[Federal Register Volume 66, Number 250 (Monday, December 31, 2001)]
[Notices]
[Pages 67585-67586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-32084]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45180; File No. SR-Amex-2001-65]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to the 
Implementation of Quick Trade

December 20, 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 August 22, 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, II, 
and III below, which Items have been prepared by the Exchange. On 
October 19, 2001, and December 4, 2001, respectively, the Amex filed 
Amendment Nos. 1 and 2 to the proposed rule change.\3\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The proposal was originally filed pursuant to Section 
19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A) and Rule 19b-4(f)(5) 
thereunder, 17 CFR 240.19b-4(f)(5). Amendment No. 1 converted the 
filing to a proposal submitted pursuant to Section 19(b)(2) under 
the Act, 15 U.S.C. 78s(b)(2). Amendment No. 2 made various 
clarifying changes to the proposal that are incorporated in the 
description herein.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Amex proposes to implement Quick Trade, an enhancement to the 
Amex Order File and Amex Options Display Book.

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 IV 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
    Currently, for orders executed through the specialist's book (known 
as the Amex Order Display Book or AODB) in which registered options 
traders are some or all of the contra-parties, the specialist or his 
clerk must manually allocate the contracts to those participating 
registered options traders. For option classes with large trading 
crowds, this can be a very time consuming process that can delay the 
processing of trades. As the Exchange continues to develop a number of 
competitive initiatives to further enhance the processing of customer 
option orders, it is now proposing to develop and implement Quick 
Trade, an enhancement to the Amex Order File (AOF) and AODB that will 
automate the process of allocating trades to participating registered 
options traders.
    Quick Trade would provide for the efficient allocation of executed 
contracts as set forth below. Registered options traders would be able 
to log onto the Quick Trade (``QT'') wheel through AOF. While 
registered options would not be required to participate in QT, they 
would be encouraged to sign on and remain on QT throughout the trading 
day. Each registered options trader signed on to QT would have the 
ability to advise the specialist prior to the usage of QT on any given 
trade that he does not want to receive an allocation through QT. In 
such a situation and in the situation where a registered options trader 
not signed on to QT wishes to participate in a given trade, the 
specialist would be unable to use QT to allocate the trade and the 
allocation would occur using the same manual process used today.
    At the opening and throughout the trading day the QT wheel \4\ 
would be activated to allocate contracts among registered options 
traders and the specialist in accordance with specific ratios set forth 
below.
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    \4\ A rotational wheel is necessary because the allocation of 
the contracts in a trade exactly according to the percentages set 
forth in the accompanying table is not always possible, as in the 
case, for example, where the percentages would yield a fractional 
value for each trader. Telephone conversation between Claire P. 
McGrath, Vice President and Special Counsel, Amex, and Ira L. 
Brandriss, Special Counsel, Division of Market Regulation 
(``Division''), Commission, on October 17, 2001.

                            Allocation Ratio
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                                                             Approximate
                                                Approximate   number of
                                                 number of    contracts
                                                 contracts    allocated
       Number of traders on Quick Trade          allocated      to the
                                                   to the    traders (as
                                                 specialist    a group)
                                                    (In          (In
                                                  percent)     percent)
------------------------------------------------------------------------
1.............................................           60           40
2-4...........................................           40           60
5-7...........................................           30           70
8-15..........................................           25           75
16 or more....................................           20           80
------------------------------------------------------------------------

    The QT wheel would provide for the automatic allocation of 
contracts to the specialist and registered options traders at various 
times during the trading day when QT is used for the following four 
AODB features. Registered options traders who have signed on to QT 
would be allocated trades whenever QT is used for any of these four 
AODB functions: \5\

    \5\ As indicated above, the specialist would have the ability to 
determine on a trade-by-trade basis whether to use QT or to allocate 
the contracts manually. However, once QT was turned on, it would be 
assumed to remain on, and would be used to allocate contracts in all 
four of the functions designated below unless the specialist 
informed the crowd that he was turning it off. Telephone 
conversation between Claire P. McGrath, Amex, and Ira L. Brandriss, 
Division, Commission, on November 21, 2001.
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    <bullet> Quick Opening for pre-opening quantity allocations by 
class;
    <bullet> Block Window for post-opening quantity allocations by 
series;
    <bullet> The Auto-Match feature for executions when there is an 
imbalance; and
    <bullet> Sweep of the Book allocation of contracts from multiple 
order executions.

Quick Openings

    A specialist opens trading in each option series by establishing an 
opening price for that series and executing all market and marketable 
limit orders at this price. If after all opening orders have been 
executed an imbalance exists, QT would automatically allocate the 
imbalance of executed contracts to the specialist and the registered 
options traders signed on to QT in accordance with the ratios set forth 
above.

Block Window

    The Block Window permits a specialist, in situations when there are 
limit orders on the book at various prices, to execute such limit 
orders at a single price. For example, the specialist has limit orders 
on the book to sell at

[[Page 67586]]

$5.00, $5.05, $5.10, $5.15, and $5.20; in aggregate these orders 
represent 50 contracts. The specialist has determined to buy all 50 
contracts at $5.20. The contracts would be allocated by QT to the 
specialist and registered traders in accordance with the ratios set 
forth above.

Auto-Match

    The Auto-Match feature currently in AODB, which automatically 
matches and executes market and marketable limit orders that have by-
passed the Exchange's automatic execution system (``Auto-Ex'') with 
limit orders on the AODB, would be modified to include registered 
trader participation when an imbalance exists.\6\ Imbalances would be 
distributed among the specialist and registered traders according to 
the above allocation ratio. For example, the best bid is represented by 
a limit order to buy 10 contracts in an option class whose Auto-Ex 
eligible size is 20 contracts. A market order of 20 contracts to sell 
by-passes Auto-Ex and is routed to the AODB; 10 contracts are matched 
and executed with the limit order. The remaining 10 contracts would be 
allocated through QT to the specialists and registered traders.
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    \6\ See Securities Exchange Act Release No. 42652 (April 7, 
2000) 65 FR 20235 (April 14, 2000).
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Sweep of the Book

    The Sweep of the Book function allows a specialist to 
simultaneously execute orders in multiple series at the quoted market. 
Following implementation of Quick Trade, contracts executed through the 
Sweep of the Book function would be automatically allocated by QT on a 
per series basis to the specialist and registered traders in accordance 
with the above allocation ratio.\7\
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    \7\ QT would allocate the order(s) for each series separately. 
Telephone conversation between Claire P. McGrath, Amex, and Ira L. 
Brandriss, Division, Commission, on December 5, 2001.
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    The Exchange believes that implementation of Quick Trade would 
increase the Exchange's competitiveness while furthering the efficient 
processing of customer option orders. Further, the Exchange believes 
that Quick Trade would enhance the fair and orderly allocation of 
orders executed on the Exchange especially during times of high trading 
volume by automating the allocation process.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \8\ in general and furthers the objectives 
of Section 6(b)(5) of the Act \9\ 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 engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

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. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. 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, 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 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-2001-65 and 
should be submitted by January 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-32084 Filed 12-28-01; 8:45 am]
BILLING CODE 8010-01-M