Document ID: SEC-2007-0336-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-03-07T05:00Z

[Federal Register: March 7, 2007 (Volume 72, Number 44)]
[Notices]               
[Page 10265-10267]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07mr07-171]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55368; File No. SR-Amex-2007-26]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Revise the AEMI and AEMI-One Rules Relating to the Publishing of Manual 
Quotations and Re-Enabling Auto-Ex

February 28, 2007.

    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, 2007, 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 comments on the proposed rule change from 
interested persons.
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    \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).
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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 and AEMI-One 
rules to address a situation that the Exchange has encountered in 
publishing its manual, non-firm quote following a tolerance breach that 
disables the Exchange's automatic execution functionality (``auto-
ex''). Under certain circumstances, displaying the price of the 
national best bid (``NBB'') or national best offer (``NBO'') (as the 
case may be) as part of such a non-firm quote (as provided in the 
current AEMI and AEMI-One rules) may result in the Exchange publishing 
a locked or crossed quotation. To avoid this situation, the Exchange is 
proposing to amend Rules 128A-AEMI-One(g) and 128A-AEMI(g) to provide 
instead for using the price of the best bid, offer, or order (as the 
case may be) in AEMI, rather than the NBB or NBO, under these 
circumstances. Related changes to Rules 123-AEMI-One(h) and 123-AEMI(h) 
would clarify that all such non-firm quotes disseminated through the 
AEMI platform are indicative only. In addition, the Exchange is 
proposing the addition of a phrase to each of Rules 128A-AEMI-One(g) 
and 128A-AEMI(g) to clarify that the obligation of the Specialist is to 
``attempt to'' pair off the remainder of an aggressing order that 
results in a locked or crossed AEMI Book to re-enable auto-ex prior to 
the expiration of a ten-second time period. The Exchange also is 
proposing an unrelated change to the text of Rules 1A-AEMI-One(b) and 
1A-AEMI(b) to clarify the applicability of cross-references in the 
Exchange's rules to a legacy rule that is no longer applicable due to 
having been superseded by a corresponding AEMI or AEMI-One rule.
    The text of the proposed rule change is available on the Amex's Web 
site at http://www.amex.com, at 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, 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. 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 two sets of rules in connection 
with the operation of its new hybrid market trading platform for equity 
products and exchange-traded funds, designated as AEMISM 
(the ``Auction and Electronic Market Integration'' platform). The 
initial version of AEMI is referred to as ``AEMI-One'' and is currently 
operational on a pilot basis \5\ through the day prior to the final 
date set by the Commission for full operation of all automated trading 
centers that intend to qualify their quotations for trade-

[[Page 10266]]

through protection under Rule 611 \6\ of Regulation NMS (the latter 
date being referred to as the ``Trading Phase Date'').\7\ On the 
Trading Phase Date, the regular AEMI rules will become effective \8\ 
and the AEMI-One rules will cease to be operative. The Exchange 
proposes to adopt the following change to the AEMI platform and to 
reflect that change in both the currently effective AEMI-One rule and 
the corresponding AEMI rule that will become effective on the Trading 
Phase Date.
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    \5\ See Securities Exchange Act Release No. 54709 (November 3, 
2006), 71 FR 65847 (November 9, 2006) (SR-Amex-2006-72) (Order 
Approving a Proposed Rule Change and Amendment No 1 Thereto, and 
Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 3, to Adopt New Rules to Implement on a Pilot Basis an 
Initial Version of AEMI, Its Proposed New Hybrid Market Trading 
Platform for Equity Products and Exchange Traded Funds).
    \6\ 17 CFR 242.611. The Order Protection Rule requires trading 
centers to establish, maintain, and enforce written policies and 
procedures reasonably designed to prevent the execution of trades at 
prices inferior to protected quotations displayed by other trading 
centers, subject to certain exceptions.
    \7\ The Trading Phase Date is currently established as March 5, 
2007.
    \8\ See Securities Exchange Act Release No. 54552 (September 29, 
2006), 71 FR 59546 (October 10, 2006) (SR-Amex-2005-104) (Order 
Approving a Proposed Rule Change and Amendments No. 1, 2, 3, 4, and 
5 Thereto, and Notice of Filing and Order Granting Accelerated 
Approval to Amendment No. 6, to Establish a New Hybrid Trading 
System Known as AEMI).
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    In the event that auto-ex is disabled through the breach of the 
Spread Tolerance or Momentum Tolerance or a gap trade (each a 
``Tolerance''), as provided in Exchange Rules 128A-AEMI-One(f) and 
128A-AEMI(f), Exchange Rules 128A-AEMI-One(g) and 128A-AEMI(g) 
currently provide that the Amex Published Quote (``APQ'') will display 
a price on the same side corresponding to the aggressing order that is 
equal to the price of the NBB or NBO (as the case may be), with the 
contra side of the quote reflecting the best bid, offer, or order in 
AEMI (both sides being non-firm). Under certain circumstances, however, 
displaying the NBB or NBO as part of such a non-firm quote may result 
in the Exchange publishing a locked or crossed quotation. The problem 
is illustrated by the following hypothetical example.
    Assume that the NBB is 10.50 and the NBO is 10.00 (a crossed 
market). Further assume that the APQ is 9.80 x 10.00 and that an 
aggressing buy order takes out Amex offers on the AEMI Book and 
breaches a Tolerance at 10.25 (disabling auto-ex). The next offer in 
AEMI is 10.30. Under the current AEMI-One and AEMI rules, Amex's manual 
non-firm quote displayed by the AEMI platform would then be 10.50 x 
10.30 (a crossed APQ).
    To avoid the foregoing situation, the Exchange is proposing to 
amend Rules 128A-AEMI-One(g) and 128A-AEMI(g) to provide instead for 
using the price of the best bid, offer, or order (as the case may be) 
in AEMI, rather than the NBB or NBO, under these circumstances. Under 
the language of the proposed amendment, the Exchange's manual, non-firm 
quote in the foregoing example would be 9.80 x 10.30. The proposed 
amendment also contains language providing that the size of the non-
firm quote on the same side as the aggressing order would be equal to 
the remainder of the aggressing order. The proposed amendment further 
clarifies that the aggressing order itself would not be considered as 
the best bid, offer, or order in AEMI in the situation where the price 
of the NBB or NBO is not used as part of the non-firm APQ on the side 
of the aggressing order. Related changes to Rules 123-AEMI-One(h) and 
123-AEMI(h) would clarify that all such non-firm quotes disseminated 
through the AEMI platform are indicative only.
    In addition, the Exchange is proposing the addition of a phrase to 
each of Rules 128A-AEMI-One(g) and 128A-AEMI(g) to clarify that the 
obligation of the Specialist is to ``attempt to'' pair off the 
remainder of an aggressing order that results in a locked or crossed 
AEMI Book to re-enable auto-ex prior to the expiration of a ten-second 
time period. This proposed change is consistent with the extensive 
discussion in the same rule sections regarding what to do if auto-ex is 
not re-enabled within ten seconds, and it avoids the implication that 
the Specialist has committed an enforceable rule violation if 
conditions are such that the Specialist is unable to complete the pair-
off to re-enable auto-ex within the ten-second period.
    The Exchange also is proposing an unrelated change to the text of 
Rules 1A-AEMI-One(b) and 1A-AEMI(b) to clarify the applicability of 
cross-references in the Exchange's rules to a legacy rule that is no 
longer applicable due to having been superseded by a corresponding AEMI 
or AEMI-One rule. Under the proposed change, any reference to such an 
inapplicable legacy rule shall be deemed to be a reference to the 
corresponding AEMI or AEMI-One rule, as the case may be.
    The Exchange asserts that the proposal to effect the foregoing 
changes 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 as well as consistent with Section 6(b) of the Act,\9\ 
in general, and furthers the objectives of Section 6(b)(5),\10\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no 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 \11\ and 
Rule 19b-4(f)(5) thereunder.\12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(5).
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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

[[Page 10267]]

No. SR-Amex-2007-26 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-2007-26. 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-2007-26 and should be submitted on or before March 28, 
2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-4039 Filed 3-6-07; 8:45 am]

BILLING CODE 8010-01-P