

[Federal Register: June 14, 2006 (Volume 71, Number 114)]
[Notices]               
[Page 34404-34405]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14jn06-139]                         


[[Page 34404]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43942; File No. SR-Amex-2006-38]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change and Amendment No. 1 Thereto Relating to Locked Markets

June 5, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 4, 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, II, 
and III below, which Items have been prepared by the Exchange. On May 
25, 2006, the Exchange submitted Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons and is 
granting accelerated approval to the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original filing 
in its entirety.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit Exchange options quotations that 
lock the quotations of specialists, registered options traders 
(``ROTs''), supplemental registered options traders (``SROTs'') or 
remote registered options traders (``ROTs''), to be disseminated and 
executed after a short ``counting period.'' \4\ Amex seeks acclerated 
approval of the proposed rule change and a retroactive effective date 
of April 27, 2006.
---------------------------------------------------------------------------

    \4\ Telephone conservation between Jeffrey Burns, Vice President 
and Associate General Counsel, Amex, and Terri Evans, Special 
Counsel, Division of Market Regulation, Commission, on May 30, 2006.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Amex's Web 
site at http://www.amex.com, the Office of the Secretary, the 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 proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item III 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
    The purpose of the proposal is to permit the Exchange's ANTE system 
to execute orders on locked market quotes (i.e. 2.00 bid/2.00 offer), 
after a short period of time. This proposal would revise current 
Commentary .01 to Rule 951--ANTE by eliminating the requirement that 
the ANTE system revise the bid or offer by at least one (1) minimum 
price variation so that the bid or offer does not lock the ABBO.\5\ The 
``counting period'' or time period that will be required for a quote(s) 
to exist before an execution on that quote may occur will be one (1) 
second.
---------------------------------------------------------------------------

    \5\ Current Commentary .01 to Rule 951--ANTE provides that if 
the bid or offer of a specialist, ROT, SROT or RROT locks or crosses 
the Amex best bid or offer (``ABBO''), the ANTE System will either 
(i) revise the bid by one or more minimum price variations lower 
than the bid submitted or revise the offer by one or more minimum 
price variations higher than the offer submitted, so that the bid or 
offer submitted does not lock or cross the ABBO; or (ii) if the ABBO 
represents an off-floor limit order, the ANTE System will execute 
the order and allocate the trade pursuant to the post trade 
allocation process.
---------------------------------------------------------------------------

    Because in ANTE the specialist, ROTs, SROTs \6\ and RROTs \7\ may 
simultaneously enter quotes,\8\ there may be instances where quotes may 
become locked. Under the proposal, the Exchange would disseminate the 
locked market and both quotations (bid and offer) would be deemed 
``firm'' disseminated market quotations. Once the specialist and/or 
ROT, SROT, or RROT quotations become locked, a ``counting period'' 
would begin during which the specialist and/or ROT, SROT or RROT whose 
quotations are locked may eliminate the locked market. Such specialist 
and/or ROT, SROT or RROT would be obligated to execute orders at their 
disseminated quotation. During the ``counting period,'' specialists and 
ROTs in the trading crowd in which the option that is the subject of 
the locked market is traded will continue to be obligated to respond to 
floor brokers as set forth in Amex Rules 958--ANTE (c) and 950--ANTE 
(1) and would continue to be obligated for one contract in open outcry 
to other ROTs and specialists.\9\ In addition, during the counting 
period all locked markets with respect to the specialist, ROTs, SROTs 
and RROTs will be immediately accessible and automatically executable 
pursuant to 933--ANTE. The ``counting period'' will be one (1) second.
---------------------------------------------------------------------------

    \6\ ``SROT'' means a ROT that is a member organization so 
designated by the Exchange which is granted remote quoting rights to 
enter bids and offers electronically from off the Exchange's 
physical trading floor. See Amex Rule 900--ANTE(b)(50).
    \7\ ``RROT'' means a ROT that is member or member organization 
so designated by the Exchange which is awarded remote quoting rights 
to enter bids and offers electronically from locations other than 
the trading crowd where the applicable options class is traded on 
the Exchange's physical trading floor. See Amex Rule 900--
ANTE(b)(51).
    \8\ The commencement of the Exchange's recently approved SROT 
and RROT programs will increase the simultaneous entry of quotes by 
multiple ROTs thereby increasing the likelihood of locked markets. 
The Exchange's SROT and RROT programs were recently approved by the 
Commission on April 12, 2006 and April 13, 2006, respectively. See 
Securities Exchange Act Release Nos. 53635 (April 12, 2006), 71 FR 
20144 (April 19, 2006)(order approving the SORT program) and 53652 
(April 13, 2006), 71 FR 20422 (April 20, 2006) (order approving the 
RROT program).
    \9\ See Amex Rule 958A--ANTE.
---------------------------------------------------------------------------

    If at the end of the counting period the quotations remain locked, 
the ANTE system would automatically execute the quotations against each 
other and allocate the contracts pursuant to Rule 935--ANTE. For 
example, if the market is 2 bid for 10 contracts and 2 offered for 20 
contracts, after the ``counting period'' terminates, the ANTE system 
will execute the quotations against each other so that the remaining 
quote becomes 2 offered for 10 contracts. In addition, the quotation 
that is locked may be executed by another order during the ``counting 
period.''
    The Exchange will not disseminate an internally crossed market 
(i.e. 2.10 bid/2.00 offer). If a specialist, ROT, SROT or RROT submits 
a quotation that would cross an existing quotation, the Exchange will: 
(i) Change the incoming quotation such that it locks the existing 
quotation; (ii) send a notice to the specialist, ROT, SROT, or RROT 
that submitted the existing quotation indicating that its quotation was 
crossed; and (iii) send a notice to the specialist, ROT, SROT or RROT 
that submitted the incoming quotation, indicating that is quotation 
crossed the existing quotation and was changed. Such a locked market 
would then be handled in accordance with proposed paragraph (a) to 
Commentary .01 of Rule 951--ANTE concerning locked markets. During the 
counting period, if the existing quotation is cancelled subsequent to 
the time the incoming

[[Page 34405]]

quotation is changed, the incoming quotation will be automatically 
restored to its original terms.
    The Exchange believes that the proposal is necessary to maintaining 
order flow and competitiveness with the other options exchanges. Both 
the Chicago Board Options Exchange, Inc. (``CBOE'') \10\ and the 
Philadelphia Stock Exchange, Inc. (``Phlx'') \11\ have adopted similar 
proposals to execute locked markets.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 47959 (May 30, 
2003), 68 FR 34441 (June 9, 2003).
    \11\ See Securities Exchange Act Release No. 50100 (July 27, 
2004), 69 FR 46612 (August 3, 2004).
---------------------------------------------------------------------------

2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the Act 
\12\ in general and furthers the objectives of section 6(b)(5) \13\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system, and, in general, protect 
investors and the public interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    According to the Exchange, the proposed rule change, as amended, 
does not 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

    Written comments were neither solicited nor received with respect 
to the proposed rule change, as amended.

III. 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 at http://www.sec.gov/rules/sro.shtml.
; or     Send an e-mail to rulecomments@sec.gov. Please include 

File Number SR-Amex-2006-38 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-2006-38. 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 at 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, as amended, 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 Room, 100 F 
Street, NE., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. 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-2006-38 and should be submitted on or before July 5, 2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\14\ Specifically, the 
Commission believes the proposal is consistent with section 6(b)(5) of 
the Act,\15\ which requires that the rules of an exchange 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.
---------------------------------------------------------------------------

    \14\ In approving this proposed rule change, as amended, the 
Commission notes that it has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule is consistent with 
Rule 602,\16\ the Commission's Quote Rule. The Commission notes that 
during the counting period specialists, ROTs, SROTs, and RROTs whose 
quotes are locked would remain obligated to execute customer and 
broker-dealer orders eligible for automatic execution at the locked 
price. The Commission also notes that specialists and other market 
makers whose quotes are locked against each other would continue to be 
obligated under the Quote Rule for at least one contract to each other 
during the counting period. If at the end of the counting period the 
quotes remain locked, the quotes would execute against each other. 
Accordingly, the Commission believes that the proposal provides a 
reasonable method for specialists, ROTs, SROTs, and RROTs that lock a 
market to unlock the market.
---------------------------------------------------------------------------

    \16\ 17 CFR 242.602.
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. The 
Commission notes that the proposed rule change, as amended, is 
substantially similar to CBOE Rule 6.45A(d) and Phlx Rule 1082, 
Commentaries .02 and .03 and raises no new regulatory issues. 
Accordingly, the Commission believes that it is consistent with section 
19(b)(2) of the Act \17\ to approve the proposed rule change, as 
amended, on an accelerated basis effective April 27, 2006.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\18\ that the proposed rule change (SR-Amex-2006-38), as amended, is 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06-5372 Filed 6-13-06; 8:45 am]

BILLING CODE 8010-01-M
