Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Buy-In Rules, 20392-20395 [E7-7711]
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20392
Federal Register / Vol. 72, No. 78 / Tuesday April 24, 2007 / Notices
jlentini on PROD1PC65 with NOTICES
The Commission periodically inspects
the operations of all funds to ensure
their compliance with the provisions of
the Act and the rules under the Act. The
Commission staff spends a significant
portion of their time in these
inspections reviewing the information
contained in the books and records
required to be kept by rule 31a–1 and
to be preserved by rule 31a–2.
There are approximately 4,920 funds
as of December 31, 2006, all of which
are required to comply with rule 31a–
2. Based on recent conversations with
representatives of the fund industry and
past estimates, our staff estimates that
each fund currently spends 220 hours
per year complying with the records
preservation required by rule 31a–2.
The hour burden is incurred by a variety
of fund staff, and the type of staff
position used for compliance with the
rule varies widely from fund to fund.
Based on these estimates, our staff
estimates that the total annual burden of
a fund to comply with rule 31a–2, is 220
hours, with a total annual burden for all
funds of 1,082,400 hours.9
The hour burden estimates for
retaining records under rule 31a–2 are
based on our experience with registrants
and our experience with similar
requirements under the Act and the
rules under the Act. The number of
burden hours may vary depending on,
among other things, the complexity of
the fund, the issues faced by the fund,
and the number of series and classes of
the fund. The estimated average burden
hours are made solely for purposes of
the Paperwork Reduction Act and are
not derived from quantitative,
comprehensive, or even representative
survey or study of the burdens
associated with our rules and forms.
The Commission staff estimates the
average cost of preserving books and
records required by rule 31a–2, to be
approximately $.000035 per $1.00 of net
assets per year.10 As of December 31,
any medium allowed by this section. In the case of
records retained on electronic storage media, the
fund, or person that maintains and preserves
records on its behalf, must establish and maintain
procedures: (i) To maintain and preserve the
records, so as to reasonably safeguard them from
loss, alteration, or destruction; (ii) to limit access to
the records to properly authorized personnel, the
directors of the fund, and the Commission
(including its examiners and other representatives);
and (iii) to reasonably ensure that any reproduction
of a non-electronic original record on electronic
storage media is complete, true, and legible when
retrieved.
9 This estimate is based on the following
calculation: 4,920 registered investment company’s
× 220 hours = 1,082,400 total hours.
10 The staff estimated the annual cost of
preserving the required books and records by
identifying the annual costs for several funds and
then relating this total cost to the average net assets
of these funds during the year. The staff estimates
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2006, our staff estimates total net assets
of all funds at about $10 trillion, and
that compliance with rule 31a–2 costs
the fund industry approximately $350
million per year.11 Our staff estimates,
however, based on conversations with
representatives of the fund industry,
that funds would already spend half of
this amount ($175 million) to preserve
these same books and records, as they
are also necessary to prepare financial
statements, meet various state reporting
requirements, and prepare their annual
federal and state income tax returns.
Therefore, we estimate that the total
annual cost burden for registered fund
due to compliance with rule 31a–2 is
$175 million per year.
These estimates of average costs are
made solely for the purposes of the
Paperwork Reduction Act. The estimate
is not derived from a comprehensive or
even a representative survey or study of
the costs of Commission rules. An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless it
displays a currently valid OMB control
number.
General comments regarding the
above information should be directed to
the following persons: (i) Desk officer
for the Securities and Exchange
Commission, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 10102,
New Executive Office Building,
Washington, DC 20503, or e-mail to:
David_Rostker@omb.eop.gov; and (ii) R.
Corey Booth, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o Shirley Martinson,
6432 General Green Way, Alexandria,
Virginia 22312, or send an e-mail to
PRA_Mailbox@sec.gov. Comments must
be submitted to OMB within 30 days of
this notice.
Dated: April 16, 2007.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–7710 Filed 4–23–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55640; File No. SR–Amex–
2007–04]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Relating to
Its Buy-In Rules
April 17, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
January 8, 2007, the American Stock
Exchange LLC (‘‘Amex’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I, II, and III
below, which items have been prepared
primarily by Amex. Amex filed the
proposed rule change pursuant to
Section 19(b)(3)(A) of the Act 2 and Rule
19b–4(f)(6) thereunder 3 so that the
proposal was effective upon filing with
the Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the proposed rule
change is to amend Amex Rules 759,
783, 784, and 789 and to adopt new
Rule 798 to standardize Amex’s buy-in
rules.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
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. Amex has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.4
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
that the annual cost of preserving records is $70,000
per fund; the funds queried in support of this
analysis had an average asset base of approximately
$2 billion (70,000/2 billion = .000035).
11 This estimate is based on the annual cost per
dollar of net assets of the average fund as applied
to the net assets of all funds ($10 trillion × .000035
= $350 million).
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Amex is amending its Rules 783, 784,
and 789 and is adopting new Rule 798
1 15
U.S.C. 78s(b)(1).
U.S.C. 78s(b)(3)(A)(iii).
3 17 CFR 240.19b–4(f)(6).
4 The Commission has modified the text of the
summaries prepared by Amex.
2 15
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Federal Register / Vol. 72, No. 78 / Tuesday April 24, 2007 / Notices
to permit buyer executed buy-ins,5 to
reduce the waiting period to execute a
buy-in from twenty-one (21) days to
three (3) days, and to otherwise provide
more standardized and consistent
industry buy-in rules and procedures.
Amex is also making conforming
changes to Rules 759, 784, and 789. This
proposal seeks to substantially mirror
the recent New York Stock Exchange
(‘‘NYSE’’) amendments to its buy-in
rules approved by the Commission,
which were made mainly for the
purpose of achieving industry
uniformity.6
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Introduction
The Amex buy-in rules apply to
transactions that are not subject to the
rules of a qualified clearing agency,
such as The Depository Trust Company
(‘‘DTC’’) 7 and the National Securities
Clearing Corporation (‘‘NSCC’’) 8,
including transactions processed in
NSCC’s Continuous Net Settlement
service (‘‘CNS’’) 9 that settle through
them.10 In the event that a buy-in is sent
to the Amex floor for execution, then
Amex buy-in rules apply.
However, under current Amex rules
that place the responsibility for the
actual execution of the buy-in on the
defaulting member or member
organization (‘‘defaulting member’’ or
‘‘seller’’), there are disincentives for the
defaulting member to execute the buyin. For example, the defaulting member
could potentially manipulate the extent
to which it has market exposure by
timing its purchase of the necessary
securities to benefit itself. Therefore, an
initiating member or member
5 A ‘‘buy-in’’ is a transaction between brokerdealers where because the securities are not
delivered on time by the broker-dealer on the sellside, the broker-dealer on the buy-side purchases
the securities from another source.
6 Securities Exchange Act Release No. 52842
(November 28, 2005), 70 FR 72321 (December 2,
2005) [File No. SR–NYSE–2005–50].
7 DTC is a member of the U.S. Federal Reserve
System, a limited-purpose trust company under
New York State banking law, and a clearing agency
registered with the Commission.
8 NSCC is a central counterparty that provides
centralized clearance, settlement, and information
services for virtually all broker-to-broker equity,
corporate bond and municipal bond, exchangetraded funds, and unit investment trust trades in
the U.S. NSCC provides clearing and settlement,
risk management, central counterparty services, and
a guarantee of completion for trades. NSCC also
nets trades and payments among its members
thereby reducing the volume of securities and
payments that need to be exchanged each day.
9 CNS is an automated accounting system that
centralizes and nets the settlement of compared
security transactions in order to maintain an orderly
flow of security and money balances.
10 See Securities Exchange Act Release No. 53528
(March 21, 2006), 71 FR 15506 (March 28, 2006)
[File No. SR–NSCC–2005–15] (approving NSCC’s
CNS buy-in rules).
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organization (‘‘initiating member’’ or
‘‘buyer’’) may receive negative customer
reaction if the customer learns that its
trade has not been settled and that their
securities are not available because a
buy-in has not been executed in a timely
manner by the defaulting member.
Other self-regulatory organizations
(‘‘SROs’’) have recognized this conflict
of interests, and their buy-in rules
assign responsibility accordingly by
allowing the buyer to execute the buyin. By allowing buyers to execute their
own buy-ins, the defaulting members’
conflicts of interest are avoided, and the
process is expedited.
The Securities Industry Association
(‘‘SIA’’) Securities Operations Division
Buy-In Committee (‘‘Committee’’) 11 has
expressed a strong preference that Amex
consider amending its buy-in rules to
eliminate is buy-in notice procedures
and to change who executes the buy-in
to the buyer from the seller. The
purpose of the Committee’s
recommendation is to identify and to
standardize various buy-in rules and
procedures regarding the buy-in process
related to non-CNS transactions and to
help formulate uniformity among
industry rules. The Committee
requested that Amex conform its rules
to those of the other exchanges that
allow the initiating member to execute
buy-ins to close out a contract.
Current Requirements
Amex Rule 784 sets forth the
‘‘mandatory closing of fails’’ process by
which a buyer is required to close-out
a contract that has not been completed
by the seller for a period of twenty-one
(21) business days. A mandatory closing
of fails requires that a notice of
intention be delivered in quadruplicate
and on the twenty-first (21st) business
day after the original due date of the
contract by the initiating member to the
seller. The member organization
receiving the notice of intention must
indicate its position with respect to the
resolution of the failed trade (e.g.,
doesn’t know the trade, knows the trade
but cannot deliver, will deliver) and
return the notice of intention to the
initiating member no later than three
business days after the notice was sent.
If the notice of intention is not returned
when due or is returned with the
indication that the contract is not
known, the initiating member shall
itself close the contract by buying or
selling the securities involved through
its own floor representative. If the notice
of intention is returned when due with
11 The Committee is made up of representatives
from a broad cross-section of broker-dealers and
industry groups.
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20393
an indication that the contract is known
but that delivery cannot be made and if
the contract is one which has been
designated as acceptable for clearance as
a fail item by a registered clearing
agency of which both parties are
clearing members, it shall be submitted
for clearance by the defaulting member.
If the notice of intention is returned
when due with an indication that the
contract is known but that delivery
cannot be made and the contract is one
which has not been designated as
acceptable for clearance as a fail item by
a registered clearing agency of which
both parties are clearing members, the
initiating member shall close the
contract according to the procedures in
Amex Rule 783. Therefore, the rule
currently provides that more than three
weeks may lapse before the contract is
closed.
Amex Rule 783 sets forth a permissive
procedure by which an initiating
member may close-out a contract that
has not been executed by the defaulting
member. The initiating member must
provide notice of its intention to make
a closing. Pursuant to Amex Rule 783,
Amex determines the times for the
delivery of such notices of intention to
close and orders to close and the time
for the closing of contracts. If the times
within which securities may be
delivered are extended or shortened, the
time limits established by Amex may be
similarly extended or shortened.12 Once
the initiating member sends the notice
to the defaulting member, the defaulting
member shall be given a copy of the
order to close for execution on that day.
If the order is not executed, the
defaulting member shall return the
original order within fifteen minutes of
the close of trading indicating why it
cannot be executed, and the buy-in desk
will deliver a copy of the floor report to
the initiating member. The initiating
member may then close the contract and
must notify the defaulting party with
respect to any money differences that it
will claim as damages. If the order is
executed by the defaulting member, it
shall furnish a copy of the order to close
and a copy of the floor report to the buyin desk on the floor.
Amex Rule 789 requires an initiating
member to accept physical delivery of
some or all of the securities that are the
12 Contracts made for cash within one and onehalf hour before the close of trading are given
different treatment with respect to timing. When a
contract made for cash within one and one-half
hour before the close of trading is to be closed on
the same day, the time of the transaction shall be
stated on the order and notice, which shall be
delivered within thirty minutes after the time of the
transaction, and the contract shall not be closed
until thirty-five minutes after the time of the
transaction.
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Federal Register / Vol. 72, No. 78 / Tuesday April 24, 2007 / Notices
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subject of a buy-in thereby halting the
buy-in execution for those securities if
the defaulting member tenders the
securities prior to the buy-in. The
defaulting member must promptly
tender the securities, and if they are not
promptly delivered, such member or
member organization is liable for any
resulting damages.
Proposal
Amex is amending Rule 784 to allow
the member or member organization
failing to receive the securities to
execute the buy-in and to reduce the
waiting period to execute a buy-in from
twenty-one (21) days to three (3) days
after delivery on the contract was due.
The elimination of Commentary .01
through .06 to Rule 784 is intended to
facilitate the amendments to the buy-in
procedures. The amendments to these
procedures are largely proposed in the
text of Rule 784. Amex believes that
once the responsibility is shifted to the
buy-side of the transaction, the buy-in
process will work more efficiently.
The amendments to Rule 784 provide
that the initiating member may close a
contract no sooner than three business
days after the original due date for
delivery (‘‘Effective Date’’). The
initiating member must deliver a written
notice to the defaulting member at least
two days before the proposed buy-in.
After receipt of the buy-in notice, the
defaulting member must then send a
signed, written response to the initiating
member stating its position. If the
response is not received by 5 p.m. ET
on the day of receipt of the buy-in
notice or it is returned with an
indication that the contract is not
known or that it is known but that
delivery cannot be made, the buy-in
may be executed on the Effective Date.
The initiating member shall be required
to accept any portion of the securities
called for by the contract from the
defaulting member that the defaulting
member submits prior to the execution
of the buy-in, but the initiating member
shall not be required to accept any
securities from the defaulting member if
the buy-in has already been executed
and if the buy-in could not have been
reasonably cancelled by the initiating
member. Once the buy-in has been
executed, the initiating member shall
notify the defaulting member
confirming the purchase along with a
bill or payment.
Amex is also eliminating the
requirements for quadruplicate paper
notices and will permit electronic
notices, including notices from a
computerized network facility, or the
electronic functionality of a Qualified
Clearing Agency, such as DTC and
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18:32 Apr 23, 2007
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NSCC. The amendments also change the
existing time deadlines for delivering
notices, securities, and executions and
adopt those used by other selfregulatory organizations.
Amex is also adopting new
Commentary .01 to Rule 784 to help
ensure that members and member
organizations comply with the
requirements of Regulation SHO.13
Members and member organizations are
obligated to comply with the marking,
locate, and delivery requirements of
Regulation SHO for short sales of equity
securities. As a result, members and
member organizations should have
policies and procedures in place to
comply with these requirements,
including close-out procedures.14
Amex is rescinding Rule 783 and has
incorporated the permissive buy-in
procedures of Rule 783 into Rule 784.
Amex is also amending Rule 789 to
conform it to this proposal to permit
buyer executed buy-ins and to create a
Rule 798 to clarify the requirements and
time frames upon which a defaulting
member may deliver against a buy-in
notice. Finally, Amex is making
technical amendments to Rules 759, 784
and 789 to better coordinate the rules
with industry practice.
Amex believes that the revisions to its
buy-in rules will help standardize
Amex’s procedure and practice by
allowing members and member
organizations to clean-up fails and
efficiently deliver Amex-listed
securities. Amex believes that the
proposed rule change is consistent with
Section 6 of the Act in general and
furthers the objectives of Section 6(b)(5)
in particular in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and 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. By
amending the Amex buy-in rules to
permit buyers to execute buy-ins, firms
13 17
CFR 242.200 through 242.203. Securities
Exchange Act Release No. 50103 (July 28, 2004), 69
FR 48008 (August 6, 2004), [File No. S7–23–03]
(adoption of Regulation SHO).
14 At the same time the changes noted above were
being developed, the SEC implemented Regulation
SHO, Regulation of Short Sales, which shares a
similar purpose, the reduction of fails to deliver,
with the buy-in rules. Rule 203 to Regulation SHO
imposes locate and borrowing/ delivery
requirements on broker-dealers that sell equity
securities, including close-out requirements on
certain open fail to deliver positions.
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are expected to find it easier to execute
buy-ins of Amex-listed securities. In
addition, the amendments seek to
remove inefficient requirements and
amend time deadlines to conform to
current industry practice.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Amex does not believe that the
proposed rule change will impose any
burden on competition.
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
Because the foregoing proposed rule
change (1) Does not significantly affect
the protection of investors or the public
interest, (2) does not impose any
significant burden on competition, and
(3) does not become operative for 30
days from the date of filing or such
shorter time as the Commission may
designate if consistent with the
protection of investors and the public
interest, the proposed rule change has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 15 and Rule
19b–4(f)(6) thereunder.16 As required by
Rule 19b–4(f)(6)(iii), Amex provided the
Commission with written notice of its
intent to file the proposed rule change
at least five business days prior to filing
the proposal with the Commission or
within such shorter period as
designated by the Commission.
At any time within sixty (60) days of
the filing of the proposed rule change,
the Commission could have summarily
abrogated such rule change if it
appeared to the Commission that such
action was necessary or appropriate in
the public interest, for the protection of
investors, or otherwise in 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:
15 15
16 17
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U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
24APN1
Federal Register / Vol. 72, No. 78 / Tuesday April 24, 2007 / Notices
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–2007–04 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.
jlentini on PROD1PC65 with NOTICES
All submissions should refer to File
Number SR–Amex–2007–04. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549. The text of the proposed rule
change is available at Amex, the
Commission’s Public Reference Room,
and https://www.amex.com/atamex/
ruleFilings/at_rulefilings.html. 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–2007–04 and should
be submitted on or before May 15, 2007.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.17
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–7711 Filed 4–23–07; 8:45 am]
BILLING CODE 8010–01–P
17 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55642; File No. SR–
NASDAQ–2006–032]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendments No. 1, 2, and 3 Thereto,
To Revise The Nasdaq Capital Market
Listing Requirements
April 18, 2007.
I. Introduction
On August 23, 2006, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
revise certain listing requirements
applicable to the Nasdaq Capital Market
(‘‘NCM’’). On August 28, 2006, Nasdaq
filed Amendment No. 1 (‘‘Amendment
No. 1’’) to the proposed rule change.3
The proposed rule change, as amended
by Amendment No. 1, was published for
comment in the Federal Register on
September 5, 2006.4 The Commission
received no comments on the proposal,
as amended by Amendment No. 1. On
December 4, 2006, Nasdaq filed
Amendment No. 2 (‘‘Amendment No.
2’’) to the proposed rule change.5 On
February 15, 2007, Nasdaq filed
Amendment No. 3 (‘‘Amendment No.
3’’) to the proposed rule change.6 This
order provides notice of Amendment
No. 3 and approves the proposed rule
115
U.S.C. 78s(b)(1).
CFR 240.19b 4.
3 In Amendment No. 1, Nasdaq made clarifying
changes to the rule text in the NCM convertible debt
listing standards. Nasdaq also made clarifying
changes to the purpose section regarding
convertible debt, rights and warrants, and nonCanadian foreign securities and American
Depository Receipts.
4 See Securities Exchange Act Release No. 54378
(August 28, 2006), 71 FR 52351 (September 5, 2006)
(‘‘Notice’’).
5 In Amendment No. 2, Nasdaq made minor
clarifying changes to the purpose section to explain
the application of the new NCM listing standards
as they relate to the grace period for noncompliance with the bid requirement pursuant to
Nasdaq Rules 4310(c)(8)(D), 4320(e)(2)(E)(ii), and
4450(i). This is a technical amendment and is not
subject to notice and comment.
6 In Amendment No. 3, Nasdaq amended its
initial and continuing listing standards for
convertible debt to require that current last sale
information be available in the United States for the
underlying security into which a convertible debt
issue is convertible.
2 17
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20395
change on an accelerated basis, as
amended.
II. Discussion
Nasdaq proposes to increase the
initial and continued listing
requirements for companies seeking to
list, or that are already listed, on the
NCM, as set forth in Nasdaq Rule 4310
(for domestic and Canadian securities)
and Nasdaq Rule 4320 (for nonCanadian foreign securities and
American Depositary Receipts).7
The Commission finds that these
proposed changes are consistent with
Section 6(b) of the Act,8 and the rules
and regulations thereunder applicable to
a national securities exchange.9 In
particular, the Commission finds that
these proposed rule changes are
consistent with Section 6(b)(5) of the
Act,10 which requires, among other
things, that the Exchange’s rules be
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 development and enforcement of
adequate standards governing the initial
listing and maintenance of listing of
securities is an activity of critical
importance to financial markets and the
investing public. Listing standards serve
as a means for a marketplace to screen
issuers and to provide listed status only
to bona fide companies with sufficient
float, investor base, and trading interest
to maintain fair and orderly markets.
Once an issuer has been approved for
initial listing, the maintenance criteria
allow a marketplace to monitor the
status and trading characteristics of that
issuer to ensure that it continues to meet
standards for market depth and
liquidity.
The changes to the continued listing
requirements will be effective 30 days
after the proposed rule change is
approved by the Commission. Nasdaq
represents that as of February 9, 2006,
it is not aware of any issuer currently
listing on NCM that would fail to meet
the new continued listing
requirements.11 In the case of
7 For a full description of the proposed rule
change, see Notice, supra note 4 and Amendments
No. 2 and 3, supra notes 5 and 6.
8 15 U.S.C. 78f(b).
9 In approving this proposal, as amended, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
10 15 U.S.C. 78f(b)(5).
11 See letter from Arnold Golub, Associate
General Counsel, Nasdaq, to Elizabeth K. King,
Associate Director, Division (‘‘Division’’),
E:\FR\FM\24APN1.SGM
Continued
24APN1
]]>Agencies
[Federal Register Volume 72, Number 78 (Tuesday, April 24, 2007)]
[Notices]
[Pages 20392-20395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-7711]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-55640; File No. SR-Amex-2007-04]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Its Buy-In Rules
April 17, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 8, 2007, the
American Stock Exchange LLC (``Amex'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change described
in Items I, II, and III below, which items have been prepared primarily
by Amex. Amex filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \2\ and Rule 19b-4(f)(6) thereunder \3\ so that
the proposal was effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78s(b)(3)(A)(iii).
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to amend Amex Rules 759,
783, 784, and 789 and to adopt new Rule 798 to standardize Amex's buy-
in rules.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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. Amex has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\4\
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\4\ The Commission has modified the text of the summaries
prepared by Amex.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Amex is amending its Rules 783, 784, and 789 and is adopting new
Rule 798
[[Page 20393]]
to permit buyer executed buy-ins,\5\ to reduce the waiting period to
execute a buy-in from twenty-one (21) days to three (3) days, and to
otherwise provide more standardized and consistent industry buy-in
rules and procedures. Amex is also making conforming changes to Rules
759, 784, and 789. This proposal seeks to substantially mirror the
recent New York Stock Exchange (``NYSE'') amendments to its buy-in
rules approved by the Commission, which were made mainly for the
purpose of achieving industry uniformity.\6\
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\5\ A ``buy-in'' is a transaction between broker-dealers where
because the securities are not delivered on time by the broker-
dealer on the sell-side, the broker-dealer on the buy-side purchases
the securities from another source.
\6\ Securities Exchange Act Release No. 52842 (November 28,
2005), 70 FR 72321 (December 2, 2005) [File No. SR-NYSE-2005-50].
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Introduction
The Amex buy-in rules apply to transactions that are not subject to
the rules of a qualified clearing agency, such as The Depository Trust
Company (``DTC'') \7\ and the National Securities Clearing Corporation
(``NSCC'') \8\, including transactions processed in NSCC's Continuous
Net Settlement service (``CNS'') \9\ that settle through them.\10\ In
the event that a buy-in is sent to the Amex floor for execution, then
Amex buy-in rules apply.
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\7\ DTC is a member of the U.S. Federal Reserve System, a
limited-purpose trust company under New York State banking law, and
a clearing agency registered with the Commission.
\8\ NSCC is a central counterparty that provides centralized
clearance, settlement, and information services for virtually all
broker-to-broker equity, corporate bond and municipal bond,
exchange-traded funds, and unit investment trust trades in the U.S.
NSCC provides clearing and settlement, risk management, central
counterparty services, and a guarantee of completion for trades.
NSCC also nets trades and payments among its members thereby
reducing the volume of securities and payments that need to be
exchanged each day.
\9\ CNS is an automated accounting system that centralizes and
nets the settlement of compared security transactions in order to
maintain an orderly flow of security and money balances.
\10\ See Securities Exchange Act Release No. 53528 (March 21,
2006), 71 FR 15506 (March 28, 2006) [File No. SR-NSCC-2005-15]
(approving NSCC's CNS buy-in rules).
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However, under current Amex rules that place the responsibility for
the actual execution of the buy-in on the defaulting member or member
organization (``defaulting member'' or ``seller''), there are
disincentives for the defaulting member to execute the buy-in. For
example, the defaulting member could potentially manipulate the extent
to which it has market exposure by timing its purchase of the necessary
securities to benefit itself. Therefore, an initiating member or member
organization (``initiating member'' or ``buyer'') may receive negative
customer reaction if the customer learns that its trade has not been
settled and that their securities are not available because a buy-in
has not been executed in a timely manner by the defaulting member.
Other self-regulatory organizations (``SROs'') have recognized this
conflict of interests, and their buy-in rules assign responsibility
accordingly by allowing the buyer to execute the buy-in. By allowing
buyers to execute their own buy-ins, the defaulting members' conflicts
of interest are avoided, and the process is expedited.
The Securities Industry Association (``SIA'') Securities Operations
Division Buy-In Committee (``Committee'') \11\ has expressed a strong
preference that Amex consider amending its buy-in rules to eliminate is
buy-in notice procedures and to change who executes the buy-in to the
buyer from the seller. The purpose of the Committee's recommendation is
to identify and to standardize various buy-in rules and procedures
regarding the buy-in process related to non-CNS transactions and to
help formulate uniformity among industry rules. The Committee requested
that Amex conform its rules to those of the other exchanges that allow
the initiating member to execute buy-ins to close out a contract.
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\11\ The Committee is made up of representatives from a broad
cross-section of broker-dealers and industry groups.
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Current Requirements
Amex Rule 784 sets forth the ``mandatory closing of fails'' process
by which a buyer is required to close-out a contract that has not been
completed by the seller for a period of twenty-one (21) business days.
A mandatory closing of fails requires that a notice of intention be
delivered in quadruplicate and on the twenty-first (21st) business day
after the original due date of the contract by the initiating member to
the seller. The member organization receiving the notice of intention
must indicate its position with respect to the resolution of the failed
trade (e.g., doesn't know the trade, knows the trade but cannot
deliver, will deliver) and return the notice of intention to the
initiating member no later than three business days after the notice
was sent. If the notice of intention is not returned when due or is
returned with the indication that the contract is not known, the
initiating member shall itself close the contract by buying or selling
the securities involved through its own floor representative. If the
notice of intention is returned when due with an indication that the
contract is known but that delivery cannot be made and if the contract
is one which has been designated as acceptable for clearance as a fail
item by a registered clearing agency of which both parties are clearing
members, it shall be submitted for clearance by the defaulting member.
If the notice of intention is returned when due with an indication that
the contract is known but that delivery cannot be made and the contract
is one which has not been designated as acceptable for clearance as a
fail item by a registered clearing agency of which both parties are
clearing members, the initiating member shall close the contract
according to the procedures in Amex Rule 783. Therefore, the rule
currently provides that more than three weeks may lapse before the
contract is closed.
Amex Rule 783 sets forth a permissive procedure by which an
initiating member may close-out a contract that has not been executed
by the defaulting member. The initiating member must provide notice of
its intention to make a closing. Pursuant to Amex Rule 783, Amex
determines the times for the delivery of such notices of intention to
close and orders to close and the time for the closing of contracts. If
the times within which securities may be delivered are extended or
shortened, the time limits established by Amex may be similarly
extended or shortened.\12\ Once the initiating member sends the notice
to the defaulting member, the defaulting member shall be given a copy
of the order to close for execution on that day. If the order is not
executed, the defaulting member shall return the original order within
fifteen minutes of the close of trading indicating why it cannot be
executed, and the buy-in desk will deliver a copy of the floor report
to the initiating member. The initiating member may then close the
contract and must notify the defaulting party with respect to any money
differences that it will claim as damages. If the order is executed by
the defaulting member, it shall furnish a copy of the order to close
and a copy of the floor report to the buy-in desk on the floor.
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\12\ Contracts made for cash within one and one-half hour before
the close of trading are given different treatment with respect to
timing. When a contract made for cash within one and one-half hour
before the close of trading is to be closed on the same day, the
time of the transaction shall be stated on the order and notice,
which shall be delivered within thirty minutes after the time of the
transaction, and the contract shall not be closed until thirty-five
minutes after the time of the transaction.
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Amex Rule 789 requires an initiating member to accept physical
delivery of some or all of the securities that are the
[[Page 20394]]
subject of a buy-in thereby halting the buy-in execution for those
securities if the defaulting member tenders the securities prior to the
buy-in. The defaulting member must promptly tender the securities, and
if they are not promptly delivered, such member or member organization
is liable for any resulting damages.
Proposal
Amex is amending Rule 784 to allow the member or member
organization failing to receive the securities to execute the buy-in
and to reduce the waiting period to execute a buy-in from twenty-one
(21) days to three (3) days after delivery on the contract was due. The
elimination of Commentary .01 through .06 to Rule 784 is intended to
facilitate the amendments to the buy-in procedures. The amendments to
these procedures are largely proposed in the text of Rule 784. Amex
believes that once the responsibility is shifted to the buy-side of the
transaction, the buy-in process will work more efficiently.
The amendments to Rule 784 provide that the initiating member may
close a contract no sooner than three business days after the original
due date for delivery (``Effective Date''). The initiating member must
deliver a written notice to the defaulting member at least two days
before the proposed buy-in. After receipt of the buy-in notice, the
defaulting member must then send a signed, written response to the
initiating member stating its position. If the response is not received
by 5 p.m. ET on the day of receipt of the buy-in notice or it is
returned with an indication that the contract is not known or that it
is known but that delivery cannot be made, the buy-in may be executed
on the Effective Date. The initiating member shall be required to
accept any portion of the securities called for by the contract from
the defaulting member that the defaulting member submits prior to the
execution of the buy-in, but the initiating member shall not be
required to accept any securities from the defaulting member if the
buy-in has already been executed and if the buy-in could not have been
reasonably cancelled by the initiating member. Once the buy-in has been
executed, the initiating member shall notify the defaulting member
confirming the purchase along with a bill or payment.
Amex is also eliminating the requirements for quadruplicate paper
notices and will permit electronic notices, including notices from a
computerized network facility, or the electronic functionality of a
Qualified Clearing Agency, such as DTC and NSCC. The amendments also
change the existing time deadlines for delivering notices, securities,
and executions and adopt those used by other self-regulatory
organizations.
Amex is also adopting new Commentary .01 to Rule 784 to help ensure
that members and member organizations comply with the requirements of
Regulation SHO.\13\ Members and member organizations are obligated to
comply with the marking, locate, and delivery requirements of
Regulation SHO for short sales of equity securities. As a result,
members and member organizations should have policies and procedures in
place to comply with these requirements, including close-out
procedures.\14\
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\13\ 17 CFR 242.200 through 242.203. Securities Exchange Act
Release No. 50103 (July 28, 2004), 69 FR 48008 (August 6, 2004),
[File No. S7-23-03] (adoption of Regulation SHO).
\14\ At the same time the changes noted above were being
developed, the SEC implemented Regulation SHO, Regulation of Short
Sales, which shares a similar purpose, the reduction of fails to
deliver, with the buy-in rules. Rule 203 to Regulation SHO imposes
locate and borrowing/ delivery requirements on broker-dealers that
sell equity securities, including close-out requirements on certain
open fail to deliver positions.
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Amex is rescinding Rule 783 and has incorporated the permissive
buy-in procedures of Rule 783 into Rule 784. Amex is also amending Rule
789 to conform it to this proposal to permit buyer executed buy-ins and
to create a Rule 798 to clarify the requirements and time frames upon
which a defaulting member may deliver against a buy-in notice. Finally,
Amex is making technical amendments to Rules 759, 784 and 789 to better
coordinate the rules with industry practice.
Amex believes that the revisions to its buy-in rules will help
standardize Amex's procedure and practice by allowing members and
member organizations to clean-up fails and efficiently deliver Amex-
listed securities. Amex believes that the proposed rule change is
consistent with Section 6 of the Act in general and furthers the
objectives of Section 6(b)(5) in particular in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
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. By amending the Amex buy-in
rules to permit buyers to execute buy-ins, firms are expected to find
it easier to execute buy-ins of Amex-listed securities. In addition,
the amendments seek to remove inefficient requirements and amend time
deadlines to conform to current industry practice.
B. Self-Regulatory Organization's Statement on Burden on Competition
Amex does not believe that the proposed rule change will impose any
burden on competition.
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
Because the foregoing proposed rule change (1) Does not
significantly affect the protection of investors or the public
interest, (2) does not impose any significant burden on competition,
and (3) does not become operative for 30 days from the date of filing
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A)(iii) of the
Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ As required by Rule 19b-
4(f)(6)(iii), Amex provided the Commission with written notice of its
intent to file the proposed rule change at least five business days
prior to filing the proposal with the Commission or within such shorter
period as designated by the Commission.
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\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 17 CFR 240.19b-4(f)(6).
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At any time within sixty (60) days of the filing of the proposed
rule change, the Commission could have summarily abrogated such rule
change if it appeared to the Commission that such action was necessary
or appropriate in the public interest, for the protection of investors,
or otherwise in 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:
[[Page 20395]]
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-2007-04 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-2007-04. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549. The text of the proposed rule change is
available at Amex, the Commission's Public Reference Room, and https://
www.amex.com/atamex/ruleFilings/at_rulefilings.html. 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-2007-04 and should be
submitted on or before May 15, 2007.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-7711 Filed 4-23-07; 8:45 am]
BILLING CODE 8010-01-P
