Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Notices 13819

16 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. 42894

(June 2, 2000), 65 FR 36850 (June 12, 2000). The

pilot program has since been extended twice. See

Securities Exchange Act Release Nos. 43229

(August 30, 2000), 65 FR 54572 (September 8,

2000); and 43643 (November 29, 2000), 65 FR 76686

(December 7, 2000).

4Facilitation cross transactions occur when a

floor broker representing the order of a public

customer of a member firm crosses that order with

a contra side order from the firm’s proprietary

account.

5Amex trading practices provide specialists with

a greater than equal participation in trades that take

place at a price at which the specialist is on parity

with registered options traders in the crowd. These

practices are subject to a separate filing that seeks

to codify specialist allocation practices. See

Securities Exchange act Release No. 42964 (June 20,

2000), 65 FR 39972 (June 28, 2000).

6See File No. SR–Amex–00–49, available for

inspection at the Commission’s Public Reference

Room.

7 15 U.S.C. 78s(b)(2).

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

9 15 U.S.C. 78f(b)(5).

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–5540 Filed 3–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44019; File No. SR–Amex–

01–10]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to Proposed

Rule Change by the American Stock

Exchange LLC to Extend for an

Additional 90 Days Its Pilot Program

Relating to Facilitation Cross

Transactions

February 28, 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 February

27, 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. 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 extend for an

additional 90 days its pilot program

relating to facilitation cross transactions,

described in detail in Part II.A. below.

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

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

The Exchange proposes to extend for

an additional 90 days its pilot program

relating to member firm facilitation

cross transactions approved by the

Commission on June 2, 2000.3 Revised

Commentary .02(d) to Amex Rule 950(d)

establishes a pilot program to allow

facilitation cross transactions in equity

options.4 The pilot program entitles a

floor broker, under certain conditions,

to cross a specified percentage of a

customer order with a member firm’s

proprietary account before market

makers in the crowd can participate in

the transaction. The provision generally

applies to orders of 400 contracts or

more. However, the Exchange is

permitted to establish smaller eligible

order sizes, on a class by class basis,

provided that the eligible order size is

not for fewer than 50 contracts.

Under the current program, when a

trade takes place at the market provided

by the crowd, all public customer orders

on the specialist’s book or represented

in the trading crowd at the time the

market was established must be satisfied

first. Following satisfaction of any

customer orders on the specialist’s book,

the floor broker is entitled to facilitate

up to 20% of the contracts remaining in

the customer order. When a floor broker

proposes to execute a facilitation cross

at a price between the best bid and offer

provided by the crowd in response to

his initial request for a market—and the

crowd then wants to take part or all of

the order at the improved price—the

floor broker is entitled to priority over

the crowd to facilitate up to 40% of the

contracts. If the floor broker has

proposed the cross at a price between

the best bid and offer provided by he

crowd in response to his initial request

for a market, and the trading crowd

subsequently improves the floor

broker’s price, and the facilitation cross

is executed at that improved price, the

floor broker would only be entitled to

priority to facilitate up to 20% of the

contracts.

The program also provides that if the

facilitation transaction takes place at the

specialist’s quoted bid or offer, any

participation allocated to the specialist

pursuant to Amex trading floor practices

would apply only to the number of

contracts remaining after all public

customer orders have been filled and

the member firm’s crossing rights have

been exercised.5 However, in no case

could the total number of contracts

guaranteed to the member firm and the

specialist exceed 40% of the facilitation

transaction.

In the almost nine months since the

pilot program began, the Exchange has

found it to be generally successful. The

Exchange seeks to extend the pilot

program for an additional 90 days,

pending consideration of a related

proposed rule change it has filed with

Commission 6 concerning revisions to

the program that the Amex believes will

provide further incentive for price

improvement by using different

procedures to determine specialist and

registered option trader participation.

The related proposal would also make

the program permanent.

Because the pilot program is due to

expire on February 27, 2001, the Amex

has requested that the Commission

expedite review of, and grant

accelerated approval to, the proposal to

extend it, pursuant to section 19(b)(2) of

the Act.7

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, and is not designed to permit

unfair discrimination between

customers, issuers, brokers or dealers.

13820 Federal Register / Vol. 66, No. 45 / Wednesday, March 7, 2001 / Notices

10 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

11See supra, note 3.

12 15 U.S.C. 78f(b)(5) and (b)(8).

13See, e.g., Securities Exchange Act Release Nos.

42835 (May 26, 2000), 65 FR 35683 (June 5, 2000),

and 42848 (May 26, 2000), 65 FR 36206 (June 7,

2000).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The ISE filed its proposed rule change on

November 20, 2000. On December 18, 2000, the ISE

filed Amendment No. 1 that entirely replaced the

original rule filing.

4See Securities Exchange Act Release No. 43803

(January 4, 2001), 66 FR 3624 (January 16, 2001).

5 15 U.S.C. 78f.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will impose no

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. 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 Exchange.

All submissions should refer to File No.

SR–Amex–01–10 and should be

submitted by March 28, 2001.

IV. Commission Findings and Order

Granting Accelerated Approval of the

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.10 In its original approval of

the pilot program,11 the Commission

detailed its reasons for finding its

substantive features consistent with the

Act, and, in particular, the requirements

of sections 6(b)(5) and 6(b)(8) of the

Act.12 The Commission has previously

approved rules on other exchanges that

establish substantially similar programs

on a permanent basis,13 and the

extension of the pilot program on the

Amex—pending review of its related

proposal to revise the program and

make it permanent—raises no new

regulatory issues for consideration by

the Commission.

The Commission finds good cause,

consistent with sections 6(b) and

19(b)(2) of the Act, for approving the

proposed rule change prior to the

thirtieth day after the date of

publication of the notice of filing thereof

in the Federal Register. The proposal

will allow the pilot program, otherwise

due to expire on February 27, 2001, to

remain effective and in place

uninterrupted while revisions are being

considered, and does not raise any new

regulatory issues.

It is therefore ordered, pursuant to

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

proposed rule change be, and hereby is,

approved on an accelerated basis as a

pilot program through May 28, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to

delegated authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–5543 Filed 3–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44017; File No. SR–ISE–

00–20]

Self Regulatory Organizations; Order

Approving Proposed Rule Change by

the International Securities Exchange

LLC Relating to Limitations on Orders

February 28, 2001.

I. Introduction

On November 20, 2000, the

International Securities Exchange LLC

(‘‘ISE’’ 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 proposed rule change to

amend ISE Rule 717 relating to

limitations on orders.3 The proposed

rule change was published for comment

in the Federal Register on January 16,

2001.4 The Commission received no

comments on the proposed rule change.

This order approves the proposal.

II. Description of the Proposal

Exchange market makers must be firm

at their quotations for all orders,

although they can set different sizes for

customer and broker-dealer orders.

When the size of a particular quote is

exhausted, the Exchange’s trading

system automatically moves the quote to

an inferior price according to

parameters preset by the market maker.

However, the system moves only the

quotation in the options series in which

there was a trade, leaving the market

maker exposed to the risk that multiple

orders may be executed nearly

simultaneously in many series of the

same option. This situation increases an

ISE market maker’s ‘‘delta risk’’ (the

amount of underlying stock that would

be necessary to hedge the options

position), due to exposure across

multiple series. This could result in ISE

market makers providing more liquidity

than may be available in the underlying

stock. Under the ISE’s proposed new

paragraph (h), members shall not cause

the entry of more than one order every

fifteen seconds for the account of the

same beneficial owner in options on the

same underlying security.

The Exchange also proposes to amend

paragraph (g) of ISE Rule 717, which

currently prohibits an Electronic Access

Member (‘‘EAM’’) from entering an

order for any other member of the

Exchange. The amendment will limit

the scope of ISE Rule 717(g) to only

prohibit EAMs from entering orders for

ISE market maker accounts.

III. Discussion

The Commission has reviewed the

ISE’s proposed rule change and finds,

for the reasons set forth below, that the

proposal is consistent with the

requirements of section 6 of the Act 5

and the rules and regulations

thereunder applicable to a national

securities exchange.

The Commission notes that amending

ISE Rule 717 to prohibit members from

causing the entry of more than one order

for the same beneficial account within

a fifteen second period should help

reduce ISE market maker risk exposure.

The Commission believes that fifteen

seconds is a sufficient time period to

allow market makers to change their

quotations following an execution,

while at the same time not unduly long