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[Federal Register Volume 65, Number 122 (Friday, June 23, 2000)]
[Notices]
[Pages 39210-39211]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15877]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42952; File No. SR-Amex-00-25]

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to Proposed Rule Change by American Stock 
Exchange LLC Relating to the Amendment of Exchange Rule 170

June 16, 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 May 3, 2000, the American Stock Exchange LLC (``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 Amex. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to approve the order on an accelerated 
basis.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 19b-4.
    \3\ Amex clarified the proposed rule change's purpose in a 
discussion between Bill Floyd-Jones, Assistant General Counsel, 
Laurence McDonald, Managing Director, Arne Michelson, Senior Vice 
President, Amex, and Joshua Kans, Special Counsel, Division of 
Market Regulation (``Division''), Commission, on June 9, 2000.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to add new Commentary .10 to Exchange Rule 170 to 
require Floor Official approval for the deactivation of Quote Assist 
enhancement to the Amex Display Book by specialists on the equities 
floor. Proposed new language is italicized.
* * * * *
    .10 Each specialist shall keep active at all times the quotation 
processing facilities (known as ``Quote Assist'') provided by the 
Exchange. A specialist may deactivate the quotation processing 
facilities as to a stock or a group of stocks provided that Floor 
Official approval is obtained. Such approval to deactivate Quote Assist 
must be obtained no later than three minutes from the time of 
deactivation.

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 III 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 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    In January 1997, Commission Rule 11Ac1-4 under the Act (``Display 
Rule'') \4\ became effective. The Display Rule requires specialists to 
display immediately, i.e., as soon as practicable, which under normal 
market conditions means no later than 30 seconds from the time of 
receipt, the price and full size of customer limit orders that would 
improve the bid or offer in a security. Subsequently, the Exchange 
implemented an Amex Display Book \5\ enhancement to compute and 
disseminate a quote within the 30 second time frame. This enhancement, 
known as ``Quote Assist,'' is designed to help equities-floor 
specialists comply with the Display Rule.
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    \4\ 17 CFR 240.11Ac1-4.
    \5\ The Amex Display Book (``ADB'') is an electronic workstation 
at the trading post that keeps track of limit orders and incoming 
market orders. Various window-like screen applications allow the 
specialist to view one or more issues at a time at various levels of 
detail. Incoming limit orders automatically enter the ADB. When a 
floor broker gives the specialist a limit order, the specialist's 
clerk can enter the order into the ADB using the keyborad. The ADB 
sorts the limit orders and displays them in price/time priority.
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    Quote Assist monitors the limit order book for new orders and 
compares them to the published quotation. When a new order could 
improve the quote or increase the size at a quoted price, Quote Assist 
publishes a new quote 28 seconds after the order arrives if the 
specialist has not already done so. Quote Assist is always active at 
the beginning of the trading day. A specialist has the ability to 
deactivate Quote Assist as to a particular stock or stocks.
    The Exchange proposes to add Commentary .10 to Rule 170 to provide 
that deactivation of Quote Assist will require that the specialist 
review that decision with a Floor Official. Floor official approval 
would only be granted in instances when there is an influx of orders 
resulting in gap pricing, when the specialist deactivates Quote Assist 
in connection with an outgoing commitment on the Intermarket Trading 
System (``ITS''), or other unusual circumstances.\6\ Approval by a 
Floor Official to deactivate Quote Assist must be obtained as soon as 
practicable and must be obtained no later than three minutes from the 
time of deactivation. Floor Official approvals will be documented on a 
Floor Official approval form. If approval is not obtained within three 
minutes from the time of deactivation, the matter will be reviewed as a 
market surveillance issue by the Exchange.
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    \6\ In a gap pricing situation, an influx of orders may cause a 
specialist to move the price of a security to a new level. In that 
situation, immediate display of a customer limit order could cause 
the order to be filled at the limit price, and would prevent the 
customer from obtaining the benefit of the new price. Conversation 
between Bill Floyd-Jones, Laurence McDonald, Arne Michelson, Amex, 
and Joshua Kans, Division, Commission, June 9, 2000.
    In cases where a customer limit order leads a specialist to use 
ITS to send a commitment to trade to another market center, 
immediate display of the customer limit order in the specialist's 
quote may lead to the risk of a double execution and may cause a 
locked market. In any event, according to the Amex, an Amex 
specialist would not send a commitment over ITS if the order could 
be filled on the floor of Amex. Id.
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    The requirement to keep Quote Assist active is not meant to serve 
as a substitute for the actual posting of quotes by equity specialists. 
The Exchange represents that it will remind its equity specialists that 
they are not to rely solely on Quote Assist to generate quotes, since 
this would not comply with the Commission's requirements for limit 
order display. Rather, equity

[[Page 39211]]

specialists should always attempt to reflect a limit order by manually 
quoting the stock as soon as practicable even though the Quote Assist 
feature is active.
    The Exchange believes that Quote Assist provides valuable help to 
enable equity specialists to comply with their responsibilities under 
the Commission's Display Rule. The requirement that Quote Assist 
generally remain active throughout the day will ensure that equity 
specialists avail themselves of the tools provided for managing order 
flow and updating quotes.
(2) Statutory Basis
    The Exchange believes that 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 remove impediments to and 
perfect the mechanism of a free and open market and 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.
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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 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

    No written comments were solicited or received 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, 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 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 the File 
No. SR-Amex-00-25 and should be submitted by July 14, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed carefully the Exchange's proposed rule 
change \9\ and believes, for the reasons set forth below, that the 
proposal is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange. Specifically, 
the Commission believes the proposal is consistent with Sections 
6(b)(5) and 11A(a)(1)(C)(iii) and (iv) of the Act.\10\ Section 6(b)(5) 
requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system. In enacting Section 11A, Congress found that 
it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers and investors of information with 
respect to quotations for and transactions in securities, and to assure 
the practicability of brokers executing investors' orders in the best 
market.
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    \9\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation, 15 
U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5), 78k-1(a)(1)(C)(iii) and (iv).
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    The Commission finds that the proposed rule change will promote the 
quality of quotation information and promote the proper handling of 
customer limit orders by limiting the ability of specialists to 
deactivate Quote Assist. In approving the proposed rule change, 
however, the Commission notes that Quote Assist does not relieve 
specialists of their responsibility to reflect limit orders by manually 
quoting the stock as soon as practicable.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice 
thereof in the Federal Register, because the proposal facilitates 
compliance with the Display Rule. The Commission believes, therefore, 
that granting accelerated approval of the proposed rule change is 
appropriate and consistent with Section 6 of the Act.\11\
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    \11\ 15 U.S.C. 78f.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Amex-00-25) is hereby 
approved on an accelerated basis.
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    \12\ 15 U.S.C. 78s(b)(2)

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-15877 Filed 6-22-00; 8:45 am]
BILLING CODE 8010-01-M
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