Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 28529 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(5). 

5Applying the rule, assume AEMI receives 

market odd-lot buy orders aggregating 1,500 shares 

and market odd-lot sell orders aggregating 3,500 

shares in a security. The next and only round-lot 

execution on the Amex within the next 30 seconds 

is 500 shares at $10, and, at the expiration of the 

30 seconds, the NBB is 100 shares at $10.50 on 

NYSE. The specialist is required in time priority of 

receipt of the odd-lot orders into AEMI to: 

• Sell/buy an equal number of shares on each 

side of the odd-lot market at $10, which clears the 

1,500 shares of odd-lot market buy orders and 

Continued 

definition of ‘‘accredited investor,’’

disqualification provisions, and 

integration safe harbor and to provide 

interpretive guidance regarding 

integration; 

• To propose revisions to Form D and 

mandate electronic filing of Form D; and 

• To propose amendments to Rule 

144 to revise the holding period for the 

resale of restricted securities, simplify 

compliance for non-affiliates, revise the 

Form 144 filing thresholds, and codify 

certain staff interpretations, as well as to 

propose amendments to Rule 145. 

3. The Commission will consider 

whether to adopt rules to implement 

provisions of the Credit Rating Agency 

Reform Act of 2006. 

The subject matter of the Open 

Meeting scheduled for Thursday, May 

24, 2007 at 9 a.m. will be: 

The Commission will hold a 

roundtable discussion regarding proxy 

voting mechanics. 

The subject matter of the Closed 

Meeting scheduled for Thursday, May 

24, 2007 at 2 p.m. will be. 

Formal orders of investigations; 

Institution and settlement of 

injunctive actions; 

Institution and settlement of 

administrative proceedings of an 

enforcement nature; 

Resolution of litigation claims; 

Regulatory matter regarding a 

financial institution; and 

Other matters related to enforcement 

proceedings. 

The subject matter of the Open 

Meeting scheduled for Friday, May 25, 

2007 at 9 a.m. will be: 

The Commission will hold a 

roundtable discussion regarding 

proposals of shareholders. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have been 

added, deleted or postponed, please 

contact: 

The Office of the Secretary at (202) 

551–5400. 

Dated: May 16, 2007. 

Nancy M. Morris, 

Secretary. 

[FR Doc. E7–9743 Filed 5–18–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55762; File No. SR–Amex–

2007–47] 

Self-Regulatory Organizations; 

American Stock Exchange LLC; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change To Change 

the Method By Which Specialists on 

the Exchange Execute Odd-Lot Market 

Orders Under Rule 205—AEMI 

May 15, 2007. 

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 11, 

2007, 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 

substantially prepared by the Exchange. 

Amex has filed this proposal pursuant 

to Section 19(b)(3)(A) of the Act 3 and 

Rule 19b–4(f)(5) thereunder,4 which 

renders it effective upon filing with the 

Commission. 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 adopt 

changes to Rule 205—AEMI in order to 

change the method by which specialists 

on the Exchange execute odd-lot market 

orders. 

The text of the proposed rule change 

is available on Amex’s Web site at 

http://www.amex.com, at the 

Exchange’s principal office, 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, 

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. 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 Exchange is currently operating, 

and has adopted rules in connection 

with the operation of, its new hybrid 

market trading platform for equity 

products and exchange-traded funds, 

designated as AEMISM (the Auction and 

Electronic Market Integration platform). 

Rule 205—AEMI (‘‘Manner of Executing 

Odd-Lot Orders’’) requires the specialist 

for a relevant security to be the contraparty for executions of any odd-lot 

orders in that security received by AEMI 

and specifies, in relevant part, the 

pricing at which such executions must 

occur. In the case of odd-lot market 

orders that are not executed within 30 

seconds of receipt by AEMI, the 

specialist is currently required to 

execute such orders at the price of the 

qualifying national best bid or offer 

(‘‘NBBO’’). In order to ensure a fair and 

orderly market, the Exchange proposes 

to amend Rule 205—AEMI to provide 

for such odd-lot market orders to now 

be executed at the specialist’s quote, 

rather than the NBBO. 

(i) How Rule 205—AEMI Works Today 

Rule 205—AEMI(b)(i)–(iii) currently 

requires the specialist to execute a 

market odd-lot order at the price of a 

subsequent round-lot execution that 

occurs in the subject security on the 

Exchange for 30 seconds after the oddlot order is entered. However, a market 

odd-lot order is executed at this roundlot price only to the extent that there are 

a sufficient number of shares 

subsequently transacted in round-lots 

on the Exchange within that 30 second 

window to match any imbalance 

between the pending odd-lot market buy 

and sell orders. If there are an 

insufficient number of shares in roundlot executions within that 30 seconds 

from which to benchmark the market 

odd-lot execution price of the 

imbalance, Rule 205—AEMI(b)(iv) 

dictates that the NBBO be used as the 

default price at which the specialist is 

required to execute.5


pwalker on PROD1PC71 with NOTICES
28530 Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 

leaves an imbalance of 2,000 of the original 3,500 

shares of odd-lot market sell orders. 

• In response to the remaining 2,000 shares of 

odd-lot market sell orders, buy a maximum of 500 

shares at $10 because that is the total size of 

subsequent round-lot transactions within the 30- 

second window. (This assumes that the remaining 

odd-lot sell orders with greatest time priority total 

500 shares exactly. If a partial execution would 

result by stopping the specialist from buying at $10 

once the 500 share threshold was reached, then the 

specialist could buy more than 500 shares at $10 

so as to permit execution in full of the last odd-lot 

order at that price. See Rule 205—AEMI(b)(ii).) 

• At the expiration of 30 seconds, purchase the 

1,500 shares remaining from the odd-lot sell orders 

at $10.50 (the NBB), even though the NBB was for 

only 100 shares and might not reflect the price at 

which the specialist would or should otherwise be 

willing to purchase 1,500 shares. 

6See Rule 4 (generally prohibiting manipulation 

of securities prices) and Rule 208 (applicable in 

AEMI via Rule 1A–AEMI(d)), entitled ‘‘Bunching of 

Odd-Lot Orders,’’ which provides in relevant part: 

When a person gives, either for his own account, 

for various accounts in which he has an actual 

monetary interest, or for accounts over which such 

person is exercising investment discretion, buy or 

sell odd-lot orders which aggregate one or more 

round-lots, a member or member organization shall 

not accept such orders for execution unless they 

are, as far as possible, consolidated into round-lots, 

except that selling orders marked ‘‘long’’ or ‘‘short 

exempt’’ need not be so consolidated with selling 

orders marked ‘‘short.’’

7 17 CFR 242.604. 

8 17 CFR 242.611. 

9Commentary .03 to Rule 170—AEMI provides in 

relevant part: ‘‘A specialist’s quotation, made for his 

own account, should be such that a transaction 

effected at his quoted price or within the quoted 

spread * * * would bear a proper relation to 

preceding transactions and anticipated succeeding 

transactions or, in the case of ETFs or other 

derivatively priced securities, to the value of 

underlying or related securities.’’

(ii) The Identified Deficiency in Rule 

205—AEMI 

It has become apparent to the 

Exchange that the current version of 

Rule 205—AEMI (insofar as it forces the 

specialist to execute any unexecuted 

imbalance in odd-lot orders at the 

NBBO) provides too much opportunity 

for manipulation to the detriment of 

both the specialists and accuracy in 

pricing. In practice, the Exchange has 

recently observed a high number of oddlot market orders in less liquid 

securities and believes that this is a 

direct result of the rule’s guarantee of 

execution at the NBBO irrespective of 

whether the size or timeliness of the 

NBBO is comparable to those of the 

odd-lot orders on the Exchange. The 

Exchange is concerned that off-floor 

participants may be breaking up larger 

round-lots into multiple odd-lots to take 

advantage of NBBO pricing on the 

Exchange where such pricing would be 

unattainable if the larger orders were 

submitted and price discovery was 

possible. This behavior would violate 

Exchange rules 6 but unfortunately can 

be ascertained only via case-by-case 

post-trade investigation. Additionally, 

in the case of very highly-priced, yet 

thinly traded, securities, specialists are 

bearing inappropriate burdens as oddlot dealers as well. Below are two 

examples of what can occur: 

• Assume that an illiquid security has 

an average daily volume of 15,000 

shares. Assume also that the NBBO is 

$5.00 bid for 100 shares on NASDAQ 

and 500 shares offered at $5.10 on 

NYSE. The liquidity around the NBBO 

is very thin, and no round-lot 

executions have taken place over the 

last four hours, during which period 

Amex nonetheless receives many oddlot market orders. In accordance with 

Rule 205—AEMI, each odd-lot order is 

executed after 30 seconds against the 

specialist at the NBBO automatically, 

although the specialist is not quoting at 

the NBBO, the NBBO has not changed, 

and no round-lot trades have occurred 

in the marketplace. Over the course of 

the four hours, the specialist is forced to 

purchase an aggregate of 10,553 shares 

in odd-lots, each at a price of $5.00, 

even though grossly disproportionate to 

the 100 share order size connected to 

the $5.00 NBB, the overall activity in 

the marketplace, and the likely lower 

value at which an equivalent aggregate 

volume of round lots would have 

transacted in such an illiquid market. 

As such, the specialist is forced to bear 

an inappropriate amount of risk of loss 

as odd-lot dealer because, rather than 

price discovery being permitted to occur 

as would occur with round-lot quotes, 

the specialist is forced to purchase all of 

the odd-lots at the stale NBBO price. 

• Assume a very highly-priced thinlytraded security with an NBBO of 100 

shares bid for $800 on NASDAQ and 

100 shares offered at $806 on NYSE. 

Because of the high price of the shares, 

round-lot executions are infrequent and 

no round-lot executions have taken 

place on Amex over the last four hours. 

Nonetheless, Amex receives multiple 

odd-lot market sale orders aggregating 

367 shares over that time period. In 

accordance with Rule 205—AEMI, each 

odd-lot order is executed after 30 

seconds against the specialist at $800, 

and, over the course of the four hours, 

the specialist is forced to purchase an 

aggregate of 367 shares in odd-lots at 

$800 per share for $293,600. Because of 

the high stock price, the absence of 

price discovery amplifies the costs to 

the specialist in the event of disparity 

between the stale NBBO and the true 

value of the security. Had the 

mandatory $800 bid been reduced by a 

mere 0.5% (to $796)—to reflect what a 

hypothetical reasonable investor would 

pay for a thinly-traded $800 security 

with an imbalance of sell interest in the 

market—the aggregate outlay would be 

$1468 less. 

(iii) The Solution 

As described above, the Exchange 

believes that the way odd-lot market 

orders are currently being executed 

today (only insofar as the NBBO price 

is imposed under Rule 205—

AEMI(b)(i)–(iv) as a default price upon 

the specialists in the absence of a 

sufficient number of round-lot order 

executions on the Exchange within 30 

seconds of each odd-lot market order) is 

inconsistent with the specialists’

obligations to quote and maintain a fair 

and orderly market. Moreover, odd-lot 

orders are not subject to the Limit Order 

Display Rule 7 or Order Protection Rule 8

under Regulation NMS and do not have 

the same standing as round-lot orders 

with regard to price protection. 

Accordingly, the Exchange proposes to 

change the default price in Rule 205—

AEMI(b) under which specialists are 

required to execute odd-lot market 

orders not executed within 30 seconds 

after receipt by AEMI from the NBBO to 

the specialist’s own best bid or offer. 

The Exchange believes that this 

proposal properly balances a more 

reasonable level of risk exposure for the 

specialists with their obligation to trade 

odd lots and deliver timely executions 

to investors. In particular, the proposal 

would permit price discovery to occur 

(via programmed automated 

adjustments flowing from executions 

against the specialist’s quote) while still 

requiring the specialist to provide 

timely executions of odd-lot market 

orders. As such, executions of odd lots 

on the Exchange will be more likely to 

occur at prices which reflect the most 

current market conditions. In this 

regard, the Exchange points out that 

specialists are specifically required by 

Exchange rules to formulate quotes to 

avoid wide swings in the pricing of 

prior and subsequent transactions,9 so 

the substitution of the specialist’s quote 

for the NBBO in Rule 205—AEMI is not 

intended to, and should not result in, 

unreasonably priced executions of oddlot market orders. 

* * * * * 

The proposed rule change would 

result in the following textual changes 

in Rule 205—AEMI: 

• Substitution of the words 

‘‘specialist’s best bid’’ and ‘‘specialist’s 

best offer’’ for ‘‘qualified national best 

bid’’ and ‘‘qualified national best offer’’

where such terms appear in the rule. 

• Removal of Commentary .04 to the 

rule, which deals solely with explaining 

the definition of ‘‘qualified national best 

bid or offer,’’ which will no longer be 

relevant to Rule 205—AEMI. 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 28531 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

12 15 U.S.C. 78s(b)(3)(A)(iii). 

13 17 CFR 240.19b–4(f)(5). 14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 55589 

(April 5, 2007), 72 FR 18498. 

4See ISE Rule 716. 

2. Statutory Basis 

The proposed rule change is designed 

to be consistent with Section 6(b) of the 

Act,10 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,11

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. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

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. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not: (1) Significantly affect the 

protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) have the 

effect of limiting the access to or 

availability of an existing order entry or 

trading system of the Exchange, the 

foregoing rule change has become 

effective immediately pursuant to 

Section 19(b)(3)(A)(iii) of the Act 12 and 

Rule 19b–4(f)(5) thereunder.13 At any 

time within 60 days of the filing of such 

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 the furtherance of the purposes of the 

Act. 

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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form at http://www.sec.gov/ 

rules/sro.shtml; or 

• Send an e-mail to 

rule-comments@sec.gov. Please include 

File No. SR–Amex–2007–47 on the 

subject line. 

Paper comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

No. SR–Amex–2007–47. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File No. 

SR–Amex–2007–47 and should be 

submitted on or before June 11, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.14

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. E7–9659 Filed 5–18–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55764; File No. SR–ISE–

2007–18] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC.; Order Approving Proposed Rule 

Change Relating to Information 

Regarding Customer Interest on the 

Book 

May 15, 2007. 

I. Introduction 

On March 5, 2007, the International 

Securities Exchange, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’)1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

allow the ISE to make available to all 

ISE members information regarding the 

quantity of public customer contracts 

included in the ISE’s highest bid and 

lowest offer. The proposed rule change 

was published for comment in the 

Federal Register on April 12, 2007.3

The Commission received no comments 

regarding the proposal. This order 

approves the proposed rule change. 

II. Description of the Proposal 

Currently, the ISE provides 

information regarding the quantity of 

public customer contracts at the ISE’s 

best bid and best offer (‘‘BBO’’) only to 

Primary Market Makers (‘‘PMMs’’). The 

ISE proposes to adopt ISE Rule 713, 

Supplementary Material .04, to allow 

the ISE to make such information 

available to all ISE members. According 

to the ISE, the Chicago Board Options 

Exchange (‘‘CBOE’’) currently provides 

its members with information regarding 

customer interest at the CBOE’s BBO. 

The ISE believes that it is necessary to 

provide its members with similar 

information to remain competitive with 

the CBOE. In addition, the ISE notes 

that the information would allow an ISE 

member to know the number of 

customer contracts it would need to 

satisfy before the member could cross a 

large block-sized order. The ISE believes 

that such information is particularly 

useful for members seeking to execute 

larger-sized orders through the ISE’s 

block and facilitation mechanisms.4

In addition, the proposal corrects 

several cross-references in ISE Rule 

713(a). 


pwalker on PROD1PC71 with NOTICES