33724 Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Notices

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

2 17 CFR 240.19b–4.

3The substance of Amendment Nos. 1, 2, and 3

is incorporated into this notice.

effect of such order, the registration of

such company shall cease to be in effect.

2. Section 3(c)(1) of the Act provides

that an issuer is not an investment

company within the meaning of the Act

if its outstanding securities (other than

short-term paper) are beneficially

owned by not more than 100 persons

and it is not making and does not

propose to make a public offering of its

securities.

3. Applicant states that it is not an

investment company within the

meaning of section 3(c)(1) of the Act

because its outstanding securities are

owned by one natural person and it is

not making and does not presently

propose to make a public offering of its

securities.

4. Applicant will conduct its business

so as to remain exempt from registration

as an investment company pursuant to

section 3(c)(1) or another provision of

the Act. Applicant will adopt

procedures reasonably designed to

ensure that it remains exempt from

registration under the Act. Applicant

estimates that it will wind up operations

and liquidate its remaining assets

within 30 days of the date of the

requested ordered. Accordingly,

applicant requests that the SEC issue an

order declaring that it has ceased to be

an investment company.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15849 Filed 6–22–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44449; File No. SR–Amex–

2001–29]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the American Stock

Exchange LLC Relating to the

Implementation of Automatic

Execution for Exchange Traded Funds

on a Six-Month Pilot Basis

June 19, 2001.

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 8,

2001, 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 Exchange. On May 24, 2001, June

12, 2001, and June 18, 2001,

respectively, the Amex filed

Amendment Nos. 1, 2, and 3 to the

proposed rule change with the

Commission.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons. For the reasons

discussed below, the Commission is

granting accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes to adopt

Exchange Rule 128A to implement an

automatic execution feature for eligible

orders in Exchange Traded Funds

(‘‘ETFs’’) on a six-month pilot basis. The

text of the proposed rule change

follows. Proposed new language is in

italics.

* * * * *

Automatic Execution For Exchange

Traded Funds

Rule 128A. The Exchange shall

determine the size and other parameters

of orders eligible for execution by its

Automatic Execution System (Auto-Ex).

An Auto-Ex eligible order for any

account in which the same person is

directly or indirectly interested may

only be entered at intervals of no less

than 30 seconds between entry of each

such order in a security. Members and

member organizations are responsible

for establishing procedures to prevent

orders in a security for any account in

which the same person is directly or

indirectly interested from being entered

at intervals of less than 30 seconds.

Commentary

.01 Auto-Ex eligible orders for

Exchange Traded Funds (‘‘ETFs’’) must

be round lot, market or marketable limit

orders for 2,000 shares or less received

by the Exchange electronically. Orders

for an account in which a market maker

in ETFs registered as such on another

market has an interest are ineligible for

Auto-Ex for ETFs. Notice concerning

Auto-Ex eligibility criteria will be

provided to members periodically via

Exchange circulars and will be posted

on the Exchange’s web site.

.02 Upon the request of a specialist,

the Auto-Ex Enhancements Committee

(‘‘Committee’’) will review and approve,

disapprove or conditionally approve

requests to increase the size of Auto-Ex

eligible orders above 2,000 shares. The

Committee will balance the interests of

investors, the specialist, Registered

Options Traders in the crowd, and the

Exchange in determining whether to

grant a request to increase the size of

Auto-Ex eligible orders above 2,000

shares. The Committee also will

consider a request from a specialist to

reduce the size of Auto-Ex eligible

orders balancing the same interests that

the Committee would consider in

determining whether to increase the size

of Auto-Ex eligible orders.

.03 Upon the request of a specialist,

a Floor Governor may reduce the size of

Auto-Ex eligible orders below 2,000

shares or increase the size of Auto-Ex

eligible orders up to 5,000 shares if such

action is appropriate in view of system

problems or unusual market conditions.

Any such change in the size of Auto-Ex

eligible orders will be temporary and

will only last until the end of the

unusual market condition or the

correction of the system problem.

Auto-Ex eligible orders will be routed

to the specialist and will not be

automatically executed in situations

where the specialist in conjunction with

a Floor Governor or two Floor Officials

determine that quotes are not reliable

and if the Exchange is experiencing

communications or systems problems,

‘‘fast markets,’’ or delays in the

dissemination of quotes.

Members and member organizations

will be notified when the size of AutoEx eligible orders is adjusted due to

system problems or unusual market

conditions. Members and member

organizations also will be notified when

the Exchange has determined that

quotes are not reliable and the

Exchange is experiencing

communications or systems problems,

‘‘fast markets,’’ or delays in the

dissemination of quotes prior to

disengaging Auto-Ex.

.04 When the Amex establishes the

NBBO (National Best Bid or Offer),

Auto-Ex will be programmed to execute

eligible incoming ETF orders at the

Amex Published Quote (‘‘APQ’’) plus a

programmable number of trading

increments with respect to the Amex bid

(with respect to incoming sell orders),

and less a programmable number of

trading increments with respect to the

Amex offer (with respect to incoming

buy orders). The amount of price

improvement relative to the APQ will be

determined by the Committee.

When the Amex does not establish the

NBBO, Auto-Ex will be programmed to

execute eligible incoming ETF orders at

or better than the NBBO up to a

specified number of trading increments

relative to the APQ. Auto-Ex will

Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Notices 33725

4 In this context, the term ‘‘establish’’ means that

the APQ is currently at the NBBO, regardless of

whether or not the Amex was the first exchange to

be at that price. Telephone conversation between

William Floyd-Jones, Assistant General Counsel,

Amex, and Ira L. Brandriss, Special Counsel,

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

Commission, on June 14, 2001.

execute eligible incoming orders at an

improved price relative to the APQ

unless a trade through would result of

an away ITS participant market. If a

trade through would result, the orders

will be routed to the Amex specialist for

execution. The extent to which Auto-Ex

will better the APQ in order to match or

improve the NBBO (if the Amex does

not establish the NBBO) will be

determined by the Committee.

Auto-Ex will be unavailable (i) with

respect to incoming sell orders when the

published bid on the Amex is for 100

shares, and (ii) with respect to incoming

buy orders when the published offer on

the Amex is for 100 shares. Auto-Ex also

will be unavailable when the spread

between the bid and offer on the Amex

exceeds a specified minimum or

maximum value. The Committee will

determine the spread in the APQ at

which Auto-Ex will be unavailable.

The Committee will act upon the

request of a specialist and will balance

the interests of investors, the specialist,

Registered Options Traders in the

crowd, and the Exchange in determining

(i) the amount of price improvement

that will be programmed into Auto-Ex

when the Amex establishes the NBBO,

(ii) the extent to which Auto-Ex will

better the APQ in order to match or

improve the NBBO (if the Amex does

not establish the NBBO), and (iii) the

spread in the APQ at which Auto-Ex

will be unavailable.

.05 Specialists and Registered

Options Traders that sign-on to Auto-Ex

will be automatically allocated to contra

side of Auto-Ex trades for ETFs

according to the following schedule:

Number of ROTs signed on the Auto-Ex in a crowd

Approximate number

of trades allocated to

the specialist throughout the day (‘‘target

ratio’’) (percent)

Approximate number

of trades allocated to

ROTs signed on to

Auto-Ex throughout

the day (‘‘target ratio’’)

(percent)

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

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

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

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

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

At the start of each trading day, the

sequence in which trades will be

allocated to the specialist and

Registered Options Traders signed-on to

Auto-Ex will be randomly determined.

Auto-Ex trades then will be

automatically allocated in sequence on

a rotating basis to the specialist and to

the Registered Options Traders that

have signed-on to the system so that the

specialist and the crowd achieve their

‘‘target ratios’’ over the course of a

trading session. If an Auto-Ex eligible

order is greater than 100 shares, AutoEx will divide the trade into lots of 100

shares each. Each lot will be considered

a separate trade for purposes of

determining target ratios and allocating

trades within Auto-Ex.

.06 The Committee may delegate its

authority to one or more Floor

Governors. The Committee will meet

promptly to review a Governor’s

decision in the event that a Governor

acts pursuant to delegated authority.

* * * * *

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 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 1986, the Exchange has had an

automatic order execution feature

(‘‘Auto-Ex’’) for eligible orders in listed

options. The Chicago Board Options

Exchange, Philadelphia Stock Exchange,

and Pacific Exchange established

similar automatic option order

execution features at about the same

time as the Amex, and the newest

options exchange, the International

Securities Exchange, also features

automatic order execution. Auto-Ex,

accordingly, has been a standard feature

of the options markets for a number of

years.

In 1993, the Amex commenced

trading Standard and Poor’s Depositary

Receipts (‘‘SPDRs’’), the first ETF to

be listed and traded on the Exchange.

ETFs are individual securities that

represent a fractional, undivided

interest in a portfolio of securities.

Currently, approximately 100 ETFs are

listed on the Amex. Like an option, an

ETF is a derivative security, and,

according to the Amex, its price is a

function of the value of the portfolio of

securities underlying the ETF. Thus, as

is the case with options, the Exchange

asserts that it is not the price discovery

market for ETFs and that the price

discovery market is the market or

markets where the underlying securities

trade.

The Exchange now proposes to extend

its current Auto-Ex technology on a sixmonth pilot basis to ETFs listed under

Amex Rules 1002, 1002A, and 1202.

The Amex represents that Auto-Ex for

ETFs would provide investors that send

eligible orders to the Exchange with

faster executions than they currently

receive. The Exchange believes that

many investors desire rapid executions

in trading securities that are priced

derivatively since the value of the

underlying instruments may fluctuate

during order processing. The Amex,

moreover, proposes to incorporate a

price improvement algorithm into AutoEx for ETFs and thus to provide

investors with better execution prices

on their orders. The price improvement

algorithm would work in the following

manner:

When the Amex establishes the

National Best Bid or Offer (‘‘NBBO’’),4

Auto-Ex would be programmed to

execute eligible incoming ETF orders at

the Amex Published Quote (‘‘APQ’’)

plus a programmable number of trading

increments with respect to the Amex

bid, and less a programmable number of

trading increments in the case of the

Amex offer. For example, if the Amex

33726 Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Notices

5The number of trading increments designated

for price improvement when the Amex establishes

the NBBO may be different than the number of

increments designated for price improvement when

the Amex does not establish the NBBO. Telephone

conversation between William Floyd-Jones,

Assistant General Counsel, Amex, and Ira L.

Brandriss, Special Counsel, the Division, the

Commission, on June 4, 2001.

6Once an order that is Auto-Ex eligible is sent to

the Exchange, the person that initiated the order has

no control over its execution. This is the case

regardless of whether the order is executed by AutoEx or is executed by the specialist because AutoEx is unavailable. If the order is routed to the

specialist for handling because Auto-Ex is

unavailable, the specialist does not know if the

order is for the account of a broker-dealer or for the

account of a customer. This information is in the

Exchange’s order processing systems and is

unavailable to the specialist.

Published Quote were 90.10 to 90.20,

and the APQ constituted the NBBO,

incoming sell orders might be

automatically executed at 90.12 (the

Amex bid plus two ticks) and incoming

buy orders might be executed at 90.18

(the Amex offer less two ticks).

If the Amex does not establish the

NBBO, Auto-Ex would be programmed

to execute eligible incoming ETF orders

at or better than the NBBO up to a

specified number of trading increments

relative to the APQ.5 Auto-Ex would

execute an eligible order at an improved

price relative to the APQ unless such

execution would result in a tradethrough with respect to the price of an

away market that is a participant in the

Intermarket Trading System (‘‘ITS’’). If a

trade-through would result, the order

would be routed to the specialist for

electronic processing through the Amex

Point of Sale (‘‘POS’’) Book.6

For example, assume that Auto-Ex is

programmed to execute the order at the

Amex bid plus two ticks. If the Amex

bid were 90, and an away ITS market

were bidding 90.01, an incoming sell

order would be automatically executed

on the Amex at 90.02. Continuing with

this example, if the away market were

bidding 90.02, an incoming sell order

would be automatically executed on the

Amex at 90.02 (matching the away

market). If the away market were

bidding 90.03, the incoming sell order

would not be automatically executed.

Instead, it would be routed to the

specialist for electronic processing

through the Amex POS Book.

The amount of price improvement the

system would provide, both when the

Amex establishes the NBBO and when

it does not, would be determined by the

Auto-Ex Enhancements Committee

(‘‘Committee’’) upon the request of a

specialist and may differ among ETFs.

The Committee will consist of the

Exchange’s four Floor Governors and

the Chairmen (or their designees) of the

Specialists Association, Options Market

Makers Association and the Floor

Brokers Association, respectively. The

Exchange anticipates that the amount of

price improvement would vary among

securities based upon such factors as the

width of the spread, the volatility of the

basket of securities underlying the ETF,

and liquidity of available hedging

vehicles. The proposal would permit the

amount of price improvement to be

adjusted intra-day by the Committee.

The proposal further provides that

Auto-Ex for ETFs with price

improvement would be unavailable

when the spread is at a specified

minimum and maximum variation,

which may be adjusted security to

security. The Committee would

determine, upon the request of a

specialist, the minimum and maximum

spreads at which Auto-Ex is

unavailable. Auto-Ex would also be

unavailable with respect to incoming

sell orders when the Amex bid is for 100

shares, and it similarly would be

unavailable with respect to incoming

buy orders when the Amex offer is for

100 shares.

Orders that are otherwise Auto-Ex

eligible orders would also be routed to

the specialist and not automatically

executed in situations where the

specialist in conjunction with a Floor

Governor or two Floor Officials

determine that quotes are not reliable

and the Exchange is experiencing

communications or systems problems,

‘‘fast markets,’’ or delays in the

dissemination of quotes. Members and

member organizations would be notified

when the Exchange has determines that

quotes are not reliable prior to

disengaging Auto-Ex.

Specialists and Registered Options

Traders (‘‘ROTs’’) that sign onto the

system would be automatically

allocated the contra side of Auto-Ex

trades for ETFs. Due to the automatic

price improvement feature, the

specialist and ROTs that sign onto AutoEx for ETFs would be deemed to be on

parity for purposes of allocating the

contra side of ETF Auto-Ex trades. The

Exchange proposes to use the following

metholodogy for the allocation of the

contra side to Auto-Ex ETF trades:

Number of ROTs signed on to Auto-Ex in a crowd

Approximate number

of trades allocated to

the specialist throughout the day (‘‘target

ratio’’) (percent)

Approximate number

of trades allocated to

ROTs signed on to

Auto-Ex throughout

the day (‘‘target ratio’’)

(percent)

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

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

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

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

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

At the start of each trading day, the

sequence in which trades are to be

allocated to the specialist and ROTs

signed onto Auto-Ex would be randomly

determined. Auto-Ex trades then would

be automatically allocated in sequence

on a rotating basis to the specialist and

to the ROTs that have signed onto the

system so that the specialist and the

crowd achieve their ‘‘target ratio’s’’ over

the course of a trading session. If an

Auto-Ex eligible order were greater than

100 shares, Auto-Ex would divide the

trade into lots of 100 shares each. Each

lot would be considered a separate trade

for purposes of determining target ratios

and allocating trades within Auto-Ex.

Round lot orders delivered to the post

electronically for 2,000 shares or less

would be eligible for Auto-Ex for ETFs.

Orders for an account in which a market

maker in ETFs registered as such on

another market has an interest would be

ineligible for Auto-Ex for ETFs. If orders

for such market makers were eligible for

Auto-Ex with price improvements, the

Exchange represents that Amex

specialists and ROTs would be unable

to make markets with the proposed

liquidity for other investors. (Orders for

Amex Registered Traders are ineligible

for Auto-Ex for ETFs pursuant to

Commentaries .04 and .05 to Rule 111

and Amex Rule 950(c).)

The proposed rule change also

stipulates that Auto-Ex eligible orders

Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Notices 33727

7 15 U.S.C. 78f.

8 15 U.S.C. 78f(b)(5).

9 In approving this proposed rule change, the

Commission notes that it has considered the

proposed rule’s impact on efficiency, competition,

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

10 15 U.S.C. 78f.

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

for any account in which the same

person is directly or indirectly

interested may be entered only at

intervals of 30 seconds or more between

the entry of each such order in an ETF.

The Exchange indicates that Amex

specialists and ROTs are willing to

provide Auto-Ex with price

improvement for orders of a certain size.

If persons were allowed to enter more

than one Auto-Ex eligible order for an

account in which they had a direct or

indirect interest at intervals of less than

30 second, according to the Exchange,

Amex specialists and ROTs would be

unable to make markets with the

proposed liquidity for all investors.

Members and member organizations

would be responsible for establishing

procedures to prevent orders for any

account in which the same person is

directlyu or indirectly interested from

being entered at intervals of less than 30

seconds with respect to an ETF.

The proposed rule change provides

that the specialist may request the

Exchange to increase the maximum size

of Auto-Ex eligible orders. Such request

would be reviewed by the Committee,

which would approve, disapprove, or

conditionally approve such requests.

The Committee would balance the

interests of investors, the specialist,

ROTs in the crowd, and the Exchange in

determining whether to grant a request

to increase the size of Auto-Ex eligible

orders.

The Committee also would consider

requests from the specialist or ROTs to

reduce the size of Auto-Ex eligible

orders, balancing the same interests that

it would consider in reviewing a request

to increase the size of Auto-Ex eligible

orders. The Committee would not be

permitted, however, to reduce the size

of Auto-Ex eligible orders below 2,000

shares.

In addition, the Committee may

delegate its authority under proposed

Rule 128A to one or more Floor

Governors. The Committee, however,

would meet promptly to review a Floor

Governor’s decision in the event that a

Floor Governor acts pursuant to

delegated authority.

The proposal further provides that in

the event of system problems or unusual

market conditions, a Floor Governor

would be permitted to reduce the size

of Auto-Ex eligible orders below 2,000

shares or increase the size of Auto-Ex

eligible orders up to 5,000 shares. Any

such change would be temporary and

would last only until the end of the

unusual market condition or the

correction of the system of the system

problem. Members and member

organizations would be notified when

the size of Auto-Ex eligible orders is

adjusted due to system problems or

unusual market conditions.

The Chairman and Vice Chairman of

the Exchange, acting jointly, would

determine which ETFs are eligible for

Auto-Ex.

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 foster cooperation and

coordination with persons engage in

regulating, clearing, settling, processing

information with respect to and

facilitating transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a 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.

The Amex believes that proposed rule

change will provide investors with

faster executions in ETFs than currently

are available on the Exchange, which

many investors desire in trading

securities that are priced derivatively

since the value of the underlying

security or index may fluctuate during

the process of their orders. The Amex

believes that the proposal also will

facilitate the comparison and settlement

of trades, since Auto-Ex transactions

result in ‘‘locked-in’’ trades. Moreover,

the Amex notes that Auto-Ex for ETFs

will automatically provide investors

with price improvement of their orders.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The proposed rule change will impose

no burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act. The

proposal, in fact, will enhance

competition among markets and market

makers and thereby benefit investors by

allowing the Exchange to provide AutoEx for ETFs with price improvement.

The exclusion of orders for the account

of registered market makers in other

markets from eligibility for Auto-Ex will

benefit investors by allowing Amex

specialists and market makers to make

tighter and more liquid markets in ETFs

available through Auto-Ex both to

public customers and to broker-dealers

that are not registered as market makers

in the security.

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, NW.,

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. 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–2001–29 and should be

submitted by July 16, 2001.

IV. Commission Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

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 9 and, in particular, the

requirements of Section 6 of the Act 10

and the rules and regulations

thereunder.

The Commission finds specifically

that the proposed rule change is

consistent with Section 6(b)(5) of the

Act.11 First, Auto-Ex for ETFs will

provide investors with faster execution

of eligible orders. This can be

particularly important in the case of

derivative securities like ETFs, since

their prices are based on baskets of other

securities and can readily change over

33728 Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Notices

12Rule 11a2–2(T)(a)(2) provides, in brief, that a

member of an exchange ‘‘initiating member’’) may

effect a transaction on the exchange for its own

account, the account of an associated person, on an

account over which it or an associated person

exercises investment discretion of (i) the transaction

is executed on the floor of the exchange or through

its facilities by a member that is not associated with

the initiating member; (ii) the order is transmitted

from off the exchange floor; (iii) neither the

initiating member nor any associated person

participates in the execution of the order after it has

been transmitted; and (iv) in transactions for

accounts over which the member or associated

person exercises investment discretion, neither the

member nor associated person retains

compensation in connection with effecting the

transaction unless expressly provided otherwise in

writing by the person authorized to transact

business for the account. 17 CFR 240.11a2–

2(T)(a)(2).

13See 17 CFR 140.11Ac1–1(c)(2).

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

15See Securities Exchange Act Release No. 44013

(February 28, 2001), 66 FR 13816 (March 7, 2001).

16See. e.g., Securities Exchange Act Release No.

44017 (February 28, 2001), 66 FR 13820 (March 7,

2001) (ordering approving File No. SR–ISE–00–20).

17 15 U.S.C. 78s(b)(2).

18 17 CFR 200.30–3(a)(12)

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

2 17 CFR 240.19b–4.

the course of time it takes to process

orders manually.

Moreover, the Amex proposal will

offer investors an additional benefit by

allowing their orders in many cases to

be executed at better prices than the

NBBO. At the same time, orders

entering the system are protected

against receiving automatic execution at

prices inferior the NBBO. A further

advantage of the proposed system is that

by executing trades automatically, AutoEx will facilitate comparison and

settlement of trades, thereby enhancing

efficiency.

The Commission believes that the

authority granted to the Auto-Ex

Enhancements Committee to change the

minimum and maximum size of AutoEx orders and to adjust the price

improvement increments to be offered

by the system, based on changing

circumstances and variables and the

balancing of various interests as noted

above, is a reasonable means of helping

ensure flexible, fair, and orderly

operation of the system.

As discussed above, the proposed rule

change bars the successive entry of

Auto-Ex orders on behalf of the same

person within a 30-second interval. The

Commission believes that this

restriction should help reduce market

risk exposure and, at the same time,

provide a clear and objective standard

for members and member organizations

with respect to the entry of orders

otherwise eligible for Auto-Ex on Behalf

of the same person.

The Commission further believes that

the proposed methodology for the

allocation of Auto-Ex orders among the

specialist and ROTs fairly assigns the

specialist a certain guaranteed

percentage of each order in recognition

of the specialist’s contribution to the

market and the extra risks and burdens

the specialist assumes. At the same

time, the allocation methodology

preserves a sufficient share of incoming

orders for execution by the ROTs in the

crowd to assure that they can maintain

their competitive presence in the

market.

The Amex represents that a member

that submits an order into Auto-Ex,

including an order for its own account,

will have no control over its execution,

neither when the order is automatically

executed nor when it is routed to the

specialist. The Amex further represents

that the specialist receiving the order

will be unable to tell whether that order

is for the account of a member or a

customer. The Commission thus

believes that transactions effected under

the proposed rule change will meet the

criteria set forth in Rule 1a2–2(T)(a)(2)

under the Act.12

Finally, the Commission notes that

the proposed rule change provides that

Auto-Ex will be unavailable in certain

situations. In approving the proposal,

the Commission notes that in no way

does Amex Rule 128A exempt market

participants from their obligations

under Rule 11Ac1–1(c)(2) (the ‘‘Firm

Quote Rule’’).13

The Amex has requested that the

Commission find good cause pursuant

to Section 19(b)(2) of the Act 14 for

approving the proposed rule change

prior to the 30th day after publication in

Federal Register. The Amex is

concerned that it would be placed at

competitive disadvantage relative to

other market centers—which, it states,

have already, or soon will, offer

automatic execution of ETF orders—if it

is not permitted to promptly begin

offering Auto-Ex for ETFs.

The Commission notes, as the Amex

points out, that the Exchange will be

using the same Auto-Ex system with

which it has long provided automatic

execution for eligible options orders. In

addition, the Commission notes that a

recent rule change to Amex’s Auto-Ex

system for options provides for price

improvement and certain ordereligibility parameters to be determined

by the same Committee that would

decide price improvement and ordereligibility parameters in the ETC

context.15 The Commission also

recently considered the issue of

restricting successive entry of orders by

members of an exchange on behalf of

the same beneficial owner within a

specified time period, and approved

exchange rules that do so.16

The Commission believes that the

proposed rule change extending AutoEx to ETFs and implementing various

other features, including price

improvement and the prohibition on

members submitting orders for the same

person within 30 seconds of each other,

raises no significant new regulatory

issues. Moreover, Amex is proposing

Auto-Ex for ETFs as six-month pilot

program, which will enable the

Exchange and the Commission to

evaluate its operation before the

program can be renewed. The

Commission therefore finds good cause

to accelerate approval of the proposed

rule change prior to the thirtieth day

after the date of publication of notice of

filing thereof in the Federal Register.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,17 that the

proposed rule change (File No. SR–

Amex–2001–29) be, and hereby is,

approved on an accelerated basis as a

pilot program through December 19,

2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.18

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15850 Filed 6–22–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44443; File No. SR–CBOE–

2001–22]

Self-Regulatory Organizations; Notice

of Proposed Rule Change by the

Chicago Board Options Exchange,

Incorporated Relating to Permanent

Approval of the Pilot Program to

Eliminate Position and Exercise Limits

for OEX, SPX, and DJX Index Options

June 18, 2001.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934,1 and

Rule 19b-4 thereunder,2 notice is hereby

given that on May 14, 2001, the Chicago

Board Options Exchange, Incorporated

(‘‘CBOE’’ 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 CBOE. The Commission

is publishing this notice to solicit

comments on the proposed rule change

from interested persons.