Document ID: SEC-2006-0756-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-06-14T04:00Z

[Federal Register: June 14, 2006 (Volume 71, Number 114)]
[Notices]               
[Page 34401-34403]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn06-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release NO. 34-53950; File No. SR-Amex-2006-54]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change To Extend the Pilot Program for the Quote Assist Feature in 
the ANTE System

June 6, 2006.
    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 May 23, 2006, 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. 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change from interested persons and to grant 
accelerated approval to the proposed rule change.
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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 Amex Rule 958A--ANTE(e) to extend 
until April 30, 2007, its pilot program implementing a quote-assist 
feature in the Exchange's ANTE system (``Pilot Program'').
    The text of the proposed rule change is available at the Exchange's 
Web site (http://www.amex.com/), the Exchange's principal office, and 

the Commission's Public Reference Room.

[[Page 34402]]

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. Statement of the Purpose of, and Statutory Basis for, the Proposed 
Rule Change

1. Purpose
    The purpose of the proposed rule change is to extend the Pilot 
Program through April 30, 2007. The quote assist feature implemented 
pursuant to the Pilot Program is intended to assist specialists on the 
Exchange in meeting their obligations to display customer limit orders 
immediately upon receipt.\3\ Amex Rule 958A--ANTE(e) requires all 
option specialists to execute or display customer limit orders that 
improve the bid or offer by price or size immediately upon receipt, 
unless one of the exceptions set forth in the rule applies. 
``Immediately upon receipt'' is defined in the rule as ``under normal 
market conditions, as soon as practicable but not later than 30 seconds 
after receipt.'' \4\
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    \3\ See Amex Rule 958A--ANTE(e).
    \4\ See Amex Rule 958A--ANTE(e)(1).
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    The quote assist feature implemented under the Pilot Program \5\ 
automatically displays eligible limit orders within a configurable time 
that can be set on a class-by-class basis by the Exchange and the 
specialist assigned to that class.\6\ While all customer limit orders 
are expected to be displayed immediately, the specialist can set the 
quote assist feature to automatically display limit orders at or close 
to the end of the 30-second time frame--the maximum time frame 
permitted by the rule--or within a shorter time frame established by 
the Exchange. If the specialist fails to address the order within the 
applicable display period, the quote assist feature will automatically 
display the eligible customer limit order in the limit order book. The 
quote assist feature helps to ensure that eligible customer limit 
orders are displayed within the required time period.
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    \5\ See Securities Exchange Act Releases No. 49747 (May 20, 
2004), 69 FR 30344, 30347 (May 27, 2004) (approving implementation 
of the ANTE system, including the quote assist feature on a pilot 
basis); and No. 51955 (June 30, 2005), 70 FR 39812 (June 11, 2005) 
(extending the Pilot Program until April 30, 2006).
    \6\ The time frame within which limit orders must be addressed--
a maximum of 30 seconds under the rule--may be set to a shorter time 
period by the Exchange. The specialist maintaining the quote assist 
feature may then use the feature to automatically display orders 
within a shorter time period than the time period set by the 
Exchange. Telephone conversation between Sudhir Bhattacharyya, 
Assistant General Counsel, Amex, and Nathan Saunders, Special 
Counsel, Division of Market Regulation, Commission, June 2, 2006.
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    Rule 958A--ANTE (e)(4) requires the specialist to maintain and keep 
active the limit order quote assist feature. The Specialist may 
deactivate the quote assist feature provided Floor Official approval is 
obtained. The specialist must obtain Floor Official approval as soon as 
practicable but in no event later than three minutes after 
deactivation. If the specialist does not receive approval within three 
minutes after deactivation, the Exchange will review the matter as a 
regulatory issue. Floor Officials will grant approval only in instances 
when there is an unusual influx of orders or movement of the underlying 
that would result in gap pricing or other unusual circumstances. The 
Exchange will document all instances where a Floor Official has granted 
approval.
    The Exchange notes that the quote assist feature does not relieve 
the specialists of their obligation to display customer limit orders 
immediately. To the extent that a specialist excessively relies on the 
quote assist feature to display eligible limit orders without 
attempting to address the orders immediately, the specialist could be 
violating Rule 958A--ANTE (e). However, brief or intermittent reliance 
on the quote assist feature by a specialist during an unexpected surge 
in trading activity in an option class would not violate Rule 958A--
ANTE (e) if it occurs when the specialist is not physically able to 
address all the eligible limit orders within the applicable time frame. 
The Exchange has issued a regulatory notice discussing the issue of 
excessive reliance on the quote assist feature.\7\
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    \7\ See Amex Notice REG 2004-51, ``Rulings and Interpretations: 
Limit Order Display Requirement in Options; Availability and 
Deactivation of Quote Assist'' (December 8, 2004); see also Amex 
Notice, ``Deactivation of Quote Assist'' (June 19, 2000) (both 
available at http://www.amex.com/amextrader).

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    The Exchange will continue to conduct surveillance to ensure that 
specialists comply with their obligation to execute or book all 
eligible limit orders within the time period prescribed by Exchange 
rules. The Exchange commits to conduct surveillance designed to detect 
whether specialists as a matter of course rely on the quote assist 
feature to display all eligible limit orders. A practice of excessive 
reliance upon the quote assist feature will be reviewed by Member Firm 
Regulation as a possible violation of Rule 958A--ANTE (e). The Exchange 
runs its limit order display exception report at various display 
intervals in an attempt to detect a pattern that suggests undue 
reliance on the quote assist feature. The Exchange reports to the 
Commission every three months the statistical data it uses to determine 
whether there has been impermissible reliance on the quote assist 
feature by specialists.
2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the Act 
\8\ in general and furthers the objectives of section 6(b)(5) of the 
Act \9\ in particular in that it is 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Comments on the Proposed Rule Change Received From Members, 
Participants, or Others

    The Exchange has not solicited or received any written comments 
regarding the proposed rule change.

III. 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.
);     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-54 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.

[[Page 34403]]

    All submissions should refer to File Number SR-Amex-2006-54. 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 Section. 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 identifying personal 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
file No. SR-Amex-2006-54 and should be submitted on or before July 5, 
2006.

IV. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\10\ In 
particular, the Commission believes that the propose rule change is 
consistent with the requirements of section 6(b)(5) of the Act,\11\ 
which requires, among other things, that the rules of the Exchange be 
designed to promote just and equitable principales of trade and, in 
general, to protect investors and the public interest.
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    \10\ In approving the proposed rule, the Commission has 
considered the rule's impact on efficiency, competition and capital 
formation 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the quote assist feature should help 
to ensure that eligible customer limit orders are displayed within the 
required time period. The Commission notes that the Exchange represents 
that it will continue to conduct surveillance to ensure that 
specialists comply with their obligation to execute or book all 
eligible limit order within the time period prescribed by Exchange 
rules, and that they do not reply excessively on the quote assist 
feature. Given this continuing surveillance, the Commission believes 
that extending the Pilot Program is consistent with the Act.
    The Exchange has requested that the Commission approve the proposed 
rule change prior to the thirtieth day after publication of notice of 
the filing in the Federal Register. The commission believes that 
accelerated approval is appropriate because it will enable the Pilot 
Program to continue immediately. Accordingly, the Commission finds good 
cause, consistent with section 19(b)(2) of the Act,\12\ to approve the 
proposed rule change prior to the thirtieth day after publication of 
the notice of filing thereof in the Federal Register.
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    \12\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-Amex-2006-54) is hereby approved 
on an accelerated basis.
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    \13\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06-5369 Filed 6-13-06; 8:45 am]

BILLING CODE 8010-01-M