[Federal Register Volume 62, Number 90 (Friday, May 9, 1997)]
[Notices]
[Pages 25682-25683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12175]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38571; File No. SR-Amex-97-14]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Trading in
One Sixteenth of a Dollar
May 5, 1997.
On March 17, 1997, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``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 permit all Amex equity
securities selling at or above $0.25 to trade in sixteenths.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on April 1, 1997.\3\ No comments were received concerning the
proposal. This order approves the proposal.
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\3\ Securities Exchange Act Release No. 38437 (Mar. 25, 1997),
62 FR 15552 (Apr. 1, 1997).
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In 1992, the Commission approved amendments to Amex Rule 127 to
provide that securities selling between $0.25 and $5 could be traded in
sixteenths ($0.0625).\4\ In 1995, this rule was amended to expand the
securities that could be traded in sixteenths to those selling up to
$10.\5\ The proposed rule change would eliminate the $10 cap, thus
allowing all Amex-listed equity securities priced at or above $0.25 to
trade in sixteenths.\6\ The
[[Page 25683]]
Exchange believes that trading in sixteenths will enhance competition
and, thus, increase the potential for an investor's order to receive
price improvement.\7\
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\4\ Securities Exchange Act Release No. 31118 (Aug. 28, 1992),
57 FR 40484 (Sept. 3, 1992) (approving File No. SR-Amex-91-07).
\5\ Securities Exchange Act Release No. 35537 (Mar. 27, 1995),
60 FR 16894 (Apr. 3, 1995) (approving File No. SR-Amex-95-02).
\6\ Standard and Poor's Depositary Receipts
(``SPDRs'') and S&P MidCap 400 SPDRsTM will
continue to trade in \1/64\s ($0.0155625), and dealingsin Amex-
listed equity securities priced below $0.25 will continue to be in
\1/32\s ($0.03125).
\7\ The proposed rule change should affect a significant number
of orders because, according to the Exchange, approximately 50% of
all equity securities presently traded on the Amex sell for over $10
per share.
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At the March 1997 meeting of the Intermarket Trading System
(``ITS'') Operating Committee, the ITS participants approved
enhancements to ITS to permit trading in sixteenths for all Tape B
securities.\8\ The Amex has represented that these system modifications
have been made and the system now is able to accommodate trading all
Amex equity securities in sixteenths.\9\
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\8\ The Consolidated Tape, operated by the Consolidated Tape
Association (``CTA''), compiles last sale reports in certain listed
securities from all exchange and market makers trading such
securities and disseminates these reports to vendors on a
consolidated basis. Amex-listed stocks and qualifying regional-
listed stocks are reported on CTA Tape B.
\9\ Letter from Arne G. Michaelson, Senior Vice President, Amex,
to Howard L. Kramer, Senior Associate Director, SEC, dated April 25,
1997.
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The Commission finds that the proposed rule change to permit all
Amex equity securities selling at or above $0.25 to trade in increments
as small as one sixteenth of a dollar 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 Section 6(b) and Section 11A.\10\
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\10\ 15 U.S.C. Secs. 78f(b) and 78k-1. In approving this rule
change, the Commission notes that it has considered the proposal's
impact on efficiency, competition, and capital formation, consistent
with Section 3 of the act. Id. Sec. 78c(f).
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The Commission believes the quality of the market for Amex-listed
securities will likely be enhanced by allowing a minimum fractional
change of \1/16\, rather than \1/8\, for all Amex equity securities
selling at or above $0.25.\11\ Decreasing such trading variations
should help to produce more accurate pricing of such securities and can
result in tighter quotations. In addition, if the quoted markets are
improved by the reduced minimum tick fluctuations, the change could
result in added benefits to the market such as reduced transaction
costs.\12\
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\11\ A study that analyzed the 1992 reduction in the minimum
tick size for Amex-listed securities priced between $1.00 and $5.00
found that, in general, the spreads for those securities decreased
significantly while trading activity and market depth was relatively
unaffected. See Hee-Joon Ahn, Charles Q. Chao, and Hyuk Choe, Tick
Size, Spread, and Volume, 5 J. Fin. Intermediation 2 (1996).
\12\ The rule change is consistent with the recommendation of
the Division of Market Regulation (``Division'') in its Market 2000
Study, in which the Division noted that the \1/8\ minimum variation
can cause artificially wide spreads and hinder quote competition by
preventing offers to buy or sell at prices inside the prevailing
quote. See SEC, Division of Market Regulation, Market 2000: An
Examination of Current Equity Market Developments 18-19 (Jan. 1994).
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Furthermore, this change in the minimum increment will complement
the Commission's Order Execution Rules.\13\ The rule change allows a
more complete display of the buying and selling interest in Amex-listed
securities. For example, the enhanced transparency will allow customer
limit orders in smaller increments to be displaced, thus giving these
limit orders greater visibility and allowing enhanced quote
competition. The enhanced transparency will improve access to the best
available prices and provide an opportunity for executions at prices
that were not previously available.
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\13\ See Securities Exchange Act Release No. 37619A (Sept. 6,
1996), 61 FR 48290 (Sept. 12, 1996).
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Finally, the Commission believes the proposal allows increased
competition among the different markets pursuant to Section 11A of the
Act.\14\ As noted above, ITS participants will have the capability to
trade all Tape B securities in sixteenths. By ensuring that all ITS
participants can quote in sixteenths, regional exchanges, over-the-
counter market makers trading in Amex-listed securities, and Amex
specialists will be able to compete with each other by quoting in finer
increments.
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\14\ 15 U.S.C. Sec. 78k-1(a)(1)(C)(ii).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-Amex-97-14) is approved.
\15\ Id. Sec. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12175 Filed 5-8-97; 8:45 am]
BILLING CODE 8010-01-M