Document ID: SEC-2007-1207-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-08-29T04:00Z

[Federal Register: August 29, 2007 (Volume 72, Number 167)]
[Notices]               
[Page 49750-49752]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au07-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56307; File No. SR-Amex-2007-96]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change Relating to an Extension of 
the Options Penny Quoting Pilot Program

August 22, 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 21, 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 Amex.\3\ 
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\ The Commission notes that the proposed rule change submitted 
by the Exchange contained non-substantive errors, which, for the 
purpose of this notice, have been corrected. The Exchange has 
committed to address these errors formally in an amendment to the 
proposed rule change following publication of this notice. Telephone 
conversation between Jeffrey Burns, Vice President and Associate 
General Counsel and Jennifer Colihan, Special Counsel, Division of 
Market Regulation, Commission on August 22, 2007.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (i) Expand the current pilot program for 
the quoting of a limited number of options classes in pennies (the 
``Penny Quoting Pilot Program'' or ``Pilot Program'') and (ii) extend 
the Pilot Program through March 27, 2009. The text of the proposed rule 
change is available at http://www.amex.com, at the Exchange, 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 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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Amex is proposing to expand the current Penny Pilot Quoting 
Pilot Program \4\ which commenced on January 26, 2007. The Exchange 
believes that expanding the current Pilot Program, as proposed in this 
rule filing, will allow further analysis and review of the impact of 
penny quoting based on a greater number of actively-traded options 
classes.
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    \4\ See Securities Exchange Act Release No. 55162 (January 24, 
2007), 72 FR 4738 (February 1, 2007).
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    The current Penny Quoting Pilot Program includes thirteen (13) 
options classes. The Pilot Program was recently extended by the 
Exchange through September 27, 2007.\5\ The Exchange intends to roll-
out the proposed expansion of the Pilot Program in two (2) phases.
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    \5\ See Securities Exchange Act Release No. 56159 (July 27, 
2007), 72 FR 43300 (August 3, 2007).
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    First, commencing on September 28, 2007, the Exchange will include 
the twenty-two (22) most actively-traded, multiply-listed options 
classes (excluding Google (GOOG), Nasdaq-100 Index (NDX) and the 
Russell 2000 Index (RUT)) in the Penny Quoting Pilot Program. The 
Exchange also proposes to set forth in a Regulatory Circular the list 
of the options classes subject to the proposed expansion of the Pilot 
Program. In addition to the thirteen (13) options classes that are 
currently part of the Pilot Program, this would expand the Penny 
Quoting Pilot Program to include approximately 35% of total industry 
options volume.
    Second, the Exchange on March 28, 2008 would further commence an 
expansion of the Pilot Program to last for one (1) year through March 
27, 2009. Amex anticipates that an additional twenty-eight (28) option 
classes will be added to the Penny Quoting Pilot Program at that time 
such that the Pilot would include the Top 50 multiply-listed options 
classes by national volume. As a result, the Pilot Program would then 
consist of sixty-three (63) options classes. The Exchange will

[[Page 49751]]

submit a proposed rule change pursuant to section 19(b)(3)(A) of the 
Securities Exchange Act of 1934 identifying the options classes to be 
included in the second phase of the Pilot Program expansion.
    The Exchange believes that the proposed expansion is a measured 
increase to the existing Pilot Program given system capacity 
constraints and concerns that exist industry-wide. As set forth in the 
Exchange's original rule filing in connection with the Pilot Program, 
the Amex believes that a considerate and measured expansion is required 
because quoting options in pennies is expected to increase quote 
message traffic. The Exchange believes that the proposed expansion of 
options classes that may quote in pennies under the Pilot Program is 
reasonable given the system capacity constraints and quote mitigation 
strategies in place at the Amex as well as the other options exchanges.
    The Exchange represents that it will submit reports analyzing the 
Pilot Program for the following time periods: (i) May 1, 2007 through 
September 27, 2007; (ii) September 28, 2007 through January 31, 2008; 
(iii) February 1, 2008 through July 31, 2008; and (iv) August 1, 2008 
through January 31, 2009. The Pilot Reports will be submitted to the 
Commission within thirty (30) days of the end of such time periods. The 
Exchange expects the Pilot Reports, among other things, to assess the 
impact of the Pilot Program during the relevant time period comparing 
quotation and trading activity as follows: (1) Quotation spread, 
quotation size, average daily volume and other relevant factors: (2) 
the number of quotations in the Penny Quoting Pilot Program and the 
effect on Amex system's capacity; and (3) an assessment of trade-
throughs and how they were addressed.
    The quoting requirements in connection with the Penny Quoting Pilot 
Program will continue to provide for (i) A minimum price variation 
(``MPV'') of $0.01 for options with premiums of up to $3 or (ii) a MPV 
of $0.05 for options with premiums of $3 or greater, except for QQQQ 
options which trade at an MPV of $0.01 for all premiums.
    As part of the Penny Quoting Pilot Program, the Exchange 
implemented quote mitigation strategies due to concerns regarding 
system capacity. The Exchange believes that the quote mitigation 
strategies in place since the introduction of the Pilot Program 
continue to be effective. Therefore, in this filing, the Exchange is 
also proposing to further extend the effectiveness of the quote 
mitigation strategies through March 27, 2009.
    Finally, the Exchange believes that an additional extension of the 
Penny Quoting Pilot Program through March 27, 2009 is warranted and 
appropriate for the purpose of implementing the proposed expansion.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\6\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\7\ in particular, in that the 
proposed rule change 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. The Commission also requests and 
encourages interested persons to submit comments on the following 
specific questions:
     Whether there are circumstances under which options 
classes included in the Penny Pilot should be removed from the Pilot?
     If so, what factors should be considered in making the 
determination to remove an option class from the Penny Pilot?
    [cir] Should an objective standard be used? For instance, should an 
option class come out of the Penny Pilot if its trading volume drops 
below a threshold amount? If so, what should that threshold be? Or, 
should an option class come out of the Penny Pilot if it is no longer 
among the most actively-traded options? If so, what should be 
considered the most-actively traded options? What statistics or 
analysis should be used to support a determination to remove an options 
class?
    [cir] Should a more subjective analysis be allowed? If so, what 
factors should be taken into account?
     What concerns might arise by removing an option from the 
Penny Pilot? How could such concerns be ameliorated?
     How frequently should the analysis be undertaken (e.g., 
annually, bi-annually, quarterly), or should the evaluation be an 
automated process?
     If a determination is made that an option should be 
removed from the Penny Pilot, how much notice should be given to market 
participants that the quoting increment will change?
    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-2007-96 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 Number SR-Amex-2007-96. 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

[[Page 49752]]

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 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 Number SR-Amex-2007-96 and should be submitted on or before 
September 19, 2007.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-17082 Filed 8-28-07; 8:45 am]

BILLING CODE 8010-01-P