Document ID: SEC-2007-1165-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-08-21T04:00Z

[Federal Register: August 21, 2007 (Volume 72, Number 161)]
[Notices]               
[Page 46689-46691]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au07-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56255; File No. SR-Amex-2007-77]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate Certain Exchange Rules Prohibiting the Entering of Limit 
Orders on Both Sides of the Market on a Regular and Continuous Basis

August 15, 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 August 8, 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 and 
II below, which Items have been substantially prepared by the Exchange. 
Amex has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4,\3\ 
which renders the proposal effective upon receipt of this filing by 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rules 1000-AEMI, 1000A-AEMI, 1200-
AEMI, 1200A-AEMI, 1200B-AEMI, 1500-AEMI, and Rule 1400 to eliminate the 
prohibition on the entering of certain limit orders in Exchange Traded 
Fund Shares and other equity derivative products into the Exchange's 
trading systems.
    The text of the proposed rule change is available at the Amex, the 
Commission's Public Reference Room, and http://www.amex.com.

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 Exchange 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

[[Page 46690]]

places specified in Item IV 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In August 2001, the Exchange adopted rules restricting the entry of 
certain limit orders in Portfolio Depositary Receipts, Index Fund 
Shares, and Trust Issued Receipts. Subsequently, the Exchange adopted 
the same rules for trading in Commodity-Based Trust Shares, Currency 
Trust Shares, Paired Trust Shares, and Partnership Units when those 
products began trading on the Exchange. All of these products will be 
collectively referred to herein as ``Exchange Traded Fund Shares'' or 
``ETFs.'' Specifically, the rules provide that members, acting as 
either principal or agent, may not permit the entry of orders into the 
Exchange's electronic order routing system if the orders are limit 
orders for the account or accounts of the same or related beneficial 
owners and the limit orders are entered in such a manner that the 
member or the beneficial owner(s) effectively is operating as a market 
maker by holding itself out as willing to buy and sell such securities 
on a regular or continuous basis.
    The Exchange adopted these rules because its business model at that 
time depended upon specialists and registered traders for competition 
and liquidity. To encourage participation by specialists and registered 
traders, the Exchange determined to limit the ability of non-
specialists/registered traders to compete on equal terms within its 
automated systems. The Exchange determined that certain actions--
simultaneous entry of limit orders to buy or sell the same ETF, 
multiple acquisition and liquidation of positions in the same ETF, and 
the entry of multiple orders at different prices in the same ETF--were 
tantamount to operating as a market maker and gave such members an 
advantage over the specialist who was required to yield priority to 
their orders. The adoption of these rules by the Exchange did not, 
however, confer market maker status on such members for any purpose 
under the Act or otherwise.
    Since that time, trading in ETFs has changed considerably. Most 
recently, the implementation of the AEMI trading system and the 
introduction of Regulation NMS have changed the Exchange's view of 
these restrictions and the need to encourage order flow from all types 
of liquidity providers, particularly member firms trading for their own 
proprietary accounts. ETF specialists and registered traders now have 
the ability to stream quotations into the AEMI system using their own 
proprietary quoting systems in a manner that allows them to compete 
effectively with orders from members' proprietary accounts. In 
addition, specialists and registered traders have the ability to be on 
parity with these orders from members. Thus, the Exchange is proposing 
to amend its rules to eliminate the prohibition on limit orders from 
members operating as market makers. Management believes the removal of 
these restrictions will provide a level playing field for all market 
participants on parity and should enhance access to the Exchange 
providing additional liquidity in our ETFs.
    The prohibition, however, will continue to apply to customer agency 
orders since those orders continue to have priority over specialists 
and registered traders. The rule prevents certain customers from 
obtaining an unfair advantage by acting as unregistered specialists and 
traders while having priority over the specialists and registered 
traders by virtue of their customer status. Permitting customers to 
enter multiple limit orders to such an extent that they are effectively 
acting as market makers in a secuirty, while at the same time giving 
them priority over all other orders on the book, gives such customers 
an inordinate advantage over other market participants.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\4\ which requires, among other things, that 
the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and 
practices, and, in general, to protect investors and the public 
interest.
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    \4\ 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 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

    The foregoing rule change has become effective immediately pursuant 
to Section 19(b)(3)(A)(iii) of the Act \5\ and Rule 19b-4(f)(6) 
thereunder \6\ because it does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; or (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest.\7\
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    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(6).
    \7\ Rule 19b-4(f)(6)(iii) requires that a self-regulatory 
organization submit to the Commission written notice of its intent 
to file the proposed rule change, along with a brief description and 
text of the proposed rule change, at least five business days prior 
to the date of filing of the proposed rule change, or such shorter 
time as designated by the Commission. Amex has satisfied the five-
day pre-filing notice requirement.
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    Rule 19b-4(f)(6) provides that the proposal may not become 
operative for 30 days after the date of its filing, or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest. The Commission hereby waives the 
30 day pre-operative period.\8\ In an order approving a proposed rule 
change by the Chicago Board Options Exchange, the Commission recognized 
that an exchange may permit members to submit orders on both sides of 
the market on a regular or continuous basis, even if such members are 
not registered as market makers.\9\ Therefore, the Commission believes 
that it is consistent with the protection of investors and the public 
interest to waive the 30-day operative period so that the proposal may 
become operative upon filing.
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    \8\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \9\ See Securities Exchange Act Release No. 38054 (December 16, 
1996), 61 FR 67365, 67370 (December 20, 1996).
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    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

[[Page 46691]]

interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.

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 (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File No. SR-Amex-2007-77 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-2007-77. 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, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of such filing will also 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-2007-77 and should be 
submitted on or before September 11, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-16394 Filed 8-20-07; 8:45 am]

BILLING CODE 8010-01-P