[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3320]
[[Page Unknown]]
[Federal Register: February 14, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33584; File No. SR-Amex-93-45]
Self-Regulatory Organizations; Filing and Order Granting Partial
Temporary Accelerated Approval to Proposed Rule Change by American
Stock Exchange, Inc. Relating to a Pilot Program for Execution of Odd-
lot Market Orders
February 7, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
27, 1993, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. On February 4, 1994, the Amex submitted Amendment No. 1
to the proposed rule change in order to clarify the duration of this
pilot extension.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\See letter from Geraldine M. Brindisi, Corporate Secretary,
Amex, to Diana Luka-Hopson, Branch Chief, Division of Market
Regulation, SEC, dated February 4, 1994 (``Amendment No. 1'').
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to implement on a permanent basis its existing
pilot procedures under Exchange Rule 205 requiring execution of odd-lot
market orders at the prevailing Amex quote with no differential
charged. In order to permit the pilot program to continue without
interruption, the Exchange also requests that the existing program be
extended for an additional six month period in order to provide the
Commission with the further opportunity, if necessary, to assess the
operation of the program beyond February 8, 1994.\2\
---------------------------------------------------------------------------
\2\The Amex original requested that this pilot program be
extended for an additional three months. However, at the
Commission's request, the Amex has agreed to extend the pilot until
August 8, 1994, in order to provide the Commission with further
opportunity to review the Exchange's request for permanent approval
of the pilot procedures. See Amendment No. 1, supra, note 1. The
Exchange seeks accelerated approval of the six month extension
included in the proposed rule change in order to allow the pilot
program, which expires on February 8, 1994, to continue without
interruption. See letter from Geraldine M. Brindisi, Corporate
Secretary, Amex, to Diana Luka-Hopson, Branch Chief, Division of
Market Regulation, SEC, dated February 1, 1994.
---------------------------------------------------------------------------
The complete text of the proposed rule change is available at the
Office of the Secretary, Amex, and at the Commission.
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 self-regulatory organization
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 exchanged at
the places specified in Item III below. The self-regulatory
organization 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 Commission has approved, on a pilot basis extending to February
8, 1994, amendments to Exchange Rule 205 to require the execution of
odd-lot market orders at the prevailing Amex quote with no odd-lot
differential.\3\ These procedures initially were approved by the
Commission on a pilot basis,\4\ and subsequently were extended seven
times.\5\
---------------------------------------------------------------------------
\3\See Securities Exchange Act Release No. 32726 (August 9,
1993), 58 FR 43394 (August 16, 1993) (approving File No. SR-Amex-93-
24).
\4\See Securities Exchange Act Release No. 26445 (January 10,
1989), 54 FR 2248 (January 19, 1989) (approving File No. SR-Amex-88-
23).
\5\See Securities Exchange Act Release Nos. 32726 (August 9,
1993), 58 FR 43394 (August 16, 1993) (approving File No. SR-Amex-93-
24); 31828 (February 5, 1993) 58 FR 8434 (February 12, 1993)
(approving File No. SR-Amex-93-06); 30305 (January 30, 1992), 57 FR
4653 (February 6, 1992) (approving File No. SR-Amex-92-04); 29922
(November 8, 1991), 56 FR 58409 (November 19, 1991) (approving File
No. SR-Amex-91-30); 29186 (May 9, 1991), 56 FR 22488 (May 15, 1991)
(approving File No. SR-Amex-91-09); 28758 (January 10, 1991), 56 FR
1656 (January 16, 1991) (approving File No. SR-Amex-90-39); and
27590 (January 5, 1990), 55 FR 1123 (January 11, 1990) (approving
File No. SR-Amex-89-31).
---------------------------------------------------------------------------
Under the pilot procedures, odd-lot market orders with no
qualifying notations are executed at the Amex quotation at the time the
order is represented in the market, either by being received at the
trading post or through the Exchange's Post Execution Reporting
(``PER'') System. Enhancements to the PER system have been implemented
to provide for the automatic execution of odd-lot market orders entered
through PER. For purposes of the pilot program, odd-lot limit orders
that are immediately executable based on the Amex quote at the time
order is received, at the trading post or through PER, are executed in
the same manner as odd-lot market orders.
The Exchange proposes that the pilot program applicable to odd-lot
execution procedures be approved on a permanent basis. The Exchange
believes that current odd-lot execution procedures under the pilot
program have resulted in superior customer executions, in terms of
price and time of execution, compared to previous odd-lot procedures
under Rule 205.\6\ Odd-lot market orders as well as executable odd-lot
limit orders, entered in the Exchange's PER system or directly with the
specialist after a regular opening or a reopening following a trading
halt, receive an immediate automatic execution at the displayed Amex
bid or offer; odd-lot market orders entered before the opening or
reopening are accumulated and automatically executed at the price of
the opening or reopening transaction without a differential.
---------------------------------------------------------------------------
\6\The Commission notes that, prior to approval of the current
procedures on a pilot basis, see supra note 4, odd-lot market orders
were executed at the price of a subsequent round-lot transaction,
plus or minus an odd-lot dealer differential.
---------------------------------------------------------------------------
Because, except for odd-lot market orders entered prior to the
opening, execution of such orders is not based on a subsequent round-
lot transaction, as previous market order procedures under Rule 205
required, the Amex believes odd-lot market orders (as well as odd-lot
limit orders executable at the time entered) are executed without delay
at prices reflecting market conditions at the time the order is
entered, with the customer receiving a report more quickly. This is
particularly important with respect to odd-lot orders in less
frequently traded issues, which, under former Rule 205 procedures,
could have been subject to significant execution delays.
The added system efficiencies and greater timeliness of executions
provided by the pilot procedures, together with the opportunity for
improved price executions, have resulted in significant customer
benefits compared to prior procedures.
In order to permit the pilot program to continue without
interruption, the Exchange also requests that the existing program be
extended for an additional six month period in order to provide the
Commission with further opportunity, if necessary, to assess the
operation of the program beyond February 8, 1994.
2. Basis
The proposed rule change is consistent with sections 6(b) and
11A(a)(1) of the Act in general and furthers the objectives of section
6(b)(5) in particular in that it facilitates the economically efficient
execution of odd-lot transactions, and is intended to result in
improved execution of customer orders.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition.
C. Self-Regulatory Organization's Statements 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. Persons making written submissions
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 at the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC 20549. 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 No. SR-Amex-93-45 and should be
submitted by March 7, 1994.
IV. Commission's Findings and Order Granting Partial Accelerated
Approval of Proposed Rule Change
In regard to the six month extension of the Amex's odd-lot
execution pilot program, the Commission, for the same rationale
discussed in its previous orders regarding these procedures,\7\ 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 with the requirements
of sections 6(b)\8\ and 11A(a)(1)\9\ of the Act and the rules and
regulations thereunder. The Commission believes that the revised
procedures, which provide for pricing of odd-lot market orders at the
prevailing Amex quote rather than at the execution price of a
subsequent transaction, should provide investors with more timely
execution of these orders. Moreover, these orders should receive less
costly executions than under the former procedures because no
differential will be charged. In addition, the Exchange has implemented
enhancements to its PER system for the automatic execution of odd-lot
market orders, as set forth in the Commission's order approving the use
of the pilot program procedures.\10\
---------------------------------------------------------------------------
\7\See supra, note 5.
\8\15 U.S.C. 78f (1988).
\9\15 U.S.C. 78k-1(a) (1988).
\10\See Securities Exchange Act Release No. 26445, supra note 4,
for a description of the Exchange's odd-lot procedures and the
Commission's rationale for approving those procedures on a pilot
basis. The discussion in the aforementioned order is incorporated by
reference into this order.
---------------------------------------------------------------------------
In its previous orders,\11\ the Commission asked the Amex to
analyze the difference in executions between using the Intermarket
Trading System (``ITS'') consolidated best bid or offer as compared
with the Amex quote without the differential. Specifically, the
Commission expressed interest in whether customers are receiving the
best execution, both in terms of price and time, using the new Amex
system. The Commission was also interested in the feasibility of
implementing an odd-lot pricing system using the ITS best bid or offer
and no differential.\12\
---------------------------------------------------------------------------
\11\See supra, note 5.
\12\The Commission has approved amendments to the New York Stock
Exchange's (``NYSE'') rules which incorporate the ITS quote into the
NYSE odd-lot pricing procedures through the use of the Best Pricing
Quote (``BPQ''). See Securities Exchange Act Release No. 27981 (May
2, 1990), 55 FR 19409 (May 9, 1990) (File No. SR-NYSE-90-06).
---------------------------------------------------------------------------
In response, the Amex submitted the requested information with
respect to the difference in executions between the ITS best bid or
offer and the Amex quote to the Commission on January 9, 1991, April
22, 1991, October 25, 1991, February 4, 1993, August 3, 1993 and
November 16, 1993.\13\ The Amex data indicated that the pilot
procedures provide a superior execution for a substantial majority of
odd-lot executions. Accordingly, the Commission believes that it is
reasonable to extend the pilot for an additional six months to enable
the Commission to review fully the Amex reports and to enable the pilot
to continue without interruption during the Commission's review. The
Commission, however, remains concerned that some odd-lot orders could
receive executions at less than the best available price since the
Exchange's pricing formula does not include quotations from other
markets.\14\ Nevertheless, due to the relatively low number of odd-lot
market orders on the Amex,\15\ the percentage of Amex quotes that are
worse than the ITS best bid or offer, and the benefits to customers
under the pilot program procedures as compared to the former pricing
procedures, the Commission believes that it is acceptable to continue
the pilot's current pricing procedures for an additional six months.
During that period, the Commission requests that the Exchange continue
to monitor the pilot and provide data on the number of Amex quotes
executed that are worse than the ITS consolidated best bid and offer
and on the number of odd-lots as a percentage of total Exchange share
volume and of the total number of trades. Moreover, the Commission
remains interested in the feasibility of implementing an odd-lot
pricing system using the ITS best bid and offer and no differential.
Accordingly, the Commission requests that the Amex include in its
monitoring report the feasibility and cost of developing such a plan,
along with a projected time frame for potential implementation. The
Commission requests that the Amex submit its report on these matters by
May 8, 1994.
---------------------------------------------------------------------------
\13\See letters from Arne G. Michelson, Senior Vice President,
Total Quality- Floor Members, Amex, to Beth A. Stekler, Attorney,
Division of Market Regulation, SEC, dated November 16, 1993, and to
Sharon M. Lawson, Assistant Director, Division of Market Regulation,
SEC, dated August 3, 1993; letter from Michael Cavalier, Assistant
General Counsel, Regulatory, Legal & Regulatory Policy Division,
Amex, to Diana Luka-Hopson, Branch Chief, Division of Market
Regulation, SEC, dated February 3, 1993; letters from Jules L.
Winters, Executive Vice President, Operations, Amex, to Howard L.
Kramer, Assistant Director, Division of Market Regulation, SEC,
dated January 8, 1991, April 19, 1991 and October 23, 1991.
\14\See supra, note 12.
\15\See footnote 9 of Securities Exchange Act Release No. 29922
(November 8, 1991), 56 FR 58409.
---------------------------------------------------------------------------
The Commission finds good cause for granting partial temporary
approval of the proposed rule change prior to the thirtieth day after
the date of publication of notice of filing thereof. This will permit
the pilot program to continue on an uninterrupted basis. In addition,
the procedures the Exchange proposes to continue using are the
identical procedures that were published in the Federal Register for
the full comment period and were approved by the Commission.\16\
---------------------------------------------------------------------------
\16\No comments were received in connection with the proposed
rule change which implemented these procedures. See supra note 4.
---------------------------------------------------------------------------
It is therefore ordered, Pursuant to section 19(b)(2)\17\ of the
Act, that the proposed rule change (SR-Amex-93-45) is approved for a
six month period ending on August 8, 1994.
---------------------------------------------------------------------------
\17\15 U.S.C. 78s(b)(2) (1988).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\18\
---------------------------------------------------------------------------
\18\17 CFR 200.30-3(a)(12) (1991).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3320 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M