Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Amendments No. 1 and 2, To Establish a Directed Order Program, 47086-47089 [E7-16468]
Download as PDF
47086
Federal Register / Vol. 72, No. 162 / Wednesday, August 22, 2007 / Notices
60611–2092 or send an e-mail to
Ronald.Hodapp@RRB.GOV. Written
comments should be received within 60
days of this notice.
Charles Mierzwa,
Clearance Officer.
[FR Doc. E7–16590 Filed 8–21–07; 8:45 am]
BILLING CODE 7905–01–P
RAILROAD RETIREMENT BOARD
jlentini on PROD1PC65 with NOTICES
Agency Forms Submitted for OMB
Review, Request for Comments
Summary: In accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. Chapter 35), the Railroad
Retirement Board (RRB) is forwarding
an Information Collection Request (ICR)
to the Office of Information and
Regulatory Affairs (OIRA), Office of
Management and Budget (OMB) to
request an extension of a currently
approved collection of information:
3220–0097, consisting of Form UI–1e,
Pay Rate Report. Our ICR describes the
information we seek to collect from the
public. Review and approval by OIRA
ensures that we impose appropriate
paperwork burdens.
The RRB invites comments on the
proposed collection of information to
determine (1) the practical utility of the
collection; (2) the accuracy of the
estimated burden of the collection; (3)
ways to enhance the quality, utility and
clarity of the information that is the
subject of collection; and (4) ways to
minimize the burden of collections on
respondents, including the use of
automated collection techniques or
other forms of information technology.
Comments to RRB or OIRA must contain
the OMB control number of the ICR. For
proper consideration of your comments,
it is best if RRB and OIRA receive them
within 30 days of publication date.
Under Section 2(a) of the Railroad
Unemployment Insurance Act, the daily
benefit rate for unemployment and
sickness benefits depends on the
claimant’s last daily rate of pay in the
base year. The procedures pertaining to
the use of a claimant’s daily pay rate in
determining the daily benefit rate are
prescribed in 20 CFR part 330.
The RRB utilizes Form UI–1e, Request
for Pay Rate Information, to obtain
information from a claimant about their
last railroad employer and pay rate,
when it is not available from other RRB
records. Form UI–1e also explains the
possibility of receiving a higher daily
benefit rate if claimants report their
daily rate of pay for railroad work in the
base year. Completion is required to
obtain or retain benefits. One response
is requested of each respondent.
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Previous Requests for Comments: The
RRB has already published the initial
60-day notice (72 FR 9594 on March 2,
2007) required by 44 U.S.C. 3506(c)(2).
That request elicited no comments.
SECURITIES AND EXCHANGE
COMMISSION
Information Collection Request (ICR)
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval to a Proposed
Rule Change, as Modified by
Amendments No. 1 and 2, To Establish
a Directed Order Program
Title: Pay Rate Report.
OMB Control Number: 3220–0097.
Form(s) submitted: UI–1e.
Type of request: Extension of a
currently approved collection.
Affected public: Individuals or
households.
Abstract: Under the Railroad
Unemployment Insurance Act, the daily
benefit rate for unemployment and
sickness benefits depends on the
employee’s last daily rate of pay. The
report obtains the claimed rate of pay
from the employee that is used to
determine whether an increase in the
daily benefit rate is due.
Changes Proposed: The RRB proposes
no changes to Form UI–45.
The burden estimate for the ICR is as
follows:
Estimated Completion Time for Form
UI–1e: 5 minutes.
Estimated annual number of
respondents: 350.
Total annual responses: 350.
Total annual reporting hours: 29.
Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from
Charles Mierzwa, the agency clearance
officer (312–751–3363) or
Charles.Mierzwa@rrb.gov.
Comments regarding the information
collection should be sent to Ronald J.
Hodapp, Railroad Retirement Board, 844
North Rush Street, Chicago, Illinois
60611–2092 or
Ronald.Hodapp@RRB.GOV, and to the
Office of Management Budget at ATTN:
Desk Officer for RRB, Fax: (202) 395–
6974 or via e-mail to
OIRA_Submission@omb.eop.gov.
Charles Mierzwa,
Clearance Officer.
[FR Doc. E7–16592 Filed 8–21–07; 8:45 am]
BILLING CODE 7905–01–P
PO 00000
[Release No. 34–56269; File No. SR–Amex–
2007–75]
August 15, 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 July 24,
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 and II
below, which Items have been
substantially prepared by the Exchange.
On July 30, 2007, the Exchange filed
Amendment No. 1 to the proposed rule
change. On August 15, 2007, the
Exchange filed Amendment No. 2 to the
proposed rule change. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons and is
approving the proposed rule change, as
amended, on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to adopt
Amex Rule 996–ANTE and amend
Amex rule 935–ANTE establishing the
Exchange’s Directed Order Program (the
‘‘Program’’). The text of the proposed
rule change is available on Exchange’s
Web site (https://www.amex.com), at
Amex’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
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 III below. Amex has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adopt rules
establishing the Exchange’s Directed
Order Program (the ‘‘Program’’).
Proposed Rule 996–ANTE provides that
specialists, Registered Options Traders
(‘‘ROTs’’), Supplemental Registered
Options Traders (‘‘SROTs’’), and Remote
Registered Options Traders (‘‘RROTs’’)
(collectively, the ‘‘Directed Order
Participants’’) 3 may choose to enter into
arrangements with an Order Flow
Provider,4 whereby a Directed Order
Participant would be directed orders
upon meeting certain eligibility
requirements.
Eligibility
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The Exchange will allow for the
receipt of marketable orders, through
the Exchange’s order routing system
when the Exchange’s disseminated
quote is the NBBO, where the order flow
providing firm (‘‘Order Flow
Provider’’) 5 transmitting that order has
specified a specialist, ROT, SROT or
RROT in that class as the Directed Order
Participant for its orders that class. To
be eligible for the Program the Directed
Order Participant: (i) Must submit
quotes electronically through the
Exchange’s ANTE system, in options
classes in which it is assigned; (ii) must
comply with its quoting obligations
under Exchange rules and provide
continuous two-sided quotations in not
less than 100% of the series of each
class for which it receives directed
orders; and (iii) must also be quoting at
the best bid or offer on the Exchange
(the ‘‘ABBO’’).6
3 The Exchange’s SROT and RROT programs were
recently approved by the Commission on April 12,
2006 and April 13, 2006, respectively. See
Securities Exchange Act Release Nos. 53635 (April
12, 2006), 71 FR 20144 (April 12, 2006) (order
approving the SROT program) and 53652 (April 13,
2006), 71 FR 20422 (April 20, 2006) (order
approving the RROT program).
4 Order Flow Providers are defined in proposed
Rule 996–ANTE as any member or member
organization that submits, as agent, customer orders
to the Exchange.
5 An ‘‘Order Flow Provider’’ is any member or
member organization that submits, as agent,
customer orders to the Exchange. See proposed
Rule 996–ANTE(d).
6 Pursuant to Exchange Rule 958–ANTE(h)(iii)(A),
ROTs are responsible for quoting continuous twosided markets in a certain percentage of series based
on the volume of contracts executed electronically
on the Exchange during the previous quarter.
Pursuant to Exchange Rules 993–ANTE (c)(ii) and
994–ANTE (c)(iv), SROTs and RROTs are
responsible for quoting continuous two-sided
markets in 60% of the series of their assigned
classes.
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Enhanced Participation and Allocation
An eligible Directed Order Participant
who is directed orders will receive an
enhanced participation equal to the
greater of 40% of the remaining directed
orders, when more than one market
participant is quoting at the ABBO, or
the amount the Directed Order
Participant would be entitled to receive
pursuant to the allocation algorithm set
forth in Rule 935–ANTE(a)(4).
The enhanced participation rate is
based on the number of contracts
remaining after all non-broker-dealer
customer orders in the book at the best
price have been satisfied. If an eligible
Directed Order Participant receives
enhanced participation under the rule,
then no other participation entitlement
set forth in Amex Rules shall apply to
such order. The eligible Directed Order
Participant must also be quoting at the
ABBO to receive the guaranteed
percentage, and can never be allocated
more contracts than his quote size.7 Any
contracts remaining after the eligible
Directed Order Participant has received
his allocation shall be allocated among
the remaining participants according to
the allocation algorithm set forth in Rule
935–ANTE(a)(4). No participant will be
allocated contracts in excess of the size
of his disseminated quote.
Finally, the Exchange notes that an
eligible Directed Order Participant may
not step up and match the ABBO after
it receives an order, but must be
publicly quoting at the ABBO when the
order is received.8 An Order Flow
Provider is prohibited from notifying a
Directed Order Participant of its
intention to submit a directed order, so
that the Directed Order Participant may
not change its quotation to match the
ABBO immediately prior to the
submission of the directed order, and
then fade his quote. Specifically, the
Exchange currently has rules in place to
prevent such conduct as being
7 The allocation algorithm in Rule 935–ANTE
(a)(4) is comprised of a Component A and a
Component B. Component A is the parity
component of the algorithm. In this component all
market participants (except for non-broker-dealer
customers) who were either quoting or had orders
at the ABBO will be treated equally. Accordingly,
the percentage used for Component A is an equal
percentage derived by dividing 100 by the number
of market participants at the ABBO. Component B
is the size pro rata component and is designed to
reward market participants who quote in size. The
percentage used for Component B is the percentage
that the size of each market participant’s quote or
order at the ABBO represents relative to the total
number of contracts in the disseminated bid (for
sell orders) and offer (for buy orders). The weight
each component will have in the final percentage
used to allocate executed contracts will initially be
equal.
8 The Exchange’s disseminated quote must be at
the NBBO at the time of receipt of the Directed
Order. See proposed Rule 996–ANTE(a).
PO 00000
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47087
inconsistent with just and equitable
principles of trade and to prevent the
misuse of material non-public
information.9
The Exchange proposes that the
effective date of the Program shall be
August 20, 2007.10
2. Statutory Basis
The proposed rule change is
consistent with section 6(b) of the Act 11
in general and furthers the objectives of
Section 6(b)(5) of the Act 12 in particular
in that it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of change, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system.
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. 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–2007–75 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–2007–75. This file
9 See
Amex Rules 3(j) and 16.
Amendment No. 2.
11 15 U.S.C. 78f.
12 15 U.S.C. 78f(b)(5).
10 See
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Federal Register / Vol. 72, No. 162 / Wednesday, August 22, 2007 / Notices
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 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 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–2007–75 and should
be submitted on or before September 12,
2007.
jlentini on PROD1PC65 with NOTICES
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of section 6 of the Act 13
and the rules and regulations
thereunder applicable to a national
securities exchange 14, and, in
particular, the requirements of section
6(b)(5) of the Act.15 Section 6(b)(5)
requires, among other things, that the
rules of a national securities exchange
be 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 a national market
system, and, in general, to protect
investors and the public interest.
Pursuant to section 19(b)(2) of the
Act,16 the Commission may not approve
13 15
U.S.C. 78f.
approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
15 15 U.S.C. 78f(b)(5).
16 15 U.S.C. 78s(b)(2).
14 In
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16:26 Aug 21, 2007
Jkt 211001
any proposed rule change, or
amendment thereto, prior to the 30th
day after the date of publication of
notice of the filing thereof, unless the
Commission finds good cause for so
doing and publishes its reasons for so
finding. The Commission notes that the
proposed rule change is substantially
similar to rule changes by CBOE and ISE
that were recently approved by the
Commission on a permanent basis.17
The Commission believes that the
proposed rule changes to establish a
Directed Order Program on the Amex do
not raise additional significant
regulatory issues that have not been
previously considered by the
Commission. Accordingly, the
Commission hereby finds good cause for
approving the proposed rule change, as
amended, prior to the 30th day after
publishing notice thereof in the Federal
Register.
The Commission has previously
approved a rule that guarantees a
specialist a portion of each order when
the specialists quote is equal to the
ABBO.18 The Commission has closely
scrutinized exchange rule proposals to
adopt or amend a participation
guarantee where the percentage of
participation would rise to a level that
could have a material adverse impact on
quote competition within a particular
exchange.19 Because the proposal would
not increase the overall percentage of an
order that is guaranteed beyond the
currently acceptable threshold, but
instead would allow any specialist,
ROT, SROT or RROT appointed to an
options class to be designated as a
Directed Order Participant and be
eligible to receive an enhanced
participation guarantee instead of the
specialist, the Commission does not
believe that the proposal will negatively
impact quote competition on the
Exchange. Under the proposal, the
remaining portion of each order will
still be allocated based on the
competitive bidding of market
participants.
17 See, e.g., Securities Exchange Act Release Nos.
51799 (June 2, 2005), 70 FR 33564 (June 8, 2005)
(order approving SR–CBOE–2004–71), 55826 (May
29, 2007), 72 FR 31357 (SR–CBOE–2007–47)
(permanent approval of CBOE’s Preferred MarketMaker Program), 51759 (May 27, 2005), 70 FR
32860 (June, 6, 2005) (order approving SR–Phlx–
2004–91), 51818 (June 10, 2005), 70 FR 35146 (June
16, 2005) (order approving SR–ISE–2005–18), and
55864 (June 5, 2007), 72 FR 32378 (SR ISE 2007–
35) (permanent approval of the ISE’s pilot program
for preferenced orders).
18 See, e.g., Securities Exchange Act Release No.
49747 (May 20, 2004), 69 FR 30344 (May 27, 2004)
(SR–Amex–2003–89).
19 See, e.g., Securities Exchange Act Release No.
43100 (July 31, 2000), 65 FR 48788 (August 9,
2000).
PO 00000
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Sfmt 4703
Under the proposal, in order to be
eligible to receive an participation
guarantee in any options series, the
Exchange proposes to require that a
specialist, ROT, SROT, or RROT
maintain continuous quotes in not less
than 100% of the series of any options
class it for which it receives Directed
Orders.20 In addition, a Directed Order
Participant will have to be quoting at
the NBBO at the time the Directed Order
is received to capitalize on the
enhanced participation guarantee.21 The
Commission believes it is critical that
the Directed Order Participate cannot
step up and match the NBBO after it
receives an order, but must be publicly
quoting at that price when the order is
received. In this regard, the Exchange’s
proposal prohibits an Order Flow
Provider from notifying a Directed
Order Participant of its intention to
submit a Directed Order, so that the
Directed Order Participant may not
change its quotation to match the ABBO
prior to the submission of the Directed
Order, and then fade his quote. The
Exchange represented that it has rules in
place to prevent such conduct as being
inconsistent with just and equitable
principles of trade and to prevent the
misuse of material non-public
information.22 Furthermore, the
Exchange represented that it will
proactively conduct surveillance for
compliance with the applicable rules in
conjunction with the Exchange’s
Directed Order Flow Program and
enforce these rules.
The Commission emphasizes that
approval of this proposal does not affect
a broker-dealer’s duty of best execution.
A broker-dealer has a legal duty to seek
to obtain best execution of customer
orders, and any decision to preference a
particular specialist, ROT, SROT, or
RROT must be consistent with this
duty.23 A broker-dealer’s duty of best
execution derives from common law
agency principles and fiduciary
20 See Amex Rule 996–ANTE. The specialist,
ROT, SROT, or RROT also must have an
appointment/allocation in such options class. Id.
21 Specifically, Rule 996–ANTE requires a
Directed Order Participant to be quoting at the
ABBO while the Exchange’s disseminated quote is
the NBBO in order to be eligible to receive an
enhanced participation for the order.
22 See Amex Rules 3(j) and 16.
23 See, e.g., Newton v. Merrill, Lynch, Pierce,
Fenner & Smith, Inc., 135 F.3d 266, 269–70, 274 (3d
Cir.), cert. denied, 525 U.S. 811 (1998); Certain
Market Making Activities on Nasdaq, Securities
Exchange Act Release No. 40900 (January 11, 1999)
(settled case) (citing Sinclair v. SEC, 444 F.2d 399
(2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636
(1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969
(D.C. Cir. 1949)). See also Order Execution
Obligations, Securities Exchange Act Release No.
37619A (September 6, 1996), 61 FR 48290
(September 12, 1996) (‘‘Order Handling Rules
Release’’).
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Federal Register / Vol. 72, No. 162 / Wednesday, August 22, 2007 / Notices
obligations, and is incorporated in rules
of self-regulatory organization and,
through judicial and Commission
decisions, the antifraud provisions of
the federal securities laws.24
The duty of best execution requires
broker-dealers to execute customers’
trades at the most favorable terms
reasonably available under the
circumstances, i.e., at the best
reasonably available price.25 The duty
of best execution requires broker-dealers
to periodically assess the quality of
competing markets to assure that order
flow is directed to the markets
providing the most beneficial terms for
their customer orders.26 Broker-dealers
must examine their procedures for
seeking to obtain best execution in light
of market and technology changes and
modify those practices if necessary to
enable their customers to obtain the best
jlentini on PROD1PC65 with NOTICES
24 Order
Handling Rules Release, 61 FR at 48322.
See also Newton, 135 F.3d at 270. Failure to satisfy
the duty of best execution can constitute fraud
because a broker-dealer, in agreeing to execute a
customer’s order, makes an implied representation
that it will execute it in a manner that maximizes
the customer’s economic gain in the transaction.
See Newton, 135 F.3d at 273 (‘‘[T]he basis for the
duty of best execution is the mutual understanding
that the client is engaging in the trade—and
retaining the services of the broker as his agent—
solely for the purpose of maximizing his own
economic benefit, and that the broker receives her
compensation because she assists the client in
reaching that goal.’’); Marc N. Geman, Securities
Exchange Act Release No. 43963 (February 14,
2001) (citing Newton, but concluding that
respondent fulfilled his duty of best execution). See
also Payment for Order Flow, Securities Exchange
Act Release No. 34902 (October 27, 1994), 59 FR
55006, 55009 (November 2, 1994) (‘‘Payment for
Order Flow Final Rules’’). If the broker-dealer
intends not to act in a manner that maximizes the
customer’s benefit when he accepts the order and
does not disclose this to the customer, the brokerdealer’s implied representation is false. See Newton,
135 F.3d at 273–274.
25 Newton, 135 F.3d at 270. Newton also noted
certain factors relevant to best execution—order
size, trading characteristics of the security, speed of
execution, clearing costs, and the cost and difficulty
of executing an order in a particular market. Id. at
270 n. 2 (citing Payment for Order Flow, Securities
Exchange Act Release No. 33026 (October 6, 1993),
58 FR 52934, 52937–38 (October 13, 1993)
(Proposed Rules)). See In re E.F. Hutton & Co.
(‘‘Manning’’), Securities Exchange Act Release No.
25887 (July 6, 1988). See also Payment for Order
Flow Final Rules, 59 FR at 55008–55009.
26 Order Handling Rules Release, 61 FR at 48322–
48333 (‘‘In conducting the requisite evaluation of its
internal order handling procedures, a broker-dealer
must regularly and rigorously examine execution
quality likely to be obtained from different markets
or market makers trading a security.’’). See also
Newton, 135 F.3d at 271; Market 2000: An
Examination of Current Equity Market
Developments V–4 (SEC Division of Market
Regulation January 1994) (‘‘Without specific
instructions from a customer, however, a brokerdealer should periodically assess the quality of
competing markets to ensure that its order flow is
directed to markets providing the most
advantageous terms for the customer’s order.’’);
Payment for Order Flow Final Rules, 59 FR at
55009.
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16:26 Aug 21, 2007
Jkt 211001
reasonably available prices.27 In doing
so, broker-dealers must take into
account price improvement
opportunities, and whether different
markets may be more suitable for
different types of orders or particular
securities.28
For these reasons, the Commission
believes that the proposal is consistent
with the requirements of Section 6(b)(5)
of the Act,29 and will not jeopardize
market integrity or the incentive for
market participants to post competitive
quotes.30
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,31 that the
proposed rule change (SR–Amex–2007–
75), as modified by Amendments No. 1
and 2, be, and hereby is, approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.32
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–16468 Filed 8–21–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56262; File No. SR–Amex–
2007–86]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Extend a
Pilot Program That Increases Position
and Exercise Limits for Equity Options
and Options on the Nasdaq-100
Tracking Stock
August 15, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
27 Order
Handling Rules, 61 FR at 48323.
Handling Rules, 61 FR at 48323. For
example, in connection with orders that are to be
executed at a market opening price, ‘‘[b]rokerdealers are subject to a best execution duty in
executing customer orders at the opening, and
should take into account the alternative methods in
determining how to obtain best execution for their
customer orders.’’ Disclosure of Order Execution
and Routing Practices, Securities Exchange Act
Release No. 43590 (November 17, 2000), 65 FR
75414, 75422 (December 1, 2000) (adopting new
Rules 11Ac1–5 and 11Ac1–6 under the Act and
noting that alternative methods offered by some
Nasdaq market centers for pre-open orders included
the mid-point of the spread or at the bid or offer).
29 15 U.S.C. 78f(b)(5).
30 Approval of this proposal is in no way an
endorsement of payment for order flow by the
Commission.
31 15 U.S.C. 78s(b)(2).
32 17 CFR 200.30–3(a)(12).
28 Order
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
47089
(‘‘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 and II
below, which Items have been
substantially prepared by Amex. The
Exchange has filed the proposal as a
‘‘non-controversial’’ rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders it 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 Exchange seeks a six-month
extension of its pilot program increasing
the standard position and exercise
limits for options on the QQQQ and
equity option classes traded on the
Exchange (‘‘Pilot Program’’). The text of
the proposed rule change is available at
Amex, the Commission’s Public
Reference Room, and https://
www.amex.com.
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. 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 requesting to extend
its current Pilot Program increasing the
standard position and exercise limits for
options on the QQQQ and equity option
classes traded on the Exchange for a
time period of six months from
September 1, 2007, through and
including March 1, 2008.
In March 2005, the Exchange
established the Pilot Program for a six1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
E:\FR\FM\22AUN1.SGM
22AUN1
Agencies
[Federal Register Volume 72, Number 162 (Wednesday, August 22, 2007)]
[Notices]
[Pages 47086-47089]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-16468]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56269; File No. SR-Amex-2007-75]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Order Granting Accelerated Approval to a Proposed
Rule Change, as Modified by Amendments No. 1 and 2, To Establish a
Directed Order Program
August 15, 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 July 24, 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 and
II below, which Items have been substantially prepared by the Exchange.
On July 30, 2007, the Exchange filed Amendment No. 1 to the proposed
rule change. On August 15, 2007, the Exchange filed Amendment No. 2 to
the proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons
and is approving the proposed rule change, as amended, on an
accelerated basis.
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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 Exchange proposes to adopt Amex Rule 996-ANTE and amend Amex
rule 935-ANTE establishing the Exchange's Directed Order Program (the
``Program''). The text of the proposed rule change is available on
Exchange's Web site (https://www.amex.com), at Amex's principal office,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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 III below. Amex has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
[[Page 47087]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adopt rules establishing the Exchange's
Directed Order Program (the ``Program''). Proposed Rule 996-ANTE
provides that specialists, Registered Options Traders (``ROTs''),
Supplemental Registered Options Traders (``SROTs''), and Remote
Registered Options Traders (``RROTs'') (collectively, the ``Directed
Order Participants'') \3\ may choose to enter into arrangements with an
Order Flow Provider,\4\ whereby a Directed Order Participant would be
directed orders upon meeting certain eligibility requirements.
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\3\ The Exchange's SROT and RROT programs were recently approved
by the Commission on April 12, 2006 and April 13, 2006,
respectively. See Securities Exchange Act Release Nos. 53635 (April
12, 2006), 71 FR 20144 (April 12, 2006) (order approving the SROT
program) and 53652 (April 13, 2006), 71 FR 20422 (April 20, 2006)
(order approving the RROT program).
\4\ Order Flow Providers are defined in proposed Rule 996-ANTE
as any member or member organization that submits, as agent,
customer orders to the Exchange.
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Eligibility
The Exchange will allow for the receipt of marketable orders,
through the Exchange's order routing system when the Exchange's
disseminated quote is the NBBO, where the order flow providing firm
(``Order Flow Provider'') \5\ transmitting that order has specified a
specialist, ROT, SROT or RROT in that class as the Directed Order
Participant for its orders that class. To be eligible for the Program
the Directed Order Participant: (i) Must submit quotes electronically
through the Exchange's ANTE system, in options classes in which it is
assigned; (ii) must comply with its quoting obligations under Exchange
rules and provide continuous two-sided quotations in not less than 100%
of the series of each class for which it receives directed orders; and
(iii) must also be quoting at the best bid or offer on the Exchange
(the ``ABBO'').\6\
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\5\ An ``Order Flow Provider'' is any member or member
organization that submits, as agent, customer orders to the
Exchange. See proposed Rule 996-ANTE(d).
\6\ Pursuant to Exchange Rule 958-ANTE(h)(iii)(A), ROTs are
responsible for quoting continuous two-sided markets in a certain
percentage of series based on the volume of contracts executed
electronically on the Exchange during the previous quarter. Pursuant
to Exchange Rules 993-ANTE (c)(ii) and 994-ANTE (c)(iv), SROTs and
RROTs are responsible for quoting continuous two-sided markets in
60% of the series of their assigned classes.
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Enhanced Participation and Allocation
An eligible Directed Order Participant who is directed orders will
receive an enhanced participation equal to the greater of 40% of the
remaining directed orders, when more than one market participant is
quoting at the ABBO, or the amount the Directed Order Participant would
be entitled to receive pursuant to the allocation algorithm set forth
in Rule 935-ANTE(a)(4).
The enhanced participation rate is based on the number of contracts
remaining after all non-broker-dealer customer orders in the book at
the best price have been satisfied. If an eligible Directed Order
Participant receives enhanced participation under the rule, then no
other participation entitlement set forth in Amex Rules shall apply to
such order. The eligible Directed Order Participant must also be
quoting at the ABBO to receive the guaranteed percentage, and can never
be allocated more contracts than his quote size.\7\ Any contracts
remaining after the eligible Directed Order Participant has received
his allocation shall be allocated among the remaining participants
according to the allocation algorithm set forth in Rule 935-ANTE(a)(4).
No participant will be allocated contracts in excess of the size of his
disseminated quote.
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\7\ The allocation algorithm in Rule 935-ANTE (a)(4) is
comprised of a Component A and a Component B. Component A is the
parity component of the algorithm. In this component all market
participants (except for non-broker-dealer customers) who were
either quoting or had orders at the ABBO will be treated equally.
Accordingly, the percentage used for Component A is an equal
percentage derived by dividing 100 by the number of market
participants at the ABBO. Component B is the size pro rata component
and is designed to reward market participants who quote in size. The
percentage used for Component B is the percentage that the size of
each market participant's quote or order at the ABBO represents
relative to the total number of contracts in the disseminated bid
(for sell orders) and offer (for buy orders). The weight each
component will have in the final percentage used to allocate
executed contracts will initially be equal.
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Finally, the Exchange notes that an eligible Directed Order
Participant may not step up and match the ABBO after it receives an
order, but must be publicly quoting at the ABBO when the order is
received.\8\ An Order Flow Provider is prohibited from notifying a
Directed Order Participant of its intention to submit a directed order,
so that the Directed Order Participant may not change its quotation to
match the ABBO immediately prior to the submission of the directed
order, and then fade his quote. Specifically, the Exchange currently
has rules in place to prevent such conduct as being inconsistent with
just and equitable principles of trade and to prevent the misuse of
material non-public information.\9\
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\8\ The Exchange's disseminated quote must be at the NBBO at the
time of receipt of the Directed Order. See proposed Rule 996-
ANTE(a).
\9\ See Amex Rules 3(j) and 16.
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The Exchange proposes that the effective date of the Program shall
be August 20, 2007.\10\
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\10\ See Amendment No. 2.
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2. Statutory Basis
The proposed rule change is consistent with section 6(b) of the Act
\11\ in general and furthers the objectives of Section 6(b)(5) of the
Act \12\ in particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of change, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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. 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-2007-75 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-2007-75. This file
[[Page 47088]]
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 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 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-2007-75 and should be
submitted on or before September 12, 2007.
IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of section 6 of the Act
\13\ and the rules and regulations thereunder applicable to a national
securities exchange \14\, and, in particular, the requirements of
section 6(b)(5) of the Act.\15\ Section 6(b)(5) requires, among other
things, that the rules of a national securities exchange be 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 a national market system,
and, in general, to protect investors and the public interest.
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\13\ 15 U.S.C. 78f.
\14\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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Pursuant to section 19(b)(2) of the Act,\16\ the Commission may not
approve any proposed rule change, or amendment thereto, prior to the
30th day after the date of publication of notice of the filing thereof,
unless the Commission finds good cause for so doing and publishes its
reasons for so finding. The Commission notes that the proposed rule
change is substantially similar to rule changes by CBOE and ISE that
were recently approved by the Commission on a permanent basis.\17\ The
Commission believes that the proposed rule changes to establish a
Directed Order Program on the Amex do not raise additional significant
regulatory issues that have not been previously considered by the
Commission. Accordingly, the Commission hereby finds good cause for
approving the proposed rule change, as amended, prior to the 30th day
after publishing notice thereof in the Federal Register.
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\16\ 15 U.S.C. 78s(b)(2).
\17\ See, e.g., Securities Exchange Act Release Nos. 51799 (June
2, 2005), 70 FR 33564 (June 8, 2005) (order approving SR-CBOE-2004-
71), 55826 (May 29, 2007), 72 FR 31357 (SR-CBOE-2007-47) (permanent
approval of CBOE's Preferred Market-Maker Program), 51759 (May 27,
2005), 70 FR 32860 (June, 6, 2005) (order approving SR-Phlx-2004-
91), 51818 (June 10, 2005), 70 FR 35146 (June 16, 2005) (order
approving SR-ISE-2005-18), and 55864 (June 5, 2007), 72 FR 32378 (SR
ISE 2007-35) (permanent approval of the ISE's pilot program for
preferenced orders).
---------------------------------------------------------------------------
The Commission has previously approved a rule that guarantees a
specialist a portion of each order when the specialists quote is equal
to the ABBO.\18\ The Commission has closely scrutinized exchange rule
proposals to adopt or amend a participation guarantee where the
percentage of participation would rise to a level that could have a
material adverse impact on quote competition within a particular
exchange.\19\ Because the proposal would not increase the overall
percentage of an order that is guaranteed beyond the currently
acceptable threshold, but instead would allow any specialist, ROT, SROT
or RROT appointed to an options class to be designated as a Directed
Order Participant and be eligible to receive an enhanced participation
guarantee instead of the specialist, the Commission does not believe
that the proposal will negatively impact quote competition on the
Exchange. Under the proposal, the remaining portion of each order will
still be allocated based on the competitive bidding of market
participants.
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\18\ See, e.g., Securities Exchange Act Release No. 49747 (May
20, 2004), 69 FR 30344 (May 27, 2004) (SR-Amex-2003-89).
\19\ See, e.g., Securities Exchange Act Release No. 43100 (July
31, 2000), 65 FR 48788 (August 9, 2000).
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Under the proposal, in order to be eligible to receive an
participation guarantee in any options series, the Exchange proposes to
require that a specialist, ROT, SROT, or RROT maintain continuous
quotes in not less than 100% of the series of any options class it for
which it receives Directed Orders.\20\ In addition, a Directed Order
Participant will have to be quoting at the NBBO at the time the
Directed Order is received to capitalize on the enhanced participation
guarantee.\21\ The Commission believes it is critical that the Directed
Order Participate cannot step up and match the NBBO after it receives
an order, but must be publicly quoting at that price when the order is
received. In this regard, the Exchange's proposal prohibits an Order
Flow Provider from notifying a Directed Order Participant of its
intention to submit a Directed Order, so that the Directed Order
Participant may not change its quotation to match the ABBO prior to the
submission of the Directed Order, and then fade his quote. The Exchange
represented that it has rules in place to prevent such conduct as being
inconsistent with just and equitable principles of trade and to prevent
the misuse of material non-public information.\22\ Furthermore, the
Exchange represented that it will proactively conduct surveillance for
compliance with the applicable rules in conjunction with the Exchange's
Directed Order Flow Program and enforce these rules.
---------------------------------------------------------------------------
\20\ See Amex Rule 996-ANTE. The specialist, ROT, SROT, or RROT
also must have an appointment/allocation in such options class. Id.
\21\ Specifically, Rule 996-ANTE requires a Directed Order
Participant to be quoting at the ABBO while the Exchange's
disseminated quote is the NBBO in order to be eligible to receive an
enhanced participation for the order.
\22\ See Amex Rules 3(j) and 16.
---------------------------------------------------------------------------
The Commission emphasizes that approval of this proposal does not
affect a broker-dealer's duty of best execution. A broker-dealer has a
legal duty to seek to obtain best execution of customer orders, and any
decision to preference a particular specialist, ROT, SROT, or RROT must
be consistent with this duty.\23\ A broker-dealer's duty of best
execution derives from common law agency principles and fiduciary
[[Page 47089]]
obligations, and is incorporated in rules of self-regulatory
organization and, through judicial and Commission decisions, the
antifraud provisions of the federal securities laws.\24\
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\23\ See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner &
Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525
U.S. 811 (1998); Certain Market Making Activities on Nasdaq,
Securities Exchange Act Release No. 40900 (January 11, 1999)
(settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971);
Arleen Hughes, 27 SEC 629, 636 (1948), aff'd sub nom. Hughes v. SEC,
174 F.2d 969 (D.C. Cir. 1949)). See also Order Execution
Obligations, Securities Exchange Act Release No. 37619A (September
6, 1996), 61 FR 48290 (September 12, 1996) (``Order Handling Rules
Release'').
\24\ Order Handling Rules Release, 61 FR at 48322. See also
Newton, 135 F.3d at 270. Failure to satisfy the duty of best
execution can constitute fraud because a broker-dealer, in agreeing
to execute a customer's order, makes an implied representation that
it will execute it in a manner that maximizes the customer's
economic gain in the transaction. See Newton, 135 F.3d at 273
(``[T]he basis for the duty of best execution is the mutual
understanding that the client is engaging in the trade--and
retaining the services of the broker as his agent--solely for the
purpose of maximizing his own economic benefit, and that the broker
receives her compensation because she assists the client in reaching
that goal.''); Marc N. Geman, Securities Exchange Act Release No.
43963 (February 14, 2001) (citing Newton, but concluding that
respondent fulfilled his duty of best execution). See also Payment
for Order Flow, Securities Exchange Act Release No. 34902 (October
27, 1994), 59 FR 55006, 55009 (November 2, 1994) (``Payment for
Order Flow Final Rules''). If the broker-dealer intends not to act
in a manner that maximizes the customer's benefit when he accepts
the order and does not disclose this to the customer, the broker-
dealer's implied representation is false. See Newton, 135 F.3d at
273-274.
---------------------------------------------------------------------------
The duty of best execution requires broker-dealers to execute
customers' trades at the most favorable terms reasonably available
under the circumstances, i.e., at the best reasonably available
price.\25\ The duty of best execution requires broker-dealers to
periodically assess the quality of competing markets to assure that
order flow is directed to the markets providing the most beneficial
terms for their customer orders.\26\ Broker-dealers must examine their
procedures for seeking to obtain best execution in light of market and
technology changes and modify those practices if necessary to enable
their customers to obtain the best reasonably available prices.\27\ In
doing so, broker-dealers must take into account price improvement
opportunities, and whether different markets may be more suitable for
different types of orders or particular securities.\28\
---------------------------------------------------------------------------
\25\ Newton, 135 F.3d at 270. Newton also noted certain factors
relevant to best execution--order size, trading characteristics of
the security, speed of execution, clearing costs, and the cost and
difficulty of executing an order in a particular market. Id. at 270
n. 2 (citing Payment for Order Flow, Securities Exchange Act Release
No. 33026 (October 6, 1993), 58 FR 52934, 52937-38 (October 13,
1993) (Proposed Rules)). See In re E.F. Hutton & Co. (``Manning''),
Securities Exchange Act Release No. 25887 (July 6, 1988). See also
Payment for Order Flow Final Rules, 59 FR at 55008-55009.
\26\ Order Handling Rules Release, 61 FR at 48322-48333 (``In
conducting the requisite evaluation of its internal order handling
procedures, a broker-dealer must regularly and rigorously examine
execution quality likely to be obtained from different markets or
market makers trading a security.''). See also Newton, 135 F.3d at
271; Market 2000: An Examination of Current Equity Market
Developments V-4 (SEC Division of Market Regulation January 1994)
(``Without specific instructions from a customer, however, a broker-
dealer should periodically assess the quality of competing markets
to ensure that its order flow is directed to markets providing the
most advantageous terms for the customer's order.''); Payment for
Order Flow Final Rules, 59 FR at 55009.
\27\ Order Handling Rules, 61 FR at 48323.
\28\ Order Handling Rules, 61 FR at 48323. For example, in
connection with orders that are to be executed at a market opening
price, ``[b]roker-dealers are subject to a best execution duty in
executing customer orders at the opening, and should take into
account the alternative methods in determining how to obtain best
execution for their customer orders.'' Disclosure of Order Execution
and Routing Practices, Securities Exchange Act Release No. 43590
(November 17, 2000), 65 FR 75414, 75422 (December 1, 2000) (adopting
new Rules 11Ac1-5 and 11Ac1-6 under the Act and noting that
alternative methods offered by some Nasdaq market centers for pre-
open orders included the mid-point of the spread or at the bid or
offer).
---------------------------------------------------------------------------
For these reasons, the Commission believes that the proposal is
consistent with the requirements of Section 6(b)(5) of the Act,\29\ and
will not jeopardize market integrity or the incentive for market
participants to post competitive quotes.\30\
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b)(5).
\30\ Approval of this proposal is in no way an endorsement of
payment for order flow by the Commission.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-Amex-2007-75), as modified
by Amendments No. 1 and 2, be, and hereby is, approved on an
accelerated basis.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-16468 Filed 8-21-07; 8:45 am]
BILLING CODE 8010-01-P