Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, to Eliminate Options Specialists' Agency Responsibilities and Establish Amex Book Clerks, 66002-66004 [E7-22911]

Download as PDF 66002 Federal Register / Vol. 72, No. 226 / Monday, November 26, 2007 / Notices Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56804; File No. SR–Amex– 2006–107] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change, All submissions should refer to File as Modified by Amendment No. 1, to Number SR–Amex–2007–53. This file Eliminate Options Specialists’ Agency number should be included on the subject line if e-mail is used. To help the Responsibilities and Establish Amex Book Clerks Commission process and review your comments more efficiently, please use November 16, 2007. only one method. The Commission will I. Introduction post all comments on the Commission’s On November 14, 2006, American Internet Web site (http://www.sec.gov/ Stock Exchange LLC (‘‘Amex’’ or rules/sro.shtml). Copies of the ‘‘Exchange’’) filed with the Securities submission, all subsequent and Exchange Commission amendments, all written statements (‘‘Commission’’), pursuant to section with respect to the proposed rule 19(b)(1) of the Securities Exchange Act change that are filed with the of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Commission, and all written Rule 19b–4 thereunder,2 a proposal to communications relating to the eliminate the agency obligations of proposed rule change between the Exchange options specialists and Commission and any person, other than establish Amex book clerks (‘‘ABCs’’). those that may be withheld from the The Exchange filed Amendment No. 1 public in accordance with the to the proposed rule change on March provisions of 5 U.S.C. 552, will be 29, 2007. The proposal as amended was available for inspection and copying in published for comment in the Federal the Commission’s Public Reference Register on April 13, 2007.3 The Room, 100 F Street, NE., Washington, Commission received no comments on DC 20549, on official business days the proposal. This order approves the between the hours of 10 a.m. and 3 p.m. proposed rule change, as modified by Amendment No. 1. Copies of such filing also will be available for inspection and copying at II. Description of the Proposal the principal office of the Exchange. All The Exchange has proposed to comments received will be posted eliminate the obligation and ability of without change; the Commission does an Exchange options specialist to act as not edit personal identifying an agent in connection with orders in information from submissions. You his or her assigned options classes. This should submit only information that proposal would permit the Exchange to you wish to make available publicly. All designate Exchange employees or submissions should refer to File independent contractors to serve as Number SR–Amex–2007–53 and should ABCs, responsible for maintaining and be submitted on or before December 11, operating the ANTE Central Book (i.e., 2007. the specialist’s customer limit order book) and the ANTE Display Book.4 The For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–22909 Filed 11–23–07; 8:45 am] mstockstill on PROD1PC66 with NOTICES BILLING CODE 8011–01–P 21 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 22:03 Nov 23, 2007 Jkt 214001 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 55583 (April 5, 2007), 72 FR 18695 (‘‘Notice’’). 4 The Exchange submits that all incoming customer orders are represented in the ANTE Central Book, and if marketable, will be automatically executed subject to a number of limited exceptions. Orders that are otherwise eligible for automatic execution may not receive an automatic execution: (i) Whenever the Amex Best Bid or Offer (ABBO) crosses the National Best Bid or Offer (NBBO) and causes an inversion in the quote; or (ii) whenever a better bid or offer is being disseminated by another options exchange and the order is not eligible for automatic price matching. In addition, if quotes are deemed unreliable or the Exchange is experiencing communications or systems problems, non-firm markets or delays in the dissemination of quotes by the Options Price Reporting Authority, orders will not be automatically executed. In these limited cases, PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 Exchange also seeks to amend certain Exchange rules relating to the operation of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (‘‘Linkage Plan’’) to accommodate the implementation of pertinent ABC rules and other proposed rule changes described herein.5 Finally, the proposed rule change would implement several other amendments to conform other Exchange rules to the proposal. The Exchange has noted that its proposal substantially mirrors changes recently adopted by the Chicago Board Options Exchange to eliminate DPM agency responsibilities and establish PAR Officials.6 The following description summarizes certain significant effects this proposed rule change would have on existing Exchange rules.7 Under the current rules of the Exchange, options specialists are required to execute options orders on an agency basis for those classes of options assigned to them.8 Accordingly, all options specialists on the Amex presently act as both agent and principal for orders in their respective assigned options classes. The Exchange has now determined that it is in the best interest of the Exchange, its members, and investors to eliminate the agency obligation of options specialists. The Exchange has proposed to amend its rules to remove an options specialist’s obligation to act as an agent in its allocated securities on the Exchange.9 The Exchange has further proposed to designate ABCs who would be responsible for handling certain orders in the same manner as they are currently handled by the options specialists.10 The ABCs will maintain and operate the customer limit order book,11 effect proper executions of orders that are routed to the customer limit order book,12 display eligible limit incoming customer orders will be routed to the ANTE Display Book for manual handling. 5 Exchange rules governing the operation of the Linkage Plan are set forth under Amex Rules 940 through 945 and Amex Rule 941–ANTE. 6 See Securities Exchange Act Release No. 52798 (November 18, 2005), 70 FR 71344 (November 28, 2005) (SR–CBOE–2005–46). 7 For a complete description of the proposed rule change, see the Notice, supra note 3. 8 See Amex Rule 950–ANTE(l), incorporating Amex Rule 170 to options transactions. 9 See Proposed Amex Rules 950–ANTE(f) cmt. .01 and 950–ANTE(l) cmt. .01. 10 See Proposed Amex Rule 995–ANTE. 11 See Proposed Amex Rule 995–ANTE(a)(i). 12 See Proposed Amex Rule 995–ANTE(a)(ii). The requirement that options specialists effect proper executions would require an options specialist to use due diligence to execute customer orders at the best prices available under the rules of the Exchange. See Proposed Amex Rule 995– ANTE(b)(ii). E:\FR\FM\26NON1.SGM 26NON1 Federal Register / Vol. 72, No. 226 / Monday, November 26, 2007 / Notices orders,13 undertake the obligations related to handling certain Linkage orders,14 and act as agent for orders that, for various reasons, cannot be automatically executed and so are routed to the ANTE Display Book for manual handling.15 The Exchange has proposed to amend its rules to provide that the Exchange, via the ABCs, and not the options specialists, would be responsible for handling Linkage orders. Under the proposal, ABCs would: (i) Use an options specialist’s account to route Principal Acting as Agent (‘‘P/A’’) Orders and Satisfaction Orders to away markets based on prior instructions that must be provided by the options specialist to the ABC,16 and (ii) handle all Linkage orders or portions of Linkage orders received by the Exchange that are not automatically executed.17 The ABC also would use the specialist’s account to fill incoming Satisfaction Orders that result from a Trade Through 18 that the Exchange effects.19 The Exchange has proposed measures designed to ensure the independence of ABCs from Exchange members. An ABC would be required to be an Exchange employee or independent contractor, and his or her compensation would be determined and paid solely by the Exchange. In addition, the ABC would be prohibited from having an affiliation with any member that is approved to act as a specialist, registered options trader (‘‘ROT’’), remote registered options trader (‘‘RROT’’) or supplemental registered options trader (‘‘SROT’’) on the Exchange. Because the options specialists would no longer be operating the customer limit order book, the Exchange proposes to amend Rule 958A—ANTE, which defines when an options specialist’s firm quote obligation attaches. Amex Rule 958A—ANTE currently provides that, in the case of an order received by the options specialist, the options specialist’s firm quote obligation attaches at the time the order is received by such specialist, regardless of whether the options specialist is actually aware of the order at that time. This rule would be modified to provide that the firm quote obligation would attach, when an options specialist is the responsible broker or dealer, at the same 13 See Proposed Amex Rule 995–ANTE(b)(i). Proposed Amex Rule 995–ANTE(e). 15 See Proposed Amex Rule 995–ANTE(b)(iv); see also supra note 4. 16 See Proposed Amex Rule 950–ANTE(l) cmt. .05. 17 See Proposed Amex Rule 995–ANTE(e). 18 See Amex Rule 940(b)(19). 19 See Proposed Amex Rule 950–ANTE(l) cmt. .05. mstockstill on PROD1PC66 with NOTICES 14 See VerDate Aug<31>2005 22:03 Nov 23, 2007 Jkt 214001 time those obligations attach with respect to each other responsible broker or dealer—that is, when the order is announced to the trading crowd either via electronic display or by the ABC. The Exchange has proposed this clarification in light of the fact that options specialists will no longer represent orders on the customer limit order book in an agency capacity from the moment such orders are received on the book. Finally, to ensure a smooth and orderly transition of the responsibility for operating the customer limit order book and executing agency orders from options specialists to ABCs, the Exchange proposes to implement this rule change to all applicable trading posts over a 180-day period from the effective date of this rule change. During this 180-day transition period, any options specialist who continues to operate the customer limit order book would continue to be subject to the same agency obligations as currently provided under Amex Rules 950– ANTE(l) and 958A–ANTE(e), except that, upon the approval of this proposal, these obligations instead would be reflected in a Regulatory Circular. III. Discussion After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.20 In particular, the Commission finds that the proposal is consistent with section 6(b)(5) of the Act,21 which 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. With this proposal, Amex seeks to eliminate potential conflicts of interest that may currently arise for its options specialists in the handling of customer orders. Currently, Amex options specialists trade for their own accounts in order to assist in the maintenance of a fair and orderly market on the Exchange, and also act as agents for certain orders in their allocated options. Amex has proposed to eliminate an 20 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 21 15 U.S.C. 78f(b)(5). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 66003 options specialist’s obligation and permission to act as agent for customer orders in his or her allocated securities.22 Instead, Amex has proposed that orders that currently are represented by options specialists as agent be handled by Exchange employees known as Amex Book Clerks, or ABCs. ABCs would be independent from options specialists, as Amex has proposed to prohibit affiliations between ABCs and specialists, ROTs, RROTs, and SROTs in order to ensure the ABCs are independent from Exchange members’ interests. Further, the compensation of ABCs would be determined and paid exclusively by the Exchange. The Commission believes that the Amex’s proposal adequately assures the independence of the ABC in a manner designed to mitigate potential conflicts of interest with the options specialist. Further, the Commission believes that eliminating an options specialist’s obligation to act as agent for certain orders in its assigned classes will promote just and equitable principles of trade and protect investors and the public interest, because it will greatly reduce any potential conflicts of interest that may have previously arisen when a specialist traded for its own account while acting as agent for certain customer orders.23 22 The Commission notes that Amex Rule 950– ANTE, as amended, will no longer permit an options specialist to act as an agent for customer orders. However, to the extent that an options specialist nevertheless undertakes to represent a customer’s order in violation of Amex Rule 950– ANTE, the options specialist will assume all the duties and liabilities of an agent to a principal during the course of such representation. 23 In addition, the Commission notes that Amex Rule 193, Affiliated Persons of Specialists, will have the effect of mitigating conflicts of interest that might arise when an affiliate of the options specialist acts as agent for a customer order in one of the specialist’s assigned options classes. Amex Rule 193 provides that any approved person or member organization which is affiliated with a specialist must either: (a) Be subject to Amex Rule 170(e), which provides that ‘‘[n]o member . . . officer, employee, or approved person who is affiliated with a specialist or specialist member organization, shall, during the period of such affiliation, purchase or sell any security in which such specialist is registered for any account in which such person or party has a direct or indirect interest’’; or (b) ‘‘establish[] and obtain[] Exchange approval of procedures restricting the flow of material, non-public corporate or market information between itself and the specialist member organization, and any member, officer, or employee associated therewith.’’ The Exchange represented that Rule 193 will have the effect of restricting the sharing of material, nonpublic information between the options specialist and any affiliate of the options specialist who acts as agent for a customer order. Telephone conversation between Jeffrey P. Burns, Vice President and Associate General Counsel, Amex, and Nathan Saunders, Special Counsel, Division, Commission, on November 14, 2007. E:\FR\FM\26NON1.SGM 26NON1 66004 Federal Register / Vol. 72, No. 226 / Monday, November 26, 2007 / Notices Pursuant to the proposed rule change, ABCs will undertake responsibilities comparable to those currently held by options specialists with respect to customer orders. For example, an ABC must use due diligence to execute the orders placed in his or her custody at the best prices available to him or her under Exchange rules. In addition, ABCs will assume the obligations related to displaying public customer orders that improve Amex’s disseminated quote by maintaining the ANTE Central Book, the Exchange’s automated limit order display facility, and keeping it active. Accordingly, the Commission believes that the Exchange’s proposal should ensure that customers’ orders continue to be represented and handled in a timely fashion on the Exchange. The Commission therefore believes that the proposal will continue to protect customer orders while preventing fraudulent and manipulative acts and practices. The ABCs also would assume responsibilities related to Linkage orders. An ABC would use an options specialist’s account to route P/A Orders and Satisfaction Orders to other participants in the Linkage Plan based on prior written instructions provided by the options specialist to the ABC.24 The written instructions provided by the options specialist will also include direction as to how the ABC should handle responses to Linkage orders routed to other Linkage Participants that are not responded to in a timely manner.25 The ABC will also use the options specialist’s account to fill any Satisfaction Order that results from a Trade Through that is effected on the Exchange by ABCs. Finally, the ABC will handle all Linkage orders or portions of Linkage orders received by the Exchange that are not automatically executed. The Commission believes that the proposed rules governing the handling of Linkage orders by the ABC and the use of the options specialist’s accounts mstockstill on PROD1PC66 with NOTICES 24 The Commission today is also granting the Exchange a conditional exemption from the requirement in Rule 608(c) of Regulation NMS promulgated under the Act that the Exchange comply with and enforce compliance by its members with certain provisions of the Linkage Plan to facilitate the establishment of ABCs and their handling of Linkage Orders. See Letter from Elizabeth K. King, Associate Director, Division of Trading and Markets, Commission, to Jeffrey P. Burns, Vice President and Associate General Counsel, Amex, dated November 16, 2007. 25 Amex Rule 942(d)(3) specifically addresses the situations in which an Amex member (or, as proposed to be amended, an ABC acting as employee of the Exchange) does not receive a response to a Linkage order within 20 seconds of sending the order. VerDate Aug<31>2005 22:03 Nov 23, 2007 Jkt 214001 for routing Linkage orders is consistent with the promotion of a national market system because, among other things, it will allow P/A Orders that reflect the terms of Amex customer orders to be generated by Amex and routed to other Linkage Participant markets, which will allow a Amex customer order to receive possible execution at a price better than the price disseminated by Amex. IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,26 that the proposed rule change (File No. SR– Amex–2006–107), as modified by Amendment No. 1, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–22911 Filed 11–23–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56808; File Nos. SR– Amex–2007–117; SR–BSE–2007–44; SR–CBOE–2007–121; SR–ISE–2007– 92; SR–NYSEArca–2007–109; SR– Phlx–2007–86] Self-Regulatory Organizations: American Stock Exchange LLC, Chicago Board Options Exchange, Incorporated and International Securities Exchange, LLC: Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Changes; Boston Stock Exchange, Inc.; NYSE Arca, Inc.; and Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Changes, as Amended, Relating to the Elimination of the Class Gate November 16, 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 November 1, 2007, September 19, 2007, October 9, 2007, October 1, 2007, October 18, 2007, and November 14, 2007, American Stock Exchange LLC (‘‘Amex’’), Boston Stock Exchange, Inc. (‘‘BSE’’), Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), International Securities Exchange, LLC (‘‘ISE’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), and Philadelphia Stock 26 15 U.S.C. 78s(b)(2). 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(l). 2 17 CFR 240.19b–4. 27 27 PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 Exchange, Inc. (‘‘Phlx’’) (each, an ‘‘Exchange’’ and, collectively, the ‘‘Exchanges’’), respectively, filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule changes as described in Items I and II below, which Items have been substantially prepared by the Exchanges. On November 13, 2007, November 6, 2007, and November 16, 2007, BSE, NYSE Arca, and Phlx respectively, filed Amendment No. 1 to their proposed rule changes. On November 16, 2007, BSE filed Amendment No. 2 to its proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule changes, as amended, from interested persons and is approving the proposed rule changes, as amended, on an accelerated basis. I. Self-Regulatory Organizations’ Statement of the Terms of Substance of the Proposed Rule Changes Each Exchange proposes to eliminate a restriction on Principal Order (‘‘P Order’’) 3 access through Linkage. The text of the proposed rule changes are available at the Exchanges’ Web sites,4 the Exchanges’ principal offices, and at the Commission’s Public Reference Room. II. Self-Regulatory Organizations’ Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes In its filing with the Commission, each Exchange included statements concerning the purpose of, and basis for, its 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. The Exchanges have prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 3 See Section 2(16)(b) of the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (‘‘Linkage Plan’’).3 On July 28, 2000, the Commission approved a national market system plan for the purpose of creating and operating an intermarket options market linkage (‘‘Linkage’’) proposed by Amex, CBOE, and ISE. See Securities Exchange Act Release No. 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000). Subsequently, Phlx, Pacific Exchange, Inc. (n/k/a NYSE Arca), and BSE joined the Linkage Plan. See Securities Exchange Act Release Nos. 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000); 43574 (November 16, 2000), 65 FR 70850 (November 28, 2000); and 49198 (February 5, 2004), 69 FR 7029 (February 12, 2004). 4 See http://www.amex.com, http:// www.bostonstock.com, http://www.cboe.com, http: //www.iseoptions.com, http://www.nyse.com, and http://www.phlx.com. E:\FR\FM\26NON1.SGM 26NON1

Agencies

[Federal Register Volume 72, Number 226 (Monday, November 26, 2007)]
[Notices]
[Pages 66002-66004]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22911]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56804; File No. SR-Amex-2006-107]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1, to 
Eliminate Options Specialists' Agency Responsibilities and Establish 
Amex Book Clerks

November 16, 2007.

I. Introduction

    On November 14, 2006, American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposal to eliminate the agency obligations of 
Exchange options specialists and establish Amex book clerks (``ABCs''). 
The Exchange filed Amendment No. 1 to the proposed rule change on March 
29, 2007. The proposal as amended was published for comment in the 
Federal Register on April 13, 2007.\3\ The Commission received no 
comments on the proposal. This order approves the proposed rule change, 
as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55583 (April 5, 
2007), 72 FR 18695 (``Notice'').
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II. Description of the Proposal

    The Exchange has proposed to eliminate the obligation and ability 
of an Exchange options specialist to act as an agent in connection with 
orders in his or her assigned options classes. This proposal would 
permit the Exchange to designate Exchange employees or independent 
contractors to serve as ABCs, responsible for maintaining and operating 
the ANTE Central Book (i.e., the specialist's customer limit order 
book) and the ANTE Display Book.\4\ The Exchange also seeks to amend 
certain Exchange rules relating to the operation of the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan'') to accommodate the implementation of pertinent ABC 
rules and other proposed rule changes described herein.\5\ Finally, the 
proposed rule change would implement several other amendments to 
conform other Exchange rules to the proposal. The Exchange has noted 
that its proposal substantially mirrors changes recently adopted by the 
Chicago Board Options Exchange to eliminate DPM agency responsibilities 
and establish PAR Officials.\6\ The following description summarizes 
certain significant effects this proposed rule change would have on 
existing Exchange rules.\7\
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    \4\ The Exchange submits that all incoming customer orders are 
represented in the ANTE Central Book, and if marketable, will be 
automatically executed subject to a number of limited exceptions. 
Orders that are otherwise eligible for automatic execution may not 
receive an automatic execution: (i) Whenever the Amex Best Bid or 
Offer (ABBO) crosses the National Best Bid or Offer (NBBO) and 
causes an inversion in the quote; or (ii) whenever a better bid or 
offer is being disseminated by another options exchange and the 
order is not eligible for automatic price matching. In addition, if 
quotes are deemed unreliable or the Exchange is experiencing 
communications or systems problems, non-firm markets or delays in 
the dissemination of quotes by the Options Price Reporting 
Authority, orders will not be automatically executed. In these 
limited cases, incoming customer orders will be routed to the ANTE 
Display Book for manual handling.
    \5\ Exchange rules governing the operation of the Linkage Plan 
are set forth under Amex Rules 940 through 945 and Amex Rule 941-
ANTE.
    \6\ See Securities Exchange Act Release No. 52798 (November 18, 
2005), 70 FR 71344 (November 28, 2005) (SR-CBOE-2005-46).
    \7\ For a complete description of the proposed rule change, see 
the Notice, supra note 3.
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    Under the current rules of the Exchange, options specialists are 
required to execute options orders on an agency basis for those classes 
of options assigned to them.\8\ Accordingly, all options specialists on 
the Amex presently act as both agent and principal for orders in their 
respective assigned options classes.
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    \8\ See Amex Rule 950-ANTE(l), incorporating Amex Rule 170 to 
options transactions.
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    The Exchange has now determined that it is in the best interest of 
the Exchange, its members, and investors to eliminate the agency 
obligation of options specialists. The Exchange has proposed to amend 
its rules to remove an options specialist's obligation to act as an 
agent in its allocated securities on the Exchange.\9\ The Exchange has 
further proposed to designate ABCs who would be responsible for 
handling certain orders in the same manner as they are currently 
handled by the options specialists.\10\ The ABCs will maintain and 
operate the customer limit order book,\11\ effect proper executions of 
orders that are routed to the customer limit order book,\12\ display 
eligible limit

[[Page 66003]]

orders,\13\ undertake the obligations related to handling certain 
Linkage orders,\14\ and act as agent for orders that, for various 
reasons, cannot be automatically executed and so are routed to the ANTE 
Display Book for manual handling.\15\
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    \9\ See Proposed Amex Rules 950-ANTE(f) cmt. .01 and 950-ANTE(l) 
cmt. .01.
    \10\ See Proposed Amex Rule 995-ANTE.
    \11\ See Proposed Amex Rule 995-ANTE(a)(i).
    \12\ See Proposed Amex Rule 995-ANTE(a)(ii). The requirement 
that options specialists effect proper executions would require an 
options specialist to use due diligence to execute customer orders 
at the best prices available under the rules of the Exchange. See 
Proposed Amex Rule 995-ANTE(b)(ii).
    \13\ See Proposed Amex Rule 995-ANTE(b)(i).
    \14\ See Proposed Amex Rule 995-ANTE(e).
    \15\ See Proposed Amex Rule 995-ANTE(b)(iv); see also supra note 
4.
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    The Exchange has proposed to amend its rules to provide that the 
Exchange, via the ABCs, and not the options specialists, would be 
responsible for handling Linkage orders. Under the proposal, ABCs 
would: (i) Use an options specialist's account to route Principal 
Acting as Agent (``P/A'') Orders and Satisfaction Orders to away 
markets based on prior instructions that must be provided by the 
options specialist to the ABC,\16\ and (ii) handle all Linkage orders 
or portions of Linkage orders received by the Exchange that are not 
automatically executed.\17\ The ABC also would use the specialist's 
account to fill incoming Satisfaction Orders that result from a Trade 
Through \18\ that the Exchange effects.\19\
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    \16\ See Proposed Amex Rule 950-ANTE(l) cmt. .05.
    \17\ See Proposed Amex Rule 995-ANTE(e).
    \18\ See Amex Rule 940(b)(19).
    \19\ See Proposed Amex Rule 950-ANTE(l) cmt. .05.
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    The Exchange has proposed measures designed to ensure the 
independence of ABCs from Exchange members. An ABC would be required to 
be an Exchange employee or independent contractor, and his or her 
compensation would be determined and paid solely by the Exchange. In 
addition, the ABC would be prohibited from having an affiliation with 
any member that is approved to act as a specialist, registered options 
trader (``ROT''), remote registered options trader (``RROT'') or 
supplemental registered options trader (``SROT'') on the Exchange.
    Because the options specialists would no longer be operating the 
customer limit order book, the Exchange proposes to amend Rule 958A--
ANTE, which defines when an options specialist's firm quote obligation 
attaches. Amex Rule 958A--ANTE currently provides that, in the case of 
an order received by the options specialist, the options specialist's 
firm quote obligation attaches at the time the order is received by 
such specialist, regardless of whether the options specialist is 
actually aware of the order at that time. This rule would be modified 
to provide that the firm quote obligation would attach, when an options 
specialist is the responsible broker or dealer, at the same time those 
obligations attach with respect to each other responsible broker or 
dealer--that is, when the order is announced to the trading crowd 
either via electronic display or by the ABC. The Exchange has proposed 
this clarification in light of the fact that options specialists will 
no longer represent orders on the customer limit order book in an 
agency capacity from the moment such orders are received on the book.
    Finally, to ensure a smooth and orderly transition of the 
responsibility for operating the customer limit order book and 
executing agency orders from options specialists to ABCs, the Exchange 
proposes to implement this rule change to all applicable trading posts 
over a 180-day period from the effective date of this rule change. 
During this 180-day transition period, any options specialist who 
continues to operate the customer limit order book would continue to be 
subject to the same agency obligations as currently provided under Amex 
Rules 950-ANTE(l) and 958A-ANTE(e), except that, upon the approval of 
this proposal, these obligations instead would be reflected in a 
Regulatory Circular.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposal is consistent with section 6(b)(5) of the Act,\21\ which 
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.
---------------------------------------------------------------------------

    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    With this proposal, Amex seeks to eliminate potential conflicts of 
interest that may currently arise for its options specialists in the 
handling of customer orders. Currently, Amex options specialists trade 
for their own accounts in order to assist in the maintenance of a fair 
and orderly market on the Exchange, and also act as agents for certain 
orders in their allocated options. Amex has proposed to eliminate an 
options specialist's obligation and permission to act as agent for 
customer orders in his or her allocated securities.\22\
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    \22\ The Commission notes that Amex Rule 950-ANTE, as amended, 
will no longer permit an options specialist to act as an agent for 
customer orders. However, to the extent that an options specialist 
nevertheless undertakes to represent a customer's order in violation 
of Amex Rule 950-ANTE, the options specialist will assume all the 
duties and liabilities of an agent to a principal during the course 
of such representation.
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    Instead, Amex has proposed that orders that currently are 
represented by options specialists as agent be handled by Exchange 
employees known as Amex Book Clerks, or ABCs. ABCs would be independent 
from options specialists, as Amex has proposed to prohibit affiliations 
between ABCs and specialists, ROTs, RROTs, and SROTs in order to ensure 
the ABCs are independent from Exchange members' interests. Further, the 
compensation of ABCs would be determined and paid exclusively by the 
Exchange. The Commission believes that the Amex's proposal adequately 
assures the independence of the ABC in a manner designed to mitigate 
potential conflicts of interest with the options specialist. Further, 
the Commission believes that eliminating an options specialist's 
obligation to act as agent for certain orders in its assigned classes 
will promote just and equitable principles of trade and protect 
investors and the public interest, because it will greatly reduce any 
potential conflicts of interest that may have previously arisen when a 
specialist traded for its own account while acting as agent for certain 
customer orders.\23\
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    \23\ In addition, the Commission notes that Amex Rule 193, 
Affiliated Persons of Specialists, will have the effect of 
mitigating conflicts of interest that might arise when an affiliate 
of the options specialist acts as agent for a customer order in one 
of the specialist's assigned options classes. Amex Rule 193 provides 
that any approved person or member organization which is affiliated 
with a specialist must either: (a) Be subject to Amex Rule 170(e), 
which provides that ``[n]o member . . . officer, employee, or 
approved person who is affiliated with a specialist or specialist 
member organization, shall, during the period of such affiliation, 
purchase or sell any security in which such specialist is registered 
for any account in which such person or party has a direct or 
indirect interest''; or (b) ``establish[] and obtain[] Exchange 
approval of procedures restricting the flow of material, non-public 
corporate or market information between itself and the specialist 
member organization, and any member, officer, or employee associated 
therewith.'' The Exchange represented that Rule 193 will have the 
effect of restricting the sharing of material, nonpublic information 
between the options specialist and any affiliate of the options 
specialist who acts as agent for a customer order. Telephone 
conversation between Jeffrey P. Burns, Vice President and Associate 
General Counsel, Amex, and Nathan Saunders, Special Counsel, 
Division, Commission, on November 14, 2007.

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[[Page 66004]]

    Pursuant to the proposed rule change, ABCs will undertake 
responsibilities comparable to those currently held by options 
specialists with respect to customer orders. For example, an ABC must 
use due diligence to execute the orders placed in his or her custody at 
the best prices available to him or her under Exchange rules. In 
addition, ABCs will assume the obligations related to displaying public 
customer orders that improve Amex's disseminated quote by maintaining 
the ANTE Central Book, the Exchange's automated limit order display 
facility, and keeping it active. Accordingly, the Commission believes 
that the Exchange's proposal should ensure that customers' orders 
continue to be represented and handled in a timely fashion on the 
Exchange. The Commission therefore believes that the proposal will 
continue to protect customer orders while preventing fraudulent and 
manipulative acts and practices.
    The ABCs also would assume responsibilities related to Linkage 
orders. An ABC would use an options specialist's account to route P/A 
Orders and Satisfaction Orders to other participants in the Linkage 
Plan based on prior written instructions provided by the options 
specialist to the ABC.\24\ The written instructions provided by the 
options specialist will also include direction as to how the ABC should 
handle responses to Linkage orders routed to other Linkage Participants 
that are not responded to in a timely manner.\25\ The ABC will also use 
the options specialist's account to fill any Satisfaction Order that 
results from a Trade Through that is effected on the Exchange by ABCs. 
Finally, the ABC will handle all Linkage orders or portions of Linkage 
orders received by the Exchange that are not automatically executed.
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    \24\ The Commission today is also granting the Exchange a 
conditional exemption from the requirement in Rule 608(c) of 
Regulation NMS promulgated under the Act that the Exchange comply 
with and enforce compliance by its members with certain provisions 
of the Linkage Plan to facilitate the establishment of ABCs and 
their handling of Linkage Orders. See Letter from Elizabeth K. King, 
Associate Director, Division of Trading and Markets, Commission, to 
Jeffrey P. Burns, Vice President and Associate General Counsel, 
Amex, dated November 16, 2007.
    \25\ Amex Rule 942(d)(3) specifically addresses the situations 
in which an Amex member (or, as proposed to be amended, an ABC 
acting as employee of the Exchange) does not receive a response to a 
Linkage order within 20 seconds of sending the order.
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    The Commission believes that the proposed rules governing the 
handling of Linkage orders by the ABC and the use of the options 
specialist's accounts for routing Linkage orders is consistent with the 
promotion of a national market system because, among other things, it 
will allow P/A Orders that reflect the terms of Amex customer orders to 
be generated by Amex and routed to other Linkage Participant markets, 
which will allow a Amex customer order to receive possible execution at 
a price better than the price disseminated by Amex.

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\26\ that the proposed rule change (File No. SR-Amex-2006-107), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 27 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-22911 Filed 11-23-07; 8:45 am]
BILLING CODE 8011-01-P