Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Approval of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Requirement That Registered Options Traders May Only Sign on to Auto-Ex for ETFs Traded by the Same or Adjoining Specialists and Shall Sign on to Auto-Ex for a Maximum of Fifteen ETFs, 72137 [E5-6728]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 230 (Thursday, December 1, 2005)]
[Notices]
[Page 72137]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6728]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52837; File No. SR-Amex-2005-056]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change and Amendment No. 1 Thereto 
Relating to the Requirement That Registered Options Traders May Only 
Sign on to Auto-Ex for ETFs Traded by the Same or Adjoining Specialists 
and Shall Sign on to Auto-Ex for a Maximum of Fifteen ETFs

November 25, 2005.
    On May 23, 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 provide that Registered Options Traders 
(``ROTs'') may only sign on to Auto-Ex \3\ for a maximum of fifteen 
Portfolio Depository Receipts, Index Fund Shares, and Trust Issued 
Receipts (collectively, ``Exchange-Traded Funds'' or ``ETFs'') and only 
if such ETFs are traded by the same or adjoining specialists for a 
maximum of three contiguous panels (i.e., electronic order book work 
stations).\4\ On September 13, 2005, the Exchange filed Amendment No. 1 
to the proposed rule change.\5\ The proposed rule change and Amendment 
No. 1 were published for comment in the Federal Register on September 
30, 2005.\6\ 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\ Auto-Ex is the Exchange's automated execution system.
    \4\ The Exchange stated that each panel has one specialist 
assigned to it and that numerous ETFs may be traded on each panel.
    \5\ See Form 19b-4 dated September 13, 2005, which replaced the 
original filing in its entirety (``Amendment No. 1'').
    \6\ Securities Exchange Act Release No. 52505 (September 23, 
2005), 70 FR 57226.
---------------------------------------------------------------------------

    Amex Rule 958(c) and Amex Rule 958(c)-ANTE currently require ROTs 
to make competitive bids and offers necessary to contribute to the 
maintenance of a fair and orderly market and to engage, to a reasonable 
degree, in dealings for their own accounts when there exists a lack of 
price continuity and a temporary disparity between the supply and 
demand of ETFs. As part of their market making activities in ETFs, ROTs 
may sign on to Auto-Ex.
    The proposed rule change would amend Amex Rule 958, Commentary .10, 
and Amex Rule 958-ANTE, Commentary .09, to state that, if an ROT logs 
on to Auto-Ex for ETFs, the ROT would only be permitted to log on to 
Auto-Ex for ETFs traded on the same or contiguous panels, i.e., ETFs 
traded by the same or adjoining specialists, for a maximum of three 
contiguous panels. The proposal also would limit an ROT to trading in a 
maximum of fifteen ETFs while signed on to Auto-Ex.\7\ A Senior Floor 
Official would be permitted to modify these restrictions if he or she 
determines that an ROT is able to appropriately fulfill his obligations 
to the market due to the level of activity in the ETFs and their 
proximity.
---------------------------------------------------------------------------

    \7\ Although ETFs are traded on NETS (New Equity Trading System) 
and not ANTE (Amex New Trading Environment), Amex Rule 958-ANTE 
applies to ETFs.
---------------------------------------------------------------------------

    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 \8\ and, in 
particular, the requirements of section 6(b) of the Act \9\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal is consistent with section 6(b)(5) of the Act,\10\ 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.
---------------------------------------------------------------------------

    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In exchange for receiving certain benefits for carrying out their 
duties as market makers, ROTs have affirmative obligations, one of 
which is incorporated in current Amex Rule 958(c) and Amex Rule 958(c)-
ANTE, which require ROTs to make competitive bids and offers as 
reasonably necessary to contribute to the maintenance of a fair and 
orderly market. The Exchange believes that, in order to make 
competitive bids and offers in an ETF, ROTs must be present in the 
crowd near the specialist panels for such ETF. ROTs logged on to Auto-
Ex are entitled to receive executions at the specialist's quote but are 
not currently required to be present in the crowd. If an ROT is logged 
onto Auto-Ex panels throughout the trading floor, the ROT is less 
likely to be physically present in the trading crowd for a particular 
ETF, thus making it less likely that the ROT is able to make 
competitive bids and offers in such ETF because, in order to make 
competitive bids and offers, a ROT must be physically present in the 
trading crowd near the specialist panel for that ETF. The proposed rule 
change, by limiting the ROTs ability to log on to Auto-Ex to a maximum 
of three contiguous Auto-Ex panels, would confine the ROT to one area 
of the floor, thus encouraging the ROT to remain in the trading crowd 
for a particular ETF that such ROT is entitled to receive automatic 
executions at the specialist's quote. In this regard, the Commission 
believes that the proposed rule change should help ensure that ROTs 
fulfill their market maker obligations to make competitive bids and 
offers.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-Amex-2005-056), as amended, 
is approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6728 Filed 11-30-05; 8:45 am]
BILLING CODE 8010-01-P