Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1, 2 and 3 Thereto Relating to Split Price Priority, 12912-12915 [E5-1130]
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Federal Register / Vol. 70, No. 50 / Wednesday, March 16, 2005 / Notices
transaction from section 17(a) provided
that the terms of the transaction,
including the consideration to be paid
or received, are fair and reasonable and
do not involve overreaching on the part
of any person concerned, and the
proposed transaction is consistent with
the policy of the registered investment
company as recited in its registration
statement and with the general purposes
of the Act.
3. Section 17(d) of the Act and rule
17d–1 under the Act generally prohibit
an affiliated person of a registered
investment company, or affiliated
persons of an affiliated person, when
acting as principal, from effecting any
transaction in which the company is a
joint or joint and several participant
unless permitted by Commission order
upon application. Applicants state that
because the Adviser and the Director
Applicants are affiliated persons of the
Fund,4 the proposed settlement could
be deemed a transaction or arrangement
prohibited by section 17(d) and rule
17d–1. In considering an application for
an order under rule 17d–1, the
Commission must determine whether
the participation of the investment
company in a joint enterprise or joint
arrangement is consistent with the
provisions, policies and purposes of the
Act and the extent to which the
company’s participation would be on a
basis different from or less advantageous
than that of the other participants.
4. Applicants believe that the relative
benefits from the proposed settlement to
the Fund markedly outweigh its
contributions to the settlement, and that
the Fund’s participation in the proposed
settlement is on terms that are at least
as favorable to the Fund as to the
Adviser and the Director Applicants.
Under the terms of the proposed
settlement, the Fund’s contributions are
limited to the following: (a) 6.25% (50%
of 12.5%) of the costs and fees incurred
after December 31, 2001 in connection
with the litigation and settlement of the
Actions (the balance being paid by Gulf
and the Adviser); (b) 50% of the costs
associated with obtaining the Order
after any contribution by Gulf; and (c)
the costs associated with liquidating the
Fund after any contribution by Gulf.
The Fund will make no contribution in
respect of the Settlement Payments and
will be relieved of any payment
obligations to the class members in the
Rights Offering Litigation. In addition,
as noted above, the Fund will be
relieved of its obligation to indemnify
4 Each Director Applicant is an affiliated person
of the Fund pursuant to section 2(a)(3)(D) of the
Act, which defines an ‘‘affiliated person’’ of another
person to include any director of such other person.
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16:45 Mar 15, 2005
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the Adviser for the legal fees and
expenses it has incurred in connection
with the Actions.
5. Applicants state that the
participation by the Director Applicants
in the proposed settlement is also
consistent with the provisions of section
17(d) and rule 17d–1. As part of the
Settlement Agreement, the Director
Applicants will be released from any
liability in connection with the Rights
Offering Litigation. Although the
Director Applicants’ legal expenses
incurred in connection with the Rights
Offering Litigation have been paid by
the Fund, the Fund is obligated under
its articles of incorporation and by-laws
(and, in the case of the Independent
Directors, under separate
indemnification agreements with each
such Director) to pay those expenses
regardless of whether the Actions are
settled, provided the Director
Applicants have not engaged in willful
misfeasance, bad faith, gross negligence
or reckless disregard of their duties.
Furthermore, the proposed settlement is
predicated upon the settlement of both
Actions in their entirety. Consequently,
if the Director Applicants could not
participate, applicants state that the
proposed settlement in all likelihood
would not be consummated, and the
Fund would continue to incur legal fees
and expenses in connection with its
indemnification of the Director
Applicants.
6. Applicants represent that the
liquidation of the Fund cannot occur
without settlement of the Actions.
Applicants state that the liquidation of
the Fund will benefit shareholders
because it will enable them to realize
immediately the full net asset value of
their shares. Applicants note that at the
Fund’s annual meeting of shareholders
held on January 16, 2003, the holders of
a majority of the Fund’s outstanding
shares voted in favor of the Fund’s
liquidation. Applicants also assert that
the continued litigation of the Actions
would be detrimental to both the Fund
and its shareholders because of the costs
and expenses to the Fund in connection
with its defense of the Actions.
7. Accordingly, applicants submit that
the terms of the proposed settlement,
including the consideration to be paid
or received, are fair and reasonable and
do not involve overreaching and that the
proposed transaction is consistent with
the policy of the Fund and with the
general purposes of the Act. Applicants
further submit that the Fund’s
participation in the proposed settlement
would not be on a basis different from
or less advantageous than that of the
other participants.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–1133 Filed 3–15–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 70 FR 11720, March 9,
2005.
Closed meeting.
450 Fifth Street, NW.,
Washington, DC.
STATUS:
PLACE:
DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: Monday, March 14, 2005, at
3:30 p.m.
Cancellation of
meeting.
The closed meeting scheduled for
Monday, March 14, 2005, has been
cancelled.
For further information please contact
the Office of the Secretary at (202) 942–
7070.
CHANGE IN THE MEETING:
Dated: March 11, 2005.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–5267 Filed 3–11–05; 4:16 pm]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51337; File No. SR–Amex–
2004–109]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval of a Proposed
Rule Change and Amendment Nos. 1,
2 and 3 Thereto Relating to Split Price
Priority
March 9, 2005.
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 December
23, 2004, the American Stock Exchange
LLC (‘‘Amex’’ or the ‘‘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 prepared by the Amex. On
February 4, 2005, the Amex amended
the proposed rule change (‘‘Amendment
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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No. 1’’).3 On February 14, 2005, the
Amex amended the proposed rule
change (‘‘Amendment No. 2’’).4 On
March 8, 2005, the Amex amended the
proposed rule change (‘‘Amendment No.
3’’).5 The Commission is publishing this
notice to solicit comments on the
proposed rule change, as amended, from
interested persons. In addition, the
Commission is granting accelerated
approval of the proposed rule change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Amex seeks to amend Amex
Rules 950 and 950—ANTE to permit a
limited exception to the existing split
price priority requirement. The text of
the proposed rule change is set forth
below. Proposed new language is in
italics; deletions are in [brackets].
*
*
*
*
*
Rule 950
Rules of General Applicability
(a)–(c) No change.
(d) The provisions of Rule 126, with
the exception of subparagraphs (a) and
(b) thereof, shall apply to Exchange
option transactions and the following
additional commentary shall also apply:
Commentary . . .
.01–.04 No change.
.05 (a) Purchase or Sale Priority. If a
member purchases (sells) one or more
option contracts of a particular series at
a particular price or prices such member
shall, at the next lower (higher) price at
which a member other than [an
Exchange] a floor [B]broker or specialist
representing a customer agency order
entitled to priority pursuant to Rule
950(c), have priority in purchasing
(selling) up to the equivalent number
[(or a reasonably larger number)] of
option contracts of the same series that
he purchased (sold) at the higher (lower)
price or prices, but only if his bid (offer)
is made promptly and the purchase
(sale) so effected represents the opposite
side of a transaction with the same order
or offer (bid) as the earlier purchase or
purchases (sale or sales). This
paragraph only applies to transactions
effected in open outcry. [Sale Priority. If
a member sells one or more option
contracts of a particular series at a
particular price or prices, he shall, at the
next higher price at which a member
other than an Exchange Broker or
specialist representing a customer
agency order entitled to priority
pursuant to Rule 950(c), have priority in
selling up to the equivalent number (or
a reasonable larger number) of option
contracts of the same series that he sold
at the lower price or prices, but only if
his offer is made promptly and the sale
so effected represents the opposite side
of a transaction with the same order or
bid as the earlier sale or sales.]
(b) Purchase or sale priority for orders
of 100 contracts or more. If a member
purchases (sells) fifty or more options
contracts of a particular series at a
particular price or prices, such member
shall, at the next lower (higher) price
have priority in purchasing (selling) up
to the equivalent number of option
contracts of the same series that he
purchased (sold) at the higher (lower)
price or prices, but only if his bid (offer)
is made promptly and the purchase
(sale) so effected represents the opposite
side of a transaction with the same
order or offer (bid) as the earlier
purchase or purchases (sale or sales).
The Options Trading Committee may
increase the ‘‘minimum qualifying order
size’’ above 100 contracts for all
products under its jurisdiction.
Announcements regarding changes to
the minimum qualifying order size shall
be made via Regulatory Circular. This
paragraph only applies to transactions
effected in open outcry.
(c) Two or more members entitled to
priority. If the bids or offers of two or
more members are both entitled to
priority in accordance with paragraph
(a) or paragraph (b), it shall be afforded
them insofar as practicable, on a prorata basis.
(d) Floor brokers are able to achieve
split price priority in accordance with
paragraphs (a) and (b) above. Provided,
however, that a floor broker who bids
(offers) on behalf of a non-market-maker
Amex member broker-dealer (‘‘Amex
member BD’’) must ensure that the
Amex member BD qualifies for an
exemption from Section 11(a)(1) of the
Exchange Act or that the transaction
satisfies the requirements of Exchange
Act Rule 11a2–2(T), otherwise the floor
broker must yield priority to orders for
the accounts of non-members.
.06–.07 No change.
(e)–(p) No change.
*
*
*
*
*
Rule 950—ANTE
3 In
Amendment No. 1, the Amex restated the
proposed rule change in its entirety.
4 In Amendment No. 2, the Amex corrected a
reference to the Options Trading Committee in
proposed Commentary .06(b) to Amex Rule 950–
ANTE(d).
5 In Amendment No. 3, the Amex requested
accelerated approval of the proposed rule change.
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Rules of General Applicability
(a)–(c) No change.
(d) The provisions of Rule 126, with
the exception of subparagraphs (a) and
(b) of such Rule, shall apply to
Exchange option transactions as
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12913
modified by Commentaries .01 and .02
to Rule 950(c), and the following
additional commentary shall also apply:
Commentary . . .
.01–.05 No change.
.06 (a) Purchase or Sale Priority—For
trades occurring outside the ANTE
System only, if a member purchases
(sells) one or more option contracts of a
particular series at a particular price or
prices such member shall, at the next
lower (higher) price at which a member
other than [an Exchange] a floor
[B]broker or specialist representing a
customer agency order entitled to
priority pursuant to Rule 950—ANTE(c),
have priority in purchasing (selling) up
to the equivalent number [(or a
reasonably larger number)] of option
contracts of the same series that he
purchased (sold) at the higher (lower)
price or prices, but only if his bid (offer)
is made promptly and the purchase
(sale) so effected represents the opposite
side of a transaction with the same order
or offer (bid) as the earlier purchase or
purchases (sale or sales). This
paragraph only applies to transactions
effected in open outcry.
[(b) Sale Priority—For trades
occurring outside the ANTE System
only, if a member sells one or more
option contracts of a particular series at
a particular price or prices, he shall, at
the next higher price at which a member
other than an Exchange Broker or
specialist representing a customer
agency order entitled to priority
pursuant to Rule 950—ANTE(c), have
priority in selling up to the equivalent
number (or a reasonable larger number)
of option contracts of the same series
that he sold at the lower price or prices,
but only if his offer is made promptly
and the sale so effected represents the
opposite side of a transaction with the
same order or bid as the earlier sale or
sales.]
(b) Purchase or sale priority for orders
of 100 contracts or more. If a member
purchases (sells) fifty or more options
contracts of a particular series at a
particular price or prices, such member
shall, at the next lower (higher) price
have priority in purchasing (selling) up
to the equivalent number of option
contracts of the same series that he
purchased (sold) at the higher (lower)
price or prices, but only if his bid (offer)
is made promptly and the purchase
(sale) so effected represents the opposite
side of a transaction with the same
order or offer (bid) as the earlier
purchase or purchases (sale or sales).
The Options Trading Committee may
increase the ‘‘minimum qualifying order
size’’ above 100 contracts for all
products under its jurisdiction.
Announcements regarding changes to
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the minimum qualifying order size shall
be made via Regulatory Circular. This
paragraph only applies to transactions
effected in open outcry.
(c) Two or more members entitled to
priority. If the bids or offers of two or
more members are both entitled to
priority in accordance with paragraph
(a) or paragraph (b), it shall be afforded
them insofar as practicable, on a prorata basis.
(d) Floor brokers are able to achieve
split price priority in accordance with
paragraphs (a) and (b) above. Provided,
however, that a floor broker who bids
(offers) on behalf of a non-market-maker
Amex member broker-dealer (‘‘Amex
member BD’’) must ensure that the
Amex member BD qualifies for an
exemption from Section 11(a)(1) of the
Exchange Act or that the transaction
satisfies the requirements of Exchange
Act Rule 11a2–2(T), otherwise the floor
broker must yield priority to orders for
the accounts of nonmembers.
.07 No change.
(e)–(n) No change.
*
*
*
*
*
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, as amended,
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 III below.
The Exchange has prepared summaries,
set forth in Sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Amex Rules 950(d), Commentary .05
and 950—ANTE(d), Commentary .06
establish priority principles for splitprice transactions. Generally, a member
buying (selling) at a particular price
shall have priority over other members
in purchasing (selling) up to an
equivalent number of contracts of the
same order at the next lower (higher)
price. Awarding split price priority
serves as an inducement to members to
bid (offer) more aggressively for an order
that may require a split-price execution
by giving them priority at the next lower
(higher) price point. For example,
assume the market is $1.00–$1.20, 300up when a floor broker (‘‘FB’’) receives
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instructions from a customer that he/she
would like to buy 500 options at a price
or prices no higher than $1.20. The FB
could attempt to execute the order in
open outcry at a price better than the
displayed market of $1.20. Assume a
Specialist is willing to sell 250 contracts
at $1.15 provided he/she can also sell
the remaining 250 contracts at $1.20.
Under current rules, that Specialist
could offer $1.15 for 250 contracts and
then, by virtue of the split price priority
rule, he/she would have priority for the
balance of the order (up to 250
contracts) over other crowd members. If
executed, the resulting net price of
$1.175 is better than the current
displayed market of $1.20, which results
in a better fill for the customers.6
One limitation on the ability of crowd
participants to use the split price
priority rule is the rule’s requirement
that orders in the limit order book
(‘‘book’’) have priority over the member
attempting to fill the balance of the
order at the split price. Using the
example above, if the $1.20 price
represented orders in the book, those
orders would have priority over the
Specialist at $1.20. This means that a
Specialist who is willing to trade at
$1.15 and $1.20 may be completely
unwilling to trade at the better price of
$1.15 if he/she cannot trade the balance
of the order at $1.20 because of the
requirement to yield to existing
customer interest in the book. This
jeopardizes the FB’s ability to execute
the first part of the order at a price of
$1.15, thereby potentially making it
difficult to achieve price improvement
for the customer on the Amex. Instead,
the order may trade at another exchange
that has no impediments, e.g., no
customer interest at those price levels.
Accordingly, the Exchange is proposing
to adopt a limited exception to the
existing priority requirement.
Under newly-proposed paragraph (b)
to Rules 950(d), Commentary .05 and
950—ANTE(d), Commentary .06, a
member with an order for at least 100
contracts who buys (sells) at least 50
contracts at a particular price shall have
priority over all others in purchasing
(selling) up to an equivalent number of
contracts of the same order at the next
lower (higher) price.7
6 If successful, two trades will be reported (at
$1.15 and $1.20) and the net price result to the
customer will be $1.175.
7 Orders for less than 100 contracts would be
unaffected by this proposal. The Exchange also
takes the opportunity to consolidate current
paragraphs (a) and (b) of each of Commentary .05
to Amex Rule 950(d) and Commentary .06 to Amex
Rule 950—ANTE(d) into one paragraph (paragraph
(a) in each). This consolidation would not effect the
operation of the rule in any way; it simply would
make the rule shorter.
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Using the above example, the
Specialist trading at $1.15 would have
priority over members and orders in the
book at $1.20 to trade at $1.20 with the
balance of the order in the trading
crowd. The Exchange believes the
proposal will lead to more aggressive
quoting by Specialists, which in turn
could lead to better executions. As
indicated above, a Specialist may be
willing to trade at a better price for a
portion of an order if he/she is assured
of trading with the balance of the order
at the next pricing increment. As a
result, FBs representing orders in the
trading crowd may receive better-priced
executions. As proposed, the Options
Trading Committee (consisting of Floor
Governors, Heads of the Specialist
Association, FB Association, and the
Options Market Maker Association) will
have the ability to increase the
minimum qualifying order size to a
number larger than 100 contracts. Any
changes, which must apply to all
products under the committee’s
jurisdiction, will be announced to the
membership via Regulatory Circular.
The Amex believes it is reasonable to
make a limited exception to the
customer priority rule to allow split
price trading. In this regard, the
proposed exception is similar in
operation to the limited priority
exception that exists for complex orders
(contained in Rules 950(d), Commentary
.01 and 950—ANTE(d), Commentary
.01). The complex order priority
exception generally provides that a
member affecting a qualifying complex
order may trade ahead of the book on
one side of the order provided the other
side of the order betters the book. This
exception was intended to facilitate the
trading of complex orders, which by
virtue of their multi-legged composition
could be more difficult to trade without
a limited exception to the priority rule
for one of the legs. The purpose behind
the proposed split-price priority
exception is the same—to facilitate the
execution of large orders, which by
virtue of their size and the need to
execute them at multiple prices operate
in the same manner as the complex
order exception by allowing a member
affecting a trade that betters the market
to have priority on the balance of that
trade at the next pricing increment even
if there are orders in the book at the
same price.
To address potential concerns
regarding Section 11(a) of the Act,8 the
Amex proposes to adopt new
subparagraph (d) to Rules 950(d),
Commentary .05 and 950—ANTE(d),
Commentary .06. Section 11(a) generally
8 15
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U.S.C. 78k(a).
16MRN1
Federal Register / Vol. 70, No. 50 / Wednesday, March 16, 2005 / Notices
prohibits members of national securities
exchanges from effecting transactions
for the member’s own account, absent
an exemption. With respect to the
proposal, there could be situations
where because of the limited exception
to customer priority, orders on behalf of
members could trade ahead of orders of
nonmembers in violation of Section
11(a). The proposed rule text makes
clear that FBs may avail themselves of
the split-price priority rule, but that
they will be obligated to ensure
compliance with Section 11(a). In this
regard, a FB that bids (offers) on behalf
of a non-market-maker Amex member
broker-dealer (‘‘Amex member BD’’)
must ensure that the Amex member BD
qualifies for an exemption from Section
11(a)(1) of the Act or that the transaction
satisfies the requirements of Rule 11a2–
2(T) under the Act. Otherwise, the FB
must yield priority to orders for the
accounts of non-members.
The Exchange further proposes to
amend Amex Rule 905(d), Commentary
.05(b) and Amex Rule 905—ANTE(d),
Commentary .06(b) to remove the
parenthetical ‘‘(or a reasonably larger
number) ’’.9
2. Statutory Basis
The Exchange believes that the
proposed rule change, as amended, is
consistent with Section 6(b) 10 of the Act
in general and furthers the objectives of
Section 6(b)(5) 11 in particular in that it
is designed to perfect the mechanisms of
a free and open market and the national
market system, protect investors and the
public interest and promote just and
equitable principles of trade.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change, as
amended, will impose no 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 by the Exchange on this
proposal.
9 See Amendment No. 1. The Exchange believes
this language to be unnecessary to achieve the
intent of the rule, which is to allow FBs to have
priority for up to an equivalent number of contracts
purchased or sold at the preceding price, as
specified in the rule. Telephone conference on
March 8, 2005, between Laura Clare, Assistant
General Counsel, Amex and Ira Brandriss, Assistant
Director, Division of Market Regulation,
Commission.
10 15 U.S.C. 78(f)(b).
11 15 U.S.C. 78(f)(b)(5).
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18:35 Mar 15, 2005
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12915
thereunder applicable to a national
securities exchange.12 In particular, the
Commission believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act,13 which requires,
among other things, that the rules of an
exchange be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
Electronic Comments
principles of trade and, in general, to
• Use the Commission’s Internet
protect investors and the public interest.
comment form (https://www.sec.gov/
The Commission believes that the
rules/sro.shtml); or
proposed rule change should encourage
• Send an e-mail to rulemore aggressive quoting by market
comments@sec.gov. Please include File
makers in competition for large-sized
Number SR–Amex–2004–109 on the
orders, and, in turn, lead to bettersubject line.
priced executions. The Commission
Paper Comments
notes that the proposed rule change
includes interpretive language that
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
clarifies that floor brokers who avail
Securities and Exchange Commission,
themselves of the split priority rule are
450 Fifth Street, NW., Washington, DC
obligated to ensure compliance with
20549–0609.
Section 11(a) of the Act.
All submissions should refer to File
The Amex has requested that the
Number SR–Amex–2004–109. This file
Commission approve the proposed rule
number should be included on the
subject line if e-mail is used. To help the change prior to the thirtieth day after
publication of notice thereof in the
Commission process and review your
Federal Register. The Commission notes
comments more efficiently, please use
only one method. The Commission will that granting accelerated approval of the
post all comments on the Commission’s proposal will allow the Amex to
immediately implement a rule that is
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
similar to rules already in place at other
submission, all subsequent
exchanges.14 Accordingly, the
amendments, all written statements
Commission finds good cause, pursuant
with respect to the proposed rule
to Section 19(b)(2) of the Act,15 for
change that are filed with the
approving the proposed rule change
Commission, and all written
prior to the thirtieth day after the date
communications relating to the
of publication of notice thereof in the
proposed rule change between the
Federal Register.
Commission and any person, other than
V. Conclusion
those that may be withheld from the
public in accordance with the
It is therefore ordered, pursuant to
provisions of 5 U.S.C. 552, will be
Section 19(b)(2) of the Act,16 that the
available for inspection and copying in
proposed rule change (SR–Amex–2004–
the Commission’s Public Reference
109), as amended, is hereby approved
Section, 450 Fifth Street, NW.,
on an accelerated basis.
Washington, DC 20549. Copies of such
filing also will be available for
For the Commission, by the Division of
inspection and copying at the principal
Market Regulation, pursuant to delegated
office of the Amex. All comments
authority.17
received will be posted without change; J. Lynn Taylor,
the Commission does not edit personal
Assistant Secretary.
identifying information from
[FR Doc. E5–1130 Filed 3–15–05; 8:45 am]
submissions. You should submit only
BILLING CODE 8010–01–P
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Amex–
12 In approving this proposed rule change, the
2004–109 and should be submitted on
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
or before April 6, 2005.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the
proposed rule change, as amended, is
consistent with the requirements of the
Act and the rules and regulations
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
formation. 15 U.S.C. 78c(f).
13 15 U.S.C. 78f(b).
14 See Securities Exchange Act Release Nos.
51148 (February 8, 2005), 70 FR 7783 (February 15,
2005) (SR–CBOE–2004–67) and 51318 (March 4,
2005) (SR–PCX–2005–25).
15 15 U.S.C. 78s(b)(2).
16 15 U.S.C. 78s(b)(2).
17 17 CFR 200.30–3(a)(12).
E:\FR\FM\16MRN1.SGM
16MRN1
]]>Agencies
[Federal Register Volume 70, Number 50 (Wednesday, March 16, 2005)]
[Notices]
[Pages 12912-12915]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-1130]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51337; File No. SR-Amex-2004-109]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change and Amendment Nos. 1, 2 and 3 Thereto Relating to Split
Price Priority
March 9, 2005.
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 December 23, 2004, the American Stock Exchange LLC (``Amex'' or the
``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 prepared by the Amex. On February 4,
2005, the Amex amended the proposed rule change (``Amendment
[[Page 12913]]
No. 1'').\3\ On February 14, 2005, the Amex amended the proposed rule
change (``Amendment No. 2'').\4\ On March 8, 2005, the Amex amended the
proposed rule change (``Amendment No. 3'').\5\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons. In addition, the Commission is
granting accelerated approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Amex restated the proposed rule
change in its entirety.
\4\ In Amendment No. 2, the Amex corrected a reference to the
Options Trading Committee in proposed Commentary .06(b) to Amex Rule
950-ANTE(d).
\5\ In Amendment No. 3, the Amex requested accelerated approval
of the proposed rule change.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex seeks to amend Amex Rules 950 and 950--ANTE to permit a
limited exception to the existing split price priority requirement. The
text of the proposed rule change is set forth below. Proposed new
language is in italics; deletions are in [brackets].
* * * * *
Rule 950
Rules of General Applicability
(a)-(c) No change.
(d) The provisions of Rule 126, with the exception of subparagraphs
(a) and (b) thereof, shall apply to Exchange option transactions and
the following additional commentary shall also apply:
Commentary . . .
.01-.04 No change.
.05 (a) Purchase or Sale Priority. If a member purchases (sells)
one or more option contracts of a particular series at a particular
price or prices such member shall, at the next lower (higher) price at
which a member other than [an Exchange] a floor [B]broker or specialist
representing a customer agency order entitled to priority pursuant to
Rule 950(c), have priority in purchasing (selling) up to the equivalent
number [(or a reasonably larger number)] of option contracts of the
same series that he purchased (sold) at the higher (lower) price or
prices, but only if his bid (offer) is made promptly and the purchase
(sale) so effected represents the opposite side of a transaction with
the same order or offer (bid) as the earlier purchase or purchases
(sale or sales). This paragraph only applies to transactions effected
in open outcry. [Sale Priority. If a member sells one or more option
contracts of a particular series at a particular price or prices, he
shall, at the next higher price at which a member other than an
Exchange Broker or specialist representing a customer agency order
entitled to priority pursuant to Rule 950(c), have priority in selling
up to the equivalent number (or a reasonable larger number) of option
contracts of the same series that he sold at the lower price or prices,
but only if his offer is made promptly and the sale so effected
represents the opposite side of a transaction with the same order or
bid as the earlier sale or sales.]
(b) Purchase or sale priority for orders of 100 contracts or more.
If a member purchases (sells) fifty or more options contracts of a
particular series at a particular price or prices, such member shall,
at the next lower (higher) price have priority in purchasing (selling)
up to the equivalent number of option contracts of the same series that
he purchased (sold) at the higher (lower) price or prices, but only if
his bid (offer) is made promptly and the purchase (sale) so effected
represents the opposite side of a transaction with the same order or
offer (bid) as the earlier purchase or purchases (sale or sales). The
Options Trading Committee may increase the ``minimum qualifying order
size'' above 100 contracts for all products under its jurisdiction.
Announcements regarding changes to the minimum qualifying order size
shall be made via Regulatory Circular. This paragraph only applies to
transactions effected in open outcry.
(c) Two or more members entitled to priority. If the bids or offers
of two or more members are both entitled to priority in accordance with
paragraph (a) or paragraph (b), it shall be afforded them insofar as
practicable, on a pro-rata basis.
(d) Floor brokers are able to achieve split price priority in
accordance with paragraphs (a) and (b) above. Provided, however, that a
floor broker who bids (offers) on behalf of a non-market-maker Amex
member broker-dealer (``Amex member BD'') must ensure that the Amex
member BD qualifies for an exemption from Section 11(a)(1) of the
Exchange Act or that the transaction satisfies the requirements of
Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield
priority to orders for the accounts of non-members.
.06-.07 No change.
(e)-(p) No change.
* * * * *
Rule 950--ANTE
Rules of General Applicability
(a)-(c) No change.
(d) The provisions of Rule 126, with the exception of subparagraphs
(a) and (b) of such Rule, shall apply to Exchange option transactions
as modified by Commentaries .01 and .02 to Rule 950(c), and the
following additional commentary shall also apply:
Commentary . . .
.01-.05 No change.
.06 (a) Purchase or Sale Priority--For trades occurring outside the
ANTE System only, if a member purchases (sells) one or more option
contracts of a particular series at a particular price or prices such
member shall, at the next lower (higher) price at which a member other
than [an Exchange] a floor [B]broker or specialist representing a
customer agency order entitled to priority pursuant to Rule 950--
ANTE(c), have priority in purchasing (selling) up to the equivalent
number [(or a reasonably larger number)] of option contracts of the
same series that he purchased (sold) at the higher (lower) price or
prices, but only if his bid (offer) is made promptly and the purchase
(sale) so effected represents the opposite side of a transaction with
the same order or offer (bid) as the earlier purchase or purchases
(sale or sales). This paragraph only applies to transactions effected
in open outcry.
[(b) Sale Priority--For trades occurring outside the ANTE System
only, if a member sells one or more option contracts of a particular
series at a particular price or prices, he shall, at the next higher
price at which a member other than an Exchange Broker or specialist
representing a customer agency order entitled to priority pursuant to
Rule 950--ANTE(c), have priority in selling up to the equivalent number
(or a reasonable larger number) of option contracts of the same series
that he sold at the lower price or prices, but only if his offer is
made promptly and the sale so effected represents the opposite side of
a transaction with the same order or bid as the earlier sale or sales.]
(b) Purchase or sale priority for orders of 100 contracts or more.
If a member purchases (sells) fifty or more options contracts of a
particular series at a particular price or prices, such member shall,
at the next lower (higher) price have priority in purchasing (selling)
up to the equivalent number of option contracts of the same series that
he purchased (sold) at the higher (lower) price or prices, but only if
his bid (offer) is made promptly and the purchase (sale) so effected
represents the opposite side of a transaction with the same order or
offer (bid) as the earlier purchase or purchases (sale or sales). The
Options Trading Committee may increase the ``minimum qualifying order
size'' above 100 contracts for all products under its jurisdiction.
Announcements regarding changes to
[[Page 12914]]
the minimum qualifying order size shall be made via Regulatory
Circular. This paragraph only applies to transactions effected in open
outcry.
(c) Two or more members entitled to priority. If the bids or offers
of two or more members are both entitled to priority in accordance with
paragraph (a) or paragraph (b), it shall be afforded them insofar as
practicable, on a pro-rata basis.
(d) Floor brokers are able to achieve split price priority in
accordance with paragraphs (a) and (b) above. Provided, however, that a
floor broker who bids (offers) on behalf of a non-market-maker Amex
member broker-dealer (``Amex member BD'') must ensure that the Amex
member BD qualifies for an exemption from Section 11(a)(1) of the
Exchange Act or that the transaction satisfies the requirements of
Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield
priority to orders for the accounts of nonmembers.
.07 No change.
(e)-(n) No change.
* * * * *
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, as
amended, 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 III below. The Exchange has prepared summaries, set
forth in Sections A, B, and C below, of the most significant parts of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Amex Rules 950(d), Commentary .05 and 950--ANTE(d), Commentary .06
establish priority principles for split-price transactions. Generally,
a member buying (selling) at a particular price shall have priority
over other members in purchasing (selling) up to an equivalent number
of contracts of the same order at the next lower (higher) price.
Awarding split price priority serves as an inducement to members to bid
(offer) more aggressively for an order that may require a split-price
execution by giving them priority at the next lower (higher) price
point. For example, assume the market is $1.00-$1.20, 300-up when a
floor broker (``FB'') receives instructions from a customer that he/she
would like to buy 500 options at a price or prices no higher than
$1.20. The FB could attempt to execute the order in open outcry at a
price better than the displayed market of $1.20. Assume a Specialist is
willing to sell 250 contracts at $1.15 provided he/she can also sell
the remaining 250 contracts at $1.20. Under current rules, that
Specialist could offer $1.15 for 250 contracts and then, by virtue of
the split price priority rule, he/she would have priority for the
balance of the order (up to 250 contracts) over other crowd members. If
executed, the resulting net price of $1.175 is better than the current
displayed market of $1.20, which results in a better fill for the
customers.\6\
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\6\ If successful, two trades will be reported (at $1.15 and
$1.20) and the net price result to the customer will be $1.175.
---------------------------------------------------------------------------
One limitation on the ability of crowd participants to use the
split price priority rule is the rule's requirement that orders in the
limit order book (``book'') have priority over the member attempting to
fill the balance of the order at the split price. Using the example
above, if the $1.20 price represented orders in the book, those orders
would have priority over the Specialist at $1.20. This means that a
Specialist who is willing to trade at $1.15 and $1.20 may be completely
unwilling to trade at the better price of $1.15 if he/she cannot trade
the balance of the order at $1.20 because of the requirement to yield
to existing customer interest in the book. This jeopardizes the FB's
ability to execute the first part of the order at a price of $1.15,
thereby potentially making it difficult to achieve price improvement
for the customer on the Amex. Instead, the order may trade at another
exchange that has no impediments, e.g., no customer interest at those
price levels. Accordingly, the Exchange is proposing to adopt a limited
exception to the existing priority requirement.
Under newly-proposed paragraph (b) to Rules 950(d), Commentary .05
and 950--ANTE(d), Commentary .06, a member with an order for at least
100 contracts who buys (sells) at least 50 contracts at a particular
price shall have priority over all others in purchasing (selling) up to
an equivalent number of contracts of the same order at the next lower
(higher) price.\7\
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\7\ Orders for less than 100 contracts would be unaffected by
this proposal. The Exchange also takes the opportunity to
consolidate current paragraphs (a) and (b) of each of Commentary .05
to Amex Rule 950(d) and Commentary .06 to Amex Rule 950--ANTE(d)
into one paragraph (paragraph (a) in each). This consolidation would
not effect the operation of the rule in any way; it simply would
make the rule shorter.
---------------------------------------------------------------------------
Using the above example, the Specialist trading at $1.15 would have
priority over members and orders in the book at $1.20 to trade at $1.20
with the balance of the order in the trading crowd. The Exchange
believes the proposal will lead to more aggressive quoting by
Specialists, which in turn could lead to better executions. As
indicated above, a Specialist may be willing to trade at a better price
for a portion of an order if he/she is assured of trading with the
balance of the order at the next pricing increment. As a result, FBs
representing orders in the trading crowd may receive better-priced
executions. As proposed, the Options Trading Committee (consisting of
Floor Governors, Heads of the Specialist Association, FB Association,
and the Options Market Maker Association) will have the ability to
increase the minimum qualifying order size to a number larger than 100
contracts. Any changes, which must apply to all products under the
committee's jurisdiction, will be announced to the membership via
Regulatory Circular.
The Amex believes it is reasonable to make a limited exception to
the customer priority rule to allow split price trading. In this
regard, the proposed exception is similar in operation to the limited
priority exception that exists for complex orders (contained in Rules
950(d), Commentary .01 and 950--ANTE(d), Commentary .01). The complex
order priority exception generally provides that a member affecting a
qualifying complex order may trade ahead of the book on one side of the
order provided the other side of the order betters the book. This
exception was intended to facilitate the trading of complex orders,
which by virtue of their multi-legged composition could be more
difficult to trade without a limited exception to the priority rule for
one of the legs. The purpose behind the proposed split-price priority
exception is the same--to facilitate the execution of large orders,
which by virtue of their size and the need to execute them at multiple
prices operate in the same manner as the complex order exception by
allowing a member affecting a trade that betters the market to have
priority on the balance of that trade at the next pricing increment
even if there are orders in the book at the same price.
To address potential concerns regarding Section 11(a) of the
Act,\8\ the Amex proposes to adopt new subparagraph (d) to Rules
950(d), Commentary .05 and 950--ANTE(d), Commentary .06. Section 11(a)
generally
[[Page 12915]]
prohibits members of national securities exchanges from effecting
transactions for the member's own account, absent an exemption. With
respect to the proposal, there could be situations where because of the
limited exception to customer priority, orders on behalf of members
could trade ahead of orders of nonmembers in violation of Section
11(a). The proposed rule text makes clear that FBs may avail themselves
of the split-price priority rule, but that they will be obligated to
ensure compliance with Section 11(a). In this regard, a FB that bids
(offers) on behalf of a non-market-maker Amex member broker-dealer
(``Amex member BD'') must ensure that the Amex member BD qualifies for
an exemption from Section 11(a)(1) of the Act or that the transaction
satisfies the requirements of Rule 11a2-2(T) under the Act. Otherwise,
the FB must yield priority to orders for the accounts of non-members.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78k(a).
---------------------------------------------------------------------------
The Exchange further proposes to amend Amex Rule 905(d), Commentary
.05(b) and Amex Rule 905--ANTE(d), Commentary .06(b) to remove the
parenthetical ``(or a reasonably larger number) ''.\9\
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\9\ See Amendment No. 1. The Exchange believes this language to
be unnecessary to achieve the intent of the rule, which is to allow
FBs to have priority for up to an equivalent number of contracts
purchased or sold at the preceding price, as specified in the rule.
Telephone conference on March 8, 2005, between Laura Clare,
Assistant General Counsel, Amex and Ira Brandriss, Assistant
Director, Division of Market Regulation, Commission.
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2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with Section 6(b) \10\ of the Act in general and furthers
the objectives of Section 6(b)(5) \11\ in particular in that it is
designed to perfect the mechanisms of a free and open market and the
national market system, protect investors and the public interest and
promote just and equitable principles of trade.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78(f)(b).
\11\ 15 U.S.C. 78(f)(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change, as amended, will impose no 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 by the Exchange on
this proposal.
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2004-109 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-Amex-2004-109. 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 (https://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, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will 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-2004-109 and should be submitted on or before April 6, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\12\ In particular, the Commission believes that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\13\ which
requires, among other things, that the rules of an exchange 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. The Commission believes that the
proposed rule change should encourage more aggressive quoting by market
makers in competition for large-sized orders, and, in turn, lead to
better-priced executions. The Commission notes that the proposed rule
change includes interpretive language that clarifies that floor brokers
who avail themselves of the split priority rule are obligated to ensure
compliance with Section 11(a) of the Act.
---------------------------------------------------------------------------
\12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
The Amex has requested that the Commission approve the proposed
rule change prior to the thirtieth day after publication of notice
thereof in the Federal Register. The Commission notes that granting
accelerated approval of the proposal will allow the Amex to immediately
implement a rule that is similar to rules already in place at other
exchanges.\14\ Accordingly, the Commission finds good cause, pursuant
to Section 19(b)(2) of the Act,\15\ for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release Nos. 51148 (February 8,
2005), 70 FR 7783 (February 15, 2005) (SR-CBOE-2004-67) and 51318
(March 4, 2005) (SR-PCX-2005-25).
\15\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-Amex-2004-109), as amended,
is hereby approved on an accelerated basis.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1130 Filed 3-15-05; 8:45 am]
BILLING CODE 8010-01-P
