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]
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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
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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].
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20:23 Sep 13, 2006
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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
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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
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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 (https://
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
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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
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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.
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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’’).
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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’’).
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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.
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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 (https://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
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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 (https://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).
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2 17
15 17
CFR 200.30–3(a)(12).
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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.
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\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.
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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.
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\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).
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The text of the proposed rule change is available on Amex's Web
site (https://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.
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\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.
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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).
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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 (https://
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 (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 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
