39972 Federal Register / Vol. 65, No. 125 / Wednesday, June 28, 2000 / Notices

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

2 17 CFR 240.19b-4.

3See Amex Rule 170 (concerning specialists)—

made applicable to options trading by Rule 950(n)—

and rule 958 (concerning registered traders).

4 Id.

5See Securities Exchange Act Release No. 11144

(December 19, 1974), 40 FR 3258 (January 20, 1975)

(emphasis added).

c. Change-of-address information on

magnetic tape at the National Customer

Support Center (National Change-ofAddress File) is retained for 36 months

from effective date.

d. Internet change-of-address and

related service records are kept on the

online disks for 6 months from the

execution date of the requests and

archived to offline disks or tapes for an

additional 13 months. At the end of that

period, the records on offline disks or

tapes are erased.

e. Postal customer service records are

kept on the online disks for 6 months

from the closure date of the request and

archived to offline disks or tapes for an

additional 7 months. At the end of that

period, the records on offline disks or

tapes are erased.

f. Outside service provider records are

kept on the online disks for 3 months

from the date of service termination and

archived to offline disks or tapes for an

additional 10 months. At the end of that

period, the records on offline disks or

tapes are erased.

g. Records saved at the customer’s

option are maintained until the

customer decides to delete the previous

transaction records or the account is

disabled for inactivity. The customer

can choose to modify saved records at

any time, and the choice will be

executed immediately. An erased

customer record shall not be recovered

or recalled.

h. Internet site usage records are kept

on the online disks for 12 months and

archived to offline disks or tapes for an

additional 13 months. At the end of the

period, the records on offline disks or

tapes are erased.

RECORD SOURCE CATEGORIES:

The individual to whom the record

pertains; service providers; and

providers of online identity validation.

Stanley F. Mires,

Chief Counsel, Legislative.

[FR Doc. 00–16253 Filed 6–27–00; 8:45 am]

BILLING CODE 7710–12–P

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42964; File No. SR–Amex–

00–30].

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the American Stock Exchange LLC

Relating to the Allocation of, and

Participation in, Options and Index

Share Trades

June 20, 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 30,

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, 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 Amex proposes to codify in Rule

950(d) Commentary .05 current

practices regarding the allocation of,

and participation in, option and index

share trades executed on the Exchange

by registered options traders and

specialists.

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

Since the inception of options trading

at the Exchange in 1975, both specialists

and registered options traders

(‘‘traders’’) have had the responsibility

of making markets in options. In

addition, although index shares,

portfolio depositary receipts, and trust

issued receipts such as SPDRS,

DIAMONDS, NASDAQ 100 shares and

HOLDRs are equity securities listed and

traded under the Exchange’s equity

rules, they have some of the

characteristics of ‘‘derivative products,’’

and thus registered options traders are

eligible for, and have been assisting

specialists in, making markets in these

products as well.

The Exchange’s rules require that both

specialists’ and traders’ transactions

should constitute a course of dealings

reasonably calculated to contribute to

the maintenance of a fair and orderly

market and that specialists and traders

should not enter into transactions or

make bids or offers that are inconsistent

with such a course of dealing.3

Specialists and traders shall engage, to

a reasonable degree under the existing

circumstances, in dealings for their own

accounts when there exists a lack of

price continuity, a temporary disparity

between the supply of and demand for

options contracts of a particular series,

or a temporary distortion of the price

relationships between option contracts

of the same class.4 The Exchange notes

that the Commission stated in its Order

announcing the effectiveness of the

Exchange’s plan to list and trade options

that registered floor traders on the Amex

‘‘will be expected to trade in a way

assists the specialist in maintaining a

fair and orderly market. * * *’’ 5

The Amex notes that specialists do,

however, have additional obligations,

which include, among other things, the

obligation to (1) Assure that

disseminated market quotations are

accurate; (2) assure that each

disseminated market quotation in

appointed options classes shall be

honored up to ten contracts, or such

other minimum number as set from time

to time by the Exchange; (3) determine

any formula for generating the

automatically updated market

quotations and disclosing the elements

of the formula to the members of the

trading crowd; (4) be present at the

trading post throughout every business

day; (5) participate at all times in the

automated execution system for each

assigned option class; and (6) resolve

trading disputes, subject to Floor

Federal Register / Vol. 65, No. 125 / Wednesday, June 28, 2000 / Notices 39973

6These obligations are mandated by, or implicit

in, various Amex trading rules and practices.

Telephone conversation between Claire McGrath,

Vice President and Special Counsel, Amex, and Ira

L. Brandriss, Attorney, Division of Market

Regulation, the Commission, on June 16, 2000.

7See, e.g., Amex Rule 126(e)(2).

8See Amex Rule 155.

9See Amex Rule 111, Commentary .07, made

applicable to options trading by Amex Rule 950(c).

10The Exchange notes, however, that index

shares, portfolio depositary receipts, and trust

issued receipts are not executed through the AutoEx system.

11At the start of each trading day, the order in

which trades are allocated to the specialist and

traders signed on to Auto-Ex is randomly

determined.

12For example, an order for 25 contracts, in an

option class for which orders of up to 50 contracts

may be executed through Auto-Ex, would be

executed in three trades—two trades of 10 each and

one trade of five contracts.

Official review upon the request of any

party to the dispute.6

The Exchange represents that in the

course of making markets, specialists

are often on parity with registered

options traders; that is, bidding and

offering simultaneously to provide

liquidity. Amex Rule 126—made

applicable to options trading by Amex

Rule 950(d)—provides that when bids

(offers) are made simultaneously, all

such bids (offers) are on parity, and any

securities sold (bought) in execution of

such bids (offers) shall be divided as

equally as possible between those

specialists and traders on parity. Over

the years, it has been recognized by the

Exchange as well as by the registered

traders and specialists, that, given their

role, specialists should be entitled to a

greater than equal share when on parity

with registered traders. As a result, a

practice has developed in the trading

crowds for many option classes and

index shares to give the specialist a

greater than equal share when on parity

with registered options traders. The

Exchange now seeks to codify this

practice.

The Exchange proposes to adopt

commentary .05 to Rule 950(d), which

would provide for a specialist to receive

a specified participation in the number

of securities executed, which would

vary depending upon the number of

traders on parity. The distribution of

securities between the specialist and the

traders on parity would be as follows:

Number of traders

on parity Approximate number of securities allocated to the specialist Approximate number of securities allocated to the traders(as a group)

1 ............................. 60% ........................................................................................ 40%

2–4 ......................... 40 ............................................................................................ 60

5–7 ......................... 30 ............................................................................................ 70

8–15 ....................... 25 ............................................................................................ 75

16 or more ............. 20 ............................................................................................ 80

The Exchange emphasizes that the

above percentages would apply only

when the specialist and/or registered

traders are on parity. In situations where

a customer order is on parity with the

specialist and registered traders,

Exchange rules provide that the

customer will not receive a lesser

amount than the registered traders or

specialist.7 The Exchange notes,

however, that a specialist cannot be on

parity with an order for which he is

acting as agent,8 and registered traders

(who never act as agents and trade only

for their own accounts) cannot be on

parity with a customer when either

establishing or increasing their position

in the option.9

The proposed rule change would also

codify the distribution of ‘‘Auto-Ex’’

executed options trades among

specialists and registered traders.10 The

Exchange’s ‘‘Auto-Ex’’ system

automatically executes public customer

market and marketable limit orders of a

minimum of 10 and a maximum of 50

option contracts or less. Both specialist

and registered options traders are

contra-parties to the trades executed on

the Auto-Ex system. Such trades are

automatically allocated on a rotating

basis to the specialist and to each trader

that has signed on to Auto-Ex.11 If an

Auto-Ex trade is greater than ten

contracts, the Auto-Ex system divides

the execution into lots of ten or fewer

and allocates a lot to each Auto-Ex

participant.12 Each lot is considered a

separate trade for purposes of allocating

trades within Auto-Ex. Under the

proposed rule change, the rotation

would be designed to provide that AutoEx trades be allocated between the

specialist and traders signed on to AutoEx in a given option class as follows:

Number of traders

signed on to

Auto-Ex

Approximate number of trades allocated to the specialist

throughout the day

Approximate number of trades allocated to trader(s) signed

on to Auto-Ex throughout the day

1 ............................. 60% ........................................................................................ 40%

2–4 ......................... 40 ............................................................................................ 60

5–7 ......................... 30 ............................................................................................ 70

8–15 ....................... 25 ............................................................................................ 75

16 or more ............. 20 ............................................................................................ 80

The Exchange believes that it is

appropriate to provide a greater

participation to specialists because they

have responsibilities and are subject to

certain costs that registered traders do

not. For example, specialists have a

continuous obligation to the market, and

must update and disseminate quotes in

all securities, reflect all market interest

in the displayed quotes, and act as a

contra-party on Auto-Ex at all times. In

addition, connected with these

responsibilities are fixed staffing costs

committed to market making in a

particular security whether it is actively

traded or not and the costs associated

with participating in educational and

marketing functions to attract order

flow.

In order to attract specialist units to

the Exchange who are willing to accept

these responsibilities, the Exchange

believes it is necessary to provide

specialists with a guaranteed

participation. The Exchange also

believes that it must provide these

guarantees in order to be competitive

with other options exchanges that

currently offer enhanced participation

to their specialists and select market

39974 Federal Register / Vol. 65, No. 125 / Wednesday, June 28, 2000 / Notices

13See Chicago Board Options Exchange Rule

8.80; Pacific Exchange Rule 6.82; and Philadelphia

Stock Exchange Rule 1014(g).

14 15 U.S.C. 78f(b).

15 15 U.S.C. 78f(b)(5).

16 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The PACE quote means the best bid/ask quote

among the American, Boston, Cincinnati, Chicago,

Pacific, Philadelphia and New York Stock

Exchanges. See Phlx rule 229.

4See Phlx Rule 229, Commentary .07(c)(i)

5See Phlx Rule 229, Commentary .07(c)(i)(A) and

(B).

makers.13 The Exchange believes that

guaranteed participation would also

give specialists the ability to attract

order flow to the Exchange and provide

its customers with tighter, more

competitive markets. As a result, the

Exchange would be able to attract new

specialist units and retain the services

of existing units.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) 14 of the Act in general and

furthers the objectives of Section

6(b)(5) 15 of the Act 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.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Amex 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

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 Exchange 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. Copies of the filing will also be

available for inspection and copying at

the principal offices of the Amex. All

submissions should refer to File No.

SR–Amex–00–30 and should be

submitted by July 19, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–16305 Filed 6–27–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42973; File No. SR–Phlx–

00–43]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Adopting Enhancements to the PACE

Systems Automatic Price Improvement

Feature

June 21, 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 12,

2000, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘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 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 Phlx proposes to adopt a system

change to the Exchange’s Automatic

Communication and Execution

(‘‘PACE’’) System Automatic Price

Improvement (‘‘API’’) feature and adopt

Rule 229, Commentary .07(c)(i)(E) to

provide specialists the ability to

implement automatic price

improvement to allow sell orders to

improve to the last sale on an uptick

and/or allow sell orders to improve to

a price higher than the last sale (‘‘Sell

Order Enahncement features’’).

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

PACE is the Exchange’s automated

order routing and execution system on

the equity trading floor. PACE accepts

orders for automatic or manual

execution in accordance with the

provisions of Rule 229, which governs

the PACE System and defines its

parameters. The API features of the

PACE System allows the specialist to

voluntarily provide automatic price

improvement to market and marketable

limit orders to all customers in a

security when the orders are 599 shares

or less and the PACE quote 3 is 3/16 or

1/8 or greater.4 When the API feature

was first introdced, there were certain

exceptions which prevented a sell order

from being executed on the last sale if

the last sale is an uptick and prevented

a sell order from being executed at a

price higher than the last sale.5 In those

situations, the order would be executed

at the PACE quote.

The Exchange proposes to enhance

the API feature to allow the specialist to

voluntarily provide automatic price

improvement to sell orders of a 100

shares or more, as determined by the

specialist, in a particular security even

when the sell order would be executed

on the last sale and the last sale is an

uptick (‘‘Sell Order Enhancement I’’). In

addition, the Exchange also proposes to

enhance the API feature to allow the

specialist to voluntarily provide

automatic price improvement to sell

orders of 100 shares or more, as

determined by the specialist, in a

particular security when the improved