Document ID: SEC-2006-0638-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-05-17T04:00Z

[Federal Register: May 17, 2006 (Volume 71, Number 95)]
[Notices]               
[Page 28718-28720]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my06-90]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53793; File No. SR-Amex-2005-103]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change and Amendment Nos. 1, 2, 3 
and 4 Thereto Allowing Issuers of Listed Equity Securities, Structured 
Products, and Exchange Traded Funds a Right To Request a New Specialist

May 11, 2006.
    On October 13, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Amex Rule 27 to give issuers of listed 
equity securities and structured products, as well as sponsors of 
exchange traded funds (``ETFs''), a right to request a new specialist. 
On January 26, 2006, Amex filed Amendment No. 1 to the proposed rule 
change.\3\ On January 30, 2006, Amex filed Amendment No. 2 to the 
proposed rule change.\4\ On February 17, 2006, Amex filed Amendment No. 
3 to the proposed rule change.\5\ On March 6, 2006, Amex filed 
Amendment No. 4 to the proposed rule change.\6\ The proposed rule 
change, as amended, was published for comment in the Federal Register 
on April 4, 2006.\7\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange proposed further changes to 
Amex Rule 27(e) and (f) and made revisions to the purpose section of 
the proposed rule change.
    \4\ In Amendment No. 2, the Exchange made revisions to the 
purpose section of the proposed rule change to reflect changes to 
the text of Amex Rule 27(f) made in Amendment No. 1
    \5\ In Amendment No. 3, the Exchange proposed further changes to 
Amex Rule 27(e) and (f) and made revisions to the purpose section of 
the proposed rule change.
    \6\ In Amendment No. 4, the Exchange proposed minor technical 
changes to the text of Amex Rule 27(e) and (f).
    \7\ See Securities Exchange Act Release No. 53561 (March 29, 
2006), 71 FR 16841.
---------------------------------------------------------------------------

I. Description of the Proposal

    Amex Rule 27(e) currently gives the issuer of an equity security or 
a structured product and the sponsor of an ETF a one-time right to 
request a reallocation to a different specialist unit within twelve 
months after the listing of the security.

[[Page 28719]]

    The Exchange proposed to amend Amex Rule 27(e)(ii) to permit the 
issuer of an equity security or structured product or the sponsor of an 
ETF to request a specialist reassignment for ``good cause'' by filing a 
written notice (``Notice'') with the officer in charge of Equities 
Administration or the officer in charge of the ETF Marketplace, as 
applicable. The Notice must indicate the specific issues prompting the 
request and any steps previously taken to attempt to address these 
issues. Amex proposes to define ``good cause'' as the failure of the 
specialist to make competitive markets; the failure of the specialist 
unit to risk capital commensurate with the type of security; the 
failure of the specialist unit to assign competent personnel to the 
securities; or any statements made publicly by the specialist unit that 
substantially denigrate the security.
    Further, the proposed revisions to Amex Rule 27(e) would require 
that copies of the Notice be provided to the Chief Regulatory Officer 
of the Exchange (``CRO'') and to the Exchange's Committee on Floor 
Member Performance. In addition, the subject specialist unit would be 
notified that a mediation is being commenced with respect to the 
request for reassignment, and would be provided a copy of the Notice. 
The specialist unit may submit a written response within two weeks 
(``Specialist Response Date''), which response must be provided to the 
CRO and the Committee on Floor Member Performance. If the specialist 
unit does not submit a response during this two-week time period, there 
will be no mediation. In such case, the Allocations Committee will be 
convened to reallocate securities pursuant to Amex Rule 27(b).
    The CRO would review the Notice and any specialist response, and 
may request a review of the matter by the Regulatory Oversight 
Committee (``ROC'') of the Exchange's Board of Governors. In addition, 
the Committee on Floor Member Performance would review the Notice and 
any specialist response. Prior to the commencement of the mediation, 
the Committee on Floor Member Performance would make any determination 
that ``good cause'' does not exist. A determination that ``good cause'' 
does not exist would preclude the commencement of a mediation. In this 
circumstance, the security would not be reallocated and the issuer or 
sponsor may request an appeal of the decision of the Committee on Floor 
Member Performance to be heard by the Amex Adjudicatory Council.\8\ If 
the decision of the Committee on Floor Member Performance is upheld, 
then the security will not be reallocated.
---------------------------------------------------------------------------

    \8\ See Article II, Section 7(a) of the Amex Constitution.
---------------------------------------------------------------------------

    The mediation of the issues that have arisen between the issuer or 
sponsor and the specialist unit may be conducted pending the outcome of 
the CRO's and, if applicable, the ROC's review of the request. However, 
where a review by the ROC has been requested, no change of specialist 
unit may occur until the ROC makes a final determination that it is 
appropriate to permit such change. In making such determination, the 
ROC may consider all relevant regulatory issues, including without 
limitation whether the requested change appears to be in aid or 
furtherance of conduct that is illegal or violates Exchange rules, or 
in retaliation for a refusal by a specialist to engage in conduct that 
is illegal or violates Exchange rules. Notwithstanding reviews by the 
CRO, ROC and/or Committee on Floor Member Performance of any matter 
raised during the process described herein, the Amex Division of 
Regulation and Compliance (including Listing Qualifications) and/or the 
NASD Amex Division may at any time take any regulatory action that it 
may determine to be warranted. The Amex represents that reassignment 
may not occur without prior notice that the CRO has decided not to 
refer the matter to the ROC or that the ROC has determined that the 
change is appropriate.
    A Mediation Committee would be appointed and would consist of at 
least one floor broker, one senior floor official, one upstairs 
governor, and two independent governors for each mediation.\9\ The 
Mediation Committee would meet with representatives of the issuer or 
sponsor and the specialist unit in an attempt to mediate the matters 
indicated in the Notice. During the course of the mediation, the issuer 
or sponsor may conclude the mediation if it determines that it wishes 
to continue with the same specialist unit. In the alternative, after 
the expiration of one month from the time of the specialist's response, 
subject to the conclusion of any review by the CRO and ROC, the issuer 
or sponsor may file written notice, signed by the issuer's or sponsor's 
chief executive officer, that it wishes to proceed with the change of 
specialist unit. The new specialist unit would be selected by the 
Allocations Committee pursuant to Amex Rule 27(b).
---------------------------------------------------------------------------

    \9\ The Exchange represents that the Mediation Committee would 
consist of at least one floor broker, at least one senior floor 
official, at least one upstairs governor, and at least two 
independent governors for each mediation. Telephone conversation 
between Nyieri Nazarian, Assistant General Counsel, Amex and David 
Michehl, Special Counsel, Division of Market Regulation, Commission 
on May 11, 2006.
---------------------------------------------------------------------------

    Finally, the Exchange proposes to amend Amex Rule 27(f) to provide 
that, in addition to the circumstances provided for in the existing 
rule, the Allocations Committee would be convened to reallocate 
securities when an issuer or sponsor files a written notice requesting 
a change of specialist unit and the Mediation Committee orders 
reallocation pursuant to proposed paragraph (e)(viii) of Amex Rule 27, 
or an issuer or sponsor files a written notice requesting a change of 
specialist unit and the specialist unit does not submit a response.

II. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of Section 6 of the Act,\10\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the Exchange's rules be 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ In approving this proposed rule change, as amended, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change, as amended, 
appropriately balances the need to revise the current Amex process by 
which issuers of equity securities or structured products or sponsors 
of ETFs request a new specialist with the need to incorporate 
appropriate procedures that are designed to provide that any such 
request is subject to mediation and review by the Exchange's Committee 
on Floor Member Performance and CRO and, if requested by the CRO, the 
ROC. While the proposal revises current time frame during which an 
issuer or sponsor may request a new specialist, it also introduces the 
involvement of the Exchange's Committee on Floor Member Performance and 
CRO to assure that the requested change of specialist unit is for a 
proper purpose. The Committee on Floor Member Performance and CRO would 
be provided copies of any Notice and response to such Notice by the 
specialist unit. When the CRO has

[[Page 28720]]

requested a review by the ROC, no change of specialist unit may occur 
until after the ROC makes a final determination that it is appropriate 
to permit such a change.
    The ROC, in making its determination of whether to permit a change 
in specialist unit, may consider all relevant regulatory issues, 
including whether the requested change appears to be in aid or 
furtherance of conduct that is illegal or violates Exchange rules, or 
is in retaliation for a refusal by a specialist to engage in conduct 
that is illegal or violates Exchange rules. The Amex Division of 
Regulation and Compliance and/or the NASD Amex Division may at any time 
take any regulatory action that it may determine to be warranted. 
Therefore, the Commission believes that the proposed process would 
provide an appropriate mechanism for the Exchange to maintain 
independent oversight over an issuer's or sponsor's request to change 
specialist units, to ascertain that such requests are confined to 
proper reasons, and to obtain a review by the ROC when appropriate.
    The Commission notes that the proposed rule change requires the 
Mediation Committee to commence to meet with representatives of the 
issuer or sponsor and the specialist unit ''as soon as practicable'' 
after the Specialist Response Date and does not limit the Mediation 
Committee's attempt to mediate the matters indicated in the Notice. The 
proposal further provides that the issuer or sponsor may at any time 
file a written notice stating that it wishes to conclude the mediation 
because it wishes to continue with the same specialist unit. After the 
expiration of one month from the Specialist Response Date, the issuer 
or sponsor may file a notice that it wishes to proceed with the change 
of specialist unit. The Commission believes that the proposed process 
is designed to provide the issuer or sponsor and the specialist unit 
ample opportunity to attempt to resolve the issues that prompted the 
issuer or sponsor to seek a new specialist unit and to allow the issuer 
or sponsor to seek a new specialist unit a reasonable period of time 
after the issuer or sponsor files its Notice.
    Accordingly, the Commission finds that the proposed rule change, as 
amended, is consistent with the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Amex-2005-103), as amended, 
is approved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-7463 Filed 5-16-06; 8:45 am]

BILLING CODE 8010-01-P