Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto, and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3, 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, 65847-65851 [E6-18978]

Download as PDF Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices Linkage Plan on August 1, 2006.5 This ‘‘Linkage Plan’’ was filed with the Commission pursuant to Rule 608 of Regulation NMS under the Act.6 The purpose of the proposed Linkage Plan is to enable the Plan Participants to act jointly in planning, developing, operating and regulating the NMS Linkage System (‘‘Linkage’’) that will electronically link the Linkage Plan Participant Markets to one another, as described in the Linkage Plan. The Linkage Plan became operative on October 1, 2006. Historically, ITS Participants have not imposed transaction charges for executions of commitments delivered through ITS, although the ITS Plan does not prohibit such charges. Under the Linkage Plan, each Participant is accessed through its own members and could charge for orders executed in their market through the Linkage. Therefore, the Exchange now proposes to amend its Fee Schedule to provide: (1) For transactions resulting from equities and ETF orders routed through the Linkage to the Amex, members will be assessed a transaction charge based on the transaction charges currently in place for transactions resulting from other orders; and (2) for transactions resulting from equities and ETF orders routed through the Linkage to an away market, the Amex will pass through to its members fees charged by the other market centers for such transactions.7 To determine the amount of these fees members will need to consult the fee schedules published by each market center. It is anticipated that, at least initially the transaction charges imposed by other market centers for the execution of orders routed to them through the Linkage will be the same as the transaction charges imposed on executions of orders for their own members. 2. Statutory Basis sroberts on PROD1PC70 with NOTICES The Exchange believes that its proposal to revise its schedule of fees is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(4) of the Act 9 in particular, in that it is an equitable allocation of reasonable dues, fees and other charges among its members and issuers and 5 See Securities Exchange Act Release No. 54551 (Sept. 29, 2006), 71 FR 59148 (Oct. 6, 2006) (approving the Linkage Plan). 6 17 CFR 242.608. 7 See Securities Exchange Act Release Nos. 54548 (September 29, 2006), 71 FR 59159 (October 6, 2006) (SR–Amex 2006–85); and 54480 (September 21, 2006), 71 FR 57596 (September 29, 2006) (SR– NYSE 2006–75). 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(4). VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 other persons using its facilities. Specifically, the Exchange is proposing to establish transaction charges for order routed to the Amex through the Linkage and pass through charges assessed by other market centers for orders routed from the Amex through the Linkage. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. 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 with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 10 and subparagraph (f)(2) of Rule 19b–4 thereunder.11 At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in the furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Amex–2006–93 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington DC 20549–1090. All submissions should refer to File Number SR–Amex–2006–93. This file 10 15 11 17 PO 00000 U.S.C. 78s(b)(3)(A)(ii). C.F.R. 240.19b–4(f)(2). Frm 00077 Fmt 4703 Sfmt 4703 65847 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 Room. Copies of the 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– 2006–93 and should be submitted on or before November 30, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority.12 Nancy M. Morris, Secretary. [FR Doc. E6–18954 Filed 11–8–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54709; File No. SR–Amex– 2006–72] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto, and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3, 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 November 3, 2006. I. Introduction On August 8, 2006, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission 12 17 E:\FR\FM\09NON1.SGM CFR 200.30–3(a)(12). 09NON1 65848 Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to implement an initial version of its Auction & Electronic Market Integration (‘‘AEMI’’) system, a new hybrid market trading platform for equity products and exchange-traded funds (‘‘ETFs’’). On September 7, 2006, the Exchange filed Amendment No. 1 to the proposed rule change.3 The proposed rule change, as amended, was published for comment in the Federal Register on September 14, 2006.4 The Commission received four comments on the proposal.5 On October 31, 2006, Amex filed Amendment No. 3 to the proposal.6 This notice and order solicits comments from interested persons on Amendment No. 3 and approves the amended proposal on an accelerated basis. II. Description of Proposal The Commission recently approved the Exchange’s new hybrid market platform for equity products and ETFs, known as AEMI, that will integrate automatic execution and floor-based auction trading (the ‘‘AEMI Rule Filing’’).7 The Exchange has proposed to adopt, prior to the Trading Phase Date,8 which is set for February 5, 2007, a modified version of the AEMI Rules, known as the ‘‘AEMI-One Rules,’’ as a pilot program (the ‘‘AEMI-One Pilot’’). 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 replaces and supersedes the original filing in its entirety. 4 See Securities Exchange Act Release No. 54413 (September 7, 2006), 71 FR 54318 (‘‘Notice’’). 5 See Letter to Nancy M. Morris, Secretary, Commission, from Michael A. Barth, Senior Vice President, Exchange and Market Centers, Order Execution Services, Inc., dated September 22, 2006 (‘‘OES Letter’’); Letter to Nancy M. Morris, Secretary, Commission, from Mary Yeager, Assistant Secretary, New York Stock Exchange LLC, dated September 29, 2006 (‘‘NYSE Letter’’); Letter to Nancy M. Morris, Secretary, Commission, from David A. Herron, Chief Executive Officer, Chicago Stock Exchange, Inc., dated October 5, 2006 (‘‘CHX Letter’’); and Letter to Nancy M. Morris, Secretary, Commission, from Jeffrery S. Davis, Assistant General Counsel, Nasdaq Stock Market LLC, dated October 10, 2006 (‘‘Nasdaq Letter’’). 6 See Partial Amendment to Form 19b–4 dated October 27, 2006 (‘‘Amendment No. 3’’), infra Section III. The Exchange submitted Amendment No. 2 to the Commission on October 30, 2006 and withdrew Amendment No. 2 on October 31, 2006. 7 Securities Exchange Act Release No. 54552 (September 29, 2006), 71 FR 59546 (October 10, 2006) (‘‘AEMI Approval Order’’). 8 By the Trading Phase Date, each trading center intending to qualify its quotations for trade-through protection must bring a Regulation NMS-compliant trading system into full operation for all NMS stocks intended to be traded during the phase-in period (i.e., through October 8, 2007). See Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038, 30039 (May 24, 2006) (‘‘NMS Extension Release’’) (extending compliance dates for Rules 610 and 611 of Regulation NMS). sroberts on PROD1PC70 with NOTICES 2 17 VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 The AEMI-One Pilot would commence 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 Amex’s Web site the timing for each group of securities being migrated to the AEMI platform. Because not all provisions of Regulation NMS are fully operative, the AEMI-One Pilot rules are 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 from shortly after Commission approval of the AEMI-One Rules until the Trading Phase Date. At the Trading Phase Date, the AEMI Rules would become effective and supersede the AEMI-One Rules. The Exchange has stated that it would make this change via a filing with the Commission to delete the AEMI-One Rules from its rulebook. The operation of AEMI-One would be, in most respects, consistent with the operation of AEMI, except for the following provisions: • A ‘‘protected quotation’’ in the AEMI-One Pilot (‘‘AEMI-One Protected Quotation’’) is a quotation in an NMS stock that: (1) Is disseminated pursuant to an effective national market system plan; (2) is the best bid or best offer of a national securities exchange or a national securities association that is at a better price than the next trade that would occur on AEMI; and (3) is a firm manual or automated quotation, irrespective of whether the quotation is at the national best bid or offer (‘‘NBBO’’).9 In contrast, a ‘‘protected quotation’’ under the AEMI Rules is defined to be consistent with Rule 611 of Regulation NMS 10 and must be an automated quotation that is the best bid or offer of an automated trading center. • During the AEMI-One Pilot, not every away market center that displays an AEMI-One Protected Quotation may be capable of receiving intermarket sweep orders (‘‘ISOs’’), as such orders are defined in Regulation NMS.11 In such circumstances, AEMI would not utilize ISOs and instead would generate ‘‘away market obligations.’’ An ‘‘away market obligation’’ is defined in the 9 See Amendment No. 3, supra note 6. 17 CFR 242.600(b)(58) (defining ‘‘protected quotation’’); see also 17 CFR 242.600(b)(57) (defining ‘‘protecting bid’’ and ‘‘protected offer’’). 11 See 17 CFR 242.600(b)(30) (defining ‘‘intermarket sweep order’’). 10 See PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 AEMI-One Rules as an immediate-orcancel limit order generated by AEMI and routed to one or more away market centers to execute against all AEMI-One Protected Quotations up to their displayed size.12 If an away market that trades a particular security were capable of receiving ISOs prior to the Trading Phase Date, the Exchange could choose to require AEMI to generate and utilize ISOs as the away market obligations for that market.13 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 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.14 III. Amendment No. 3 In Amendment No. 3, the Exchange proposed certain changes to conform the AEMI-One Rules to the final AEMI Rules. These conforming changes are made in Rules 24–AEMI-One, 115– AEMI-One, 128A–AEMI-One, 131– AEMI-One, and 170–AEMI-One. The Exchange also proposed the following: • To change the language describing how the AEMI platform will route orders in AEMI-One to protected quotations of away markets for tradethrough purposes. As described in Amendment No. 3, an AEMI-One Protected Quotation is any firm 12 The Commission notes that the Exchange has represented that such immediate-or-cancel orders will carry an expiration delay timer that at the outset of AEMI-One will be set to 35 seconds for all away market obligations. See Letter to Nancy M. Morris, Secretary, Commission, from Claire P. McGrath, Senior Vice President and General Counsel, Amex, dated October 31, 2006 (‘‘Amex Request Letter’’) (requesting exemption from Section 8(d) of the ITS Plan in connection with Amex’s use of ISOs and the use of private linkages instead of ITS for routing away market obligations). 13 The Commission notes that as a condition to the Exchange marking an order as an ISO, the Exchange must immediately send ISOs or away market obligations, as appropriate to the trading center whose quote the Exchange is trying to access, to all AEMI-One Protected Quotations. 14 In Amendment No. 1 the Exchange, among other things, clarified 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-period quotations. See proposed Rule 131–AEMI–One. In Amendment No. 2, the Exchange revised proposed Rule 131–AEMI–One to state ‘‘better-priced protected quotation’’ (emphasis added). E:\FR\FM\09NON1.SGM 09NON1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices quotation, whether manual or automated, that is at a better price than the next trade that would occur on AEMI, and that is the best bid or offer of a national securities exchange or a national securities association. In contrast, a ‘‘protected quotation’’ under the AEMI Rules (effective on and after the Trading Phase Date) is defined to be consistent with Rule 611 of Regulation NMS and must be an automated quotation that is the best bid or offer of an automated trading center (as defined in Regulation NMS). • To make certain changes to Rule 126A–AEMI-One to insure that the AEMI system’s handling of tradethroughs is consistent with the ITS Plan. • To remove the order types ‘‘buy minus’’ and ‘‘sell plus’’ from proposed Rule 131–AEMI-One(n) (and all references thereto in the AEMI-One Rules) pending additional study of their functionality in a Regulation NMS environment. • To revise the descriptions of ‘‘stop order’’ in Rule 131–AEMI-One(o) and ‘‘stop limit order’’ in proposed Rule 131–AEMI-One(p) to provide that ‘‘too marketable’’ stop and stop limit orders for ETFs will be executed, not rejected. • To codify as Commentary .01 to proposed Rule 154–AEMI-One the Exchange’s interpretation that a Specialist will not be deemed to be ‘‘trading ahead’’ of a percentage order (of which it is the agent) if: (1) An aggressing order that executes against the Specialist’s quote ‘‘elects’’ the percentage order (making it eligible for immediate execution); and (2) the percentage order is not executed by that aggressing order due to insufficient remaining interest and therefore reverts back to unelected status. Additionally, the Commentary would provide that any subsequent trade by the Specialist for its own account would not constitute ‘‘trading ahead’’ if the percentage order has not been otherwise re-elected at that time. • To revise the definitions of ‘‘Specialist emergency quote’’ and ‘‘stabilizing quote’’ in proposed Rule 1A–AEMI-One to provide for an upper limit (not to exceed ten) on the number of Specialist emergency quotes that may be immediately generated under a possible scenario in which the Specialist pairs off through another market. Otherwise, a potentially large number of such quotations might be required to be sent out to protect quotes of away markets, creating excessive risk, before a tolerance breach occurs. Under the proposed rule change, the Specialist must re-quote its market when the above referenced limit is hit. The proposed change in the definition of ‘‘stabilizing VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 quote’’ is a related change to provide that a stabilizing quote would be issued if the maximum number of Specialist emergency quotes has been reached. • To add language to Rule 126A– AEMI-One reiterating the obligations to other market centers that members of the Exchange who choose to send ISOs to AEMI during the AEMI-One Pilot will have. This requirement also appears in proposed Rule 131–AEMI-One as described above. Such members will be obligated to protect all AEMI-One Protected Quotations. • To clarify the meaning of the last sentence of the definition of an ‘‘intermarket sweep order’’ in proposed Rule 131–AEMI-One(k), by adding the word ‘‘protected’’ before the word ‘‘quotation.’’ This sentence describes the obligations to other market centers of a member of the Exchange who chooses to send an intermarket sweep order to the AEMI platform during the AEMI-One Pilot. Such a member would be obligated to protect all AEMI-One Protected Quotations. IV. Comments The Commission received four comment letters regarding the proposed rule change. One commenter, OES, asserted that the proposed routing arrangements contemplate that Amex would inappropriately perform duties required to be performed by a brokerdealer, such as making decisions on when, how, and where orders are routed.15 New York Stock Exchange (‘‘NYSE’’) argued that Amex’s proposal constituted ‘‘an attempt to move forward the effective date of the Reg. NMS Order Protection Rule from February 5, 2007 to whenever the Amex is ready to implement AEMI-One.’’ 16 NYSE also argued that Amex’s proposal would violate the Intermarket Trading System (‘‘ITS’’) Plan and give it the ability to trade-through quotes that Amex deems slow. NYSE also observed that, when Amex previewed its proposal with the ITS Operating Committee, several other markets noted that it would have a negative impact on their respective technology implementation schedules. The Chicago Stock Exchange (‘‘CHX’’) also viewed Amex’s proposed rule change as an attempt to accelerate the Trading Phase Date and opposed Amex’s proposal to trade-through quotations Amex deems to be slow.17 Nasdaq supported Amex’s proposed rule change, characterizing it as a ‘‘sensible transitional approach’’ that 15 See OES Letter at 1. See also AEMI Approval Order, 71 FR at 59554, n. 103. 16 See NYSE Letter at 1. 17 See CHX Letter at 1. PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 65849 would help it prepare for the Trading Phase Date at no or little cost to other market participants.18 Nasdaq disagreed with NYSE’s comments on Amex’s proposal, stating that the proposed rule change would not result in any technical or programming impact to Nasdaq, is voluntary, and could be implemented by Amex at any time without requiring other markets to implement similar functionality. Nasdaq also asserted that, when Amex previewed its plan to the ITS Operating Committee, there was no overwhelming consensus either for or against the proposal, and this is not unusual given that market participants often have competing interests. In Nasdaq’s view, any concerns presented at that time about the proposal’s potential impact on other markets’ programming requirements were based upon a lack of familiarity with the proposal. Amex responded to NYSE’s and OES’s comment letters.19 Amex disagreed with NYSE’s assertion that the Trading Phase Date is the date on which all SRO trading centers will launch their respective Regulation NMS-compliant systems. Rather, Amex stated that the Trading Phase Date represents an end date by which all such systems must comply with Regulation NMS. Moreover, Amex argued that the deadline of the Trading Phase Date does not negate the desirability of providing a phase-in period for a new trading system. The Exchange asserted that the industry should have operating experience with new systems prior to the Trading Phase Date before market participants become liable for compliance. The Exchange also stated that its proposal would not create any additional technical burdens on other market centers. Amex also explained that it would not send ISOs to any market not ready to accept them and would publish the list of markets to which it would send ISOs prior to the Trading Phase Date.20 The Exchange also stated that it would seek an exemption from the ITS Plan to the extent its proposal required.21 In response to OES’s comment letter, Amex stated that the Exchange’s routing functionality has no discretion and thus the Exchange would not be acting in the 18 See Nasdaq Letter at 1. Letter to Nancy M. Morris, Secretary, Commission, from Neal L. Wolkoff, Chief Executive Officer, Amex, dated October 10, 2006 (‘‘Amex Response Letter’’). 20 See id. at 2. 21 See id. at 2; see also Amex Request Letter, supra note 12 (requesting exemption from Section 8(d) of the ITS Plan in connection with Amex’s use of ISOs and the use of private linkages instead of ITS for routing away market obligations). 19 See E:\FR\FM\09NON1.SGM 09NON1 65850 Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices capacity of a broker.22 Amex further explained that the routing logic is based on pre-coded functionality which seeks to route orders to the market center displaying the best price based on pricesize priority. The Exchange also stated that it does not believe that its use of routing logic or licensing of routing technology would undermine or change its ability to provide a marketplace of buyers and sellers. The Commission notes that, in Amendment No. 2, the Exchange amended its proposal so that during the AEMI-One Pilot it would protect any firm quotation, whether manual or automated, that is at a better price than the next trade that would occur on AEMI and that is the best bid or offer of a national securities exchange or a national securities association. This change should address the comment made by NYSE and CHX that the Exchange would ‘‘be permitted to trade through quotes it deems slow * * *.’’ 23 V. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with the requirements of Section 6(b) of the Act.24 Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act 25 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission also finds that the proposal is consistent with Section 6(b)(8) of the Act,26 which prohibits an exchange’s rules from imposing a burden on competition that is not necessary or appropriate in furtherance of the Act. Finally, the Commission believes that the proposal is consistent with Section 11A(a)(1)(C) of the Act,27 in which Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure: (1) Economically efficient execution of securities transactions; (2) fair 22 See Amex Response Letter at 3–4. 23 See CHX Letter at 2; see also NYSE Letter at sroberts on PROD1PC70 with NOTICES 1. 24 15 U.S.C. 78f(b). In approving this proposal, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 25 15 U.S.C. 78f(b)(5). 26 15 U.S.C. 78f(b)(8). 27 15 U.S.C. 78k–1(a)(1)(C). VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 competition among brokers and dealers and among exchange markets, and between exchange markets, and markets other than exchange markets; (3) the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities; (4) the practicability of brokers executing investors’ orders in the best market; and (5) an opportunity for investors’ orders to be executed without the participation of a dealer. Since the Commission has already approved the final AEMI Rules,28 only those aspects of the AEMI-One Rules that differ from the final AEMI Rules are discussed more fully below. In its AEMI-One proposal, the Exchange stated that it will protect all AEMI-One Protected Quotations— namely all quotations that: (1) Are disseminated pursuant to an effective national market system plan; (2) are the best bid or best offer of a national securities exchange or a national securities association that is at a better price than the next trade that would occur on AEMI; and (3) are firm quotations, regardless of whether they are manual or automated. The Commission notes that this level of price protection appears consistent with the ITS Plan. The Exchange plans to utilize ISOs to route orders to AEMI-One Protected Quotations of those market centers capable of receiving ISOs. For markets that are unable to receive ISOs, the AEMI-One Rules provide for the use of an ‘‘away market obligation’’ to reach the quotations of such markets. An ‘‘away market obligation’’ is an immediate-or-cancel limit order generated by AEMI in connection with the execution of an order by AEMI and simultaneously routed to one or more away market centers to execute against the full displayed size of any AEMI-One Protected Quotation. In addition, an Amex member may send an ISO to AEMI during the AEMI-One Pilot only if it has simultaneously sent an ISO (or comparable order) to execute against the full displayed size of any AEMI-One Protected Quotation. The AEMI-One Rules provide that the Exchange will accept and act upon all inbound, appropriately marked ISOs received before the Trading Phase Date that involve securities traded on the AEMI platform. The Commission believes that the Exchange’s proposal is reasonably designed to allow Amex and its market participants to gain experience with ISOs before the Trading Phase Date. In a separate action, the Commission today 28 See PO 00000 AEMI Approval Order, supra note 7. Frm 00080 Fmt 4703 Sfmt 4703 is exempting Amex from certain provisions of the ITS Plan relating to the Exchange’s use of ISOs and the use of private linkages instead of ITS for routing away market obligations.29 This exemption will enable Amex to implement certain provisions of the AEMI-One Rules without violating the ITS Plan. For reasons discussed in the Amex Exemption Letter, the Commission believes that granting Amex’s request for an exemption from certain provisions of the ITS Plan is warranted. The Commission does not believe that OES’s comments regarding the AEMI routing arrangements preclude approval of the AEMI-One Rules. The Commission previously considered this comment as part of the AEMI Rule Filing. For reasons discussed in the order approving that filing, the Commission believes that the Exchange’s arrangements for outbound routing functionality are consistent with the Act.30 Accelerated Approval of Amendment No. 3 Pursuant to Section 19(b)(2) of the Act, the Commission finds good cause to approve the proposal, as amended by Amendment No. 3, prior to the thirtieth day after the amended proposal is published for comment in the Federal Register. The changes that the Exchange proposes in Amendment No. 3 are technical in nature and raise no new issues of regulatory concern beyond those raised in the original proposal, which had a full notice-and-comment period. The Commission finds good cause to accelerate approval of the amended proposal prior to the thirtieth day after publication in the Federal Register. VI. Solicitation of Comments on Amendment No. 3 Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 3, including whether the amendment 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 29 See Letter to Claire P. McGrath, Senior Vice President and General Counsel, Amex, from David S. Shillman, Associate Director, Division Commission, dated November 3, 2006 (‘‘Amex Exemption Letter’’). 30 See AEMI Approval Order, 71 FR at 59554, n. 103. E:\FR\FM\09NON1.SGM 09NON1 Federal Register / Vol. 71, No. 217 / Thursday, November 9, 2006 / Notices • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Amex–2006–72 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. 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 Exchange. 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 November 30, 2006. sroberts on PROD1PC70 with NOTICES VII. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular with Sections 6(b)(5) and 6(b)(8) of the Act.31 It is therefore ordered, pursuant to Section 19(b)(2) of the Act,32 that the proposed rule change (SR–Amex–2006– 72), as amended by Amendment No. 1, be, and it hereby is, approved, and that Amendment No. 3 is approved on an accelerated basis. 31 15 32 15 U.S.C. 78f(b)(5) and 78f(b)(8). U.S.C. 78s(b)(2). VerDate Aug<31>2005 16:26 Nov 08, 2006 Jkt 211001 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.33 Nancy M. Morris, Secretary. [FR Doc. E6–18978 Filed 11–8–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54693; File No. SR–CBOE– 2006–74] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Regarding the Initial and Continued Listing and Trading of Options on Units That Represent Interests in a Trust That Holds a Specified Non-U.S. Currency November 2, 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 August 31, 2006, the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed Amendment No. 1 to the proposed rule change on October 19, 2006.3 The Exchange filed Amendment No. 2 to the proposed rule change on November 1, 2006.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposal on an accelerated basis. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange hereby proposes to amend CBOE Rule 4.18 Interpretation and Policy .01; CBOE Rule 5.3 Interpretation and Policy .06; CBOE Rule 5.4 Interpretation and Policy .08; CBOE Rule 8.9; and CBOE Rule 15.1 Interpretation and Policy .03 to enable 33 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 replaced and superseded the original filing in its entirety. 4 In Amendment No. 2, which supplemented the filing as reflected in Amendment No. 1, the Exchange made several clarifying changes to the proposed rule text contained in CBOE Rule 5.3, Interpretation and Policy .06(D) and (E) and CBOE Rule 5.4, Interpretation and Policy .08. 1 15 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 65851 the initial and continued listing and trading on the Exchange of options on Units that represents interests in a trust that holds a specified non-U.S. currency. The text of the proposed rule change, as amended, is available on the Exchange’s Web site (http:// www.cboe.com), at the Exchange’s Office of the Secretary, 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 Exchange included statements concerning the purpose of and basis for the proposed rule change, as amended, and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant 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 proposes to amend CBOE Rule 4.18, Interpretation and Policy .01; CBOE Rule 5.3, Interpretation and Policy .06; CBOE Rule 5.4, Interpretation and Policy .08; CBOE Rule 8.9; and CBOE Rule 15.1, Interpretation and Policy .03 to enable the initial and continued listing and trading on the Exchange of options on Units that represent interests in a trust that holds a specified non-U.S. currency.5 Currently, the term ‘‘Units,’’ as defined under CBOE Rule 5.3, Interpretation and Policy .06, requires that the investment assets held by a trust, investment company, or similar entity consist of portfolios of securities. As proposed, amended CBOE Rule 5.3, Interpretation and Policy .06 would permit the investment assets also to consist of a trust that holds a specified non-U.S. currency deposited with the trust. In particular, the proposed amendment to CBOE Rule 5.3, Interpretation and Policy .06 would permit the Exchange to list options on the Euro Currency Trust (‘‘Trust’’). The 5 The Commission notes that it recently approved a substantially similar rule change for the International Securities Exchange, Inc. (n/k/a the International Securities Exchange LLC) (‘‘ISE’’), upon which the CBOE has based this proposed rule change. See Securities Exchange Act Release No. 54087 (June 30, 2006), 71 FR 38918 (July 10, 2006) (SR–ISE–2005–60). E:\FR\FM\09NON1.SGM 09NON1

Agencies

[Federal Register Volume 71, Number 217 (Thursday, November 9, 2006)]
[Notices]
[Pages 65847-65851]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-18978]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54709; File No. SR-Amex-2006-72]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving a Proposed Rule Change and Amendment No. 1 Thereto, and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 3, 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

 November 3, 2006.

I. Introduction

    On August 8, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission

[[Page 65848]]

(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to implement an initial version of its Auction & 
Electronic Market Integration (``AEMI'') system, a new hybrid market 
trading platform for equity products and exchange-traded funds 
(``ETFs''). On September 7, 2006, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ The proposed rule change, as amended, was 
published for comment in the Federal Register on September 14, 2006.\4\ 
The Commission received four comments on the proposal.\5\ On October 
31, 2006, Amex filed Amendment No. 3 to the proposal.\6\ This notice 
and order solicits comments from interested persons on Amendment No. 3 
and approves the amended proposal on an accelerated basis.
---------------------------------------------------------------------------

    \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.
    \4\ See Securities Exchange Act Release No. 54413 (September 7, 
2006), 71 FR 54318 (``Notice'').
    \5\ See Letter to Nancy M. Morris, Secretary, Commission, from 
Michael A. Barth, Senior Vice President, Exchange and Market 
Centers, Order Execution Services, Inc., dated September 22, 2006 
(``OES Letter''); Letter to Nancy M. Morris, Secretary, Commission, 
from Mary Yeager, Assistant Secretary, New York Stock Exchange LLC, 
dated September 29, 2006 (``NYSE Letter''); Letter to Nancy M. 
Morris, Secretary, Commission, from David A. Herron, Chief Executive 
Officer, Chicago Stock Exchange, Inc., dated October 5, 2006 (``CHX 
Letter''); and Letter to Nancy M. Morris, Secretary, Commission, 
from Jeffrery S. Davis, Assistant General Counsel, Nasdaq Stock 
Market LLC, dated October 10, 2006 (``Nasdaq Letter'').
    \6\ See Partial Amendment to Form 19b-4 dated October 27, 2006 
(``Amendment No. 3''), infra Section III. The Exchange submitted 
Amendment No. 2 to the Commission on October 30, 2006 and withdrew 
Amendment No. 2 on October 31, 2006.
---------------------------------------------------------------------------

II. Description of Proposal

    The Commission recently approved the Exchange's new hybrid market 
platform for equity products and ETFs, known as AEMI, that will 
integrate automatic execution and floor-based auction trading (the 
``AEMI Rule Filing'').\7\ The Exchange has proposed to adopt, prior to 
the Trading Phase Date,\8\ which is set for February 5, 2007, a 
modified version of the AEMI Rules, known as the ``AEMI-One Rules,'' as 
a pilot program (the ``AEMI-One Pilot''). The AEMI-One Pilot would 
commence 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 Amex's Web site the 
timing for each group of securities being migrated to the AEMI 
platform.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 54552 (September 29, 
2006), 71 FR 59546 (October 10, 2006) (``AEMI Approval Order'').
    \8\ By the Trading Phase Date, each trading center intending to 
qualify its quotations for trade-through protection must bring a 
Regulation NMS-compliant trading system into full operation for all 
NMS stocks intended to be traded during the phase-in period (i.e., 
through October 8, 2007). See Securities Exchange Act Release No. 
53829 (May 18, 2006), 71 FR 30038, 30039 (May 24, 2006) (``NMS 
Extension Release'') (extending compliance dates for Rules 610 and 
611 of Regulation NMS).
---------------------------------------------------------------------------

    Because not all provisions of Regulation NMS are fully operative, 
the AEMI-One Pilot rules are 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 from shortly after Commission approval of the 
AEMI-One Rules until the Trading Phase Date. At the Trading Phase Date, 
the AEMI Rules would become effective and supersede the AEMI-One Rules. 
The Exchange has stated that it would make this change via a filing 
with the Commission to delete the AEMI-One Rules from its rulebook.
    The operation of AEMI-One would be, in most respects, consistent 
with the operation of AEMI, except for the following provisions:
     A ``protected quotation'' in the AEMI-One Pilot (``AEMI-
One Protected Quotation'') is a quotation in an NMS stock that: (1) Is 
disseminated pursuant to an effective national market system plan; (2) 
is the best bid or best offer of a national securities exchange or a 
national securities association that is at a better price than the next 
trade that would occur on AEMI; and (3) is a firm manual or automated 
quotation, irrespective of whether the quotation is at the national 
best bid or offer (``NBBO'').\9\ In contrast, a ``protected quotation'' 
under the AEMI Rules is defined to be consistent with Rule 611 of 
Regulation NMS \10\ and must be an automated quotation that is the best 
bid or offer of an automated trading center.
---------------------------------------------------------------------------

    \9\ See Amendment No. 3, supra note 6.
    \10\ See 17 CFR 242.600(b)(58) (defining ``protected 
quotation''); see also 17 CFR 242.600(b)(57) (defining ``protecting 
bid'' and ``protected offer'').
---------------------------------------------------------------------------

     During the AEMI-One Pilot, not every away market center 
that displays an AEMI-One Protected Quotation may be capable of 
receiving intermarket sweep orders (``ISOs''), as such orders are 
defined in Regulation NMS.\11\ 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 and routed to one or 
more away market centers to execute against all AEMI-One Protected 
Quotations up to their displayed size.\12\ If an away market that 
trades a particular security were capable of receiving ISOs prior to 
the Trading Phase Date, the Exchange could choose to require AEMI to 
generate and utilize ISOs as the away market obligations for that 
market.\13\ 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 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.\14\
---------------------------------------------------------------------------

    \11\ See 17 CFR 242.600(b)(30) (defining ``intermarket sweep 
order'').
    \12\ The Commission notes that the Exchange has represented that 
such immediate-or-cancel orders will carry an expiration delay timer 
that at the outset of AEMI-One will be set to 35 seconds for all 
away market obligations. See Letter to Nancy M. Morris, Secretary, 
Commission, from Claire P. McGrath, Senior Vice President and 
General Counsel, Amex, dated October 31, 2006 (``Amex Request 
Letter'') (requesting exemption from Section 8(d) of the ITS Plan in 
connection with Amex's use of ISOs and the use of private linkages 
instead of ITS for routing away market obligations).
    \13\ The Commission notes that as a condition to the Exchange 
marking an order as an ISO, the Exchange must immediately send ISOs 
or away market obligations, as appropriate to the trading center 
whose quote the Exchange is trying to access, to all AEMI-One 
Protected Quotations.
    \14\ In Amendment No. 1 the Exchange, among other things, 
clarified 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-period quotations. See proposed 
Rule 131-AEMI-One. In Amendment No. 2, the Exchange revised proposed 
Rule 131-AEMI-One to state ``better-priced protected quotation'' 
(emphasis added).
---------------------------------------------------------------------------

III. Amendment No. 3

    In Amendment No. 3, the Exchange proposed certain changes to 
conform the AEMI-One Rules to the final AEMI Rules. These conforming 
changes are made in Rules 24-AEMI-One, 115-AEMI-One, 128A-AEMI-One, 
131-AEMI-One, and 170-AEMI-One. The Exchange also proposed the 
following:
     To change the language describing how the AEMI platform 
will route orders in AEMI-One to protected quotations of away markets 
for trade-through purposes. As described in Amendment No. 3, an AEMI-
One Protected Quotation is any firm

[[Page 65849]]

quotation, whether manual or automated, that is at a better price than 
the next trade that would occur on AEMI, and that is the best bid or 
offer of a national securities exchange or a national securities 
association. In contrast, a ``protected quotation'' under the AEMI 
Rules (effective on and after the Trading Phase Date) is defined to be 
consistent with Rule 611 of Regulation NMS and must be an automated 
quotation that is the best bid or offer of an automated trading center 
(as defined in Regulation NMS).
     To make certain changes to Rule 126A-AEMI-One to insure 
that the AEMI system's handling of trade-throughs is consistent with 
the ITS Plan.
     To remove the order types ``buy minus'' and ``sell plus'' 
from proposed Rule 131-AEMI-One(n) (and all references thereto in the 
AEMI-One Rules) pending additional study of their functionality in a 
Regulation NMS environment.
     To revise the descriptions of ``stop order'' in Rule 131-
AEMI-One(o) and ``stop limit order'' in proposed Rule 131-AEMI-One(p) 
to provide that ``too marketable'' stop and stop limit orders for ETFs 
will be executed, not rejected.
     To codify as Commentary .01 to proposed Rule 154-AEMI-One 
the Exchange's interpretation that a Specialist will not be deemed to 
be ``trading ahead'' of a percentage order (of which it is the agent) 
if: (1) An aggressing order that executes against the Specialist's 
quote ``elects'' the percentage order (making it eligible for immediate 
execution); and (2) the percentage order is not executed by that 
aggressing order due to insufficient remaining interest and therefore 
reverts back to unelected status. Additionally, the Commentary would 
provide that any subsequent trade by the Specialist for its own account 
would not constitute ``trading ahead'' if the percentage order has not 
been otherwise re-elected at that time.
     To revise the definitions of ``Specialist emergency 
quote'' and ``stabilizing quote'' in proposed Rule 1A-AEMI-One to 
provide for an upper limit (not to exceed ten) on the number of 
Specialist emergency quotes that may be immediately generated under a 
possible scenario in which the Specialist pairs off through another 
market. Otherwise, a potentially large number of such quotations might 
be required to be sent out to protect quotes of away markets, creating 
excessive risk, before a tolerance breach occurs. Under the proposed 
rule change, the Specialist must re-quote its market when the above 
referenced limit is hit. The proposed change in the definition of 
``stabilizing quote'' is a related change to provide that a stabilizing 
quote would be issued if the maximum number of Specialist emergency 
quotes has been reached.
     To add language to Rule 126A-AEMI-One reiterating the 
obligations to other market centers that members of the Exchange who 
choose to send ISOs to AEMI during the AEMI-One Pilot will have. This 
requirement also appears in proposed Rule 131-AEMI-One as described 
above. Such members will be obligated to protect all AEMI-One Protected 
Quotations.
     To clarify the meaning of the last sentence of the 
definition of an ``intermarket sweep order'' in proposed Rule 131-AEMI-
One(k), by adding the word ``protected'' before the word ``quotation.'' 
This sentence describes the obligations to other market centers of a 
member of the Exchange who chooses to send an intermarket sweep order 
to the AEMI platform during the AEMI-One Pilot. Such a member would be 
obligated to protect all AEMI-One Protected Quotations.

IV. Comments

    The Commission received four comment letters regarding the proposed 
rule change. One commenter, OES, asserted that the proposed routing 
arrangements contemplate that Amex would inappropriately perform duties 
required to be performed by a broker-dealer, such as making decisions 
on when, how, and where orders are routed.\15\ New York Stock Exchange 
(``NYSE'') argued that Amex's proposal constituted ``an attempt to move 
forward the effective date of the Reg. NMS Order Protection Rule from 
February 5, 2007 to whenever the Amex is ready to implement AEMI-One.'' 
\16\ NYSE also argued that Amex's proposal would violate the 
Intermarket Trading System (``ITS'') Plan and give it the ability to 
trade-through quotes that Amex deems slow. NYSE also observed that, 
when Amex previewed its proposal with the ITS Operating Committee, 
several other markets noted that it would have a negative impact on 
their respective technology implementation schedules. The Chicago Stock 
Exchange (``CHX'') also viewed Amex's proposed rule change as an 
attempt to accelerate the Trading Phase Date and opposed Amex's 
proposal to trade-through quotations Amex deems to be slow.\17\
---------------------------------------------------------------------------

    \15\ See OES Letter at 1. See also AEMI Approval Order, 71 FR at 
59554, n. 103.
    \16\ See NYSE Letter at 1.
    \17\ See CHX Letter at 1.
---------------------------------------------------------------------------

    Nasdaq supported Amex's proposed rule change, characterizing it as 
a ``sensible transitional approach'' that would help it prepare for the 
Trading Phase Date at no or little cost to other market 
participants.\18\ Nasdaq disagreed with NYSE's comments on Amex's 
proposal, stating that the proposed rule change would not result in any 
technical or programming impact to Nasdaq, is voluntary, and could be 
implemented by Amex at any time without requiring other markets to 
implement similar functionality. Nasdaq also asserted that, when Amex 
previewed its plan to the ITS Operating Committee, there was no 
overwhelming consensus either for or against the proposal, and this is 
not unusual given that market participants often have competing 
interests. In Nasdaq's view, any concerns presented at that time about 
the proposal's potential impact on other markets' programming 
requirements were based upon a lack of familiarity with the proposal.
---------------------------------------------------------------------------

    \18\ See Nasdaq Letter at 1.
---------------------------------------------------------------------------

    Amex responded to NYSE's and OES's comment letters.\19\ Amex 
disagreed with NYSE's assertion that the Trading Phase Date is the date 
on which all SRO trading centers will launch their respective 
Regulation NMS-compliant systems. Rather, Amex stated that the Trading 
Phase Date represents an end date by which all such systems must comply 
with Regulation NMS. Moreover, Amex argued that the deadline of the 
Trading Phase Date does not negate the desirability of providing a 
phase-in period for a new trading system. The Exchange asserted that 
the industry should have operating experience with new systems prior to 
the Trading Phase Date before market participants become liable for 
compliance. The Exchange also stated that its proposal would not create 
any additional technical burdens on other market centers. Amex also 
explained that it would not send ISOs to any market not ready to accept 
them and would publish the list of markets to which it would send ISOs 
prior to the Trading Phase Date.\20\ The Exchange also stated that it 
would seek an exemption from the ITS Plan to the extent its proposal 
required.\21\
---------------------------------------------------------------------------

    \19\ See Letter to Nancy M. Morris, Secretary, Commission, from 
Neal L. Wolkoff, Chief Executive Officer, Amex, dated October 10, 
2006 (``Amex Response Letter'').
    \20\ See id. at 2.
    \21\ See id. at 2; see also Amex Request Letter, supra note 12 
(requesting exemption from Section 8(d) of the ITS Plan in 
connection with Amex's use of ISOs and the use of private linkages 
instead of ITS for routing away market obligations).
---------------------------------------------------------------------------

    In response to OES's comment letter, Amex stated that the 
Exchange's routing functionality has no discretion and thus the 
Exchange would not be acting in the

[[Page 65850]]

capacity of a broker.\22\ Amex further explained that the routing logic 
is based on pre-coded functionality which seeks to route orders to the 
market center displaying the best price based on price-size priority. 
The Exchange also stated that it does not believe that its use of 
routing logic or licensing of routing technology would undermine or 
change its ability to provide a marketplace of buyers and sellers.
---------------------------------------------------------------------------

    \22\ See Amex Response Letter at 3-4.
---------------------------------------------------------------------------

    The Commission notes that, in Amendment No. 2, the Exchange amended 
its proposal so that during the AEMI-One Pilot it would protect any 
firm quotation, whether manual or automated, that is at a better price 
than the next trade that would occur on AEMI and that is the best bid 
or offer of a national securities exchange or a national securities 
association. This change should address the comment made by NYSE and 
CHX that the Exchange would ``be permitted to trade through quotes it 
deems slow * * *.'' \23\
---------------------------------------------------------------------------

    \23\ See CHX Letter at 2; see also NYSE Letter at 1.
---------------------------------------------------------------------------

V. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange and, in particular, with the requirements of 
Section 6(b) of the Act.\24\ Specifically, the Commission finds that 
the proposal is consistent with Section 6(b)(5) of the Act \25\ in that 
it is designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission also finds that the 
proposal is consistent with Section 6(b)(8) of the Act,\26\ which 
prohibits an exchange's rules from imposing a burden on competition 
that is not necessary or appropriate in furtherance of the Act. 
Finally, the Commission believes that the proposal is consistent with 
Section 11A(a)(1)(C) of the Act,\27\ in which Congress found that it is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets to assure: (1) 
Economically efficient execution of securities transactions; (2) fair 
competition among brokers and dealers and among exchange markets, and 
between exchange markets, and markets other than exchange markets; (3) 
the availability to brokers, dealers, and investors of information with 
respect to quotations and transactions in securities; (4) the 
practicability of brokers executing investors' orders in the best 
market; and (5) an opportunity for investors' orders to be executed 
without the participation of a dealer. Since the Commission has already 
approved the final AEMI Rules,\28\ only those aspects of the AEMI-One 
Rules that differ from the final AEMI Rules are discussed more fully 
below.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78f(b)(8).
    \27\ 15 U.S.C. 78k-1(a)(1)(C).
    \28\ See AEMI Approval Order, supra note 7.
---------------------------------------------------------------------------

    In its AEMI-One proposal, the Exchange stated that it will protect 
all AEMI-One Protected Quotations--namely all quotations that: (1) Are 
disseminated pursuant to an effective national market system plan; (2) 
are the best bid or best offer of a national securities exchange or a 
national securities association that is at a better price than the next 
trade that would occur on AEMI; and (3) are firm quotations, regardless 
of whether they are manual or automated. The Commission notes that this 
level of price protection appears consistent with the ITS Plan.
    The Exchange plans to utilize ISOs to route orders to AEMI-One 
Protected Quotations of those market centers capable of receiving ISOs. 
For markets that are unable to receive ISOs, the AEMI-One Rules provide 
for the use of an ``away market obligation'' to reach the quotations of 
such markets. An ``away market obligation'' is an immediate-or-cancel 
limit order generated by AEMI in connection with the execution of an 
order by AEMI and simultaneously routed to one or more away market 
centers to execute against the full displayed size of any AEMI-One 
Protected Quotation. In addition, an Amex member may send an ISO to 
AEMI during the AEMI-One Pilot only if it has simultaneously sent an 
ISO (or comparable order) to execute against the full displayed size of 
any AEMI-One Protected Quotation. The AEMI-One Rules provide that the 
Exchange will accept and act upon all inbound, appropriately marked 
ISOs received before the Trading Phase Date that involve securities 
traded on the AEMI platform.
    The Commission believes that the Exchange's proposal is reasonably 
designed to allow Amex and its market participants to gain experience 
with ISOs before the Trading Phase Date. In a separate action, the 
Commission today is exempting Amex from certain provisions of the ITS 
Plan relating to the Exchange's use of ISOs and the use of private 
linkages instead of ITS for routing away market obligations.\29\ This 
exemption will enable Amex to implement certain provisions of the AEMI-
One Rules without violating the ITS Plan. For reasons discussed in the 
Amex Exemption Letter, the Commission believes that granting Amex's 
request for an exemption from certain provisions of the ITS Plan is 
warranted.
---------------------------------------------------------------------------

    \29\ See Letter to Claire P. McGrath, Senior Vice President and 
General Counsel, Amex, from David S. Shillman, Associate Director, 
Division Commission, dated November 3, 2006 (``Amex Exemption 
Letter'').
---------------------------------------------------------------------------

    The Commission does not believe that OES's comments regarding the 
AEMI routing arrangements preclude approval of the AEMI-One Rules. The 
Commission previously considered this comment as part of the AEMI Rule 
Filing. For reasons discussed in the order approving that filing, the 
Commission believes that the Exchange's arrangements for outbound 
routing functionality are consistent with the Act.\30\
---------------------------------------------------------------------------

    \30\ See AEMI Approval Order, 71 FR at 59554, n. 103.
---------------------------------------------------------------------------

Accelerated Approval of Amendment No. 3

    Pursuant to Section 19(b)(2) of the Act, the Commission finds good 
cause to approve the proposal, as amended by Amendment No. 3, prior to 
the thirtieth day after the amended proposal is published for comment 
in the Federal Register. The changes that the Exchange proposes in 
Amendment No. 3 are technical in nature and raise no new issues of 
regulatory concern beyond those raised in the original proposal, which 
had a full notice-and-comment period. The Commission finds good cause 
to accelerate approval of the amended proposal prior to the thirtieth 
day after publication in the Federal Register.

VI. Solicitation of Comments on Amendment No. 3

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether the amendment 
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

[[Page 65851]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Amex-2006-72 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
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 Exchange. 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 
November 30, 2006.

VII. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and in particular with Sections 6(b)(5) and 6(b)(8) of the Act.\31\
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-Amex-2006-72), as amended by 
Amendment No. 1, be, and it hereby is, approved, and that Amendment No. 
3 is approved on an accelerated basis.
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    \31\ 15 U.S.C. 78f(b)(5) and 78f(b)(8).
    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18978 Filed 11-8-06; 8:45 am]
BILLING CODE 8011-01-P