Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC To Establish a New Class of Off-Floor Market Makers in ETFs and Equities Called Designated Amex Remote Traders, 46113-46116 [E7-16052]
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Federal Register / Vol. 72, No. 158 / Thursday, August 16, 2007 / Notices
rwilkins on PROD1PC63 with NOTICES
are 22 entities required to comply with
the rule: 10 National securities
exchanges, 1 national securities
association, 10 registered clearing
agencies, and the Municipal Securities
Rulemaking Board. In addition, 3
national securities exchanges noticeregistered pursuant to Section 6(g) of the
Act are required to preserve records of
determinations made under Rule 3a55–
1, which the Commission staff estimates
will take 1 hour per exchange, for a total
of 3 hours. Accordingly, the
Commission staff estimates that the total
number of hours necessary to comply
with the requirements of Rule 17a–1 is
1,103 hours. The average cost per hour
is $50. Therefore, the total cost of
compliance for the respondents is
$55,150.
Rule 17a–1 does not assure
confidentiality for the records
maintained pursuant to the rule. The
records required by Rule 17a–1 are
available only for examination by the
Commission staff, state securities
authorities and the self-regulatory
organizations. Subject to the provisions
of the Freedom of Information Act, 5
U.S.C. 522, and the Commission’s rules
thereunder (17 CFR 200.80(b)(4)(iii)),
the Commission does not generally
publish or make available information
contained in any reports, summaries,
analyses, letters, or memoranda arising
out of, in anticipation of, or in
connection with an examination or
inspection of the books and records of
any person or any other investigation.
Please note that 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 control number.
Comments should be directed to (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 by
sending an 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,
VA 22312 or send an e-mail to:
PRA_Mailbox@sec.gov. Comments must
be submitted within 30 days of this
notice.
Dated: August 8, 2007.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–16163 Filed 8–15–07; 8:45 am]
17:27 Aug 15, 2007
[Release No. 34–56236; File No. SR–Amex–
2007–85]
Self-Regulatory Organizations; Notice
of Filing of Proposed Rule Change by
the American Stock Exchange LLC To
Establish a New Class of Off-Floor
Market Makers in ETFs and Equities
Called Designated Amex Remote
Traders
August 9, 2007.
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 8,
2007, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
substantially prepared by the Amex.
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 Amex proposes to adopt changes
to its rules to create a new class of offfloor market makers in all ETF and
equity-traded securities that trade on the
Exchange, including the
implementation of related changes to
the Exchange’s AEMISM trading
platform. These market makers, to be
called ‘‘Designated Amex Remote
Traders’’ or ‘‘DARTs,’’ will
electronically enter competitive
quotations on a regular basis sufficient
to satisfy market maker regulatory
requirements. Business requirements
will include minimum performance
standards, including that the quotations
entered must be on one side of the
NBBO for a required percentage of the
time in all assigned securities. The
purpose of the new program is to (1)
encourage competitive quoting within
the Amex and between the Amex and
other market centers, (2) retain and
increase order flow by attracting new
market makers to the Exchange, and (3)
encourage greater depth at or around the
NBBO.
The text of the proposed rule change
is available on the Amex’s Web site at
https://www.amex.com, the Amex’s
principal office, and at the
Commission’s Public Reference Room.
1 15
2 17
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Amex included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The Amex 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
In order to (1) Encourage competitive
quoting within the Amex and between
the Amex and other market centers, (2)
retain and increase equity and ETF
order flow in AEMI by attracting new
market makers to the Exchange, and (3)
encourage greater depth at or around the
NBBO, the Exchange proposes to adopt
changes to its rules to create a new class
of off-floor market makers in all ETF
and equity-traded securities that trade
on the Exchange, including the
implementation of related changes to
the Exchange’s AEMI trading platform.
These market makers, to be called
‘‘Designated Amex Remote Traders’’ or
‘‘DARTs,’’ will electronically enter
competitive quotations on a regular
basis sufficient to satisfy market maker
regulatory requirements. DARTs will
also have to meet certain business
requirements, which will include
minimum performance standards. The
Exchange anticipates that the
implementation of the DARTs program
should increase the liquidity available
in those securities to which DARTs are
assigned and reduce the likelihood of
tolerance breaches in AEMI due to the
resultant additional depth at or around
the NBBO.
DARTs will be members or member
organizations physically located offfloor that will electronically enter
competitive quotations into AEMI on a
regular basis in all securities to which
they are assigned in the DART program.
The proposed DART program is similar
to the Supplemental Registered Options
Traders (‘‘SROT’’) program
implemented by the Amex for options,3
with its own unique caveats. Under the
DART proposal, an Amex specialist firm
may also be a DART, although it may
3 See Amex Rule 993–ANTE (Supplemental
Registered Options Traders).
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not be registered as such in securities in
which it is also the specialist. In ETFs,
DARTs will trade in an identical way as
Registered Traders in the same
securities on the Exchange when autoex is on, with similar obligations under
Exchange rules such as those relating to
a course of dealings that contributes to
the maintenance of a fair and orderly
market. DARTs in equity-traded
securities will be subject to the same
obligations as DARTs in ETFs and will
not be subject to the stabilization rules
that are applicable to equity specialists.
DARTs will not participate in any posttrade allocation in connection with an
auction trade; instead, a DART’s
participation in an auction pair-off on
the Exchange will be limited to the
amount of its quotation on the AEMI
Book at the time of the pair-off.
Amex will establish minimum
requirements for a DART to remain in
the program, which may be modified by
the Exchange from time to time. First,
they must provide competitive
quotations on a regular basis sufficient
to satisfy market maker regulatory
requirements. Business requirements
will include minimum performance
standards determined from time-to-time
by the Exchange, including that a
DART’s quotations must be on one side
of the NBBO for a required percentage
of the time in all assigned securities.
Other such performance standards will
include average displayed size, average
quoted spread, and the ability of the
DART to transact in underlying markets
in the case of a derivative security. A
DART that fails to comply with one or
more of the performance standards, as
determined by the Chief Executive
Officer of the Exchange or his/her
designee, may be subject to loss of the
benefits to which it would otherwise be
entitled under Amex rules by virtue of
its status as a DART (e.g., rebates for
providing liquidity), including
suspension or termination of DART
status. A DART may be either a regular
member of the Exchange or an associate
member of the Exchange that meets the
requirements for electronic access to the
Exchange’s automated systems. DARTs
will receive benefits for participating in
and meeting the requirements of the
DART program. The benefits currently
being considered by the Exchange may
include, but would not necessarily be
limited to:
(i) Rebates for providing liquidity as
the contra to any customer orders/
quotes executed on AEMI;
(ii) no charges for proprietary trades
by DART program participants; and/or
(iii) no limitation on the number of
equity and ETF securities in which a
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DART could be assigned to make
markets.
The Exchange expects that the
proposed rules for the DART program
will set a high bar for prospective DART
participants, and, while management
anticipates starting the program with a
limited group of DARTS, no specific
upper limit on the number of DARTs is
anticipated. In addition to the
requirements cited above, DARTs shall
be required to meet eligibility criteria
similar to those specified in the SROT
program, which include:
(i) Adequacy of resources including
capital, technology and personnel;
(ii) History of stability, superior
electronic capacity, and superior
operational capacity;
(iii) Level of market-making and/or
specialist experience in a broad array of
securities;
(iv) Ability to interact with order flow
in all types of markets;
(v) Existence of order flow
commitments;
(vi) Willingness and ability to make
competitive markets on the Exchange
and otherwise promote the Exchange in
a manner that is likely to enhance the
ability of the Exchange to compete
successfully for order flow in the equity
and ETF securities it trades; and
(vii) The number of member
organizations requesting approval to act
as a DART.
The Exchange would use the factor
relating to the existence of order flow
commitments to evaluate existing order
flow commitments between a DART
applicant and order flow providers. A
future change to, or termination of, any
such commitments would not be used
by the Exchange at any point in the
future to terminate or take remedial
action against a DART. Furthermore, the
Exchange would not take remedial
action solely because orders subject to
any such commitments were not
subsequently routed to the Exchange.
The factor relating to willingness to
promote the Exchange includes assisting
in meeting and educating market
participants, maintaining
communications with member firms in
order to be responsive to suggestions
and complaints, responding to
suggestions and complaints, and other
similar activities. The Exchange would
use this criterion to determine which
applicants would best be able to
enhance the competitiveness of the
Exchange. The Exchange would not
apply this factor to in any way restrict,
either directly or indirectly, a DART’s
activities as a market maker or specialist
on other exchanges, or to restrict how a
DART handle orders held by it in a
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fiduciary capacity to which it owes a
duty of best execution.
Finally, the Exchange will propose in
future rule filings certain other
significant changes to AEMI in order to
enhance the DART program’s chances of
success. Those proposed changes are
expected to include:
(i) Significantly reducing the parity
window from the current two-second
joining time to a significantly shorter
time period, which should increase the
competition among liquidity providers
to establish a new market;
(ii) Providing reserve interest to
DARTs and other quoting participants;
and
(iii) Allowing DARTs to use PPI
orders (currently limited to Specialists
and Registered Traders).
The regulatory requirements
applicable to DARTs will be surveilled
for by the NASD Amex Regulatory
Division (‘‘NASD’’) consistent with
current surveillance procedures for
Registered Traders on the Exchange.
NASD staff will work with Amex
technical staff on planning the
necessary changes to AEMI to capture
required surveillance data and in
surveilling the increased number of
market makers that the program is
expected to attract. Adjustments to
current technology and surveillance
procedures will likely also be
necessitated by the fact that the DARTs
will not be physically located on the
floor of the Exchange.
The specific AEMI rules to which
changes are being proposed are
discussed below.
Rule 110A–AEMI. Designated Amex
Remote Traders
This proposed new rule will contain
the basic requirements for DARTs as
described herein, in the same manner
that Rule 110–AEMI contains the basic
requirements for Registered Traders.
Rule 1A–AEMI. Applicability,
Definitions, References and Phase-In
The Exchange is proposing revisions
to Rule 1A–AEMI in order to (i) Update
the definition of the AEMI Book to
include electronic submissions from
DARTs, (ii) provide that a Crowd Order
includes any bid or offer in the AEMI
Book entered by a DART, (iii) provide
a definition of a DART with a crossreference to proposed Rule 110A–AEMI,
(iv) update the definition of the
Specialist Order Book to exclude bids
and offers of DARTs, and (v) make a
minor unrelated correction to the
definition of Exchange Traded Funds
(‘‘ETFs’’).
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Rule 109–AEMI. ‘‘Stopping’’ Stock
Rule 128B–AEMI. Auction Trades
The Exchange proposes to revise Rule
109–AEMI to add DARTs to the list of
Amex market participants prohibited
from granting or accepting a stop with
respect to a security traded in AEMI.
The changes being proposed to this
rule would exclude DARTs from
participation in any post-trade
allocation in connection with an
auction, as described above.
Rule 112–AEMI. Suspension of
Registration of Registered Trader or
Designated Amex Remote Trader
Rule 157–AEMI. Orders With More
Than One Broker
The Exchange is proposing to add a
provision to this rule to provide for the
suspension of the registration of a DART
under circumstances similar to the
current provision that provides for the
suspension of a Registered Trader. Both
types of participants are market makers
with respect to securities traded in
AEMI.
The Exchange proposes to add a new
paragraph to this rule that would place
restrictions on DARTs similar to those
that Registered Traders are subject to in
terms of not being able to (i) Place a
Crowd Order with a broker or (ii)
maintain an order on the Specialist
Order Book, while the DART is
maintaining a bid or offer for the
security in AEMI.
Rule 115–AEMI. Exchange Procedures
for Use of Unusual Market Exception
Rule 719–AEMI. Comparison of
Exchange Transactions
The Exchange proposes to revise Rule
115–AEMI to provide procedures that
will cover situations in which DARTs
are unable to publish quotations or are
streaming in incorrect quotes under
unusual market conditions. The
Exchange also is proposing to correct an
inaccuracy in the current rule in order
to clarify that such issues with respect
to Registered Traders are handled via
the Service Desk and not by a Floor
Official.
The Exchange is proposing to add
DARTs to one of the equity account type
codes used for market maker
transactions in the equities and ETFs in
which they are registered.
Rule 123–AEMI. Manner of Bidding and
Offering
The Exchange is proposing revisions
to this rule to provide that AEMI shall
accept electronic bids and offers from
DARTs and include them in the AEMI
Book. The proposed changes would also
place DARTs on a par with Specialists
and Registered Traders in terms of their
ability to stream bids and offers into
AEMI at multiple price levels and
would require (as with Specialists and
Registered Traders) that all quotes
provided be two-sided. DARTs would
also be prohibited from streaming in a
quote that locks or crosses an existing
quote that the same DART has
previously streamed in for the same
security.
rwilkins on PROD1PC63 with NOTICES
Rule 128A–AEMI. Automatic Execution
The Exchange is proposing two minor
changes to Rule 128A–AEMI so that
DARTs will be treated in the same
manner as Registered Traders in
connection with certain automatic
executions when a DART’s quotation (i)
matches the Amex Published Quote
(‘‘APQ’’) on the other side of the market
or (ii) would lock or cross the APQ in
certain circumstances.
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Rule 957. Accounts, Orders and Records
of Registered Traders, Designated Amex
Remote Traders, Specialists and
Associated Persons
The Exchange is proposing changes to
Rule 957 that will place the same
requirements on DARTs that Registered
Traders are subject to with respect to
reporting certain trading accounts and
orders to the Exchange and producing
books, records, and other information
pertaining to certain transactions.
2. Statutory Basis
The proposed rule change is designed
to be consistent with Regulation NMS,
as well as consistent with section 6(b)
of the Act,4 in general, and furthers the
objectives of section 6(b)(5),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 remove
impediments to and perfect the
mechanism of a free and open market
and national market system and, in
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
4 15
5 15
PO 00000
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U.S.C. 78f(b)(5).
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46115
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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
As the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2007–85 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–2007–85. 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
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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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the Amex. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2007–85 and should
be submitted on or before September 6,
2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.6
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–16052 Filed 8–15–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56235; File No. SR–BSE–
2007–37]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Notice of Filing
of Proposed Rule Change To Amend
the Existing Fee Schedules
August 9, 2007.
rwilkins on PROD1PC63 with NOTICES
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 July 18,
2007, the Boston Stock Exchange, Inc.
(‘‘BSE’’), filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been substantially prepared by
BSE. 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 BSE proposes amending certain
transaction fees set forth in the Boston
Equities Exchange (‘‘BeX’’) fee schedule.
The text of the proposed rule change is
available at https://
www.bostonstock.com, at the BSE, and
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
17:27 Aug 15, 2007
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 and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis For, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to amend
the revenue sharing provision of the
BeX fee schedule for the revenue
sharing program. BeX proposes to share
fifty percent of gross revenues generated
from the Liquidity Taker transaction
fees for each symbol traded. The
revenue would be shared with the top
three liquidity-providing Member Firms
based on monthly BeX executed share
volume in each security. Cross trade
volume would not be eligible to be
counted for purposes of determining
BeX executed share volume in this
revenue sharing program. In addition,
Chapter II ‘‘Dealings on the Exchange’’,
section 26 ‘‘Anti-Manipulative
Provisions’’ of the BSE rules prohibits
firms from executing wash sale trades.
If the Exchange determines that a wash
sale trade has occurred, the volume
from such a trade would not be counted
for the purposes of determining BeX
executed share volume for this revenue
sharing program.3
The new revenue sharing program
would work as follows: First, total
monthly BeX generated liquidity taking
revenues would be determined on a per
symbol basis; Second, the total monthly
BeX generated liquidity taking revenues
would be split in half, with fifty percent
going to BeX and fifty percent to be
allocated among the top three liquidity
providing Member Firms in each
security (‘‘Eligible Revenues’’). BeX
would split the pool of Eligible
Revenues with the top three liquidity
providers in each security as follows: In
3 Telephone conversation between Kathy
Marshall, Vice President, Business Strategist, BSE
and Jennifer Colihan, Special Counsel, Division of
Market Regulation, Commission on August 9, 2007.
6 17
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each calendar month, each of the top
three providers would share in the pool
of Eligible Revenues on a pro-rata basis
based on their percentage of executed
liquidity versus the total executed
liquidity for the top three providers.
Additionally, a minimum of 25,000 total
monthly BeX executed shares must be
executed by a liquidity provider to be
eligible to participate in the revenue
sharing program for any specific
security.
The following is an example of how
the revenue sharing program would
work for any one security: Assume
1,125,000 total shares of liquidity were
provided and executed by five separate
firms for the month. Of the 1,125,000
total shares, the top three liquidity
providers represented 1,000,000 shares
with the top firm providing 700,000, the
second place firm providing 200,000
and the third place firm providing
100,000. Since the top firm represented
seventy percent of the total liquidity
provided by the top three firms (700,000
of the 1,000,000 shares), this firm would
receive seventy percent of the Eligible
Revenues. The second place firm would
receive twenty percent of the Eligible
Revenues and the third place firm
would receive ten percent of the Eligible
Revenues.
In the event firms are tied at certain
volume levels, those firms would share
the applicable percentage of Eligible
Revenues among all firms that are tied
at the same levels. The following is an
example of how this would work:
Assume 1,200,000 total shares of
liquidity were provided and executed
by seven separate firms for the month.
Of the 1,200,000 total shares, the top
three liquidity providers represented
1,000,000 with the top firm providing
700,000, and the second, third, and
fourth place firms providing 150,000
shares each. In this example, the top
firm would receive seventy percent of
the Eligible Revenue. The remaining
thirty percent of Eligible Revenue would
be shared equally with the three firms,
each of whom had executed 150,000
shares. Each of the three firms would
receive ten percent of the Eligible
Revenue.
BeX would also report BeX-provided
liquidity information daily on its Web
site, accumulated on a month-to-date
basis. This would show the total
liquidity provided in each security and
would be updated at the close of each
business day. This information would
also be updated hourly on the last
trading day of the month. In addition,
all of the different firms providing
liquidity, as well as the individual
levels of liquidity provided, would be
reported on an anonymous basis (i.e.,
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]]>Agencies
[Federal Register Volume 72, Number 158 (Thursday, August 16, 2007)]
[Notices]
[Pages 46113-46116]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-16052]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56236; File No. SR-Amex-2007-85]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange LLC To Establish a New Class of
Off-Floor Market Makers in ETFs and Equities Called Designated Amex
Remote Traders
August 9, 2007.
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 8, 2007, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Amex. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to adopt changes to its rules to create a new
class of off-floor market makers in all ETF and equity-traded
securities that trade on the Exchange, including the implementation of
related changes to the Exchange's AEMI\SM\ trading platform. These
market makers, to be called ``Designated Amex Remote Traders'' or
``DARTs,'' will electronically enter competitive quotations on a
regular basis sufficient to satisfy market maker regulatory
requirements. Business requirements will include minimum performance
standards, including that the quotations entered must be on one side of
the NBBO for a required percentage of the time in all assigned
securities. The purpose of the new program is to (1) encourage
competitive quoting within the Amex and between the Amex and other
market centers, (2) retain and increase order flow by attracting new
market makers to the Exchange, and (3) encourage greater depth at or
around the NBBO.
The text of the proposed rule change is available on the Amex's Web
site at https://www.amex.com, the Amex's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Amex included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex 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
In order to (1) Encourage competitive quoting within the Amex and
between the Amex and other market centers, (2) retain and increase
equity and ETF order flow in AEMI by attracting new market makers to
the Exchange, and (3) encourage greater depth at or around the NBBO,
the Exchange proposes to adopt changes to its rules to create a new
class of off-floor market makers in all ETF and equity-traded
securities that trade on the Exchange, including the implementation of
related changes to the Exchange's AEMI trading platform. These market
makers, to be called ``Designated Amex Remote Traders'' or ``DARTs,''
will electronically enter competitive quotations on a regular basis
sufficient to satisfy market maker regulatory requirements. DARTs will
also have to meet certain business requirements, which will include
minimum performance standards. The Exchange anticipates that the
implementation of the DARTs program should increase the liquidity
available in those securities to which DARTs are assigned and reduce
the likelihood of tolerance breaches in AEMI due to the resultant
additional depth at or around the NBBO.
DARTs will be members or member organizations physically located
off-floor that will electronically enter competitive quotations into
AEMI on a regular basis in all securities to which they are assigned in
the DART program. The proposed DART program is similar to the
Supplemental Registered Options Traders (``SROT'') program implemented
by the Amex for options,\3\ with its own unique caveats. Under the DART
proposal, an Amex specialist firm may also be a DART, although it may
[[Page 46114]]
not be registered as such in securities in which it is also the
specialist. In ETFs, DARTs will trade in an identical way as Registered
Traders in the same securities on the Exchange when auto-ex is on, with
similar obligations under Exchange rules such as those relating to a
course of dealings that contributes to the maintenance of a fair and
orderly market. DARTs in equity-traded securities will be subject to
the same obligations as DARTs in ETFs and will not be subject to the
stabilization rules that are applicable to equity specialists. DARTs
will not participate in any post-trade allocation in connection with an
auction trade; instead, a DART's participation in an auction pair-off
on the Exchange will be limited to the amount of its quotation on the
AEMI Book at the time of the pair-off.
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\3\ See Amex Rule 993-ANTE (Supplemental Registered Options
Traders).
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Amex will establish minimum requirements for a DART to remain in
the program, which may be modified by the Exchange from time to time.
First, they must provide competitive quotations on a regular basis
sufficient to satisfy market maker regulatory requirements. Business
requirements will include minimum performance standards determined from
time-to-time by the Exchange, including that a DART's quotations must
be on one side of the NBBO for a required percentage of the time in all
assigned securities. Other such performance standards will include
average displayed size, average quoted spread, and the ability of the
DART to transact in underlying markets in the case of a derivative
security. A DART that fails to comply with one or more of the
performance standards, as determined by the Chief Executive Officer of
the Exchange or his/her designee, may be subject to loss of the
benefits to which it would otherwise be entitled under Amex rules by
virtue of its status as a DART (e.g., rebates for providing liquidity),
including suspension or termination of DART status. A DART may be
either a regular member of the Exchange or an associate member of the
Exchange that meets the requirements for electronic access to the
Exchange's automated systems. DARTs will receive benefits for
participating in and meeting the requirements of the DART program. The
benefits currently being considered by the Exchange may include, but
would not necessarily be limited to:
(i) Rebates for providing liquidity as the contra to any customer
orders/quotes executed on AEMI;
(ii) no charges for proprietary trades by DART program
participants; and/or
(iii) no limitation on the number of equity and ETF securities in
which a DART could be assigned to make markets.
The Exchange expects that the proposed rules for the DART program
will set a high bar for prospective DART participants, and, while
management anticipates starting the program with a limited group of
DARTS, no specific upper limit on the number of DARTs is anticipated.
In addition to the requirements cited above, DARTs shall be required to
meet eligibility criteria similar to those specified in the SROT
program, which include:
(i) Adequacy of resources including capital, technology and
personnel;
(ii) History of stability, superior electronic capacity, and
superior operational capacity;
(iii) Level of market-making and/or specialist experience in a
broad array of securities;
(iv) Ability to interact with order flow in all types of markets;
(v) Existence of order flow commitments;
(vi) Willingness and ability to make competitive markets on the
Exchange and otherwise promote the Exchange in a manner that is likely
to enhance the ability of the Exchange to compete successfully for
order flow in the equity and ETF securities it trades; and
(vii) The number of member organizations requesting approval to act
as a DART.
The Exchange would use the factor relating to the existence of
order flow commitments to evaluate existing order flow commitments
between a DART applicant and order flow providers. A future change to,
or termination of, any such commitments would not be used by the
Exchange at any point in the future to terminate or take remedial
action against a DART. Furthermore, the Exchange would not take
remedial action solely because orders subject to any such commitments
were not subsequently routed to the Exchange. The factor relating to
willingness to promote the Exchange includes assisting in meeting and
educating market participants, maintaining communications with member
firms in order to be responsive to suggestions and complaints,
responding to suggestions and complaints, and other similar activities.
The Exchange would use this criterion to determine which applicants
would best be able to enhance the competitiveness of the Exchange. The
Exchange would not apply this factor to in any way restrict, either
directly or indirectly, a DART's activities as a market maker or
specialist on other exchanges, or to restrict how a DART handle orders
held by it in a fiduciary capacity to which it owes a duty of best
execution.
Finally, the Exchange will propose in future rule filings certain
other significant changes to AEMI in order to enhance the DART
program's chances of success. Those proposed changes are expected to
include:
(i) Significantly reducing the parity window from the current two-
second joining time to a significantly shorter time period, which
should increase the competition among liquidity providers to establish
a new market;
(ii) Providing reserve interest to DARTs and other quoting
participants; and
(iii) Allowing DARTs to use PPI orders (currently limited to
Specialists and Registered Traders).
The regulatory requirements applicable to DARTs will be surveilled
for by the NASD Amex Regulatory Division (``NASD'') consistent with
current surveillance procedures for Registered Traders on the Exchange.
NASD staff will work with Amex technical staff on planning the
necessary changes to AEMI to capture required surveillance data and in
surveilling the increased number of market makers that the program is
expected to attract. Adjustments to current technology and surveillance
procedures will likely also be necessitated by the fact that the DARTs
will not be physically located on the floor of the Exchange.
The specific AEMI rules to which changes are being proposed are
discussed below.
Rule 110A-AEMI. Designated Amex Remote Traders
This proposed new rule will contain the basic requirements for
DARTs as described herein, in the same manner that Rule 110-AEMI
contains the basic requirements for Registered Traders.
Rule 1A-AEMI. Applicability, Definitions, References and Phase-In
The Exchange is proposing revisions to Rule 1A-AEMI in order to (i)
Update the definition of the AEMI Book to include electronic
submissions from DARTs, (ii) provide that a Crowd Order includes any
bid or offer in the AEMI Book entered by a DART, (iii) provide a
definition of a DART with a cross-reference to proposed Rule 110A-AEMI,
(iv) update the definition of the Specialist Order Book to exclude bids
and offers of DARTs, and (v) make a minor unrelated correction to the
definition of Exchange Traded Funds (``ETFs'').
[[Page 46115]]
Rule 109-AEMI. ``Stopping'' Stock
The Exchange proposes to revise Rule 109-AEMI to add DARTs to the
list of Amex market participants prohibited from granting or accepting
a stop with respect to a security traded in AEMI.
Rule 112-AEMI. Suspension of Registration of Registered Trader or
Designated Amex Remote Trader
The Exchange is proposing to add a provision to this rule to
provide for the suspension of the registration of a DART under
circumstances similar to the current provision that provides for the
suspension of a Registered Trader. Both types of participants are
market makers with respect to securities traded in AEMI.
Rule 115-AEMI. Exchange Procedures for Use of Unusual Market Exception
The Exchange proposes to revise Rule 115-AEMI to provide procedures
that will cover situations in which DARTs are unable to publish
quotations or are streaming in incorrect quotes under unusual market
conditions. The Exchange also is proposing to correct an inaccuracy in
the current rule in order to clarify that such issues with respect to
Registered Traders are handled via the Service Desk and not by a Floor
Official.
Rule 123-AEMI. Manner of Bidding and Offering
The Exchange is proposing revisions to this rule to provide that
AEMI shall accept electronic bids and offers from DARTs and include
them in the AEMI Book. The proposed changes would also place DARTs on a
par with Specialists and Registered Traders in terms of their ability
to stream bids and offers into AEMI at multiple price levels and would
require (as with Specialists and Registered Traders) that all quotes
provided be two-sided. DARTs would also be prohibited from streaming in
a quote that locks or crosses an existing quote that the same DART has
previously streamed in for the same security.
Rule 128A-AEMI. Automatic Execution
The Exchange is proposing two minor changes to Rule 128A-AEMI so
that DARTs will be treated in the same manner as Registered Traders in
connection with certain automatic executions when a DART's quotation
(i) matches the Amex Published Quote (``APQ'') on the other side of the
market or (ii) would lock or cross the APQ in certain circumstances.
Rule 128B-AEMI. Auction Trades
The changes being proposed to this rule would exclude DARTs from
participation in any post-trade allocation in connection with an
auction, as described above.
Rule 157-AEMI. Orders With More Than One Broker
The Exchange proposes to add a new paragraph to this rule that
would place restrictions on DARTs similar to those that Registered
Traders are subject to in terms of not being able to (i) Place a Crowd
Order with a broker or (ii) maintain an order on the Specialist Order
Book, while the DART is maintaining a bid or offer for the security in
AEMI.
Rule 719-AEMI. Comparison of Exchange Transactions
The Exchange is proposing to add DARTs to one of the equity account
type codes used for market maker transactions in the equities and ETFs
in which they are registered.
Rule 957. Accounts, Orders and Records of Registered Traders,
Designated Amex Remote Traders, Specialists and Associated Persons
The Exchange is proposing changes to Rule 957 that will place the
same requirements on DARTs that Registered Traders are subject to with
respect to reporting certain trading accounts and orders to the
Exchange and producing books, records, and other information pertaining
to certain transactions.
2. Statutory Basis
The proposed rule change is designed to be consistent with
Regulation NMS, as well as consistent with section 6(b) of the Act,\4\
in general, and furthers the objectives of section 6(b)(5),\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 remove impediments to and perfect the mechanism
of a free and open market and national market system and, in general,
to protect investors and the public interest.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2007-85 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-2007-85. 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
[[Page 46116]]
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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Amex. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Amex-2007-85 and should be
submitted on or before September 6, 2007.
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\6\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-16052 Filed 8-15-07; 8:45 am]
BILLING CODE 8010-01-P
