Document ID: SEC-2008-1376-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: American Stock Exchange LLC
Posted Date: 2008-10-08T04:00Z

[Federal Register: October 8, 2008 (Volume 73, Number 196)]
[Notices]               
[Page 58995-58997]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc08-102]                         

[[Page 58995]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58705; File No. SR-Amex-2008-63)]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change To Establish New Membership, 
Member Firm Conduct, and Equity Trading Rules Following the Exchange's 
Acquisition by NYSE Euronext

October 1, 2008.

I. Introduction

    On July 28, 2008, the American Stock Exchange LLC (``Amex'' or the 
``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 new membership, member firm conduct, 
and equity trading rules following the Exchange's acquisition by NYSE 
Euronext. The proposal was published for comment in the Federal 
Register on August 7, 2008.\3\ No comments were received on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58265 (July 30, 
2008), 73 FR 46075 (SR-Amex-2008-63) (``Notice'').
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II. Description of the Proposal

A. Background

    As described in detail in a separate proposed rule change,\4\ NYSE 
Euronext intends to acquire Amex's parent corporation, the Amex 
Membership Corporation, and restructure the Exchange's ownership 
through a series of mergers (``Mergers''), following which Amex will be 
renamed NYSE Alternext U.S. LLC (``NYSE Alternext''). In a separate 
action today, the Commission approved that proposed rule change.\5\
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    \4\ See Securities Exchange Act Release No. 58284 (August 1, 
2008), 73 FR 46086 (August 7, 2008) (SR-Amex-2008-62) (``Acquisition 
Proposal'').
    \5\ See Securities Exchange Act Release No. 34-58673 (September 
29, 2008) (SR-Amex-2008-62).
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    In connection with the Mergers, Amex intends to relocate all equity 
trading currently conducted on its legacy facilities at 86 Trinity 
Place, New York, New York (the ``86 Trinity Trading Systems'') to 11 
Wall Street, New York, New York (the ``Equities Relocation''). The 
Exchange's equity trading facilities at 11 Wall Street (``NYSE 
Alternext Trading Systems'') will be operated by the New York Stock 
Exchange (``NYSE'') on behalf of the Exchange. At a later date, Amex 
will relocate all options trading currently conducted on the 86 Trinity 
Trading Systems to new facilities at 11 Wall Street, which will be 
operated by NYSE Arca, Inc. (``NYSE Arca'') (the ``Options 
Relocation,'' and together with the Equities Relocation, the 
``Relocations''). Before completion of the Relocations, all trading on 
the 86 Trinity Trading Systems will continue to be governed by the 
existing Amex rules, as amended pursuant to the Mergers. The Exchange 
anticipates that the Equities Relocation will occur as soon as 
reasonably practicable following the date of the Mergers and that the 
Options Relocation will occur at or around February 2009. Upon 
completion of the Relocations, Amex will rescind its legacy rules.
    In this filing, Amex has proposed to adopt: (1) New membership 
rules, which are based closely on existing NYSE membership rules; (2) 
new member conduct rules, which are also based on existing NYSE member 
conduct rules; (3) new equity trading rules, to reflect the fact that 
equities trading on the Exchange will be supported by a new trading 
system based on NYSE's existing system; and (4) certain transitional 
rules that explain which of the Exchange's rules apply after the 
Mergers but before the Relocations are complete. The Exchange has 
stated that it will submit a separate filing to establish new options 
trading rules in anticipation of the Options Relocation.

B. New Membership and Member Firm Conduct Rules

    The Exchange proposes to adopt rules governing member organizations 
that are closely modeled on the existing NYSE membership rules, 
including rules defining member and member organizations; \6\ governing 
the admission of members, member organizations, allied members, and 
approved persons; \7\ the formation and approval of member 
organizations; \8\ changes within member organizations; \9\ and 
submission of partnership articles and corporate documents. \10\
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    \6\ See proposed NYSE Alternext Equity Rule 2.
    \7\ See proposed NYSE Alternext Equity Rules 300-308.
    \8\ See proposed NYSE Alternext Equity Rule 311.
    \9\ See proposed NYSE Alternext Equity Rule 312.
    \10\ See proposed NYSE Alternext Equity Rule 313.
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    The Exchange also proposes to adopt new member firm conduct rules, 
which govern the off-floor conduct of members and member 
organizations.\11\ These conduct rules relate to capital; \12\ margin; 
\13\ internal controls; \14\ business conduct, customer protection, and 
account maintenance; \15\ recordkeeping; \16\ automated submission of 
trading data; \17\ and financial statements and reporting.\18\ These 
rules are nearly identical to NYSE's member firm conduct rules. In 
addition, many of these rules were adopted by the Financial Industry 
Regulatory Authority, Inc. (``FINRA'') in 2007 as ``Common Rules'' 
pursuant to the 17d-2 Agreement between NYSE and FINRA.\19\
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    \11\ See NYSE Rules 325-465 (Operation of Member Organizations).
    \12\ See proposed NYSE Alternext Equities Rules 325-328.
    \13\ See proposed NYSE Alternext Equities Rules 430-434.
    \14\ See proposed NYSE Alternext Equities Rule 342, 
Supplementary Material .23.
    \15\ See proposed NYSE Alternext Equities Rules 401-414.
    \16\ See proposed NYSE Alternext Equities Rule 440.
    \17\ See proposed NYSE Alternext Equities Rule 410A.
    \18\ See proposed NYSE Alternext Equities Rules 416-424.
    \19\ See Securities Exchange Act Release No. 56148 (July 26, 
2007), 72 FR 42146 (August 1, 2007) (Notice of Filing and Order 
Approving and Declaring Effective a Plan for the Allocation of 
Regulatory Responsibilities).
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    The Exchange proposes that, upon the effective date of this filing, 
each NYSE Alternext member organization will continue to be approved as 
an NYSE Alternext member organization,\20\ even if it does not meet all 
of the new membership requirements at that time.\21\ However, the new 
membership rules may impose different or additional requirements than 
the current Amex rules concerning membership, and following the Mergers 
an NYSE Alternext member or member organization holding an 86 Trinity 
Permit might not immediately satisfy

[[Page 58996]]

these new requirements. Therefore, the Exchange has proposed to give 
each such member a grace period of six months to comply with these new 
requirements beginning the date that it obtains an NYSE Alternext 
equities trading license in exchange for a valid 86 Trinity Permit. The 
Exchange would revoke the member's approval to trade if it failed to 
meet the new requirements by the close of the grace period, and reserve 
the right to commence proceedings to terminate its membership.
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    \20\ As discussed in the Acquisition Proposal, immediately 
following the closing of the Mergers, those persons and entities who 
were authorized to trade on Amex before the closing of the Mergers--
including (1) Amex owners, lessees, or nominees of Regular Members 
or Options Principal Members (``OPMs''); (2) Amex limited trading 
permit holders; and (3) Amex associate members--will be deemed to 
have satisfied applicable qualification requirements necessary to 
trade on NYSE Alternext and issued trading permits (referred to as 
``86 Trinity Permits'') at no cost. The 86 Trinity Permit will 
authorize these persons and entities to continue to trade on the 86 
Trinity Trading Systems. A holder of an 86 Trinity Permit will be 
able to apply for an NYSE Alternext equities license or options 
trading permit upon the Equities or Options Relocation, as 
applicable. After the Equities Relocation, a holder of an 86 Trinity 
Permit will be able to trade only those products that have not 
migrated to the NYSE Alternext Trading Systems. After the Options 
Relocation, the 86 Trinity Permits will be canceled. See Notice, 73 
FR at 46076.
    \21\ The Exchange has stated that, following the closing of the 
transaction, the Exchange will work with FINRA as its agent to 
ensure that the Exchange's membership requirements are met.
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    The Exchange further proposes that each NYSE Alternext member be 
provided a grace period of six months within which to meet proposed 
NYSE Alternext Equities Rule 304A requirements to pass certain required 
examinations. This grace period would run from the date that the 
individual member transfers to the NYSE Alternext Trading Systems.\22\
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    \22\ See Notice, 73 FR at 46078.
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    The Exchange also has proposed to require all of its members to 
become members of both NYSE and FINRA.\23\
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    \23\ NYSE and FINRA have submitted separate filings concerning 
admission of Amex members. See Securities Exchange Act Release No. 
58290 (August 1, 2008), 73 FR 46676 (August 11, 2008) (SR-NYSE-2008-
70); Securities Exchange Act Release No. 58291 (August 1, 2008), 73 
FR 46661 (August 11, 2008) (SR-FINRA-2008-043).
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C. New Equity Trading Rules

    The Exchange has proposed a new rule set for equities trading 
(``NYSE Alternext Equities Rules''), which is closely modeled on NYSE 
Rules 1-1004.\24\ Because NYSE Alternext Trading Systems will be 
operated by NYSE on behalf of the Exchange, the NYSE Alternext Equities 
Rules will be substantially identical to the existing NYSE equity 
trading rules, with certain minor differences. The Exchange has 
represented that, following the Equities Relocation, the NYSE Alternext 
trading floor and the NYSE trading floor will be physically located in 
adjacent rooms at 11 Wall Street and supported by the same systems and 
equipment. NYSE Alternext's equity market structure will be identical 
to NYSE's, as the two exchanges will have the same rules regarding, 
among other things, order interaction, priority and parity, specialist 
obligations, types of market participants, trading halts, and openings, 
closings, and re-openings. NYSE's equity trading rules have previously 
been approved by the Commission.\25\
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    \24\ The Exchange has taken NYSE Rules 1-1004 in the form they 
existed as of July 18, 2008. The Exchange has stated that it will--
as soon after the close of the Mergers as practicable, but not later 
than the date of the Equities Relocation--incorporate any changes to 
these rules made after July 18, 2008, but before the effective date 
of the Mergers.
    \25\ See Securities Act Release No. 53539 (March 22, 2006), 71 
FR 16353 (March 31, 2006) (SR-NYSE-2004-05) (``Hybrid Market 
Approval Order'').
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    There are a few minor differences between the NYSE Alternext and 
NYSE trading rules. For example, rules related to Registered 
Competitive Market Makers, Competitive Traders, and Registered Options 
Representatives or Principals have not been adopted, since these 
categories of market participants will not exist on NYSE Alternext. 
Similarly, NYSE Alternext will be retaining the Amex's specialist net 
capital requirements \26\ reflecting NYSE Alternext's trading of 
smaller capitalized stocks than NYSE. Also, because ETFs, bonds, and 
structured products will not trade on the NYSE Alternext trading 
systems, rules relating to these categories of securities have not been 
adopted. Finally, certain NYSE rules that are obsolete will not be 
adopted for the NYSE Alternext rule set.
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    \26\ See proposed NYSE Alternext Equities Rule 104.20.
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    The Exchange does not intend to list any securities that are listed 
on NYSE or to trade any securities pursuant to unlisted trading 
privileges (``UTP''). The Exchange may in the future determine to trade 
securities listed on other exchanges on a UTP basis, subject to certain 
technical adjustments to the NYSE Alternext Trading Systems necessary 
to support such trading. However, the Exchange will not trade NYSE-
listed securities on a UTP basis and will not trade pursuant to UTP any 
securities that might in the future be traded on the NYSE pursuant to 
UTP.\27\
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    \27\ The Exchange has stated that NYSE does not currently trade 
any securities pursuant to UTP. See Notice, 73 FR at 46076.
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    The Exchange proposes to discontinue the listing and trading 
(including UTP trading) of exchange-traded funds (``ETFs'') and certain 
other structured products, including index and currency warrants. All 
listing and trading of such products would be transferred to NYSE Arca. 
The Exchange also proposes to discontinue trading of bonds currently 
listed on the Exchange, which could then trade on NYSE Bonds, a 
facility of NYSE. The Exchange has stated that the transfer of ETFs, 
bonds, and structured products will be accomplished as soon as 
practicable after the closing of the Mergers. Because movement of these 
listings might not be completed by the date of the Equities Relocation, 
such products would continue to be traded on the 86 Trinity Trading 
Systems until the transfer of the listings can be completed. If an 
issuer of an ETF, structured product, or bond does not wish to move its 
listing to NYSE Arca or NYSE Bonds, as the case may be, such issuer 
would have the opportunity to seek a listing on another market.
    Following the Equities Relocation, certain securities listed and 
traded on the Exchange would not be eligible to trade on NYSE Alternext 
because of a ``sub-penny trading condition'' described in proposed NYSE 
Alternext Equities Rule 123D(3). Any such security would continue to be 
listed on the Exchange but subject to a non-regulatory trading halt. 
Trading in that security would be routed to NYSE Arca and handled in 
accordance with the rules governing that market.
    Because NYSE Alternext will operate on the same trading systems as 
NYSE, future market structure changes made to the NYSE system would 
also affect trading on NYSE Alternext. The Exchange has represented 
that, as changes made to the shared platform are implemented, both NYSE 
and NYSE Alternext will, as necessary, submit parallel proposed rule 
changes pursuant to Section 19(b)(1) of the Act.

D. Transitional Rules

    The Exchange also proposes to amend the legacy Amex rules and 
include provisions in the new NYSE Alternext rules to clarify which 
rule set governs the conduct of trading following the Mergers. Proposed 
Amex Rule 0 provides that all transactions conducted on or through the 
86 Trinity Trading Systems would continue to be governed by the legacy 
rules of the Exchange, including Amex Rules 1-1605, the Amex Company 
Guide, and AEMI Rules 1-1500 (collectively, the ``86 Trinity Rules''). 
Proposed NYSE Alternext Equities Rule 0 provides that all trading 
conducted on the NYSE Alternext Trading Systems following relocation to 
11 Wall Street would be governed by the NYSE Alternext Equities Rules, 
except to the extent any 86 Trinity Rules are specifically designated 
as applying.
    Proposed Amex Rule 0 and NYSE Alternext Equities Rule 0 also 
provide that proposed NYSE Alternext Equities Rules 475-477, which 
address disciplinary matters and are based on NYSE Rules 475-477, will 
apply to all NYSE Alternext members and member organizations and will 
govern trading on both the 86 Trinity and NYSE Alternext Trading 
Systems.\28\ Following

[[Page 58997]]

completion of the Options Relocation, the 86 Trinity Rules--including 
Amex Rule 0--would no longer be operative and would be rescinded by the 
Exchange.
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    \28\ The Exchange has submitted additional filings addressing 
its rules and procedures for certain legacy disciplinary matters. 
See Securities Exchange Act Release No. 58286 (August 1, 2008), 73 
FR 46097 (August 7, 2008) (SR-Amex-2008-64). In addition, the 
Exchange intends to submit in the near future a proposal to adopt 
Disciplinary Rule 478T, which would govern the temporary 
disciplinary procedures applicable to certain legacy disciplinary 
proceedings.
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III. Discussion

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\29\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\30\ which, 
among other things, requires that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission also finds that the proposed rule change is consistent 
with Section 6(b)(8) of the Act,\31\ which requires that the rules of 
an exchange not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. The 
Commission notes that the proposed rules for the new NYSE Alternext 
market relating to membership, member firm conduct, and equities 
trading are substantially similar to existing NYSE rules, which have 
been previously subject to notice and comment and, where appropriate, 
approved by the Commission.\32\
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    \29\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78f(b)(8).
    \32\ See Hybrid Market Approval Order, supra note 25.
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    This approval is based on the Commission's understanding that the 
equity trading system of NYSE Alternext will not trade any securities 
that are traded on NYSE. If in the future NYSE Alternext wishes to 
trade any security that is also traded on NYSE, NYSE Alternext must 
first file with the Commission a proposed rule change pursuant to 
Section 19(b)(1) of the Act.
    All Amex members will, upon the closing of the Mergers, be approved 
as members of NYSE Alternext. However, since the new NYSE Alternext 
membership qualification rules are not identical to the current Amex 
rules, the Exchange has proposed a six-month grace period for members 
to meet the new requirements and for members to take any necessary 
examinations. The Commission believes this is a reasonable 
accommodation for existing members of the Exchange that meet the 
current membership requirements but which might not immediately be able 
to satisfy the new membership requirements.
    Finally, the Commission believes that the transitional rules 
proposed by the Exchange are consistent with the Act. They appear 
reasonably designed to promote an orderly transition by Amex members 
from the 86 Trinity Trading Systems to the NYSE Alternext Trading 
Systems.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-Amex-2008-63) be, and it 
hereby is, approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23766 Filed 10-7-08; 8:45 am]

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