Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Adopt New Rules To Implement on a Pilot Basis an Initial Version of AEMI, Its Proposed New Hybrid Market Trading Platform for Equity Products and Exchange Traded Funds, 54318-54321 [E6-15241]

Download as PDF 54318 Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices transactions, the Commission has long advocated a reduction in the use of certificates in the trading environment by immobilization or dematerialization of securities and has encouraged the use of alternatives to holding securities in certificated form. Among other things, the Commission has approved the rule filings of self-regulatory organizations that require their members to use the facilities of a securities depository for the book-entry settlement of all transactions in depository-eligible securities 15 and that require any security listed for trading must be depository eligible if possible.16 More recently the Commission has approved the implementation and expansion of DRS.17 While the U.S. markets have made great progress in immobilization and dematerialization for institutional and broker-to-broker transactions, many industry representatives believe that the small percentage of securities held in certificated form (mostly by retail customers of broker-dealers) impose unnecessary risk and disproportionately large expense to the industry and to investors. In an attempt to address this issue, NYSE Arca’s rule change, along rwilkins on PROD1PC63 with NOTICES 15 Securities Exchange Act Release No. 32455 (June 11, 1993), 58 FR 33679 (June 18, 1993) (order approving rules requiring members, member organizations, and affiliated members of the New York Stock Exchange, National Association of Securities Dealers, American Stock Exchange, Midwest Stock Exchange, Boston Stock Exchange, Pacific Stock Exchange, and Philadelphia Stock Exchange to use the facilities of a securities depository for the book-entry settlement of all transactions in depository-eligible securities with another financial intermediary). 16 Securities Exchange Act Release No. 35798 (June 1, 1995), 60 FR 30909 (June 12, 1995), [File Nos. SR–Amex–95–17; SR–BSE–95–09; SR–CHX– 95–12; SR–NASD–95–24; SR–NYSE–95–19; SR– PSE–95–14; SR–PHLX–95–34] (order approving rules setting forth depository eligibility requirements for issuers seeking to have their shares listed on the exchange). 17 In 1996, the NYSE modified its listing criteria to permit listed companies to issue securities in book entry form provided that the issue is included in DRS. Securities Exchange Act Release No. 37937 (November 8, 1996), 61 FR 58728 (November 18, 1996), [File No. SR–NYSE–96–29]. Similarly, the NASD modified its rule to require that if an issuer establishes a direct registration program, it must participate in an electronic link with a securities depository in order to facilitate the electronic transfer of the issue. Securities Exchange Act Release No. 39369 (November 26, 1997), 62 FR 64034 (December 3, 1997), [File No. SR–97–51]. On July 30, 2002, the Commission approved a rule change proposed by the NYSE to amend NYSE Section 501.01 of the NYSE Listed Company Manual to allow a listed company to issue securities in a dematerialized or completely immobilized form and therefore not send stock certificates to record holders provided the company’s stock is issued pursuant to a dividend reinvestment program, stock purchase plan, or is included in DRS. Securities Exchange Act Release No. 46282 (July 30, 2002), 67 FR 50972 (August 6, 2002), [File No. SR–NYSE–2001–33]. VerDate Aug<31>2005 20:23 Sep 13, 2006 Jkt 208001 with those of the NYSE, Amex, and Nasdaq, should help expand the use of DRS. As a result, risks, costs, and processing inefficiencies associated with the physical delivery of securities certificates should be reduced, and impediments to the perfection of the national market system should be reduced. Additionally, those investors holding securities in listed securities covered by the rule change that decide to hold their securities in DRS should realize the benefits of more accurate, quicker, and more cost-efficient transfers; faster distribution of sale proceeds; reduced number of lost or stolen certificates and a reduction in the associated certificate replacement costs; and consistency of owning in bookentry across asset classes. The Commission realizes that some issuers and transfer agents may bear expenses related to complying with the rule change. In order to make an issue DRS-eligible, issuers of listed companies must have a transfer agent which is a DRS Limited Participant and may need to amend their corporate governing documents to permit the issuance of book-entry shares. The Commission believes, however, that the long-term benefits of increased efficiencies and reduced costs and risks afforded by DRS outweigh the costs that some issuers and transfer agents may incur. Furthermore, the time frames built into the proposal should allow issuers and their transfer agents sufficient time to make any necessary changes to comply with the rule change. While the proposed rule change should significantly reduce the number of transactions in securities for which settlement is effected by the physical delivery of securities certificates, the proposed rule change will not eliminate the ability of investors to obtain securities certificates provided the issuer has chosen to issue certificates. Such investors can continue to contact the issuer’s transfer agent, either directly or through their broker-dealer, to obtain a securities certificate. The commenter’s concern that its role as an issuer transfer agent will be eliminated because there can be only one transfer agent per issue registered with DTC under the current DRS model is unfounded. DTC has procedures in place to permit a named transfer agent, which in this case would be the issuer, to file notice with DTC as the primary transfer agent but use a co-transfer agent for its DRS functions. Accordingly, for the reasons stated above the Commission finds that the rule change is consistent with NYSE Arca’s obligation under Section 6(b) of the Act to foster cooperation and PO 00000 Frm 00056 Fmt 4703 Sfmt 4703 coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. V. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular with the requirements of Section 6(b)(5) of the Act and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR–NYSEArca– 2006–31) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.18 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–15229 Filed 9–13–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54413; File No. SR–Amex– 2006–72] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Adopt New Rules To Implement on a Pilot Basis an Initial Version of AEMI, Its Proposed New Hybrid Market Trading Platform for Equity Products and Exchange Traded Funds September 7, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 8, 2006, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On September 7, 2006, the Exchange filed Amendment No. 1 to the proposed rule change.3 The Commission is publishing this notice to solicit comments on the 18 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 replaces and supersedes the original filing in its entirety. 1 15 E:\FR\FM\14SEN1.SGM 14SEN1 Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to adopt new rules to implement an initial version of AEMISM, its proposed new hybrid market trading platform for equity products and Exchange Traded Funds (‘‘ETFs’’). According to the Exchange, this initial version of AEMI (referred to herein as ‘‘AEMI-One’’) is expected to become operative prior to the final date set by the Commission for full operation of all automated trading centers that intend to qualify their quotations for trade-through protection under Rule 611 of Regulation NMS (‘‘Trading Phase Date’’).4 The rule change is being proposed on a pilot basis from the first day of operation of AEMI-One through the day prior to the Trading Phase Date. The text of the proposed rule change is available on Amex’s Web site (http:// www.amex.com), at Amex’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 Amex 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose rwilkins on PROD1PC63 with NOTICES The Exchange has previously filed a Form 19b–4 with the Commission (the ‘‘AEMI Rule Filing’’),5 in which the Exchange described the implementation of a proposed new hybrid market structure for equity products and ETFs 6 4 See Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006) (extending compliance dates for Rules 610 and 611 of Regulation NMS). 5 Securities Exchange Act Release No. 54145 (July 14, 2006), 71 FR 41654 (July 21, 2006) (File No. SR– Amex–2005–104). 6 As used herein, the term ‘‘equity products’’ includes equities and securities that trade like equities on the Exchange, such as listed and UTP stocks, closed-end funds, and certain structured products. The term ‘‘ETFs’’ includes Portfolio VerDate Aug<31>2005 20:23 Sep 13, 2006 Jkt 208001 that would provide for a single marketplace that integrates automatic execution and floor-based auction trading. To facilitate the hybrid market, the Exchange is undertaking a major technology upgrade and will implement a new trading platform for equity products and ETFs. This platform, designated as AEMI, is aimed at providing easy and fast access to automated order execution, as well as encompassing auction market capabilities for those situations in which there are order imbalances that require additional liquidity, or price improvement from the auction process is desired. The proposed operation of AEMI is described in detail in the AEMI Rule Filing, which includes in Amendment 5 thereto the text of the proposed new rules that would be applicable (the ‘‘AEMI Rules’’). The Exchange believes that the operation of AEMI under the AEMI Rules would comply in all respects with the requirements of Regulation NMS, including the trade-through provisions of Rule 611. The Exchange proposes to adopt, prior to the Trading Phase Date, currently set for February 5, 2007, a slightly modified version of the AEMI Rules (the ‘‘AEMI-One Rules’’) in connection with the implementation of the AEMI-One version of AEMI as a limited pilot program (the ‘‘AEMI-One Pilot’’). The Exchange recognizes that, during the period between the start of its rollout of AEMI and the Trading Phase Date, other SROs may also be in the process of deploying new or modified systems intended to achieve full compliance with Rule 611 and other provisions of Regulation NMS by the Trading Phase Date. Consequently, the Exchange has designed the AEMI-One Pilot with the objective in mind of protecting market quality and avoiding market disruptions during this critical period of change, in addition to assuring that investor protections are not compromised. The Exchange intends to deploy AEMI in a controlled manner during the AEMI-One Pilot, commencing with two listed equities and two ETF UTP securities. Following a successful tenday period of trading, up to four listed ETFs would be added for an additional five days of trading. The Exchange would then accelerate the deployment of all equity products and ETFs on a per-post basis and give notice to members and publish on its Web site the timing for each group of securities being migrated to the AEMI platform. Depositary Receipts, Index Fund Shares, Trust Issued Receipts, and Partnership Units. PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 54319 Because the AEMI Rules are based on the assumption that all provisions of Regulation NMS are fully operative, the proposed AEMI-One Rules that appear in Exhibit 5 to the proposed rule change filed with the Commission are slightly modified from their AEMI Rule counterparts to reflect the different regulatory environments in effect before and after the Trading Phase Date. The Exchange expects that the AEMI-One Pilot would be in effect for only a few months up until the Trading Phase Date, at which time the AEMI Rules would become effective and supersede the AEMI-One Rules. The Exchange would then delete the AEMI-One Rules from its rulebook via a filing with the Commission. The operation of AEMI-One would be, in most respects, consistent with the operation of AEMI as described in the AEMI Rule Filing, except for the specific provisions discussed below. To further highlight these differences, the Exchange is providing as Exhibit 4 to the proposed rule change filed with the Commission a marked version of the AEMI-One Rules that illustrates the changes from the corresponding AEMI Rules. The key provisions of the AEMI-One Rules that differ from the AEMI Rules are as follows: • ‘‘Protected quotations’’ for tradethrough purposes in AEMI-One would consist of (1) All quotations, whether manual or automated, at the national best bid or offer (‘‘NBBO’’) 7 that are at a better price than the next trade that would occur on AEMI; and (2) quotations not at the NBBO, but priced better than the next trade that would occur on AEMI, that are the best bid or offer of an automated trading center that is not displaying a manual quote condition. In contrast, a ‘‘protected quotation’’ under the AEMI Rules (proposed to be effective on and after the Trading Phase Date) is defined to be consistent with Rule 611 of Regulation NMS 8 and must be an automated quotation that is the best bid or offer of an automated trading center whether or not at the NBBO. • An ‘‘automated trading center’’ under AEMI-One for order-routing decision purposes would be based on a determination made by the Exchange that would be publicly available. The Exchange would look first at whether the away market is publishing quote 7 Because of the inclusion of manual quotes at the NBBO in the definition of ‘‘protected quotations,’’ the term ‘‘automated NBBO’’ in the AEMI Rules would not be relevant during the AEMI-One Pilot. 8 See 17 CFR 242.600(b)(58) (defining ‘‘protected quotation’’); see also 17 CFR 242.600(b)(57) (defining ‘‘protected bid’’ and ‘‘protected offer’’). E:\FR\FM\14SEN1.SGM 14SEN1 rwilkins on PROD1PC63 with NOTICES 54320 Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices conditions that distinguish the away market’s quotations as manual or automated for all of the away market’s securities. If the away market were publishing such quote conditions, the away market would be identified by AEMI-One as an automated trading center, and order routing to that market for trade-through purposes would be determined according to the quote condition (i.e., such orders would be routed to quotations displayed by that market that are not at the NBBO, unless those quotations were identified by that market as manual quotes). If the away market were not publishing such quote conditions, the determination of whether it were an automated trading center for purposes of order routing decisions would be based on whether the Exchange deems the away market to be executing all incoming orders immediately and without human intervention. AEMI-One would contain a ‘‘routing table,’’ which also would be published on the Exchange’s Web site and updated on an inter-day basis to reflect any changes, listing those markets that are not considered by the Amex to be automated trading centers. In contrast, an automated trading center under the AEMI Rules would be based upon the Regulation NMS definition of that term 9 and would not be determined independently by the Exchange. • During the period of the AEMI-One Pilot, not all away market centers that trade a particular security and whose quotes are ‘‘protected quotes’’ under the AEMI-One Rules may be capable of receiving intermarket sweep orders (‘‘ISOs’’), as such orders are defined in Regulation NMS.10 In such circumstances, AEMI would not utilize ISOs and instead would generate ‘‘away market obligations.’’ An ‘‘away market obligation’’ is defined in the AEMI-One Rules as an immediate or cancel limit order generated by AEMI in connection with the execution of an order by AEMI and routed to one or more away market centers to execute against all betterpriced protected quotations displayed by other market centers up to their displayed size. If an away market that trades a particular security were capable of receiving ISOs prior to the Trading Phase Date, then the Exchange could choose to require AEMI to generate and utilize ISOs as the away market obligations for that market. In contrast, the AEMI Rules effective on and after the Trading Phase Date would provide for the use of ISOs exclusively to 9 See 17 CFR 242.600(b)(4) (defining ‘‘automated trading center’’). 10 See 17 CFR 242.600(b)(30) (defining ‘‘intermarket sweep order’’). VerDate Aug<31>2005 21:22 Sep 13, 2006 Jkt 208001 comply with the trade-through provisions of Rule 611 for better-priced protected quotations displayed at other market centers. However, during the AEMI-One Pilot, AEMI would accept and trade all ISOs received by the Exchange that involve securities traded on the Exchange that have made the transfer from Amex’s legacy systems to the AEMI platform, similar to the way AEMI would operate following the AEMI-One Pilot. 2. Statutory Basis Amendment No. 1 B. Self-Regulatory Organization’s Statement on Burden on Competition Amendment No. 1 replaced and superseded the original filing in its entirety. Amendment No. 1 made a number of revisions to the text of the proposed rule change. Among other things, Amendment No. 1 (1) Adds a new proposed rule 126B—AEMI7-One that relates to the Exchange’s orderrouting services for orders routed to other trading centers; (2) requires that, during the period of the AEMI-One Pilot, a member of the Exchange sending an intermarket sweep order to the AEMI platform must simultaneously send an intermarket sweep order (or a comparable order) for the full displayed size of the top of book of every other market center displaying a better-priced quotation; 11 and (3) adds requirements that ‘‘self-help’’ be invoked by the Exchange pursuant to objective industry-wide established interpretations and policies and be based on repeated failures to respond within one second to orders attempting to access another trading center’s protected automated quotations, where such failures are attributable to that trading center and where the Exchange notifies the non-responding trading center of its determination to invoke self help.12 The aforementioned proposed Rule 126B—AEMI-One (Order Routing Services) provides, among other things, for (1) Certain related agreements (e.g., on ‘‘give-ups’’ and on the licensing of the routing technology); (2) the equitable allocation of dues, fees, and other charges; (3) Exchange control of the routing logic; and (4) the establishment and maintenance of procedures and internal controls designed to protect confidential and proprietary information. Finally, the amendment also makes a number of relatively minor corrections to the proposed rule text, including certain provisions related to Nasdaq securities that conform to recent changes in the Exchange’s current rules. 11 See proposed Rule 131—AEMI-One, heading Intermarket sweep order. 12 See proposed Rule 126A—AEMI-One. PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) of the Act,13 in general, and furthers the objectives of Section 6(b)(5),14 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. The Exchange believes the proposed rule change would 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. 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 Exchange consents, the Commission will: (A) By order approve the 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, 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Amex–2006–72 on the subject line. 13 15 14 15 E:\FR\FM\14SEN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 14SEN1 Federal Register / Vol. 71, No. 178 / Thursday, September 14, 2006 / Notices Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54412; File No. SR–Amex– 2006–64] Self-Regulatory Organizations; American Stock Exchange LLC; Order All submissions should refer to File Granting Approval to a Proposed Rule Number SR–Amex–2006–72. This file Change and Amendment No. 1 Thereto number should be included on the subject line if e-mail is used. To help the Relating to a Retroactive Suspension of Transaction Charges for Specialist Commission process and review your Orders in the Nasdaq-100 Tracking comments more efficiently, please use only one method. The Commission will Stock (QQQQ) post all comments on the Commission’s September 7, 2006. Internet Web site (http://www.sec.gov/ On July 7, 2006, the American Stock rules/sro.shtml). Copies of the Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) submission, all subsequent filed with the Securities and Exchange amendments, all written statements Commission (‘‘Commission’’), pursuant with respect to the proposed rule to Section 19(b)(1) of the Securities change that are filed with the Exchange Act of 1934 (‘‘Act’’) 1 and Rule Commission, and all written 19b–4 thereunder,2 a proposed rule communications relating to the change to retroactively apply a proposed rule change between the Commission and any person, other than suspension of transaction charges for specialist orders in connection with the those that may be withheld from the trading of the Nasdaq-100 Index public in accordance with the Tracking Stock (Symbol: QQQQ) from provisions of 5 U.S.C. 552, will be July 1, 2006 through July 12, 2006. On available for inspection and copying in July 27, 2006, the Exchange filed the Commission’s Public Reference Room. Copies of such filing also will be Amendment No. 1 to the proposed rule change.3 The proposed rule change, as available for inspection and copying at amended, was published for comment the principal office of the Amex. All in the Federal Register on August 8, comments received will be posted 2006.4 The Commission received no without change; the Commission does comments on the proposal. not edit personal identifying information from submissions. You The Commission finds that the should submit only information that proposed rule change, as amended, is you wish to make available publicly. All consistent with the requirements of the submissions should refer to File Act and the rules and regulations Number SR–Amex–2006–72 and should thereunder applicable to a national be submitted on or before October 5, securities exchange.5 In particular, the 2006. Commission believes that the proposal is consistent with Section 6(b)(4) of the For the Commission by the Division of Act 6 in that it provides for the equitable Market Regulation, pursuant to delegated allocation of reasonable dues, fees, and authority.15 other charges among its members. J. Lynn Taylor, It is therefore ordered, pursuant to Assistant Secretary. Section 19(b)(2) of the Act,7 that the [FR Doc. E6–15241 Filed 9–13–06; 8:45 am] proposed rule change (File No. SR– BILLING CODE 8010–01–P Amex–2006–64), as amended, be, and it hereby is, approved. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 replaced and superseded the original filing in its entirety. 4 See Securities Exchange Act Release No. 54262 (August 1, 2006), 71 FR 45083. 5 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(4). 7 15 U.S.C. 78s(b)(2). rwilkins on PROD1PC63 with NOTICES 2 17 15 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 20:23 Sep 13, 2006 Jkt 208001 PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 54321 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6–15273 Filed 9–13–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54415; File No. SR–ISE– 2004–17] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Market Maker Orders September 7, 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 26, 2004, the International Securities Exchange, Inc. (‘‘ISE’’ 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 prepared by the Exchange. The Exchange filed Amendment No. 1 to the proposed rule change on August 14, 2006.3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend ISE Rule 717(g) to eliminate the restriction on Electronic Access Members representing ISE market maker orders, provided that such orders are identified as orders for the account of an ISE market maker. Under the proposal, an Electronic Access Member will not be permitted to enter orders solicited from an ISE market maker into the Solicited Order Mechanism and the Price Improvement Mechanism. The text of the proposed rule change, as amended, is set forth below. Proposed new language is in italics; deletions are in [brackets]. * * * * * Rule 716. Block Trades (a) through (e) No change. 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 replaced the original filing in its entirety. 1 15 E:\FR\FM\14SEN1.SGM 14SEN1

Agencies

[Federal Register Volume 71, Number 178 (Thursday, September 14, 2006)]
[Notices]
[Pages 54318-54321]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-15241]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54413; File No. SR-Amex-2006-72]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Adopt New Rules To Implement on a Pilot Basis an Initial Version of 
AEMI, Its Proposed New Hybrid Market Trading Platform for Equity 
Products and Exchange Traded Funds

September 7, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 8, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
September 7, 2006, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the

[[Page 54319]]

proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaces and supersedes the original filing 
in its entirety.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to adopt new rules to implement an initial 
version of AEMISM, its proposed new hybrid market trading 
platform for equity products and Exchange Traded Funds (``ETFs''). 
According to the Exchange, this initial version of AEMI (referred to 
herein as ``AEMI-One'') is expected to become operative prior to the 
final date set by the Commission for full operation of all automated 
trading centers that intend to qualify their quotations for trade-
through protection under Rule 611 of Regulation NMS (``Trading Phase 
Date'').\4\ The rule change is being proposed on a pilot basis from the 
first day of operation of AEMI-One through the day prior to the Trading 
Phase Date.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038 (May 24, 2006) (extending compliance dates for 
Rules 610 and 611 of Regulation NMS).
---------------------------------------------------------------------------

    The text of the proposed rule change is available on Amex's Web 
site (http://www.amex.com), at Amex'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 Amex 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has previously filed a Form 19b-4 with the Commission 
(the ``AEMI Rule Filing''),\5\ in which the Exchange described the 
implementation of a proposed new hybrid market structure for equity 
products and ETFs \6\ that would provide for a single marketplace that 
integrates automatic execution and floor-based auction trading. To 
facilitate the hybrid market, the Exchange is undertaking a major 
technology upgrade and will implement a new trading platform for equity 
products and ETFs. This platform, designated as AEMI, is aimed at 
providing easy and fast access to automated order execution, as well as 
encompassing auction market capabilities for those situations in which 
there are order imbalances that require additional liquidity, or price 
improvement from the auction process is desired. The proposed operation 
of AEMI is described in detail in the AEMI Rule Filing, which includes 
in Amendment 5 thereto the text of the proposed new rules that would be 
applicable (the ``AEMI Rules''). The Exchange believes that the 
operation of AEMI under the AEMI Rules would comply in all respects 
with the requirements of Regulation NMS, including the trade-through 
provisions of Rule 611.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 54145 (July 14, 2006), 
71 FR 41654 (July 21, 2006) (File No. SR-Amex-2005-104).
    \6\ As used herein, the term ``equity products'' includes 
equities and securities that trade like equities on the Exchange, 
such as listed and UTP stocks, closed-end funds, and certain 
structured products. The term ``ETFs'' includes Portfolio Depositary 
Receipts, Index Fund Shares, Trust Issued Receipts, and Partnership 
Units.
---------------------------------------------------------------------------

    The Exchange proposes to adopt, prior to the Trading Phase Date, 
currently set for February 5, 2007, a slightly modified version of the 
AEMI Rules (the ``AEMI-One Rules'') in connection with the 
implementation of the AEMI-One version of AEMI as a limited pilot 
program (the ``AEMI-One Pilot''). The Exchange recognizes that, during 
the period between the start of its rollout of AEMI and the Trading 
Phase Date, other SROs may also be in the process of deploying new or 
modified systems intended to achieve full compliance with Rule 611 and 
other provisions of Regulation NMS by the Trading Phase Date. 
Consequently, the Exchange has designed the AEMI-One Pilot with the 
objective in mind of protecting market quality and avoiding market 
disruptions during this critical period of change, in addition to 
assuring that investor protections are not compromised.
    The Exchange intends to deploy AEMI in a controlled manner during 
the AEMI-One Pilot, commencing with two listed equities and two ETF UTP 
securities. Following a successful ten-day period of trading, up to 
four listed ETFs would be added for an additional five days of trading. 
The Exchange would then accelerate the deployment of all equity 
products and ETFs on a per-post basis and give notice to members and 
publish on its Web site the timing for each group of securities being 
migrated to the AEMI platform.
    Because the AEMI Rules are based on the assumption that all 
provisions of Regulation NMS are fully operative, the proposed AEMI-One 
Rules that appear in Exhibit 5 to the proposed rule change filed with 
the Commission are slightly modified from their AEMI Rule counterparts 
to reflect the different regulatory environments in effect before and 
after the Trading Phase Date. The Exchange expects that the AEMI-One 
Pilot would be in effect for only a few months up until the Trading 
Phase Date, at which time the AEMI Rules would become effective and 
supersede the AEMI-One Rules. The Exchange would then delete the AEMI-
One Rules from its rulebook via a filing with the Commission.
    The operation of AEMI-One would be, in most respects, consistent 
with the operation of AEMI as described in the AEMI Rule Filing, except 
for the specific provisions discussed below. To further highlight these 
differences, the Exchange is providing as Exhibit 4 to the proposed 
rule change filed with the Commission a marked version of the AEMI-One 
Rules that illustrates the changes from the corresponding AEMI Rules.
    The key provisions of the AEMI-One Rules that differ from the AEMI 
Rules are as follows:
     ``Protected quotations'' for trade-through purposes in 
AEMI-One would consist of (1) All quotations, whether manual or 
automated, at the national best bid or offer (``NBBO'') \7\ that are at 
a better price than the next trade that would occur on AEMI; and (2) 
quotations not at the NBBO, but priced better than the next trade that 
would occur on AEMI, that are the best bid or offer of an automated 
trading center that is not displaying a manual quote condition. In 
contrast, a ``protected quotation'' under the AEMI Rules (proposed to 
be effective on and after the Trading Phase Date) is defined to be 
consistent with Rule 611 of Regulation NMS \8\ and must be an automated 
quotation that is the best bid or offer of an automated trading center 
whether or not at the NBBO.
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    \7\ Because of the inclusion of manual quotes at the NBBO in the 
definition of ``protected quotations,'' the term ``automated NBBO'' 
in the AEMI Rules would not be relevant during the AEMI-One Pilot.
    \8\ See 17 CFR 242.600(b)(58) (defining ``protected 
quotation''); see also 17 CFR 242.600(b)(57) (defining ``protected 
bid'' and ``protected offer'').
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     An ``automated trading center'' under AEMI-One for order-
routing decision purposes would be based on a determination made by the 
Exchange that would be publicly available. The Exchange would look 
first at whether the away market is publishing quote

[[Page 54320]]

conditions that distinguish the away market's quotations as manual or 
automated for all of the away market's securities. If the away market 
were publishing such quote conditions, the away market would be 
identified by AEMI-One as an automated trading center, and order 
routing to that market for trade-through purposes would be determined 
according to the quote condition (i.e., such orders would be routed to 
quotations displayed by that market that are not at the NBBO, unless 
those quotations were identified by that market as manual quotes). If 
the away market were not publishing such quote conditions, the 
determination of whether it were an automated trading center for 
purposes of order routing decisions would be based on whether the 
Exchange deems the away market to be executing all incoming orders 
immediately and without human intervention. AEMI-One would contain a 
``routing table,'' which also would be published on the Exchange's Web 
site and updated on an inter-day basis to reflect any changes, listing 
those markets that are not considered by the Amex to be automated 
trading centers. In contrast, an automated trading center under the 
AEMI Rules would be based upon the Regulation NMS definition of that 
term \9\ and would not be determined independently by the Exchange.
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    \9\ See 17 CFR 242.600(b)(4) (defining ``automated trading 
center'').
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     During the period of the AEMI-One Pilot, not all away 
market centers that trade a particular security and whose quotes are 
``protected quotes'' under the AEMI-One Rules may be capable of 
receiving intermarket sweep orders (``ISOs''), as such orders are 
defined in Regulation NMS.\10\ In such circumstances, AEMI would not 
utilize ISOs and instead would generate ``away market obligations.'' An 
``away market obligation'' is defined in the AEMI-One Rules as an 
immediate or cancel limit order generated by AEMI in connection with 
the execution of an order by AEMI and routed to one or more away market 
centers to execute against all better-priced protected quotations 
displayed by other market centers up to their displayed size. If an 
away market that trades a particular security were capable of receiving 
ISOs prior to the Trading Phase Date, then the Exchange could choose to 
require AEMI to generate and utilize ISOs as the away market 
obligations for that market. In contrast, the AEMI Rules effective on 
and after the Trading Phase Date would provide for the use of ISOs 
exclusively to comply with the trade-through provisions of Rule 611 for 
better-priced protected quotations displayed at other market centers. 
However, during the AEMI-One Pilot, AEMI would accept and trade all 
ISOs received by the Exchange that involve securities traded on the 
Exchange that have made the transfer from Amex's legacy systems to the 
AEMI platform, similar to the way AEMI would operate following the 
AEMI-One Pilot.
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    \10\ See 17 CFR 242.600(b)(30) (defining ``intermarket sweep 
order'').
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Amendment No. 1

    Amendment No. 1 replaced and superseded the original filing in its 
entirety. Amendment No. 1 made a number of revisions to the text of the 
proposed rule change. Among other things, Amendment No. 1 (1) Adds a 
new proposed rule 126B--AEMI7-One that relates to the Exchange's order-
routing services for orders routed to other trading centers; (2) 
requires that, during the period of the AEMI-One Pilot, a member of the 
Exchange sending an intermarket sweep order to the AEMI platform must 
simultaneously send an intermarket sweep order (or a comparable order) 
for the full displayed size of the top of book of every other market 
center displaying a better-priced quotation; \11\ and (3) adds 
requirements that ``self-help'' be invoked by the Exchange pursuant to 
objective industry-wide established interpretations and policies and be 
based on repeated failures to respond within one second to orders 
attempting to access another trading center's protected automated 
quotations, where such failures are attributable to that trading center 
and where the Exchange notifies the non-responding trading center of 
its determination to invoke self help.\12\ The aforementioned proposed 
Rule 126B--AEMI-One (Order Routing Services) provides, among other 
things, for (1) Certain related agreements (e.g., on ``give-ups'' and 
on the licensing of the routing technology); (2) the equitable 
allocation of dues, fees, and other charges; (3) Exchange control of 
the routing logic; and (4) the establishment and maintenance of 
procedures and internal controls designed to protect confidential and 
proprietary information. Finally, the amendment also makes a number of 
relatively minor corrections to the proposed rule text, including 
certain provisions related to Nasdaq securities that conform to recent 
changes in the Exchange's current rules.
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    \11\ See proposed Rule 131--AEMI-One, heading Intermarket sweep 
order.
    \12\ See proposed Rule 126A--AEMI-One.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\13\ in general, and furthers 
the objectives of Section 6(b)(5),\14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change would 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. 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 Exchange consents, the Commission will:
    (A) By order approve the 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, 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Amex-2006-72 on the subject line.

[[Page 54321]]

Paper Comments

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

All submissions should refer to File Number SR-Amex-2006-72. 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. 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-2006-72 and should be submitted on or before 
October 5, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-15241 Filed 9-13-06; 8:45 am]
BILLING CODE 8010-01-P