

[Federal Register: September 30, 2005 (Volume 70, Number 189)]
[Notices]               
[Page 57338-57339]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30se05-158]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52503; File No. SR-Amex-2005-066]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving a Proposed Rule Change and Amendment No. 1 Thereto Relating 
to the Exchange's Determination of the National Best Bid or Offer When 
Another Exchange Is Disconnected From the Intermarket Option Linkage

September 23, 2005.

I. Introduction

    On June 17, 2005, the American Stock Exchange LLC (``Amex''), filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ to amend Amex Rules 
933(g) and 933(g)-ANTE regarding the determination of the National Best 
Bid or Offer (``NBBO'') when another participant in the Plan for the 
Purpose of Creating and Operating an Intermarket Option Linkage 
(``Linkage Plan'') \3\ is disconnected from the Linkage.\4\ On August 
4, 2005, the Amex filed Amendment No. 1 to the proposed rule change.\5\ 
The proposed rule change, as amended, was published for comment in the 
Federal Register on August 23, 2005.\6\ The Commission received one 
comment letter on the proposal.\7\ This order approves the proposed 
rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 28, 2000, the Commission approved a national market 
system plan for the purpose of creating and operating an intermarket 
option linkage proposed by the Amex, the Chicago Board Options 
Exchange, Incorporated, and the International Securities Exchange, 
Inc. See Securities Exchange Act Release No. 43086 (July 28, 2000), 
65 FR 48023 (August 4, 2000). Subsequently, upon separate requests 
by the Philadelphia Stock Exchange, Inc., the Pacific Exchange, 
Inc., and the Boston Stock Exchange, Inc., the Commission issued 
orders to permit these exchanges to participate in 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 Amex Rule 940(b)(9).
    \5\ Amendment No. 1 superseded and replaced the original filing 
in its entirety.
    \6\ See Securities Exchange Act Release No. 52270 (August 16, 
2005), 70 FR 49335.
    \7\ See letter from Matthew Hinerfeld, Managing Director and 
Deputy General Counsel, Citadel Investment Group, L.L.C., on behalf 
of Citadel Derivatives Group LLC, to Jonathan G. Katz, Secretary, 
Commission, dated August 26, 2005.
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II. Description of the Proposed Rule Change

    The Amex proposes to amend Amex Rules 933(g) and 933(g)-ANTE to add 
a provision regarding the determination of the NBBO when another 
Participant Exchange \8\ is disconnected from the Linkage. Amex Rules 
933(g) and 933(g)-ANTE currently provide that a Floor Governor or 
Exchange Official may determine that certain quotes from another 
Participant Exchange are not reliable when such other Participant 
Exchange either (i) declares its quotes non-firm and directly 
communicates or disseminates a message through Options Price Reporting 
Authority (OPRA), or (ii) communicates to the Amex that such 
Participant Exchange is experiencing systems or other problems 
affecting the reliability of its disseminated quotes.
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    \8\ A ``Participant Exchange'' is a registered national 
securities exchange that is a party to the Linkage Plan. See Amex 
Rule 940(b)(14).
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    The Amex proposes to add to Amex Rules 933(g) and 933(g)-ANTE that 
when another Participant Exchange is disconnected from the Linkage and 
is not accepting Linkage orders, a Floor Governor or Exchange Official 
may determine the quotes from such Participant Exchange are unreliable 
and may exclude such quotes from the Amex's determination of the NBBO. 
The Amex believes that adding this third circumstance is necessary 
because there are times when due to system malfunctions, a Participant 
Exchange is disconnected from the Linkage but has not declared its 
quotes to be ``non-firm'' and has not informed the other exchanges that 
the disconnected Participant Exchange may have quote problems. As a 
result, access to the disconnected Participant Exchange is limited, and 
the Amex believes such Participant Exchange's quotes should be excluded 
from the Amex's determination of the NBBO.

III. Comment Received

    As noted above, the Commission received one comment letter on the 
proposal.\9\ The commenter was strongly supportive of the Amex's 
proposed rule change, including the Amex's proposed method of 
determining that a Participant Exchange's quote is unreliable.\10\
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    \9\ See supra note 7.
    \10\ The comment letter also addressed File No. SR-BSE-2005-30, 
a proposal to allow the Boston Options Exchange (``BOX'') to exclude 
a Participant Exchange's quotes from BOX's determination of the NBBO 
when, among other circumstances, such Participant Exchange is 
disconnected from Linkage. The commenter supported the Boston Stock 
Exchange, Inc.'s proposal, but suggested a modification to the 
proposal, as discussed in an order issued separately. See Securities 
Exchange Act Release No. 52501 (September 23, 2005). In addition, 
the commenter urged the Commission to address issues related to non-
firm quotes that are outside the scope of these proposed rule 
changes.
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IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\11\ and the rules and regulations thereunder applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\13\ 
which requires, among other things, that the rules of the Amex be 
designed 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. The Commission believes that it is appropriate for the 
Amex to remove a Participant Exchange's disseminated quote(s) from the 
Amex's determination of the NBBO when such Participant Exchange is 
disconnected from Linkage and is not

[[Page 57339]]

accepting Linkage orders because access to such Participant Exchange's 
quote(s) is limited during such times. The Commission further believes 
that the Amex's existing rules establish appropriate procedures to 
notify promptly the affected Participant Exchange and Amex member firms 
of such removal and establish an appropriate standard for determining 
when to resume inclusion of the affected Participant Exchange's 
quote(s) in the Amex's NBBO.\14\
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    \11\ 15 U.S.C. 78f.
    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
    \14\ See Amex Rules 933(g) and 933(g)-ANTE.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-Amex-2005-066), as amended, 
is approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    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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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-5326 Filed 9-29-05; 8:45 am]

BILLING CODE 8010-01-P
