Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices 69079

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 42931

(June 13, 2000), 65 FR 38615 (June 21, 2000).

4See letter from Scott Van Hatten, Legal Counsel,

Derivative Securities, Amex, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

Commission dated October 31, 2000 (‘‘Amendment

No. 1’’). In Amendment No. 1, the Amex proposes

to codify its rules regarding the AUTO–EX

parameters for option contracts under Amex Rule

933, Commentary .02.

5See letter from Scott Van Hatten, Legal Counsel,

Derivative Securities, Amex to Nancy Sanow,

Assistant Director, Division of Market Regulation

Commission dated November 2, 2000

(‘‘Amendment No. 2’’). In Amendment No. 2, the

Amex corrects the language in Amex Rule 933,

Commentary .02 to state that the eligible orders for

options on the Institutional, Japan and S&P MidCap

400 Indices must be for ‘‘fewer than 100 contracts’’

for series subject to AUTO–EX.

6See Securities Exchange Act Release No. 42094

(November 3, 1999), 64 FR 61675 (November 12,

1999). Although the maximum permissible number

of cotracts in an option order executable through

AUTO–EX is generally fifty contracts, there are

three exceptions that allow ninety-nine contract

orders; the Institutional, Japan and S&P MidCap 400

Indexes.

7See Securities Exchange Act Release No. 42128

(November 10, 1999), 64 FR 63836 (November 22,

1999).

8The Exchange is codifying its rules, under Amex

Rule 933, Commentary .02, regarding the maximum

option order size eligibility for its AUTO–EX

system. See Amendment No. 1, supra note 4. Order

size maximum levels for the Institutional, Japan,

and S&P MidCap 400 Indexes would remain at

ninety-nine contracts under this proposal. See

Amendment No. 2, supra note 5.

9The Commission has considered the proposed

rule’s impact of efficiency, competition and capital

formation. 15 U.S.C. 78c(f).

10 15 U.S.C. 78f(b)(5).

11The Commission notes that it is concurrently

approving similar proposals filed by the Chicago

Board Options Exchange, Inc. (‘‘CBOE’’), the Pacific

Stock Exchange, Inc. (‘‘PCX’’) and the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’). See Securities

Exchange Act Release No. 43517 (November 3,

2000) (SR–CBOE–99–51); Securities Exchange Act

Release No. 43518 (November 3, 2000) (SR–PCX–

00–32); and Securities Exchange Act Release No.

41515 (November 3, 2000) (SR–Phlx–99–32).

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29178 Filed 11–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43516; File No. SR–Amex–

95–45]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval of

Amendment Nos. 1 and 2 to the

Proposed Rule Change by the

American Stock Exchange LLC

Relating to the Maximum Size of

Option Orders That May Be Executed

Automatically

November 3, 2000.

I. Introduction

On October 25, 1999, the American

Stock Exchange LLC (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

amending its rules regarding the

automatic execution of options orders to

increase the maximum number of

contracts that may be designated for

automatic execution from fifty contracts

to seventy-five contracts. Notice of the

proposal was published in the Federal

Register on June 21, 2000.3 The

Commission received no comments on

the proposal. On November 1, 2000, the

Exchange submitted Amendment No. 1

to the proposal.4 On November 3, 2000,

the Exchange submitted Amendment

No. 2 to the proposal.5 This order

approves the proposal and grants

accelerated approval of Amendment

Nos. 1 and 2.

II. Description of the Proposal

The Exchange’s AUTO–EX system

automatically executes public customer

market and marketable limit orders in

options at the best bid or offer displayed

at the time the order is entered into the

order is entered into the Amex Order

File (‘‘AOF’’). Generally, public

customer market and marketable limit

orders for up to fifty options contracts

may be automatically executed through

the Exchange’s AUTO–EX system.6

Recently, AOF, which handles limit

orders routed to the specialist’s book as

well as those orders routed to AUTO–

EX, was increased to allow for the entry

of orders of up to 250 option contracts.7

Because AUTO–EX is only allowed to

execute equity option orders and index

orders of up to fifty contracts, any

market and marketable limit orders for

between fifty and 250 option contracts

are generally routed by the AOF to the

specialist’s book.

The Exchange proposes to increase

the maximum AUTO–EX order size

eligibility for equity and index option

contracts orders from fifty contracts to

seventy-five contracts.8 The proposed

increase in permissible order size will

be implemented on a case-by-case basis

for an individual option class or for all

option classes when two floor governors

or senior floor officials deem such an

increase appropriate.

The Exchange represents that it has

sufficient systems capacity to

accommodate implementation of the

proposed increase in permissible order

size and that AUTO–EX has been

extremely successful in enhancing

execution and operational efficiencies

during emergency situations and during

other non-emergency situations for

certain options classes. The Exchange

believes that automatic executions of

orders for up to seventy-five contracts

will enhance its overall operational

efficiency and give the Exchange better

means of competing with other options

exchanges for order flow.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange and, in particular,

the requirements of section 6 of the

Act.9 Among other provisions, section

6(b)(5) of the Act requires that the rules

of an exchange be designed to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating securities

transactions; remove impediments to

and perfect the mechanism of a free and

open market and a national securities

system; and protect investors and the

public interest.10

While increasing the maximum order

size limit from fifty contracts to seventyfive contracts for AUTO–EX eligibility

by itself does not raise concerns under

the Act,11 the Commission believes that

this increase raises collateral issues that

the Amex will need to monitor and

address. Increasing the maximum order

size for particular option classes will

make a larger number of option orders

eligible for the Exchange’s automatic

execution system. These orders may

benefit from greater speed of execution,

but at the same time create greater risks

for market maker participants. Market

makers signed onto the AUTO–EX

system will be exposed to the financial

risks associated with larger-sized orders

being routed through the system for

automatic execution at the displayed

price. When the market for the

underlying security changes rapidly, it

may take a few moments for the related

option’s price to reflect that change. In

the interim, customers may submit

orders that try to capture the price

differential between the underlying

security and the option. The larger the

orders accepted through AUTO–EX, the

greater the risk market makers must be

willing to accept. The Commission does

not believe that, because Amex

69080 Federal Register / Vol. 65, No. 221 / Wednesday, November 15, 2000 / Notices

12 15 U.S.C. 78s(b)(2).

13 15 U.S.C. 78f(b)(5).

14 15 U.S.C. 78s(b)(2).

15 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. 40883

(January 5, 1999), 64 FR 1839 (January 12, 1999).

4See Letter from Karen Aluise, Vice President,

BSE, to Richard Strasser, Assistant Director,

Division of Market Regulation (‘‘Division’’),

Commission, dated March 25, 1999, with

attachments (‘‘Amendment No. 1’’). Amendment

No. 1 proposed to eliminate the right to appeal

rulings by the Market Performance Committee

regarding applications to serve as a competing

specialist.

5See Letter from William Cummings, Manager of

Legal and Regulatory Affairs, BSE, to Nancy Sanow,

Senior Special Counsel, Division, Commission,

dated April 12, 2000, with attachments

(‘‘Amendment No. 2’’). Amendment No. 2

superseded Amendment No. 1. Amendment No. 2

generally sought to revert the proposed rule change

back to a form that was similar to the version that

the BSE originally proposed, but which differed

from the BSE’s original proposal in a few ways: by

clarifying that an applicant competing specialist

could appear before the Market Performance

Committee to respond to issues raised by the

regular specialist regarding competition, by

omitting language which provided that competition

could begin during an appeal of a Market

Performance Committee ruling in favor of

competition, and by making other changes

regarding the appeal process.

6See Letter from John Boese, Assistant Vice

President, BSE, to Nancy Sanow, Assistant Director,

Division, Commission dated August 24, 2000, with

attachments (‘‘Amendment No. 3’’). Amendment

No. 3, which superseded Amendment No. 2,

clarified that competition could begin pending the

outcome of an appeal of a pro-competition ruling

by the Market Performance Committee, which is

consistent with the rule change as it was originally

proposed by the BSE.

7See Securities Exchange Act Release No. 37045

(March 29, 1996), 61 FR 15318 (April 5, 1996)

(order permanently approving Competing Specialist

Initiative).

governors and senior floor officials

determine to approve orders as large as

seventy-five contracts as eligible for

AUTO–EX, those officials or any other

Amex officials or Amex committee

should disengage AUTO–EX more

frequently by, for example, declaring a

‘‘fast’’ market. Disengaging AUTO–EX

can negatively affect investors by

making it slower and less efficient to

execute their option orders. It is the

Commission’s view that the Exchange,

when increasing the maximum size

orders that can be sent through AUTO–

EX, should not disadvantage all

customers—the vast majority of which

enter orders for less than seventy-five

contracts—by making the AUTO–EX

system less reliable.

Finally, the Commission finds good

cause for approving Amendment Nos. 1

and 2 prior to the 30th day after notice

of the Amendment is published in the

Federal Register pursuant to section

19(b)(2) of the Act.12 Amendment No. 1

codifies the proposed increase in the

AUTO–EX parameters from fifty

contracts to seventy-five option

contracts. Amendment No. 2 corrects

the rule language in Amex Rule 933,

Commentary .02. The Commission finds

that accelerated approval of

Amendment Nos. 1 and 2 is appropriate

in order to allow the Amex to increase

its AUTO–EX eligibility limits so that it

may better compete with the other

option exchanges.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment Nos.

1 and 2, including whether they are

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 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–99–45 and should be

submitted by December 6, 2000.

Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change is consistent with the Act

and the rules and regulations

thereunder applicable to a national

securities exchange, and, in particular,

with section 6(b)(5).13

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,14 that the

proposed rule change (SR–Amex–99–

45) is approved, and Amendment Nos.

1 and 2 are approved on an accelerated

basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29184 Filed 11–14–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43525 File No. SR–BSE–

98–11]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to an

Amendment to the Proposed Rule

Change by the Boston Stock

Exchange, Inc. Relating to Its

Competing Specialist Initiative

November 7, 2000.

I. Introduction

On November 23, 1998, the Boston

Stock Exchange, Inc. (‘‘BSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant section

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

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

modify the procedures by which a

regular specialist may object to

competition in a stock.

The proposed rule change was

published for comment in the Federal

Register on January 12, 1999.3 The

Commission received no comments on

the proposal. The Exchange filed

amendments on March 26, 1999 4 and

April 13, 2000.5 The Exchange filed a

third amendment to the proposed rule

change on August 25, 2000, which

superseded the earlier amendments.6

This order approves the proposed rule

change, and grants accelerated approval

to the third amendment to the proposed

rule change.

II. Description

The Exchange’s Competing Specialist

Initiative permits multiple specialists to

make a market in individual securities

traded on the BSE. The Exchange has

proposed a rule change to modify the

process that governs objections to

competition in a security.

The Procedures for Competing

Specialists, which are set forth in

chapter XV, section 18 of the Exchange’s

Rules, currently provide that a regular

specialist in a security may object to any

application by another specialist to act

as a competing specialist in that

security. The Exchange’s Market

Performance Committee will consider

the regular specialist’s objections as one

factor in reviewing applications to act as

a competing specialist in a security. The

Market Performance Committee may not

deny applications based solely on such

an objection, but only in circumstances

wherein the stock at issue requires

special treatment such that an entering

competitor could jeopardize the fair and

orderly market maintained by the

regular specialist.7