8430 Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices

26Specifically, delivery of the Regulatory Element

other than through the NASD’s testing centers

would require that appropriate safeguards be

developed to ensure the integrity of the program

and the ability to capture the necessary information

for feedback.

27 15 U.S.C. § 78s(b)(2) (1988).

1The Exchange seeks accelerated approval of the

proposed rule change in order to allow the pilot

program, which expires on February 8, 1995, to

continue without interruption. The Commission

notes that, under current Rule 205, no differential

may be charged on odd-lot order transactions,

except for non-regular way trades. See infra, note

5.

2See Securities Exchange Act Release No. 34949

(November 8, 1994), 59 FR 58863 (November 15,

1994) (approving File No. SR–AMEX–94–47).

education program into two parts: The

Regulatory Element, which emphasizes

subjects regarding legal and ethical

standards, and the Firm Element, which

contemplates the timely transmission of

product related information to maintain

and expand individuals’ professional

knowledge. Taken together, the

Elements form the basis for an

educational program that should ensure

that registered persons have the training

and knowledge necessary to conduct

themselves in an appropriate

professional manner, over the course of

their careers. The Commission also

notes that the re-entry provision of the

Regulatory Element, which is triggered

by disciplinary action, will ensure that

those individuals who have not

complied with all applicable regulatory

requirements, receive further training as

a condition to their re-entry into

business.

The Commission believes that a

continuing education requirement for

persons in the securities industry,

administered pursuant to industry

developed standards, will benefit public

investors as a result of the increased

knowledge and enhanced understanding

of regulatory and ethical standards by

industry members. SRO qualification of

registered persons of broker-dealers is of

critical importance in promoting

compliance with the requirements of the

federal securities laws. Increasing the

sensitivity of registered persons to

regulatory and ethical matters also

should enhance investor confidence in

the securities industry. Moreover, the

recent attention that has been devoted to

derivatives underscores the need for

securities industry personnel to receive

thorough training in the products in

which they deal.

The SROs have noted that the

Regulatory Element of the program

initially will be administered only in

the NASD’s testing centers, stating that

this is necessary to allow the NASD to

manage the introduction of the program

in a reasonable manner. Nevertheless,

interest has been expressed in

permitting member firms either to

administer the Regulatory Element inhouse, or to solicit the services of

outside vendors. While recognizing the

concerns of the Council and the SROs

regarding the technological and

administrative issues that arise in

connection with the in-house

administration of the Regulatory

Element, the Commission encourages

the Council and the SROs to continue to

study whether practical and reasonable

alternatives to the NASD’s testing

centers can be developed.26

The Commission notes with approval

that the Firm Element Committee of the

Council is developing guidelines for

dealers’ use in devising and carrying out

training programs to meet the

requirements of the Firm Element,

including providing guidance as to how

different firms might approach the

requirements (e.g., firms that deal with

one product, small firms, and firms with

large numbers of very small offices or

solo representatives).

These guidelines will offer

suggestions intended to help firms

devise appropriate and reasonable

programs consistent with their own

unique characteristics and businesses.

The Commission believes that such

guidance will particularly benefit

smaller firms and should lessen their

costs of compliance with the Firm

Element. The Commission encourages

the SROs, as they gain experience with

the continuing education program, to

continue such efforts.

VI. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,27 that the

proposed rule changes (File Nos. SR–

AMEX–94–59, SR–CBOE–94–49, SR–

CHX–94–27, SR–MSRB–94–17, SR–

NASD–94–72, SR–NYSE–94–43, SR–

PSE–94–35, and SR–PHLX–94–52) are

approved.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–3569 Filed 2–13–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35344; File No. SR–Amex–

95–03]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to Proposed

Rule Change by American Stock

Exchange, Inc. Relating to a Pilot

Program for Execution of Odd-lot

Market Orders

February 8, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 2, 1995,

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 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 that the

Commission extend for twelve months

the Exchange’s existing pilot program

under Rule 205 requiring execution of

odd-lot market orders at the prevailing

Amex quote with no differential

charged.1 The text of the proposed rule

change is available at the Office of the

Secretary, 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

The Commission has approved, on a

pilot basis extending to February 8,

1995, amendments to Exchange Rule

205 to require the execution of odd-lot

market orders at the prevailing Amex

quote with no odd-lot differential.2

These procedures initially were

approved by the commission on a pilot
Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices 8431

3See Securities Exchange Act Release No. 26445

(January 10, 1989), 54 FR 2248 (January 19, 1989)

(approving File No. SR–Amex–88–23).

4See Securities Exchange Act Release Nos. 34949

(November 8, 1994), 59 FR 58863 (November 15,

1994) (approving File No. SR–Amex–94–47); 34496

(August 8, 1994), 59 FR 41807 (August 15, 1994)

(approving File No. SR–Amex–94–28); 33584

(February 7, 1994), 59 FR 6983 (February 14, 1994)

(approving File No. SR–Amex–93–45); 32726

(August 9, 1993), 58 FR 43394 (August 16, 1993)

(approving File No. SR–Amex–93–24); 31828

(February 5, 1993) 58 FR 8434 (February 12, 1993)

(approving File No. SR–Amex–93–06); 30305

(January 30, 1992), 57 FR 4653 (February 6, 1992)

(approving File No. SR–Amex–92–04); 29922

(November 8, 1991), 56 FR 58409 (November 19,

1991) (approving File No. SR–Amex–91–30); 29186

(May 19, 1991), 56 FR 22488 (May 15, 1991)

(approving File No. SR–Amex–91–09); 28758

(January 10, 1991), 56 FR 1656 (January 16, 1991)

(approving File No. SR–Amex–90–39); and 27590

(January 5, 1990), 55 FR 1123 (January 11, 1990)

(approving File No. SR–Amex–89–31).

5See e.g., Securities Exchange Act Release No.

26445, supra note 3, for a description of the

Commission’s rationale for approving the Amex’s

odd-lot procedures on a pilot basis. The discussion

in the aforementioned order is incorporated by

reference into this order. Since initial approval of

the pilot program, however, the Exchange has

amended Rule 205 to provide that no differential

may be charged on odd-lot order transactions,

except for non-regular way trades. See Securities

Exchange Act Release No. 34591 (August 24, 1994),

59 FR 44783 (August 30, 1994) (approving File No.

SR-Amex-94–15).

6 15 U.S.C. 78f (1988).

7 15 U.S.C. 78k–1(a)(1) (1988).

8The Commission has approved amendments to

the New York Stock Exchange’s (‘‘NYSE’’) rules

which incorporate the ITS quotation into the NYSE

odd-lot pricing procedures through the use of the

Best Pricing Quote (‘‘BPQ’’). See Securities

Exchange Act Release No. 27981 (May 2, 1990), 55

FR 19409 (May 9, 1990) (File No. SR–SYSE–90–06).

9See supra, note 4.

10See supra, note 8.

basis,3 and subsequently were extended

ten times.4

Under the pilot procedures, odd-lot

market orders with no qualifying

notations are executed at the Amex

quotation at the time the order is

represented in the market, either by

being received at the trading post or

through the Exchange’s Post Execution

Reporting (‘‘PER’’) system.

Enhancements to the PER system have

been implemented to provided for the

automatic execution of odd-lot market

orders entered through PER. For

purposes of the pilot program, odd-lot

limit orders that are immediately

executable based on the Amex quote at

the time the order is received, at the

trading post or through PER, are

executed in the same manner as odd-lot

market orders.

The Exchange proposes that the pilot

program applicable to odd-lot execution

procedures be extended for twelve

months. The exchange notes that, in

approving previous extensions to the

Rule 205 pilot procedures, the

Commission has expressed interest in

the feasibility of the Exchange utilizing

the Intermarket Trading System (‘‘ITS’’)

best bid or offer, rather than the Amex

bid or offer, for purposes of the

Exchange’s odd-lot pricing system. The

Exchange has determined to proceed

with system modifications, anticipated

to be completed within a twelve month

period, to provide for execution of oddlot market orders at the ITS best bid or

offer. The Exchange will file appropriate

amendments to Rule 205, prior to

expiration of the extended pilot

program, to accommodate the revised

odd-lot pricing procedures.

2. Basis

The proposed rule change is

consistent with Section 6(b) of the Act

in general and furthers the objectives of

Section 6(b)(5) and 11A(a)(1) in

particular in that it facilitates the

economically efficient execution of oddlot transactions, and is intended to

result in improved execution of

customer orders.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The proposed rule change will impose

no burden on competition.

C. Self-Regulatory Organization’s

statements 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.

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

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 at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. 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-95-03

and should be submitted by March 7,

1995.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

For the same rational discussed in its

previous orders regarding the Amex’s

odd-lot execution pilot program,5 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, with the requirements of

Section 6(b) 6 and 11A(a)(1) 7 of the Act

and the rules and regulations

thereunder. The Commission believes

that the revised procedures, under

which odd-lot market orders are

executed at the prevailing Amex quote

rather than at the price of a subsequent

round-lot transaction, should provide

investors with more timely execution of

their orders. The Exchange has

implemented enhancements to its PER

system to provide for the automatic

execution of odd-lot market orders.

Based on the data in the Amex’s

monitoring reports, the Rule 205

amendments have resulted in a superior

execution for a significant percentage of

such orders.

The Commission, however, is not

satisfied that all customers received the

best execution, in terms of time and

price, under the pilot procedures.

Specifically, the Commission remains

concerned that some odd-lot orders may

not receive the best available price,

because the Exchange’s pricing formula

does not include quotations from other

markets.8 In its previous orders,9 the

Commission has requested that the

Exchange analyze the difference in oddlot executions between using the

Intermarket Trading System (‘‘ITS’’)

consolidated best bid or offer and using

the Amex quote. The Commission also

has encouraged the Amex to evaluate

the feasibility of implementing an oddlot pricing system based on the ITS best

bid or offer.10

At this time, the Amex has

determined to proceed with the

necessary system modifications to

provide for the execution of odd-lot

orders at the ITS best bid or offer. The

Exchange anticipates that the system

modifications will be completed within

a twelve month period. As noted above,

the Commission has encouraged the

Amex to implement a pricing formula

that includes quotations from other

markets and believes that such action

would substantially alleviate the

Commission’s best execution concerns.

In the interim, due to the relatively low
8432 Federal Register / Vol. 60, No. 30 / Tuesday, February 14, 1995 / Notices

11See footnote 9 of Securities Exchange Act

Release No. 29922 (November 8, 1991), 56 FR

58409.

12No comments were received in connection with

the proposed rule changes that implemented these

procedures. See supra, notes 3–4.

13 15 U.S.C. 78s(b)(2) (1988).

14 17 CFR 200.30–3(a)(12) (1991).

1See Securities Exchange Act Release No. 31118

(August 28, 1992), 57 FR 40484 (September 3,

1992).

2The Amex estimates that the rule change will

increase the number of securities traded in

sixteenths from 362 securities (approximately 37%

of Amex-listed securities) to 589 securities

(approximately 60% of Amex-listed securities).

These estimates were made by the Exchange as of

February 3, 1995.

3 Division of Market Regulation, SEC, Market

2000: An Examination of Current Equity Market

Developments (January 1994), at 18 (‘‘Market 2000

Study’’).

4 ITS is a subsystem of the National Market

System approved by the Commission pursuant to

Section 11A of the Act, 15 U.S.C. 78k–1 (1988). ITS

facilitates intermarket trading in exchange-listed

equity securities based on the current quotation

information emanating from the linked markets. For

a discussion of ITS, see Market 2000 Study, supra

note 3, at Appendix II.

5Participants to the ITS Plan include the Amex,

the Boston Stock Exchange, the Chicago Board

Options Exchange, the Chicago Stock Exchange, the

Cincinnati Stock Exchange, the New York Stock

Exchange, the Pacific Stock Exchange, the

Philadelphia Stock Exchange, and the National

Association of Securities Dealers.

6SIAC is a jointly owned subsidiary of the New

York Stock Exchange and the Amex, which does,

among other things, the automated processing for

ITS.

number of odd-lot market orders on the

Amex 11 and the benefits to customers

under the pilot procedures as compared

to the former pricing procedures, which

priced odd-lot orders based on

subsequent round-lot transactions and

which raised concerns regarding

timeliness of execution, the Commission

finds that it is appropriate to extend the

pilot program for an additional twelve

months. This will enable the pilot

program to continue without

interruption during the system

modifications.

The Commission finds good cause for

granting approval of 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

procedures the Exchange proposes to

continue using are substantially

identical to the procedures that were

published in the Federal Register for

the full comment period and were

approved by the Commission.12

It is therefore ordered, pursuant to

Section 19(b)(2) 13 of the Act, that the

proposed rule change (SR–Amex–95–

03) is approved for a twelve month

period ending on February 8, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–3617 Filed 2–13–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35338; File No. SR–Amex–

95–02]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

American Stock Exchange, Inc.

Relating to Minimum Fractional

Changes

February 7, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on January 31, 1994,

the American Stock Exchange, Inc.

(‘‘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 self-regulatory organization. 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 amend Amex

Rule 127 to increase from $5 to $10 the

price level below which equity

securities are traded in sixteenths.

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 IV 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

In August 1992, the Commission

approved amendments to Amex Rule

127 to provide that securities selling

under $5 and above $.25 may be traded

in fractions of 1⁄16 of $1.00 per share.1

Prior to the amendment, Rule 127

provided for trading in sixteenths for

securities selling under $1 and above

$.25, whereas trading in securities

selling above $1 were subject to a

minimum trading fraction of one-eighth

of $1. In expanding the number of

securities eligible for trading in

sixteenths, the Exchange intended to

promote greater liquidity in lower

priced stocks by allowing quotations

between the then-current one-eighth

minimum trading fraction, thereby

providing possible improved pricing of

orders to the benefit of both public

customers and market professionals.

The Exchange proposes to increase

significantly the number of Amex-listed

securities traded in sixteenths by

amending Rule 127 to provide for

sixteenths trading in securities selling

under $10.2 The Exchange believes that

trading in sixteenths will improve the

market for securities trading under $10

by promoting greater liquidity and

providing for superior executions of

retail and professional orders. In

addition, the proposal is responsible to

the recommendations of the Division of

Market Regulation, in its Market 2000

Study,3 that the exchanges and Nasdaq

convert to a minimum variation of onesixteenth as soon as possible.

The proposed amendments to Rule

127 do not pertain to bond issues,

which will continue to be dealt in at

one-eighth of $1. In addition, the

Exchange will retain its authority to fix

different minimum fractional changes

where appropriate.

Prior to implementing expanded

sixteenths trading in 1992, the Amex

discussed the need for systems

enhancements to the Intermarket

Trading System (‘‘ITS’’) 4 with all ITS

participants 5 in order to permit the

transmittal of commitments to trade

Amex securities priced under $5 via ITS

in fractions of one-sixteenth, which

enhancements were implemented by the

Securities Industry Automation

Corporation (‘‘SIAC’’).6 Prior to the

proposed expansion of trading in

sixteenths, the Amex will consult with

all ITS participants to permit them to

make any required modifications to

their individual systems to

accommodate trading through ITS in

Amex securities priced under $10.

2. Statutory Basis

Thr proposed rule change is

consistent with Section 6(b) of the Act

in general and furthers the objectives of

Section 6(b) in particular in that it is

intended to promote just and equitable

principles of trade, to facilitate