

[Federal Register: March 29, 2006 (Volume 71, Number 60)]
[Notices]               
[Page 15775-15778]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr06-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53540; File No. SR-Amex-2006-14]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto Relating to Specialists' 
Transactions With Public Customers

March 22, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 7, 2006, 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 and 
II below, which Items have been prepared by Amex. On March 16, 2006, 
the Exchange filed Amendment No. 1 to the proposed rule change.\3\ On 
March 17, 2006, the Exchange filed Amendment No. 2 to the proposed rule 
change.\4\ The Exchange filed the proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 
\5\ and Rule 19b-4(f)(6) thereunder.\6\ 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\ In Amendment No. 1, the Exchange revised proposed Amex Rule 
190, Commentary .07 (iv), to require that a specialist represent to 
the Amex that neither the specialist nor his affiliates are making a 
market in any of the underlying component securities, currencies, or 
commodities of any ETF issued by the sponsor with which the 
specialist has entered into a business transaction.
    \4\ In Amendment No. 2, the Exchange made further changes to 
proposed Amex Rule 190, Commentary .07 (iv), to apply the 
requirement therein to transactions entered into by either 
specialist or his member organization or any member, officer, 
employee or approved person therein.
    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 190 and Section 910 of the 
Amex Company Guide to permit business transactions between a specialist 
or his member organization, or any member, officer, employee or 
approved person therein and the sponsor of any exchange traded fund 
(``ETF'') in which the specialist is registered. The text of the 
proposed rule

[[Page 15776]]

change, as amended, is attached hereto as Exhibit A and is also 
available on the Amex Web site http://www.amex.com, at the principal 

office of Amex, and at the Commission's Public Reference Room.

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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, and discussed any comments it received on the proposal. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Amex Rule 190 (Specialist's Transactions with Public Customers) and 
Section 910 (Relationship with Specialists) of the Amex Company Guide 
generally restrict business transactions between a specialist or his 
member organization, or any member, officer, employee or approved 
person therein (collectively, ``affiliates'') and any company or any 
officer, director, or 10% stockholder of a company in whose stock the 
specialist is registered. The restriction is intended to ensure that a 
specialist or his affiliates do not enter into a material business 
relationship with a company in whose security the specialist is 
registered, such that the specialist's or his affiliates' status 
creates conflicts of interest with respect to the specialist's 
affirmative and negative obligations to maintain a fair and orderly 
market in the security.
    Currently, Amex Rule 193 provides exemptions from Amex Rule 190(a) 
and (b) to an approved person or member organization that is affiliated 
with a specialist member organization with respect to business 
transactions with issuers. This is due to the fact that the functional 
separation required by Amex Rule 193 eliminates conflict of interest 
concerns. The Exchange proposes to add an exemption to Amex Rule 190 
and Section 910 of the Amex Company Guide that would apply to business 
transactions between a specialist or his affiliates and the sponsor of 
any ETF in which the specialist is registered. The Commission 
previously approved a similar rule filing by the New York Stock 
Exchange, Inc. (``NYSE'').\7\
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    \7\ See Securities Exchange Act Release No. 52838 (November 28, 
2005); 70 FR 72320 (December 2, 2005) (SR-NYSE-2005-66).
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    For the purposes of the proposed rule change, ETFs are Portfolio 
Depositary Receipts (as defined in Rule 1000), Index Fund Shares (as 
defined in Rule 1000A), Trust Issued Receipts (as defined in Rule 1200) 
and derivative instruments based on one or more securities, currencies 
or commodities. The Exchange believes that potential conflicts of 
interest will be reduced due to the nature of how ETFs are traded. 
Since the trading price of an ETF is generally based on the price(s) of 
one or more security, commodity, currency or related futures contract 
(collectively, ``underlying assets''), the Exchange believes that the 
potential for conflicts of interest that might have an undue influence 
or impact on the trading price of an ETF will be minimal. The Exchange 
also believes that conflict of interest or undue influence concerns 
will be further minimized by the fact that the underlying assets of an 
ETF are typically traded on a different exchange or market than Amex or 
in a different location within Amex.
    The Exchange also believes that the potential for conflicts of 
interest that might arise between a specialist or his affiliates and a 
sponsor of an ETF will be negligible because the responsibilities of a 
sponsor of an ETF are limited to establishing the trust that issues ETF 
shares, registering the ETF shares with the SEC, and filing required 
periodic reports. Thus, while the ETF sponsor generally oversees the 
performance of the trustee of the ETF and the trust's principal service 
providers, the trustee is responsible for the day-to-day administration 
of the trust.
    The proposed rule change would provide that in order to take 
advantage of the exemption the following conditions must be met: (i) 
The business transaction may only be entered into with the sponsor of 
the ETF and the sponsor may not be involved in the day-to-day 
administration of the ETF; (ii) any fee or other compensation paid in 
connection with the business transaction to a specialist or his 
affiliates must not have any relationship to the trading price or daily 
trading volume of the ETF; (iii) the specialist or his affiliate must 
notify and provide a full description to the Exchange of any business 
transaction or relationship it may have with any sponsor of an ETF in 
which the specialist or any of its affiliates is registered; and (iv) 
the specialist or his affiliate must make a representation to the 
Exchange indicating that the neither the specialist nor his affiliates 
are making a market in any of the underlying component securities, 
currencies or commodities of any ETF issued by the sponsor with which 
such specialist or affiliate has entered into a business transaction.
    The Exchange believes that the above-listed conditions will serve 
as an additional layer of protection against conflicts of interest by 
diminishing any potential ability for a specialist or his affiliates to 
unduly influence trading for their own benefit and any incentive for 
such specialist to compromise his specialist obligations in maintaining 
fair and orderly markets. The Exchange also believes that such 
conditions will help to ensure that the ETF sponsor does not unduly 
influence its specialist or his affiliates.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\8\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\9\ in particular, in that 
it is designed 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.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 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 that is not necessary or 
appropriate in furtherance of the purposes of the Act.

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

    The Exchange did not solicit or receive any written comments with 
respect to the proposed rule change, as amended.

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

    The foregoing rule change, as amended, has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and

[[Page 15777]]

Rule 19b-4(f)(6) thereunder \11\ in that the proposed rule change (i) 
does not significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has requested that the Commission waive the five-day 
pre-filing notice requirement and the 30-day operative delay period for 
``non-controversial'' proposals and make the proposed rule change, as 
amended, effective and operative upon filing. The Commission has 
determined to waive the five-day pre-filing notice requirement and the 
30-day operative delay period.\12\ The Commission notes that the 
proposed rule change imposes conditions for specialist transactions 
with sponsors of ETFs that are substantially identical to those 
contained in NYSE Rule 460, Commentary .25 and NYSE Rule 103B.VIII.
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    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    Therefore, the foregoing rule change, as amended, has become 
immediately effective and operative upon filing pursuant to Section 
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\ 
At any time within 60 days of the filing of the proposed rule change, 
the Commission may summarily abrogate such rule change if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ The effective date of the original proposed rule change is 
February 7, 2006, the date of the original filing, and the effective 
dates of Amendment Nos. 1 and 2 are, respectively, March 16, 2006 
and March 17, 2006, the filing dates of the amendments. For purposes 
of calculating the 60-day abrogation period within which the 
Commission may summarily abrogate the proposed rule change, as 
amended, under Section 19(b)(3)(C) of the Act, the Commission 
considers the period to commence on March 17, 2006, the date on 
which the Exchange submitted Amendment No. 2. See 15 U.S.C. 
78s(b)(3)(C).
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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. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Amex-2006-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2006-14. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of Amex. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Amex-2006-14 and should be 
submitted on or before April 19, 2006.

    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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Nancy M. Morris,
Secretary.

Exhibit A--American Stock Exchange LLC

Proposed Rule Change

    Italicized text indicates material to be added. [Bracketed] text 
indicates material to be deleted.

Specialist's Transactions With Public Customers

    Rule 190. (a) through (e) No change.
    * * * Commentary
    .01 through .06 No change.
    .07 The restrictions in paragraph (a) above relating to business 
transactions between a specialist or his member organization or any 
member, officer, employee or approved person therein and a company in 
which stock the specialist is registered shall not apply to Portfolio 
Depositary Receipts (as defined in Rule 1000), Index Fund Shares (as 
defined in Rule 1000A), Trust Issued Receipts (as defined in Rule 1200) 
and derivative instruments based on one or more securities, currencies 
or commodities (all of the foregoing collectively referred to in this 
Commentary .07 as ``ETFs''), if the following conditions are met:
    (i) the specialist or his member organization or any member, 
officer, employee or approved person therein only enters into the 
business transaction with the sponsor of the ETF and the sponsor is not 
involved in the day-to-day administration of the ETF; and
    (ii) any fee or other compensation in connection with the business 
transaction paid to the specialist or his member organization or any 
member, officer, employee or approved person therein must not be 
dependent on the trading price or daily trading volume of the ETF;
    (iii) the specialist or his member organization or any member, 
officer, employee or approved person therein must notify and provide a 
full description to the Exchange of any business transaction or 
relationship it may have with any sponsor of an ETF that he or it is 
registered as specialist in; and
    (iv) the specialist or his member organization or any member, 
officer, employee or approved person therein represents to the Exchange 
that the specialist, member organization or any member, officer, 
employee or approved person therein are not making a market in any of 
the underlying component

[[Page 15778]]

securities, currencies or commodities of any ETF issued by the sponsor 
with which such specialist, member organization or any member, officer, 
employee or approved person therein has entered into a business 
transaction.

AMEX Company Guide Relationship With Specialist Procedures, Rules and 
Regulations

    Sec. 910. Introduction and (a) through (c) No change.
    (d) Exchange Rules Governing Specialist's Activities--In addition 
to certain provisions of the Securities Exchange Act of 1934, a number 
of Exchange regulations place clearly defined limits on a specialist's 
activities. An awareness of both the intent and spirit of Exchange 
rules, and the responsibilities the Exchange places on the specialist, 
will help ensure that contacts between company officials and the 
specialist are conducted within the framework provided for above.
    With respect to any security in which a specialist is registered, 
Exchange rules prohibit specialists (and, with respect to paragraphs 
iii through ix, the member firm or member corporation of which the 
specialist is a member) from:
    (i) through (v) No change.
    (vi) effecting, directly or indirectly, any business transaction 
with the issuer of any such security or any officer, director or 10% 
stockholder of any such issuer, except as provided in Commentary .07 to 
Rule 190 with respect to business transactions, under certain 
conditions, between a specialist or his member organization or any 
member, officer, employee or approved person therein and the sponsor of 
an ETF (as defined therein) that he or it is registered as specialist 
in;
    (vii) through (ix) No change.
    With respect to any security in which a specialist is registered, 
Exchange rules require the specialist to report to the Exchange:
    (i) through (iii) No change.
    (iv) any unusual transaction in which the specialist participates 
as a broker or dealer; [and]
    (v) each purchase and sale for the specialists' own account[.]; and
    (vi) a full description of any business transaction or relationship 
that a specialist or his member organization or any member, officer, 
employee or approved person therein may have, under certain conditions 
as provided in Commentary .07 to Rule 190, with any sponsor of an ETF 
(as defined therein) that he or it is registered as specialist in.
    (e) No change.

[FR Doc. E6-4537 Filed 3-28-06; 8:45 am]

BILLING CODE 8010-01-P
