Federal Register / Vol. 65, No. 110 / Wednesday, June 7, 2000 / Notices 36183

3Telephone conversation between Ivonne T.

Lugo, Assistant General Counsel, Legal and

Regulatory Division, Amex, and Michael Gaw,

Attorney, Division of Market Regulation,

Commission, on May 22, 2000.

4 15 U.S.C. 78f(b).

5 15 U.S.C. 78f(b)(5). 6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

seat or serve on an Exchange committee

in the place of the active member.3

If an interim member is not allocated

the membership held by the active

member within one year of approval by

the Exchange’s Membership Services

Department, the individual’s eligibility

for interim membership would be

terminated. To become eligible again for

interim member status, the individual

would have to requalify for membership

pursuant to Article IV of the Exchange

Constitution by repaying all fees,

passing the test, and updating the

application.

The Exchange believes that a

confluence of competitive factors, such

as the advent of the International

Securities Exchange and the multiple

listing of options, coupled with rising

seat prices, make it critical for Exchange

members to maximize their use of

personnel and capital resources. This

Interim Seat Allocation Program is an

effort by the Exchange to assist its

members in accomplishing that goal.

2. Statutory Basis

Amex believes that the proposed rule

change would be consistent with the

provisions of section 6(b) of the Act 4 in

general and would further the objectives

of section 6(b)(5) 5 in particular, because

it is 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; and is

not designed to permit unfair

discrimination between customers,

issuers, brokers, and dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change would result

in any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

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.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding, or

(ii) as to which Amex consents, the

Commission will:

(A) by order approve such proposed

rule change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. 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 Exchange. All

submissions should refer to File No.

SR–AMEX–00–19 and should be

submitted by June 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14255 Filed 6–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42834; File No. SR–Amex–

00–07]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange LLC

Relating to the Amendment of Rule 126

on a Pilot Program Basis

May 26, 2000.

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 3, 2000,

the American Stock Exchange LLC

(‘‘Amex’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

Amex Rule 126 on a six month pilot

program basis by adding a new

Commentary .03 to implement a

program for processing electronically

transmitted orders for the common stock

of business corporations admitted to

dealings on the Exchange

(‘‘eQPrioritysm’’). Below is the text of the

proposed rule change, which is entirely

new.

* * * * *

.03. Orders Delivered Electronically to

the Specialist. At all times other than an

opening or a reopening (Rule 108) or a

block sold at a ‘‘clean-up’’ price (Rule

155), a round lot, regular way order for

the common stock of a business

corporation admitted to dealings on the

Exchange that is sent to the specialist

electronically and is executable

according to its terms in whole or in

part shall be handled in the following

manner. Upon receipt of the electronic

order by the specialist’s order book, the

specialist shall announce the order to

the crowd and the order shall establish

priority with respect to all other bids

and offers. Once the specialist has

announced the order, members who

have bids or offers incorporated in the

Amex Published quote (‘‘APQ’’ shall not

be permitted to withdraw or modify

their interest except to provide price

improvement (i.e., an execution between

the APQ) to the incoming order.

36184 Federal Register / Vol. 65, No. 110 / Wednesday, June 7, 2000 / Notices

3The APQ is the best bid or offer that Amex

conveys to the Consolidated Quotation System.

Conversation between Bill Floyd-Jones, Assistant

General Counsel, Arne Michelson, Senior Vice

President, Laurence McDonald, Managing Director,

Lauren Brophy, Vice President, Amex, and Joshua

Kans, Special Counsel, Madge Hamilton, Special

Counsel, Division of Market Regulation

(‘‘Division’’), Commission, April 5, 2000.

4Current practices do not guarantee that an

incoming electronic order will interact against the

APQ. When an electronic order arrives on the

Exchange, the specialist in the security will

announce a crossing market in an attempt to

provide price improvement to the order. For

example, if an electronic market order to buy

arrives on the Exchange, the specialist will

announce a bid at a minimal fractional variation

away from the APQ ask price, and the specialist

will announce an offer at the APQ ask price. This

gives floor brokers an opportunity to price improve

the order by selling to the bid. This method of

crossing, however, may also permit a floor broker

to take the offer despite the presence of the

electronic order. If an electronic market order to sell

arrives, a floor broker similarly has the opportunity

to sell to the bid first.

Also, if an electronic order is filled in part at an

improved price, current practice allows floor

brokers to interact with the APQ on parity with the

remainder of the electronic order. This is because

Amex Rules 126(e)(3) and 126(f) provide that each

sale cancels all bids and offers. In that case, Amex

Rules 126(e)(2) and 126(f) require the bids or offers

on parity to be filled as equally as practicable.

Conversations between Bill Floyd-Jones, Assistant

General Counsel, Arne Michelson, Senior Vice

President, Laurence McDonald, Managing Director,

Lauren Brophy, Vice President, Amex and Joshua

Kans, Special Counsel Madge Hamilton, Special

Counsel, Division, Commission, March 31, 2000

and April 5, 2000.

5The proposed rule change further provides that

once the specialist announces the order, the

specialist and members of the crowd will have a

brief opportunity to provide price improvement. If

part of the order is filled at an improved price, the

sale would not remove bids and offers, and the

incoming order retains priority over other bids and

offers up to the full size of the APQ less any interest

that provided price improvement. If the incoming

order is larger than the size displayed in the APQ,

the unfilled portion will be handled according to

the customary auction market procedures.

6This example presumes that the floor broker and

the specialist simultaneously sell to the bid. In that

situation, Amex Rules 126(e)(2) and 126(f) provide

that all such bids and offers are on parity and any

securities to be sold in execution of bush bids or

offers are divided as equally as practicable between

the specialist and the brokers, except when the

specialist has an accumulation of orders on his

book representing a substantial amount of the

security at the same price. Conversation between

Bill Floyd-Jones, Assistant General Counsel, Arne

Michelson, Senior Vice President, Laurence

McDonald Managing Director, Amex, and Joshua

Kans, Special Counsel, Madge Hamilton, Special

Counsel, Division, Commission, March 31, 2000.

Following the announcement of the

order, the specialist and members in the

crowd shall have a brief opportunity to

provide price improvement to the

incoming order. In the event that the

incoming order is price improved but

not entirely filled at the improved price,

the sale shall not remove all bids and

offers, and the incoming order shall

retain priority over other bids and offers

up to the full size of the APQ that was

displayed at the time of the

announcement of the order less any

interest that provided price

improvement to the order. In the event

that the incoming order is larger than

the size displayed in the APQ, the order

shall be executed according to these

procedures and any unfilled balance of

the order shall be handled according to

the Exchange’s customary auction

market processes.

This Commentary .03 will expire six

months from the date the SEC approval.

The SEC approved this rule change on

(insert date of Approval Order when

known).

* * * * *

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

Exchange 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

Exchange 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

Order execution has become

increasingly automated and

competitive. To encourage investors and

order flow providers to send orders to

the Exchange, the Amex is proposing to

add a new Commentary .03 to Amex

Rule 126. Commentary .03 would be

effective for a six months pilot period.

The commentary is intended to assure

investors who send equity orders to the

Exchange that their orders will be filled

either (i) at the Amex Published Quote

(‘‘APO’’) 3 at the time the specialist

announces the order up to the depth of

the quote, or (ii) at an improved price.4

Specifically, the proposed rule change

would require that members may not

withdraw or modify their bids and

offers incorporated into the APQ during

the processing of electronically

delivered orders except to provide price

improvement. The proposed rule change

also provides that an incoming

electronic order retains priority over

other bids and offers on the Floor until

the exhaustion of the APQ displayed at

the time the specialist announces the

electronic order. 5

An example best illustrates how the

program will work. Assume the APQ is

20 to 201⁄8, 3,000 by 3,000 and that the

bid consists of a broker in the crowd

working a buy order (3,000 shares

reflected in the APQ). Assume that the

offer consists of a customer limit order

(1,000 shares) and the specialist as

principal (2,000 shares). (There is also a

broker in the crowd working a sell order

who has chosen not to reflect any of his

interest in the APQ.) Assume that the

specialist receives an electronic order to

buy 3,000 shares at the market. Once the

specialist announces the order, no one

would be permitted to withdraw his or

her interest from the APQ except to

provide price improvement to the

incoming electronic order. In this

example, the specialist would announce

to the crowd that there are 3,000 shares

to buy. Both the specialist and the

broker working the sell order each could

sell, 1,500 shares to the incoming

electronic order at an improved price of

201⁄6.6 If, however, the broker in the

crowd were unwilling to price improve

the order, and the specialist were

willing to sell, 3,000 at 201⁄16, then the

electronic order would buy 3,000 at

201⁄16 from the specialist. If neither the

specialist nor the broker in the crowd

were willing to price improve the order,

it would be filled at 201⁄8 against the

customer limit order and the specialist’s

offer. The electronic order would have

priority over all other purchasers at the

Amex until the APQ displayed at the

time it is announced is exhausted.

The Exchange’s proposed eQPriority

program is not limited to institutional

size orders. In addition, the Exchange’s

program is available with respect to all

interest displayed in the APQ at the

time the order is announced. The

Exchange believes that eQPriority will

provide investors with the optimal

combination of price improvement

possibilities together with speed and

certainty of execution.

The eQPriority program only will

apply to the common stock of business

corporations admitted to dealings. The

Exchange believes that it would be

inappropriate to apply eQPriority to

options and equity derivatives because

the Amex is not the price discovery

market for these securities and the value

of the underlying instruments may

change very rapidly. The Exchange also

believes that the program should not

apply to openings and reopenings.

Openings involve a balancing of supply

and demand to reach a consensus price

that, by definition, is the best execution.

The program also will not apply to

‘‘clean-up’’ sales of blocks. The

Exchange believes that the current

Federal Register / Vol. 65, No. 110 / Wednesday, June 7, 2000 / Notices 36185

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the CBOE corrected the

filing number, changing it from SR–CBOE–99–02.

See letter from Christopher R. Hill, Attorney, Office

of Enforcement, CBOE, to Nancy Sanow, Assistant

Director, Division of Market Regulation,

Commission, dated February 24 (‘‘Amendment No.

1’’).

procedure for affecting a clean-up sale at

a single price outside the APQ is fairest

to all parties and, accordingly, does not

propose to amend this process.

The Exchange is proposing to adopt

eQPriority on a six-month pilot program

basis to assess its benefits and costs.

2. Statutory Basis

The proposed rule change is

consistent with section 6(b) of the Act

in general and furthers the objectives of

section 6(b)(5) in particular in that it is

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; and is

not designed to permit unfair

discrimination between customers,

issuers, brokers and dealers.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The proposed rule change will impose

no burden on competition not necessary

or appropriate in furtherance of the

purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(A) By order approve such proposed

rule change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule

change 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 20549–0609. 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 in Washington, D.C. 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–00–

07 and should be submitted June 28,

2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–14259 Filed 6–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42857; File No. SR–CBOE–

00–02]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Chicago Board

Options Exchange, Inc. Governing the

Final Settlement Value of Index

Options in the Event of a Primary

Market Closure

May 30, 2000.

Pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder, 2

notice is hereby given that on February

15, 2000, the Chicago Board Options

Exchange, Inc. (‘‘CBOE’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

On February 25, 2000, the CBOE

submitted Amendment No. 1 to the

proposed rule change. 3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

approve the proposal on an accelerated

basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The CBOE proposes to amend its rules

governing the settlement procedures for

its index options in certain unusual

circumstances. The text of the proposed

rule change is available at the CBOE and

at the Commission’s Public Reference

Room.

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

CBOE 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 CBOE 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

Based on recent events, the Exchange

proposes to change settlement

procedures for index options when a

primary market for underlying stocks in

an index does not open on the

scheduled settlement day. Under such

circumstances, the proposed rule

change will allow the use of the next

available opening prices for the affected

underlying securities to calculate the

settlement value of the index options.

On Thursday, September 16, 1999, it

was feared that the New York Stock

Exchange, Inc. (‘‘NYSE’’) would not

open for business the next day as

Hurricane Floyd traveled up the Eastern

seaboard. In the event that the NYSE

had not opened on Friday, September

17, an expiration Friday, the settlement

of index options and futures contracts

would have been affected. A review of

this situation demonstrates the critical

need for this rule change.

Current CBOE index option

settlement rules do not expressly

address a situation when an entire

primary market, such as the NYSE, fails

to open for business. The closest

applicable rules, such as CBOE Rule

24.9(a)(4), provide that a specific

underlying security in an index does not

open, the last reported sale price of such

a security will be used to determine the