Document ID: SEC-2007-1693-0001
Agency: sec
Document Type: Notice
Title: For example, a floor broker walks into the ABC options crowd to sell 20 November ABC calls at $2.00 against 1000 shares of ABC stock at $50.00, the price where the stock is presently trading. The net debit price for this transaction would be $46,000.\6\ A member/members agrees to the trade. The broker then goes to cross the stock at $50.00, but is unable to because of movement in the stock price,
Posted Date: 2007-12-12T05:00Z

[Federal Register: December 12, 2007 (Volume 72, Number 238)]
[Notices]               
[Page 70625-70626]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de07-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56901; File No. SR-Amex-2007-20]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Related To Amending Complex Orders Procedures

December 5, 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 15, 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 
Amex. On November 28, 2007, the Exchange filed Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 complex orders procedures to allow 
the adjustment of the options leg of the order if market conditions 
prevent the execution of the non-option leg at the price agreed upon.
    The text of the proposed rule change is available 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, 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
    Amendment No. 1 makes revisions to the 19b-4, as originally filed, 
and replaces and supersedes the original filing in its entirety.
    Complex orders involving orders consisting of stock or securities 
futures and option legs are effective hedging strategies that would 
permit Members to initially offset the risk of price movements in an 
option position, with a corresponding purchase or sale of stock 
underlying the option position or securities futures. The Exchange 
recently adopted language to allow for the execution of stock-option 
orders and security future-option orders.\3\ These rules currently 
provide that complex orders consisting of stock or security futures and 
options legs that fall within their proposed definition will be 
afforded the same priorities as spread, straddle, ratio, and 
combination orders.\4\
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    \3\ See Exchange Act Release No. 53588 (April 3. 2006), 71 FR 
18122 (April 10, 2006).
    \4\ See Commentary .01 to Rule 950-ANTE(d).
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    Amex Rule 953-ANTE provides the execution procedures for stock-
option orders and security future-options orders. Currently, under Amex 
Rule 953-ANTE, if the security or security

[[Page 70626]]

futures leg of the order cannot be executed at the price(s) agreed upon 
due to market conditions, a trade representing the execution of the 
options leg of the transaction may be cancelled at the request of any 
member that is a party to that trade.
    The Exchange proposes to amend Rule 953--ANTE (b)(ii) to provide 
that if the security or security futures leg of the order cannot be 
executed at the price agreed upon due to market conditions, the price 
of a trade representing the execution of the options leg of the 
transaction may be adjusted to be consistent with the net debit or 
credit price \5\ of the original order, if market conditions in any of 
the non-Exchange markets prevent the execution of the non-option leg at 
the price agreed upon
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    \5\ The net debit or credit will remain the same. The 
calculation of the net debit or credit is not subject to 
interpretation.
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    For example, a floor broker walks into the ABC options crowd to 
sell 20 November ABC calls at $2.00 against 1000 shares of ABC stock at 
$50.00, the price where the stock is presently trading. The net debit 
price for this transaction would be $46,000.\6\ A member/members agrees 
to the trade. The broker then goes to cross the stock at $50.00, but is 
unable to because of movement in the stock price, and crosses it at 
$50.10. The price of the options would be adjusted and the broker would 
print the options at $2.05 to maintain the net debit or credit price of 
the original order.\7\
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    \6\ The original net price for the transaction: 1000 shares at 
$50.00 ($50,000) less 20 calls at $2.00 ($4,000) equals a net price 
of $46,000.
    \7\ The adjusted net price for the transaction: 1000 shares at 
$50.10 ($50,100) less 20 calls at $2.05 ($4,100) equals a net price 
of $46,000.
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    The Exchange notes that the orders are presented as crosses and the 
counterparty acknowledges the adjustment. When agreeing to the trade, 
the counterparty is aware that the price of the trade representing the 
options leg of the transaction may be adjusted. Lastly, the Exchange 
notes that the re-pricing of the options leg must be consistent with 
the Amex's priority and parity rules.\8\ If the transaction does not 
satisfy the Exchange's priority and parity rules by the end of the 
trading day, then the transaction would be cancelled.
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    \8\ See Commentary .01 and .02 to Rule 950-ANTE(c). As noted in 
the aforementioned example, if there was a public customer order on 
the book for $2.05 at the time of the trade, the member would not be 
permitted to trade through the customer's order.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations under the Act applicable to a 
national securities exchange and, in particular, the requirements of 
section 6(b) \9\ of the Act. Specifically, the Exchange believes the 
proposed rule change is consistent with the requirements of section 
6(b)(5) \10\ of the Act 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 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

    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 Amex 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. 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-2007-20 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Amex-2007-20. 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 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 publicly available. All 
submissions should refer to File Number SR-Amex-2007-20 and should be 
submitted on or before January 2, 2008.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-24032 Filed 12-11-07; 8:45 am]

BILLING CODE 8011-01-P