[Federal Register Volume 68, Number 84 (Thursday, May 1, 2003)]
[Notices]
[Pages 23337-23339]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 03-10711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47725; File No. SR-Amex-2003-17]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the American Stock Exchange LLC 
Relating to Market at 4 p.m. Orders for ETFs

April 23, 2003.
    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 March 17, 2003, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On April 
17, 2003 the Amex amended the proposal.\3\ The Commission is publishing 
this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Geraldine Brindisi, Vice-President and 
Corporate Secretary, Amex, to Nancy Sanow, Assistant Director, 
Division of Market Regulation, Commission, dated April 16, 2003 
(``Amendment No. 1''). In Amendment No. 1, the Amex replaced in its 
entirety the original proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to add Commentary .02 to Amex Rule 131 (``Types 
of Orders'') to provide that an order in Exchange Traded Funds 
(``ETFs'') that trade until 4:15 p.m. may be designated as ``market at 
4 p.m.''; and Commentary .06 to Amex Rule 155 (``Precedence Accorded to 
Orders Entrusted to Specialists'') to provide that ``market at 4 p.m.'' 
orders, shall be executed at one price at 4 p.m. or as close as 
practicable to 4:00 p.m. and shall have priority over limit orders 
priced at the execution price.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Amex included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change, as 
amended. The text of these statements may be examined at the places 
specified in Item IV below. The Amex has prepared summaries, set forth 
in sections A, B, and C below, of the most significant aspects of such 
statements.
    The text of the proposed rule change is below. Proposed new 
language is italicized.
* * * * *

Types of Orders

Rule 131

* * * * *

Commentary .02

    ``Market at 4 p.m.'' orders. An order in Portfolio Depositary 
Receipts or Index Fund Shares that trade on the Exchange until 4:15 
p.m. may be designated as ``market at 4 p.m.'' to denote that it is a 
market order which is to be executed at or as close as practicable to 
the close of the regular equity trading session on the exchange 
(normally 4 p.m. Eastern Time).
    (b) Where a member is holding simultaneously both buy and sell

[[Page 23338]]

``market at 4 p.m.'' orders, and where there is an imbalance between 
the buy and sell ``market at 4 p.m.'' orders, the member shall, at 4 
p.m. or as close as practicable to 4 p.m., execute the imbalance 
against the prevailing bid or offer on the Exchange, as appropriate. 
(An imbalance of buy orders would be executed against the offer. An 
imbalance of sell orders would be executed against the bid.) The member 
shall then pair off the remaining ``market at 4 p.m.'' orders at the 
price of the immediately preceding sale described above.
    (c) Where the aggregate size of buy ``market at 4 p.m.'' orders 
equals the aggregate size of sell ``market at 4 p.m.'' orders in a 
given security, the buy and sell orders shall be paired off at the 
midpoint of the then prevailing bid and offer in that security on the 
Exchange. In the event that that midpoint consists of a number 
including a fraction of a cent, then the price of the transaction shall 
be at the next higher one cent increment above the midpoint.

Precedence Accorded to Orders Entrusted to Specialists

Rule 155

    No change

Commentary

    .01 to .05 No change.
    .06 Notwithstanding anything in Commentaries .03 and .04 above to 
the contrary, ``market at 4 p.m.'' orders entered with the specialist 
in Portfolio Depositary Receipts and Index Fund Shares (see Rule 131, 
Commentary .02) shall be executed at one price at 4 p.m. or as close as 
practicable to 4 p.m. and shall have priority over limit orders priced 
at the execution price.
* * * * *

A. Self-Regulatory Organization's Statement of the Purpose of, 
andStatutory Basis for, the Proposed Rule Change

1. Purpose
    Many ETFs traded on the Exchange trade until 4:15 p.m., Eastern 
Time, instead of the normal 4 p.m. equities closing time. Currently, 
market participants trading ETFs (including Portfolio Depositary 
Receipts and Index Fund Shares) can place market-on-close orders and 
receive an execution at the 4:15 p.m. closing price for ETFs trading 
until 4:15 p.m. According to the Amex, however, certain market 
participants, including institutions, arbitrageurs and professional 
traders, may wish to receive on such orders a ``4 p.m. closing'' price 
(the so called ``cash close'') at the close of trading in U.S. equity 
markets. This is because ETF pricing may ``drift'' (i.e., change 
significantly) between 4 p.m. and 4:15 p.m., based on changes in index 
futures pricing (which close at 4:15 p.m.) or changes in the over-the-
counter ``cash'' market for underlying index stocks that may occur 
after 4 p.m.
    The Exchange proposes to add Commentary .02(a) to Amex Rule 131 
(``Types of Orders'') to provide that an order in ETFs traded until 
4:15 p.m. may be designated as ``market on 4 p.m.'' (``MCC'') for 
execution at or as soon as practicable after the close of the regular 
equity trading session on the Exchange (normally 4 p.m.). Such orders 
could be entered until 4 p.m., and all MCC orders to buy and sell the 
same ETF would be paired off by the specialist and executed at one 
price. Commentary .02(b) of Amex Rule 131 would provide that when a 
member is holding simultaneously both buy and sell MCC orders, and 
where there is an imbalance of MCC buy and sell orders in a given ETF, 
the member entrusted with the orders would execute the imbalance 
against the prevailing bid or offer on the Exchange, as appropriate. 
This would mean that an imbalance of buy orders would be executed 
against the offer. An imbalance of sell orders would be executed 
against the bid. The remaining orders would be paired off at the 
immediately preceding sale price. Amex further proposes in Commentary 
.02(c) of Amex Rule 131 that where the aggregate size of buy and sell 
MCC orders in a given ETF is the same, then the orders would be paired 
off at the midpoint of the then prevailing bid and offer in that ETF on 
the Exchange. If the midpoint is a fraction of a cent, then the price 
of the transaction would be at the next higher one-cent increment above 
the midpoint.
    The Amex further proposed adding a new Commentary .06 to Amex Rule 
155 (``Precedence Accorded to Orders Entrusted to Specialists'') to 
make clear that ``market at 4 p.m.'' orders would be executed at one 
price at 4 p.m. or as close as practicable to 4 p.m. and shall have 
priority over limit orders priced at the execution price. Amex states 
that these MCC orders would be entered either with a floor broker or 
through the Amex Order File (``AOF''). However, Amex states that system 
changes to the Common Message Switch (``CMS'') would be required to 
accommodate orders designated as MCC, and, until these changes are 
made, floor brokers would provide the only way to enter MCC orders.
2. Statutory Basis
    The Amex believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act \4\ in general, and section 
6(b)(5)\5\ in particular in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to 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, and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    Written comments were neither solicited nor received with respect 
to the proposed rule change, as amended.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Copies of the submission, all subsequent amendments, all 
written

[[Page 23339]]

statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to file number SR-Amex-2003-17 and 
should be submitted by May 21, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-10711 Filed 4-30-03; 8:45 am]
BILLING CODE 8010-01-P