

[Federal Register: July 12, 2006 (Volume 71, Number 133)]
[Notices]               
[Page 39374-39376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jy06-112]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54104; File No. SR-Amex-2006-47]

 
Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 2 Thereto 
Relating to the Member Firm Guarantee for FLEX Equity Options

July 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 12, 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 Amex. The Amex 
filed Amendment No. 1 to the proposed rule change on June 5, 2006 and 
subsequently withdrew Amendment No. 1. The Amex filed Amendment No. 2 
to the proposed rule change on June 12, 2006.\3\ 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. 2, the Amex made technical corrections to 
the rule text of the proposed rule change.
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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 904G(e)(iii) to change the 
current member firm guarantee for FLEX equity options to 40%. The text 
of the proposed rule change is available on the Amex's Web site (http://www.amex.com
), at the Amex's Office of the Secretary, 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 Amex 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 examined at the places specified in 
Item IV below. The Amex has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such 
statements.\4\
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    \4\ Pursuant to discussions with Amex staff, the Commission made 
clarifying changes to the purpose section of the proposed rule 
change. Telephone conversation between Caroline McCaffery, Assistant 
General Counsel, Amex, and Ira Brandriss, Special Counsel, and Kate 
Robbins, Attorney, Division of Market Regulation, Commission, on 
June 29, 2006.

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[[Page 39375]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to revise the current 
participation or member firm guarantee \5 \for FLEX equity options 
traded on the Exchange. Currently, the member firm guarantee provides 
that a Submitting Member or Submitting Member firm--an Exchange member 
deemed eligible by the Exchange to trade FLEX options--who has 
indicated an intention to cross or act as principal on the trade and 
who has matched or improved the best bid or offer entered in response 
to the Submitting Member's initial request for quotes (the ``BBO,'' as 
defined for purposes of Amex rules regarding FLEX options) with respect 
to FLEX equity options, is entitled to a participation guarantee of 
25%. The Amex is proposing to amend Rule 904G(e)(iii) so that 
Submitting Members and Submitting Member firms would receive a 
guaranteed participation of 40% of an order, which is the current 
standard applicable to non-FLEX options.\6 \
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    \5\ A ``member firm guarantee'' provides, under certain 
conditions, the ability to cross a specified percentage of a 
customer order on behalf of a member firm before specialists and/or 
registered options traders in the crowd can participate in the 
transaction. The member firm guarantee for FLEX equity options is 
set forth in Amex Rule 904G(e). The member firm guarantee for non-
FLEX options is set forth in Rule 950(d) and 950-ANTE(d). The 
provision for non-FLEX options generally applies to orders of 400 
contracts or more; however, the Exchange is permitted to establish 
smaller eligible order sizes, on a class-by-class basis, provided 
that size is not for fewer than 50 contracts.
    \6\ The text of Amex Rule 904G(e)(iii) provides that the 
Submitting Member is permitted to participate ``to the extent of at 
least 25% of the trade'' (40% under the proposal). The Submitting 
Member may participate in more than its guaranteed percentage to the 
extent that the trading crowd chooses not to trade against the 
remaining portion of the order.
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    In April 2003,\7\ the Exchange received permanent approval of a 
pilot program relating to the member firm guarantee for non-FLEX 
options initially approved by the Commission on June 2, 2000.\8\ 
Commentary .02(d) to Amex Rules 950(d) and 950-ANTE(d) permits 
facilitation cross transactions in equity options and sets forth the 
member firm guarantee percentages.\9\ The member firm guarantee for 
non-FLEX options was subsequently extended to index options in 
September 2004 \10\and to index options in the Amex New Trading 
Environment System (``ANTE'') in February 2005.\11\ The amount of the 
guaranteed participation percentage for non-FLEX options is currently 
40%, provided that the order trades at or between the best bid or offer 
given by the trading crowd in response to the floor broker's request 
for a market.\12\
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    \7\ See Securities Exchange Act Release No. 47643 (April 7, 
2003), 68 FR 17970 (April 14, 2003).
    \8\ See Securities Exchange Act Release No. 42894 (June 2, 
2000), 65 FR 36850 (June 12, 2000).
    \9\ A facilitation cross transaction occurs when a floor broker 
representing the order of a public customer of a member firm crosses 
that order with a contra side order from the firm's proprietary 
account.
    \10\ See Securities Exchange Act Release No. 50326 (September 7, 
2004), 69 FR 55479 (September 14, 2004).
    \11\ See Securities Exchange Act Release No. 51275 (February 28, 
2005), 70 FR 10709 (March 4, 2005).
    \12\ Prior to February 2005, the member firm guarantee for non-
FLEX options provided that a floor broker was entitled to a 
participation guarantee of 20% if the order was traded at the best 
bid or offer given by the trading crowd in response to a floor 
broker's request for a market or 40% if the order was traded at a 
price that improved the market, i.e., at a price between the crowd's 
best bid or offer. This rule was revised in February 2005 so that 
floor brokers receive 40% of an order (after public customer orders 
on the specialist's book or represented by a floor broker in the 
crowd have been filled) if such order trades at a price that matches 
or improves the market. See Securities Exchange Act Release No. 
51275 (February 28, 2005), 70 FR 10709 (March 4, 2005).
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    Under the instant proposal, a Submitting Member or a Submitting 
Member firm trading FLEX equity options will be entitled to cross up to 
40% of an order provided the order trades at a price that matches or 
improves upon the BBO. As with non-FLEX equity options, it is believed 
that providing Submitting Members or Submitting Member firms who are 
eligible to trade FLEX options and are seeking to cross or facilitate a 
trade with an across-the-board 40% member firm guarantee will provide 
additional incentive for such Submitting Member or Submitting Member 
firm to bring large FLEX option orders to the floor of the Amex rather 
than to the floor of another options exchange or to the over-the-
counter (``OTC'') market. Additionally, the liquidity provided by such 
Submitting Member or Submitting Member firm seeking to facilitate their 
orders gives the Exchange the ability to provide deep liquid markets 
for investors.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \13\ in general and furthers the objectives 
of Section 6(b)(5) \14\ in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Amex consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2006-47 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-2006-47. This file

[[Page 39376]]

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 Room. 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-2006-47 and should be submitted on or before August 
2, 2006.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-10921 Filed 7-11-06; 8:45 am]

BILLING CODE 8010-01-P
