Document ID: SEC-2006-0519-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-04-20T04:00Z

[Federal Register: April 20, 2006 (Volume 71, Number 76)]
[Notices]               
[Page 20422-20424]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20ap06-63]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53652; File No. SR-Amex-2005-100]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change and Amendments No. 1 and 2 Thereto and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 4 Relating to the Establishment of a New Class of Registered 
Options Trader Called a Remote Registered Options Trader

April 13, 2006.

I. Introduction

    On September 30, 2005, 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 
proposed rule change to establish a new class of Registered Options 
Trader called a Remote Registered Options Trader (``RROT''). On January 
13, 2006, the Amex filed Amendment No. 1 to the proposed rule 
change.\3\ On January 26, 2006, the Amex filed Amendment No. 2 to the 
proposed rule change.\4\ The proposed rule change, as amended, was 
published for comment in the Federal Register on February 10, 2006.\5\ 
The Commission received no comments in response to the proposed rule 
change. The Amex filed Amendment No. 3 to the proposed rule change on 
March 29, 2006, but the amendment was subsequently

[[Page 20423]]

withdrawn on April 10, 2006. The Amex filed Amendment No. 4 to the 
proposed rule change on April 13, 2006.\6\ This order approves the 
proposed rule, as amended by Amendments No. 1 and 2; grants accelerated 
approval to Amendment No. 4; and solicits comments from interested 
persons on Amendment No. 4.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
    \4\ Amendment No. 2 made clarifying changes to the Purpose 
section, as well as changes to the proposed rule text.
    \5\ See Securities Exchange Act Release No. 53220 (February 3, 
2006), 71 FR 7083.
    \6\ Amendment No. 4 proposes to clarify general statements in 
the Purpose section of Amendment No. 1, as well as changes to the 
proposed rule text that, among other things, incorporate changes 
recently approved by the Commission in SR-Amex 2005-075, which 
established a new class of Amex market maker, Supplemental 
Registered Options Traders (``SROTs''). See Securities Exchange Act 
Release No. 53635 (April 12, 2006).
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II. Description

    Amex proposes to adopt new Rule 994-ANTE to create a new category 
of registered options trader called an RROT. Amex also proposes to 
adopt amendments to existing Amex Rules 900-ANTE, 918-ANTE, 935-ANTE, 
936-ANTE, 950-ANTE, 951-ANTE, 958-ANTE and 958A-ANTE to incorporate 
this new category of trader into relevant existing rules.
    The Amex proposes to define an RROT as a ROT that is a member 
organization so designated by the Exchange and would be granted remote 
quoting rights to enter bids and offers electronically from locations 
other than the trading crowd, both on and off the Exchange's trading 
floor, where the applicable options class is traded. A member 
organization requesting approval to act as an RROT would be required to 
file a written application with the Exchange, pursuant to Exchange 
Rules, indicating that it is qualified as a ROT. The proposed rule also 
includes provisions that govern RROT applicant withdrawal, as well as 
suspension and/or termination of RROT assignments and review of such 
actions. Furthermore, RROTs may make adjustments to the option classes 
in which they will remotely quote in a form and manner prescribed by 
the Exchange.

Quoting Rights

    RROTs would earn remote quoting rights based on the percentage of 
Amex floor volume they execute.\7\ Specialists would earn remote 
quoting rights in two ways: (1) Based on the percentage of Amex floor 
volume they execute; \8\ and (2) based on their percentage of the 
average market share of the industry volume in the option classes in 
which they specialize per quarter. The pool of quoting rights awarded 
by volume would be established quarterly by a Committee designated by 
the Board of Governors of the Exchange who would announce, not later 
than the first business day of each calendar quarter, the pool of 
available quoting rights available to be earned by percentage of Amex 
floor volume for the subsequent trading period.
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    \7\ Volume executed via remote quoting would not count towards 
earning remote quoting rights.
    \8\ Volume executed via remote quoting would not count towards 
earning remote quoting rights.
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    The membership would be informed of the amount of quoting rights 
earned no later than one week prior to the commencement of the 
subsequent trading period. The award of remote quoting rights to 
specialists based upon their percentage of the average market share of 
the industry volume would depend on their percentage of the average 
market share of industry volume in the options classes in which they 
quote. The number of remote quoting rights earned \9\ would vary 
quarterly, and no fractional remote quoting rights would be issued. The 
quoting rights earned by ROTs and specialists are not cumulative and 
are subject to change quarterly.\10\ The quoting rights are calculated 
based solely on volume and market share earned from the previous 
quarter, and expire at the conclusion of each trading period.\11\ 
Lastly, the remote quoting rights would be transferable between the 
members and member organizations, but the parties would be required to 
notify the Exchange of the transfer of any rights.
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    \9\ Each remote quoting right would permit an RROT to remotely 
quote one option class.
    \10\ See Amendment No. 4, supra note 6.
    \11\ Id.
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RROT Obligations

    In exchange for remote quoting rights, RROTs would be required to 
fulfill a number of obligations. RROTs would be required to have at 
least one active floor member acting as a ROT, subject to certain 
limitations.\12\ RROTs would be permitted to quote in up to five (5) 
option classes per seat owned or leased without any additional seat 
requirements, but would be required to purchase or lease one additional 
seat for every forty (40) option classes remotely quoted in excess of 
the five option classes. Exchange memberships used to satisfy 
membership requirements to remotely quote as an RROT would not be 
permitted to be used for any other purpose while being used in an RROT 
capacity, including being leased to another member or for trading on 
the trading floor.
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    \12\ See Amendment No. 2, supra note 4.
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    RROTs would also be required to provide continuous two-sided 
quotations in at least 60% of the series of their assigned classes and 
may be called upon to submit a single quote or maintain continuous 
quotes in one or more series of an option class to which the RROT is 
assigned whenever it is in the interest of maintaining a fair and 
orderly market.

Limitation on RROT Activities

    RROTs would be subject to the current designation of options areas 
that exist for ROTs.\13\ In addition, the proposal would prohibit an 
RROT from executing an option transaction on a Paired Security if the 
RROT is standing in the Designated Stock Area where the related 
security is traded, unless given an exemption pursuant to Amex Rule 
175(c).\14\ The Exchange further proposes to amend Amex Rule 958-ANTE 
(e) and (f) to include RROTs.\15\ In this regard, no RROT may act as 
such in a class of stock options on a stock in which he is registered 
in the primary market. An RROT may, however, act as such if the RROT 
meets the criteria set forth in Commentary.03(a) to Amex Rule 1000 or 
Commentary .02(a) to Amex Rule 1000A, or is approved by the Commission 
as eligible for trading arrangements under Amex Rule 958-ANTE(e) and 
Amex Rule 175(c)(2). The proposed changes to Amex Rule 958-ANTE (f) 
provide that no member, while acting as an RROT, if also registered as 
a registered equity trader or registered equity market-maker, would be 
required to execute a proprietary Exchange option transaction on a 
Paired Security if during the preceding 60 minutes he has been in the 
Designated Stock Area where the related security is traded.
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    \13\ See Securities Exchange Act Release Nos. 39631 (February 9, 
1998), 63 FR 8229 (February 18, 1998) and 46362 (August 15, 2002), 
67 FR 54243 (August 21, 2002).
    \14\ Id. See also Amendment No. 4, supra note 6.
    \15\ See Amendment No. 4, supra note 6.
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    The proposed rule would require that RROTs maintain information 
barriers and that no RROT be assigned to an options class where the 
RROT has a direct or indirect affiliate who is a specialist, ROT, 
SROT,\16\ or RROT in such option class. The proposal further requires 
RROTs to comply with Amex Rule 193 regarding the misuse of material 
non-public information between the affiliate and the specialist member 
organization.
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    \16\ Id. Amendment No. 4 also amends the ``Affiliation 
Limitations'' provision of Amex Rule 993-ANTE, which governs SROTs, 
to account for the establishment of RROTs.
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No.

[[Page 20424]]

4, including whether Amendment No. 4 is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2005-100 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9010.
    All submissions should refer to File Number SR-Amex-2005-100. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 Section, Station 
Place, 100 F Street, NE., Washington, DC 20549. Copies of such filing 
also will be available for inspection and copying at the principal 
office of the Amex. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-Amex-2005-100 and should be submitted on or before May 11, 2006.

IV. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\17\ In particular, the Commission finds that the 
proposal, as amended, is consistent with the provisions of section 
6(b)(5) of the Act,\18\ 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.
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    \17\ 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).
    \18\ 15 U.S.C. 78f(b)(5).
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    Currently, the Exchange permits ROTs to submit quotes only from the 
physical trading floor. Under the proposal, RROTs would be permitted to 
quote electronically from locations other than the trading crowd where 
the applicable options class is traded on the Exchange's physical 
trading floor. Providing Registered Options Traders with the 
opportunity to quote in additional options classes should increase the 
liquidity available in those classes to which the RROTs are assigned.
    Proposed Amex Rule 994(c)-ANTE sets forth the obligations that an 
RROT would be required to fulfill. Specifically, an RROT would be 
required to generate continuous, two-sided quotations in not less than 
60% of the series of their assigned classes. The Commission believes 
that these obligations for RROTs are consistent with the Act. In 
particular, the Commission believes that RROT's affirmative obligations 
are sufficient to justify the benefits they receive as market makers.
    Exchange rules require that information barriers would be in place 
to prevent the misuse of material, non-public information with any 
affiliates that may conduct a brokerage business in option classes 
assigned to an RROT, or that may act as a market maker in any security 
underlying options assigned to an RROT. RROTs would be required to also 
comply with Amex Rule 193 regarding the misuse of material non-public 
information between the affiliate and the specialist organization. In 
addition, RROTs would be prohibited from executing options transactions 
on a paired security if the RROT is standing in the Designated Stock 
area where the related security is traded, unless given an exemption by 
Amex Rule 175(c). Further, RROTs would be included in Amex Rule 958 -
ANTE(e) and (f), which would impose limits on an RROT's ability to act 
as an RROT in an option on a stock in which the RROT is registered in 
the primary market. The Commission believes these provisions should 
help to ensure that options and equity trading will be sufficiently 
separated such that no time or place advantage is derived from the 
RROT's ability to stream quotes in a given option class from a location 
other than the post at which that option is traded on the Exchange 
floor.
    Furthermore, the Commission finds good cause for approving 
Amendment No. 4 to the proposed rule change prior to the thirtieth day 
after publication for comment in the Federal Register pursuant to 
section 19(b)(2) of the Act.\19\ Amendment No. 4 incorporates changes 
recently approved by the Commission, which modified many of the same 
rule provisions as proposed in the RROT filing. Additionally, the 
changes to the ``Affiliation Limitations'' sections of Amex Rules 993-
ANTE and 994-ANTE should ensure that both SROTs and RROTs maintain 
appropriate information barriers and are assigned only to options 
classes where the SROT or RROT does not have a direct or indirect 
affiliate in such options classes and should help to ensure that equity 
trading will be sufficiently separated so that no time or place 
advantage is derived from the RROT's ability to stream quotes in a 
given option class from a location other than the post at which that 
option is traded on the Exchange floor. The Commission does not believe 
that Amendment No. 4 materially affects the original proposed rule 
change, as amended. Rather, Amendment No. 4 more accurately reflects 
the Exchange's current rules. Accordingly, the Commission finds good 
cause to accelerate approval of Amendment No. 4, consistent with 
sections 6(b)(5) of the Act,\20\ and section 19(b) of the Act.\21\
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 15 U.S.C. 78s(b).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-Amex-2005-100), as amended 
by Amendments No. 1 and 2, be, and it hereby is, approved, and that 
Amendment No. 4 is approved on an accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-5918 Filed 4-19-06; 8:45 am]

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