[Federal Register Volume 59, Number 13 (Thursday, January 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1337]
[[Page Unknown]]
[Federal Register: January 20, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33476; File No. SR-Amex-93-33]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving, and Notice of Filing and Order Granting Accelerated
Approval to Amendment No. 1 to, a Proposed Rule Change Relating to
Increasing AUTO-EX Eligibility for Japan Index Options
January 13, 1994.
I. Introduction
On November 4, 1993, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to increase, from 20 to 99 contracts, the size of
the orders for Japan Index (``JPN'') options that are eligible for
execution through the Exchange's automated execution system (``AUTO-
EX'').
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
---------------------------------------------------------------------------
The proposed rule change was published for comment in Securities
Exchange Act Release No. 33293 (December 6, 1993), 58 FR 65409
(December 14, 1993). No comments were received on the proposed rule
change.\3\
---------------------------------------------------------------------------
\3\The proposal was amended on January 3, 1994 to clarify that
an expansion of the AUTO-EX order eligibility size to 99 contracts
for JPN options would require a corresponding expansion of the AMOS
order eligibility size to 99 contracts. Letter form Claire P.
McGrath, Managing Director and Special Counsel, Derivative
Securities, Amex, to Richard Zack, Branch Chief, Division of Market
Regulation, Commission, dated January 3, 1994 (``Amendment No. 1'').
---------------------------------------------------------------------------
II. Description of AUTO-EX
In December 1985, the Amex implemented a pilot program to initiate
the AUTO-EX system, which provided for the automatic execution of
options contracts.\4\ Since that time, AUTO-EX has been expanded to
include all equity and stock index options traded on the Amex.\5\ AUTO-
EX is an automated system that executes public customer market and
marketable limit orders\6\ in options at the best bid or offer
displayed at the time the order is entered into the Automatic Amex
Options Switch (``AMOS'') system.
---------------------------------------------------------------------------
\4\The AUTO-EX pilot program initially only provided for the
automatic execution of options on the Amex's Major Market Index.
Securities Exchange Act Release No. 22610 (November 8, 1985), 50 FR
47480 (November 18, 1990). The pilot was approved on a permanent
basis in August 1986. Securities Exchange Act Release No. 23544
(August 20, 1986), 51 FR 30601 (August 27, 1986).
\5\See e.g. Securities Exchange Act Release Nos. 25996 (August
15, 1988), 53 FR 31779 (August 19, 1988) and 23573 (August 28,
1986), 51 FR 31889 (September 5, 1986).
\6\A market order is an order to buy or sell a stated amount of
a security at the most advantageous price obtainable after the order
is represented in the trading crowd. A marketable limit order is an
order to buy or sell a stated amount of a security at a specified
price or at a better price if obtainable, after the order is
represented in the trading crowd, entered at a time when the market
is trading at or better than the specified price.
---------------------------------------------------------------------------
AMOS is an electronic order routing system which transmits market
and marketable limit orders of up to 30 contracts\7\ and related
administrative messages from member firms directly to the specialist on
the Exchange floor via printers at each trading post. After arriving at
the appropriate specialist's post, the order must be executed either
automatically through AUTO-EX, or printed out and executed manually
against an order on the book, the specialist principal, or one or more
brokers or traders in the crowd. When the order is executed, the system
transmits related execution reports and responses to administrative
inquiries directly back to the member firm from the specialist via mark
sense card input.
---------------------------------------------------------------------------
\7\The Amex has filed a proposal to increase the order
eligibility size for AMOS to 50 contracts. See Securities Exchange
Act Release No. 32882 (September 14, 1993), 58 FR 49336 (September
22, 1993).
---------------------------------------------------------------------------
Each specialist in an AUTO-EX eligible option is automatically
signed onto the system from the moment the system is activated and
remains a participant until the system is turned off. Registered
Options Traders (``ROTs'') participate on the system on a voluntary
basis.
III. Description of the Proposal
The current proposal increases AUTO-EX eligibility for JPN options
from 20 to 99 contracts.\8\ In addition, the proposal requires that the
AMOS order eligibility size be expanded from 30 to 99 contracts for JPN
options.
---------------------------------------------------------------------------
\8\The JPN is a price-weighted, broad market index based on 210
Japanese stocks traded on the Tokyo Stock Exchange. JPN options were
approved for trading on the Amex in September 1990. See Securities
Exchange Act Release No. 28475 (September 27, 1990), 55 FR 40492
(October 3, 1990).
---------------------------------------------------------------------------
Under the proposal, each order for JPN options will be split into
individuals units of 10 contracts per unit. Participants on the AUTO-EX
wheel will then be assigned 10 contracts per transaction. If, however,
there are fewer participants on the wheel than the number of 10-
contract units, those participants will receive additional 10-contract
units until the entire order is filled. Although participation on the
AUTO-EX system is voluntary for ROTs, participation for Amex
specialists is mandatory, which ensures that orders entered into the
AUTO-EX system will be executed.\9\
---------------------------------------------------------------------------
\9\Telephone conversation between Claire P. McGrath, Managing
Director and Special Counsel, Derivative Securities, Amex, and
Monica C. Michelizzi, Staff Attorney, Division of Market Regulation,
Commission, on January 3, 1994.
---------------------------------------------------------------------------
IV. Findings and Conclusions
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of section 6 and section 11A.\10\ The
Commission believes that enhancing the AUTO-EX system to provide for
the automatic execution of larger customer orders in JPN options will
provide for more efficient handling and reporting of orders in JPN
options, thereby improving order processing and turnaround time.
---------------------------------------------------------------------------
\10\15 U.S.C. 78f and 78k-1 (1988).
---------------------------------------------------------------------------
In addition, the Commission believes that increasing the order
eligibility size from 20 to 99 contracts for JPN options can benefit
the investing public by facilitating the execution of orders that have
been routed through the Amex's AMOS system. The Commission believes
that this increase in the number of contracts that can be executed
through AUTO-EX enhances the Exchange's ability to process transactions
expeditiously and effectively. Further, the Commission believes that
increasing the size of orders eligible for execution through AUTO-EX
should increase overall AUTO-EX order flow and extend the system's
benefits, such as increased order routing efficiencies, to more Amex
member firms and customers.
The Commission also believes that the expansion of the AMOS order
eligibility size, from 30 to 99 contracts, for JPN options is
appropriate given the close operating relationship between the AUTO-EX
and AMOS systems. Since the AUTO-EX automatic execution system
interlocks with the AMOS automatic order routing system, the Exchange
believes that the contract limit for both systems must be the same for
these two systems to operate efficiently and effectively. Accordingly,
the Commission believes it is consistent with the Act to expand the
order routing capabilities of AMOS to accommodate the greater order
execution efficiencies obtainable through the expansion of AUTO-EX.
Finally, the Commission believes that increasing the size of the
orders eligible for execution through AUTO-EX (and order routing
through AMOS) for JPN options will not expose the Amex's options
markets or equity markets to an operational breakdown. Specifically,
the Commission believes that the increase in order size eligibility
will not have a negative impact on the capacity of the Exchange's AMOS
and AUTO-EX systems.
The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register.
Amendment No. 1 merely provides for the corresponding increase in the
order size eligibility for AMOS. Because any order automatically
executed through AUTO-EX is first entered on the AMOS order routing
system, the order size eligibility for both AMOS and AUTO-EX must be
consistent to permit the efficient execution of orders in JPN options.
The Commission believes that the corresponding increase in the AMOS
order eligibility size is a necessary part of the Amex proposal to
increase the AUTO-EX order eligibility size and, thus, raises no new
issues. Accordingly, the Commission believes it is consistent with
sections 6(b)(5) of the Act to approve the proposal on an accelerated
basis.
V. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 to the proposal. Persons making
written submission should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549. Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Section, 450 Fifth Street,
NW., Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number in the caption above and should be submitted by February 10,
1994.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-AMEX-93-33) is approved.
\11\15 U.S.C. 78s(b)(2) (1988).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1337 Filed 1-19-94; 8:45 am]
BILLING CODE 8010-01-M