Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 7335 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 57022 

(December 20, 2007), 72 FR 74375. 

4See Securities Exchange Act Release No. 56446 

(September 17, 2007), 72 FR 54303 (September 24, 

2007) (approving File No. SR–Amex–2007–085) 

(establishing DART program in ETFs and common 

stocks); letter dated September 5, 2007 to Nancy M. 

Morris, Secretary, Commission, from Brendan E. 

Cryan, Managing Member, Brendan E. Cryan & 

Company, LLC; Jonathan Q. Frey, Managing 

Partner, J. Streicher & Co.; Michael Marchisi, 

Managing Partner, AIM Securities Co.; and Robert 

B. Nunn, Chief Operating Officer, Cohen Specialist, 

LLC (‘‘Comment Letter’’) (commenting on SR–

Amex–2007–085); Securities Exchange Act Release 

No. 56764 (November 7, 2007), 72 FR 64095 

(November 14, 2007) (immediate effectiveness of 

File No. SR–Amex–2007–113) (eliminating DART 

rules). 

5See Amex Rule 993–ANTE (Supplemental 

Registered Options Traders). 

6These include in index warrants, currency 

warrants, securities listed pursuant to Section 107 

of the Amex Company Guide, Trust Issued Receipts, 

and Partnership Units. 

7See Amex Rule 1A(g)–AEMI. A DART would 

only be permitted to submit quotations 

electronically from off the floor of the Exchange. 

8See Amex Rule 110A(n)–AEMI. 

9See proposed Rule 110A–AEMI(b)(i), which 

requires a DART to ‘‘provide continuous two-sided 

quotations in all assigned securities * * *’’ This 

basic market maker requirement mirrors the 

definition of ‘‘market maker’’ set forth in Section 

3(a)(38) of the Act, 15 U.S.C. 78c(3)(38), which 

requires a dealer in the security involved to hold 

himself out ‘‘as being willing to buy and sell such 

security for his own account on a regular or 

continuous basis.’’ The following additional 

regulatory requirements will be imposed by 

proposed Rule 110A–AEMI(b)(ii): ‘‘With respect to 

each security to which he/she is assigned by the 

Exchange, a DART’s transactions must constitute a 

course of dealings reasonably calculated to 

contribute to the maintenance of a fair and orderly 

market. In connection with this function, a DART 

is required to make competitive bids and offers as 

reasonably necessary to contribute to the 

maintenance of a fair and orderly market and shall 

engage, to a reasonable degree under the existing 

circumstances, in dealings for his/her own account 

when there exists a lack of price continuity, a 

temporary disparity between the supply of and 

demand for the security(ies) in which he/she is 

trading, or a temporary distortion of the price 

relationships between the security(ies) in which he/ 

she is trading and the security(ies) underlying or 

otherwise related to such security(ies).’’

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57241; File No. SR–Amex–

2007–138] 

Self-Regulatory Organizations; 

American Stock Exchange LLC; Order 

Approving a Proposed Rule Change to 

Establish a New Class of Off-Floor 

Market Makers in ETFs Called 

Designated Amex Remote Traders 

January 31, 2008. 

I. Introduction 

On December 19, 2007, the American 

Stock Exchange LLC (‘‘Amex’’ 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 proposal to create a new 

class of off-floor market makers, called 

‘‘Designated Amex Remote Traders’’ or 

‘‘DARTs,’’ in ETF securities. The 

proposed rule change was published for 

comment in the Federal Register on 

December 31, 2007.3 The Commission 

received no comments regarding the 

proposal. This order approves the 

proposed rule change. 

II. Description 

The Exchange proposes to create a 

new class of off-floor market makers in 

ETF securities and to make related 

changes to the Exchange’s AEMI trading 

platform.4 These market makers, to be 

called ‘‘Designated Amex Remote 

Traders’’ or ‘‘DARTs,’’ will 

electronically enter competitive 

quotations on a regular basis to satisfy 

market maker regulatory requirements. 

DARTs will also have to meet certain 

business requirements, which will 

include minimum performance 

standards as discussed below. 

A DART will be a member or member 

organization physically located off-floor 

that will electronically enter 

competitive quotations into AEMI on a 

regular basis in all ETF securities to 

which it is assigned in the DARTs 

program. A DART may be either a 

regular or associate member of the 

Exchange that meets the requirements 

for electronic access to the Exchange’s 

automated systems. The proposed 

DARTs program is similar to the 

Supplemental Registered Options 

Traders (‘‘SROT’’) program 

implemented by the Amex for options,5

with certain unique features. Under the 

DARTs proposal, an Amex specialist 

firm may also be a DART, although it 

may not be registered as a DART in 

securities in which it is also the 

specialist. 

Amex’s rules already provide for one 

type of competing market maker in ETF 

securities—Registered Traders. A 

Registered Trader is a member who is 

authorized to initiate trades in certain 

securities 6 for his or her account, while 

on the floor.7 Like Registered Traders, 

DARTs will not be permitted to initiate 

transactions in equity securities.8

DARTs will have obligations similar to 

Registered Traders under Exchange 

rules, such as those relating to a course 

of dealings that contributes to the 

maintenance of a fair and orderly 

market. 

Due to their lack of a physical 

presence in the trading crowd, which is 

a basic requirement of the auction 

market, DARTs will not participate in 

any post-trade allocation in connection 

with an auction trade. Instead, a DART’s 

participation in an auction pair-off on 

the Exchange will be limited to the 

marketable amount of its quotation on 

the AEMI Book at the time of the pairoff. For purposes of the priority and 

parity rules of Rule 126–AEMI, a 

DART’s quotation would be treated as 

another crowd order, similar to a 

Registered Trader. 

Amex will establish minimum 

requirements for a DART to remain in 

the program, which may be modified by 

the Exchange from time to time. First, a 

DART must provide competitive 

quotations on a regular basis to satisfy 

market maker regulatory requirements.9

The Exchange from time to time will 

determine minimum performance 

standards, including a volume 

participation rate and trade 

participation rate. A DART that fails to 

comply with one or more of these 

standards may be subject to loss of all 

or a portion of any benefits to which it 

would otherwise be entitled under 

Amex rules by virtue of its status as a 

DART, including possible suspension or 

termination of DART status. The 

number of ETF securities in which a 

DART may be permitted to make 

markets will be determined by the 

Exchange in accordance with 

Commentary .05 in proposed Rule 

110A–AEMI. While management 

anticipates starting the program with a 

limited group of DARTs, no specific 

upper limit on the number of DARTs is 

anticipated. 

In addition to the requirements 

described above, a DART will be 

required to meet eligibility criteria 

similar to those specified in the SROT 

program, which will include: 

• Adequacy of resources including 

capital, technology, and personnel; 

• History of stability, superior 

electronic capacity, and superior 

operational capacity; 

• Level of market-making and/or 

specialist experience in a broad array of 

securities; 

• Ability to interact with order flow 

in all types of markets; 

• Existence of order flow 

commitments; 

• Willingness and ability to make 

competitive markets on the Exchange 

and otherwise promote the Exchange in 

a manner that is likely to enhance the 

ability of the Exchange to compete 

successfully for order flow in the ETF 

securities it trades; 

• The number of member 

organizations requesting approval to act 

as a DART; and 


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7336 Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 

10The language in Rule 110A–AEMI(c)(ii) crossreferencing Amex Rule 193 is substantively 

identical to language also contained in Amex Rules 

993–ANTE(d)(iii) (Supplemental Registered 

Options Traders) and 994–ANTE(d)(iii) (Remote 

Registered Options Traders), neither of which have 

been interpreted to expand the applicability of 

Amex Rule 193 beyond affiliates of specialists. 

11Rule 15c3–1 under the Act, 17 CFR 240.15c3–

1. 

12 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

• Ability to transact in any ETF 

underlying markets. 

The regulatory requirements 

applicable to DARTs will be surveilled 

for by the FINRA Amex Regulation 

Division (‘‘FINRA Amex’’) consistent 

with current surveillance procedures for 

Registered Traders on the Exchange. 

FINRA Amex staff will work with Amex 

technical staff on planning the 

necessary changes to AEMI to capture 

required surveillance data and 

surveilling the increased number of 

market makers that the program is 

expected to attract. Adjustments to 

current technology and surveillance 

procedures will likely also be 

necessitated by the fact that DARTs will 

not be physically located on the floor of 

the Exchange. 

DARTs will interface with the Amex’s 

Floor Officials in the case of trade 

disputes substantially in accordance 

with existing procedures used for 

SROTs. Each DART accordingly will be 

required to designate persons on and/or 

off-floor to be in direct real-time contact 

with Floor Officials on such matters. 

Regulation M will apply to DARTs in 

the same way that it applies to other 

market participants, as will Amex Rule 

193 to the extent a DART is affiliated 

with a specialist member organization. 

However, no expansion of the 

application of Amex Rule 193 beyond 

current practice is intended.10

Finally, the Comment Letter had 

observed that a provision proposed in 

SR–Amex–2007–85 relating to 

minimum capital requirements for 

DARTs is unnecessary due to its current 

inapplicability to DARTs (who will be 

subject to the Commission’s net capital 

rule).11 The Exchange has eliminated 

that provision from the current 

proposed rule change. 

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.12 In particular, the 

Commission finds that the proposal is 

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

Act,13 which requires, among other 

things, that a national securities 

exchange’s rules be designed to promote 

just and equitable principles of trade, to 

remove impediments to and to perfect 

the mechanism of a free and open 

market and a national market system, 

and, in general, to protect investors and 

the public interest. 

Under the proposal, DARTs would be 

permitted to quote electronically in 

ETFs from off the Exchange’s physical 

trading floor. Amex’s rules already 

provide for one type of competing 

market maker in ETF securities—

Registered Traders. Like Registered 

Traders, DARTs will not be permitted to 

enter quotations in equity securities. In 

addition, similar rules would govern the 

allocations of DARTs and Registered 

Traders, except DARTs will not be 

permitted to participate in a post-trade 

allocation in connection with an auction 

trade. The Commission believes it is 

reasonable and consistent with the Act 

for Amex to establish DARTs as remote 

competitive market makers subject to 

the allocation rules described in the 

proposal. 

The Commission notes that DARTs 

will be required to meet certain 

eligibility requirements. The existence 

of order flow commitments between a 

DART applicant and order flow 

providers is one such factor. The 

Commission notes the Exchange’s 

representation that a future change to, or 

termination of, any such commitments 

would not be used by the Exchange at 

any point in the future to terminate or 

take remedial action against a DART, 

and that the Exchange would not take 

remedial action solely because orders 

subject to any such commitments were 

not subsequently routed to the 

Exchange. Similarly, the Exchange has 

included the ‘‘willingness to promote 

the Exchange’’ as a factor that the 

Committee may consider when making 

its application decisions. The 

Commission notes the Exchange’s 

representation that the Committee 

would not apply this factor to in any 

way restrict, either directly or 

indirectly, a DART’s activities as a 

market maker or specialist on other 

exchanges, or to restrict how a DART 

handles orders it holds in a fiduciary 

capacity to which it owes a duty of best 

execution. 

The Commission also notes that, 

should the Committee decide not to 

approve a DART applicant, or should a 

DART’s appointment be suspended or 

terminated in one or more classes, a 

DART applicant or DART, respectively, 

would be entitled to a hearing under 

Article IV, section 1(g) of the Amex 

Constitution and Amex Rule 40. 

Proposed Amex Rule 110A(b)–AEMI 

sets forth the obligations that a DART 

would be required to fulfill. 

Specifically, a DART would be required 

to generate continuous, two-sided 

quotations in all assigned ETF 

securities. A DART’s affirmative market 

making obligations appear to be 

sufficient to justify the benefits it would 

receive as a market maker. 

The proposal also appears reasonably 

designed to prevent the misuse of 

material, non-public information with 

any affiliates that may conduct a 

brokerage business in securities 

assigned to a DART, or that may act as 

a specialist or market maker in any 

security underlying a derivative security 

assigned to a DART. 

IV. Conclusion 

It is therefore ordered, pursuant to 

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

proposed rule change (SR–Amex–2007–

138) is approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2123 Filed 2–6–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57250; File No. SR–CBOE–

2008–11] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to CBOE’s 

Holdback Timer 

February 1, 2008. 

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 January 

29, 2008, 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 and II 

below, which Items have been 

substantially prepared by the CBOE. 

The Exchange filed the proposal as a 

‘‘non-controversial’’ proposed rule 

change pursuant to Section 19(b)(3)(A) 


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