Document ID: SEC-2006-1602-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-12-11T05:00Z

[Federal Register: December 11, 2006 (Volume 71, Number 237)]
[Notices]               
[Page 71598-71600]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11de06-78]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54866; File No. SR-Amex-2006-111]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Odd-Lot Rejections by Away Markets in the AEMI-One Pilot

December 4, 2006.
    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 November 29, 2006, 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 substantially prepared by the 
Exchange. Amex has filed this proposal pursuant to Section 19(b)(3)(A) 
of the Act \3\ and Rule 19b-4(f)(5) thereunder,\4\ which renders it 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit

[[Page 71599]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(5).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt changes to its AEMI-One rules to 
provide for the execution of an unexecuted odd-lot balance on an 
aggressing order as the result of an unexecuted odd-lot balance on an 
away market obligation that was routed to another market by the AEMI 
platform to access a better-priced protected quotation.
    The text of the proposed rule change is available on the Amex's Web 
site at http://www.amex.com, the Exchange's principal office, and at 

the Commission's Public Reference Room.

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 self-regulatory organization 
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. Amex 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has recently adopted new rules to implement an initial 
version of AEMI, its proposed new hybrid market trading platform for 
equity products and exchange-traded funds.\5\ This initial version of 
AEMI is referred to as AEMI-One and is operational on a pilot basis 
through February 4, 2007. Under the AEMI-One pilot, the AEMI platform 
will route orders to better-priced protected quotations of away 
markets. Such ``away market obligations'' (as defined in Exchange Rule 
131-AEMI-One) are sent only in round lots. Although the quotation of an 
away market that AEMI is attempting to execute against is also 
expressed in a round lot, the possibility exists that fills at certain 
away markets may include odd lots since AEMI uses private linkages 
instead of ITS to access such quotations in the AEMI-One pilot. For 
example, if Nasdaq is displaying a better bid than Amex for 200 shares 
of XYZ Corp. and there is an aggressing sell order in AEMI, Amex will 
send an away market obligation to Nasdaq (in the form of an immediate 
or cancel order or an intermarket sweep order) and could receive back 
an execution in the form of two trades for 160 shares and 40 shares, 
respectively.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 54709 (November 3, 
2006), 71 FR 65847 (November 9, 2006).
---------------------------------------------------------------------------

    Consequently, the possibility exists that, under unusual 
circumstances, AEMI might receive only a partial fill on a round-lot 
order and be left with a rejected odd-lot portion of a round-lot order 
that was suspended on the AEMI Book. In the example cited above, it is 
possible that 160 shares out of the 200 shares routed away would be 
filled but that the balance of 40 shares would be rejected. The 
Exchange's current Rule 205-AEMI-One addresses odd-lot orders that are 
submitted to AEMI as such, but it is not applicable to a rejected odd-
lot portion of an order submitted for a round lot, since the latter was 
not intentionally for an odd lot but became an odd lot due to the 
action of another market.
    The Exchange believes that the situation described above, in which 
the Exchange would be left with a rejected odd-lot portion of an away 
market obligation that was transmitted to another market as a round-lot 
order, will be a rare event. However, it is necessary to make 
appropriate changes to the AEMI platform and to the Exchange's AEMI-One 
rules to provide for this possibility.
    The Exchange is therefore proposing to add language to Rule 205-
AEMI-One (Manner of Executing Odd-Lot Orders) to distinguish such 
occurrences from the treatment of odd-lot orders that are submitted as 
such and to provide for the proper treatment of such odd-lot rejections 
by other markets. Proposed new paragraph (b)(viii) of the rule would 
provide that, if a partial-lot trade is received from an away market in 
response to an away market obligation sent by AEMI, resulting in an 
unexecuted balance which comprises an odd lot, then any unexecuted odd-
lot balance on the aggressing order (including the unexecuted odd-lot 
balance from the away market obligation) shall be traded immediately 
against the Specialist at the last trade price of the away market 
obligation, and any remaining unexecuted round-lot balance shall 
reaggress the AEMI Book in accordance with Rule 126A-AEMI-One.\6\
---------------------------------------------------------------------------

    \6\ In a situation where the original aggressing order in AEMI 
was a non-exempt short sale and the aforementioned unexecuted odd-
lot balance from the away market obligation could not be traded 
against the Specialist at the last trade price of the away market 
obligation without violating the Exchange's short sale tick test 
(Amex Rule 7), the Exchange would need to have received exemptive or 
no-action relief from the Commission from the requirements of Rule 
10a-1 under the Act and the Exchange's related short sale rule in 
order to avoid leaving that odd-lot balance unexecuted. The Exchange 
has prepared a request for such relief and is submitting it to the 
Commission separately.
---------------------------------------------------------------------------

    The following examples illustrate how the proposed additional rule 
provision would operate:

    Example 1: Assume an incoming client order to buy 100 shares of 
XYZ Corp. AEMI routes the entire order to Nasdaq to access a better-
priced offer. If the Exchange receives back a trade for only 80 
shares at the limit price and a rejection for 20 shares, that 20-
share odd-lot balance would trade against the Specialist at the same 
price as the 80-share execution on Nasdaq.
    Example 2:  Assume an incoming client order to buy 130 shares of 
XYZ Corp. AEMI routes 100 shares to Nasdaq to access a better-priced 
offer. If the Exchange receives back a trade for only 80 shares at 
the limit price and a rejection for 20 shares, the unexecuted odd-
lot balance on the order of 50 shares (including the unexecuted odd-
lot balance of 20 shares from the away market obligation) would 
trade against the Specialist at the same price as the 80-share 
execution on Nasdaq. This is the same outcome for the order that 
would have resulted if the execution at the away market had been for 
the entire 100 shares that was routed to that market.
    Example 3: Assume an incoming client order to buy 280 shares of 
XYZ Corp. AEMI routes 200 shares to Nasdaq to access a better-priced 
offer. If the Exchange receives back a trade for 70 shares at the 
limit price, followed by a trade for 100 shares at the limit price 
and a rejection for 30 shares, the remaining unexecuted 110-share 
balance of the order would include an odd-lot balance of 10 shares 
that would trade against the Specialist at the same price as the 
100-share execution on Nasdaq and a round-lot balance of 100 shares 
that would reaggress the AEMI Book.

    The Exchange asserts that the proposal to effect the foregoing 
change to the AEMI trading system does not significantly affect the 
protection of investors or the public interest, does not impose any 
significant burden on competition, and does not have the effect of 
limiting the access to or availability of the system.
2. Statutory Basis
    The proposed rule change is designed to be consistent with 
Regulation NMS,\7\ as well as consistent with Section 6(b) of the 
Act,\8\ in general, and furthers the objectives of Section 6(b)(5),\9\ 
in

[[Page 71600]]

particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \7\ 17 CFR 242.600 et seq.
    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

    Because the proposed rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) have the effect of limiting 
the access to or availability of an existing order entry or trading 
system of the Exchange, the foregoing rule change has become effective 
immediately pursuant to Section 19(b)(3)(A)(iii) of the Act\10\ and 
Rule 19b-4(f)(5) \11\ thereunder. At any time within 60 days of the 
filing of such proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in the furtherance of the 
purposes of the Act.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(5).
---------------------------------------------------------------------------

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. Comments may be submitted by any of 
the following methods:

Electronic Comments

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

File No. SR-Amex-2006-111 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-Amex-2006-111. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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 No. SR-Amex-2006-111 and should be submitted on or before January 
2, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-20966 Filed 12-8-06; 8:45 am]

BILLING CODE 8011-01-P