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[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Pages 8464-8466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4527]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38299; File No. SR-Amex-97-01]

Self-Regulatory Organizations; Notice of Filing of, and Order 
Granting Accelerated Approval to, Proposed Rule Change by the American 
Stock Exchange, Inc. Relating to a Pilot Program for Execution of 
Specialists' Liquidating Transactions

February 18, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 13, 1997, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the self-regulatory organization. The Exchange 
submitted Amendment No. 1 on February 14, 1997.\2\ The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons and to grant accelerated approval to the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ See letter from Claudia Crowley, Special Counsel, Amex, to 
Anthony P. Pecora, Attorney, Division of Market Regulation, SEC, 
dated February 14, 1997 (``Amendment No. 1''). Amendment No. 1 
modified the proposed rule change by granting the Commission the 
authority to extend the specialist liquidating pilot program for up 
to three weeks as an alternative to permanent approval of the pilot 
program.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex is proposing permanent approval of the pilot program that 
amended Exchange Rule 170 to permit a specialist to effect a 
liquidating transaction on a zero minus tick,\3\ in the case of a 
``long'' position, or a zero plus tick,\4\ when covering a ``short'' 
position, without Floor Official approval. The pilot program also 
amended Rule 170 to set forth the affirmative action that specialists 
are required to take subsequent to effecting various types of 
liquidating transactions. In the alternative, the Exchange is 
requesting a three-week extension of the pilot program.
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    \3\ A zero minus tick is a price equal to the last sale where 
the last preceding transaction at a different price was at a higher 
price.
    \4\ A zero plus tick is a price equal to the last sale where the 
last preceding transaction at a different price was at a lower 
price.
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    The text of the proposed rule change is available at the Office of 
the Secretary, the Amex, and at the Commission.

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 self-regulatory organization 
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 self-regulatory 
organization 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
    On November 15, 1996, the Commission approved an extension until 
February 14, 1997 of a pilot program that amended Exchange Rule 170 to 
permit a specialist to effect a liquidating transaction on a zero minus 
tick, in the case of a ``long'' position, or a zero plus tick, when 
covering a ``short'' position, without Floor Official approval.\5\ The 
amendments also set forth the affirmative action that specialists are 
required to take subsequent to effecting various types of liquidating 
transactions.
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    \5\ Securities Exchange Act Release No. 37958 (Nov. 15, 1996), 
61 FR 59476 (approving File No. SR-Amex-96-42) (``November 1996 
Approval Order'').
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    During the course of the pilot program, the Exchange has monitored 
compliance with the requirements of the Rule, and its findings in this 
regard have been forwarded to the Commission under separate cover. The 
Amex believes the amendments have provided specialists with flexibility 
in liquidating specialty stock positions in order to facilitate their 
ability to maintain fair and orderly markets, particularly during 
unusual market conditions. In addition, the specialist's concomitant 
obligation to participate as a dealer on the opposite side of the 
market after a liquidating transaction has been strengthened.
    The Exchange is therefore proposing permanent approval of the 
amendments to Rule 170 or, in the alternative, a three-week extension 
of the pilot program.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \6\ in general and furthers the objectives of 
Section 6(b)(5) \7\ in particular in that it is designed to promote 
just and equitable principles of trade, remove impediments to and 
perfect the mechanism of a free and open market, and, in general, 
protect investors and the public interest. The Exchange also believes 
the proposed rule change is consistent with Section 11(b) of the Act 
\8\ which allows exchanges to promulgate rules relating to specialists 
in order to maintain fair and orderly markets.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(15).
    \8\ 15 U.S.C. 78k(b).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Exchange has neither solicited nor received written comments 
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. 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. 
Copies of the

[[Page 8465]]

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. 
Sec. 552, will be available for inspection and copying at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Also, copies of such filing will be available 
for inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-97-01 and should be 
submitted by [insert date 21 days from date of publication].

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

    The Commission finds that the Exchange's proposal to extend its 
pilot program concerning the execution of specialists' liquidating 
transactions until March 7, 1997, is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange. Specifically, the Commission believes the 
proposal is consistent with the Section 6(b)(5) \9\ requirements that 
the rules of an exchange be designed to promote just the equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market, and, in general, to protect investors and 
the public interest. The Commission also believes the proposal is 
consistent with Section 11(b) of the Act \10\ and Rule. 11b-1 \11\ 
thereunder, which allow exchanges to promulgate rules relating to 
specialists in order to maintain fair and orderly markets.
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78k(b).
    \11\ 17 CFR 240.11b-1.
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    The Exchange originally proposed to amend Amex Rule 170 in File No. 
SR-Amex-92-26.\12\ The proposed rule change, filed as a one-year pilot 
program, amended Amex Rule 170 to permit specialists to ``reliquidate'' 
a dealer position by selling stock on a direct minus tick or by 
purchasing stock on a direct plus tick, but only if such transactions 
are reasonably necessary for the maintenance of a fair and orderly 
market and only if the specialist has obtained the prior approval of a 
Floor Official. Under the pilot program, a specialist, also may sell 
``long'' on a zero minus tick, or by purchasing on a zero plus tick to 
cover a ``short'' position, without Floor Official approval. Although 
liquidations on a zero minus or on a zero plus tick can be effected 
under the pilot procedures without a Floor Official's prior approval, 
such liquidations are still subject to the restriction that they be 
effected only when reasonably necessary to maintain a fair and orderly 
market. In addition, the specialist must maintain a fair and orderly 
market during the liquidation.
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    \12\ See Securities Exchange Act Release No. 33957 (Apr. 22, 
1994), 59 FR 22188 (``April 1994 Approval Order'') (approving File 
No. SR-Amex-92-26). See also Securities Exchange Act Release No. 
35635 (Apr. 21), 1995), 60 FR 20780 (approving File No. SR-Amex-95-
11); Securities Exchange Act Release No. 36014 (July 21, 1995), 60 
FR 38870 (approving File No. SR-Amex-95-19); Securities Exchange Act 
Release No. 37448 (July 17, 1996), 61 FR 38487 (approving File No. 
SR-Amex-96-19); Securities Exchange Act Release No. 37704 (Sept. 19, 
1996), 61 FR 50525 (approving File No. SR-Amex-96-33); November 1996 
Approval Order, supra note 5.
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    After the liquidation, the specialist is required to re-enter the 
market on the opposite side of the market from the liquidating 
transaction to offset any imbalances between supply and demand. During 
any period of volatile or unusual market conditions resulting in 
significant price movement in a specialist's specialty stock, the 
specialist's re-entry into the market must reflect, a minimum, his or 
her usual level of dealer participation in the speciality stock. In 
addition, during such periods of volatile or unusual price movements, 
re-entry into the market following a series of transactions must 
reflect a significant level of dealer participation.
    In the April 1994 Approval Order, the Commission requested that the 
Amex Submit a report setting forth the criteria developed by the 
Exchange to determine whether any reliquidation by specialist were 
necessary and appropriate in connection with fair and orderly 
markets.\13\ The Commission also asked, among other things, that the 
Exchange provide information regarding the Exchange's monitoring of 
liquidation transactions effected by specialists on any destabilizing 
tick. In all of the approval orders, the Commission requested that the 
Amex continue to monitor the pilot and update its report where 
appropriate.\14\ In particular, the Commission asked the Amex to report 
any noncompliance with the Rule and the action the Amex took as a 
result of such noncompliance.
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    \13\ See 1994 Approval Order, supra note 12.
    \14\ See supra note 12.
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    The Amex submitted its reports concerning the pilot program to the 
Commission in May 1995, April 1996, and January 1997. As noted above, 
the Amex believes the pilot procedures appear to be working well in 
enabling specialists to reliquidate appropriately to meet the needs of 
the market. After reviewing the data, the Commission agrees with the 
Exchange that the pilot program generally is working well. In 
particular, the Commission believes the report indicates that 
specialists generally are entering the aftermarket after effecting 
liquidating transactions when appropriate.
    Nevertheless, the Commission believes certain issues concerning the 
pilot program need to be revisited before permanent approval can be 
granted. In this regard, the Exchange should continue to emphasize the 
requirements of Amex Rule 170, including the necessity for Floor 
Official approval of specialists' purchases and sales on direct plus or 
minus ticks and that such transactions can only be effected if 
reasonably necessary for the maintenance of fair and orderly markets. 
In addition, where proper procedures are not followed, the Amex should 
take appropriate disciplinary action.\15\
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    \15\ All ``nonsubstantive'' violations of this rule (e.g., 
failure to obtain the required Floor Official approval when such 
approval, if sought, would have been granted) should be referred to 
the Minor Floor Violation Disciplinary Committee, as required by 
Amex Rule 590. Also, as the Amex has indicated previously, all 
``substantive'' violations of this rule (e.g., failure to properly 
reenter the market or failure to obtain the required Floor Official 
approval when such approval, if sought, would not have been granted) 
will be dealt with according to the Exchange's formal disciplinary 
procedures.
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof. This will permit the pilot program to 
continue on an uninterrupted basis. In addition, the Exchange proposes 
to continue using the identical procedures contained in the pilot 
program. These procedures have been published in the Federal Register 
on several occasions for the full comment period,\16\ and no comments 
have been received. Furthermore, the Commission approved a similar rule 
change for the NYSE also without receiving comments on the 
proposal.\17\ For these reasons, the Commission finds that accelerating 
approval of the proposed rule change is consistent with Section 
19(b)(2) of the Act.\18\ Any requests to modify this pilot program, to 
extend its effectiveness, or to seek permanent approval for the pilot 
program also should include an update on the disciplinary actions taken 
for violations of these procedures.
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    \16\ See supra note 12 and November 1996 Approval Order supra 
note 5.
    \17\ See Securities Exchange Act Release No. 31797 (Jan. 29, 
1993), 58 FR 7277 (approving File No. SR-NYSE-92-20).
    \18\ 15 U.S.C. 78s(b)(2).

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[[Page 8466]]

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-Amex-97-01), as amended, is 
approved for a pilot period ending on March 7, 1997.

    \19\ Id.
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4527 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M
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