
option; customer requests; and any other factors as the Committee deems
appropriate. The Committee will also have the ability to delete options
from the list of those eligible for the enhancements upon the request
of the specialist using the same or similar criteria, including the
specialists' ability to continue offering either of the enhancements.
The Committee will also determine the price matching and price
improvement amounts and the order size parameters. The Exchange will
publish a list of all eligible options in an Information Circular
distributed to members.
a. Automatic Price Matching
The first proposed enhancement will provide for the matching of the
best bid or offer displayed by a competing market by allowing customer
market and marketable limit orders to be automatically executed at that
best bid or offer provided it is within the specified number of trading
increments or ticks of the Amex's displayed bid or offer, and the order
is within the established order size parameters. Currently, the trading
increment for an option with a premium equal to or less than $3.00 is 5
cents and for an option with a premium greater than $3.00, the trading
increment is 10 cents. Thus, for example, if the Amex displayed quote
is 2-2.10, the best bid/offer displayed by a competing market is 2-
2.05, the specified number of ticks is one and the order size parameter
is five contracts, when an order is received on the Amex to buy 5
contracts at the market, the order will be automatically executed at
the offer price of 2.05. The enhancement can be turned on at any level
for an option, by symbol, class put/call or strike price. If an order
is received and the competing market's best bid or offer was not within
the specified number of ticks or the order size is larger than the
order size parameters, then the order would be routed to the AODB for
an execution.
b. Automatic Price Improvement
The second enhancement will provide for automatic price improvement
anytime the Amex quote is equal to the best bid/offer and the option
series has been designated by the Auto-Ex Enhancement Committee.
Through this enhancement, automatic price improvement will be provided
based upon a predefined number of ticks and for orders within the
established order size parameter. For example, if the Amex displayed
quote is the best bid and offer at 2-2.10, the predefined number of
ticks is one and the order size parameter is five when an order is
received on the Amex to buy 5 contracts at the market, the order will
be automatically executed at an improved price of 2.05. If the order
size is for a number of contracts that exceeds the order size
parameters, such orders will be automatically executed at the best bid/
offer. This enhancement may be turned on for any option, by symbol,
class, put/call or strike price.
[[Page 13818]]
Neither enhancement will apply if the current best bid or offer is
locked or crossed. Further, the enhancements will not apply when the
specialist in conjunction with a Floor Governor or two Floor Officials
determines that quotes in such options or market(s) are deemed not to
be reliable. This authority would be expected to be exercised only in
circumstances such as communications or systems problems; fast markets;
delays in the dissemination of quotes because of queues on the Option
Price Reporting Authority (``OPRA'') (in which case the Exchange would
know that there is a delay in the dissemination of quotes from the
other exchanges, which would likely render such quotes stale) or if the
Exchange is advised by another exchange that it is experiencing
communications or system problems that would cause its disseminated
quotes to be unreliable. Also, neither enhancement will apply if the
Exchange is experiencing communications or systems problems; fast
markets; or delays in the dissemination of quotes by OPRA.
The Exchange believes the implementation of the proposed price
matching and improvement enhancements will benefit investors by
providing investors with automatic executions at prices equal to or
better than the current best bid/offer and greatly enhance speed of
execution and order turn-around times.
2. Basis
The proposed rule change is consistent with section 6(b) of the Act
\7\ in general and furthers the objectives of section 6(b)(5) \8\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received with respect
to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The proposed rule change has been filed by the Exchange as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act
\9\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\10\ Because the
foregoing proposed rule change: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest; provided that the
Exchange has given the Commission written notice of its intent to file
the proposed rule change at least five business days prior to the
filing date of the proposed rule change, it has become effective
pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6).
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 15 CFR 240.19b-4(f)(6).
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The Exchange has requested that the Commission accelerate the
operative date of the proposal. In addition, the Exchange provided the
Commission with written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, more than five business days prior to the date of the filing of
the proposed rule change. The Commission finds that it is appropriate
to accelerate the operative date of the proposal and designate the
proposal to become operative today.\11\
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\11\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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The Commission finds good cause for accelerating the operative date
of the proposed rule change.\12\ The Commission notes that it has
approved similar proposals filed by the Chicago Board Options Exchange
(``CBOE'') \13\ and the Philadelphia Stock Exchange, Inc.
(``Phlx'').\14\ Approval of this proposal on an accelerated basis will
enable the Amex to compete on an equal basis with these other exchanges
and thus is consistent with section 6(b)(8) of the Act.\15\
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\12\ The Commission notes that its decision to accelerate the
operative date of this rule change is not dispositive of whether all
aspects of the new Commentary comply with the terms and conditions
of section IV.h.(i)(bb) of the Order Instituting Public
Administrative Proceedings Pursuant to section 19(h)(1) of the
Securities Exchange Act of 1934, Making Findings and Imposing
Remedial Sanctions (the ``Order''). The parties to the Order,
including the Exchange, are required to ``specify the circumstances,
if any, under which automated execution systems can be disengaged or
operated in any manner other than the normal manner set forth in the
exchange's rules and require the documentation of the reasons for
each decision to disengage an automated execution system or operate
it in any manner other than the normal manner.'' The Order further
provides that parties to the Order must submit to the Commission
staff draft proposed rule changes that comply with the requirements
set forth above no later than six months from the date of the Order.
See Securities Exchange Act Release No. 43268 (September 11, 2000).
\13\ See Securities Exchange Act Release Nos. 43285 (September
12, 2000), 65 FR 56972 (September 20, 2000) (approving SR-CBOE-93-
22); 40096 (June 16, 1998), 63 FR 34209 (June 23, 1998) (approving
SR-CBOE-98-13); 41821 (September 1, 1999), 64 FR 50313 (September
16, 1999) (approving SR-CBOE-99-17); 42167 (November 22, 1999), 64
FR 66954 (November 30, 1999) (approving SR-CBOE-99-57).
\14\ See Securities Exchange Act Release No. 43684 (December 6,
2000), 65 FR 78238 (December 14, 2000) (partially approving SR-Phlx-
00-93).
\15\ 15 U.S.C. 78f(b)(8).
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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 furtherance of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposal is
consistent with the Act. Persons making written submissions should file
fix copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 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 number SR-Amex-01-05 and should be
submitted by March 28, 2001.
[[Page 13819]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5540 Filed 3-6-01; 8:45 am]
BILLING CODE 8010-01-M