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Self-Regulatory Organizations; Order Approving Proposed Rule Change by the American Stock Exchange LLC Relating to Disclosures by Specialists Under Amex Rule 174

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Information about this document as published in the Federal Register.

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Start Preamble February 9, 2000.

I. Introduction

On August 6, 1999, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“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 amend Amex Rule 174 pertaining to the disclosure of specialists' orders. The proposed rule change was published for comment in the Federal Register on September 20, 1999.[3]

II. Description of the Proposal

Presently, Amex Rule 174 prohibits specialists from disclosing information regarding orders left with the specialist other than to a Floor Official or an authorized Amex official. This prohibition is subject to three exceptions: (1) a specialist may disclose information to requesting members or issuer representatives regarding names of buying and selling member organizations in completed or partially executed Amex transactions unless parties to the trade direct otherwise; (2) in response to a member's probe of the market, the specialist, in a fair and impartial manner, may provide information about buying and selling interest at or near the prevailing quotation, including the identity of bidders or offerors represented on the book, unless the entering broker directs otherwise; and (3) the specialist must disclose information regarding limited price orders held by the specialist to the extent required by the Intermarket Trading System Plan.

The Exchange proposes to amend Amex Rule 174 to expand the information that the specialist, while acting in a market making capacity on the Floor, is permitted to disclose in response to a member's market probe in the normal course of business. The proposed rule change would eliminate the specialist disclosure restriction for information regarding orders “at or near the prevailing quotation,” and instead would permit any information concerning buying and selling interest of orders held by the specialist on the specialist's book to be disclosed following a member's market probe. In addition, the specialists would be permitted to disclose information regarding stop orders if the specialist reasonably believes that the requesting member intends to trade the security at a price at which stop orders would be relevant.[4] The proposed rule change also will permit, although not require, disclosure of percentage orders in a manner similar to disclosure of any other orders (except stop orders).[5] Although a specialist would not be required to disclose any order information on the specialist's book in response to a member's market probe, under the existing or the proposed rule, if the specialist determines to make such disclosure, it must disclose the same information in a fair and impartial manner to any member on the Floor.

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,[6] and, in particular, with the requirements of Sections 6(b)(5),[7] 11A(a)(1)(C)(iii),[8] and 1(b) of the Act.[9] Section 6(b)(5) of the Act [10] requires, among other things, that an exchange have rules which are designed to promote just and equitable principles of trade, to facilitate transactions in securities, to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest. In Section 11A(a)(1)(C)(iii) of the Act,[11] Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. section 11(b) of the Act,[12] among other things, prohibits a specialist or Exchange official from disclosing information with respect to orders that is not available to all members of the Exchange to any person other than an official of the Exchange, a representative of the Commission, or a specialist who may be acting for such specialist.

Presently, Amex Rule 174 prohibits specialists from disclosing Book information to other exchange members who are probing the market, unless the market probe is made at or near the prevailing quote. The proposed rule change would liberalize the specialist disclosure provisions by permitting specialists, while acting in a market maker capacity and in response to a market probe by a member, to give information concerning buying and selling interest or orders the specialist holds on the Book in a stock. All market participants, including individual investors and issuers, will be able to obtain the Book information through a member's probe. The Commission believes that this provision should promote the objectives of Sections 6(b)(5) and 11A of the Act [13] by increasing price transparency, broadening the public dissemination of market information, and enhancing the ability of investors to develop strategies and make informed investment decisions. Moreover, because the proposed amendments to Amex Rule 174 will make Book information available to all member organizations on a non-exclusive basis and requires a specialist to disclose information in a Start Printed Page 8217fair and impartial manner, the proposal is consistent with Section 11(b) of the Act.[14]

Stop orders, however, are treated differently than other orders under the proposed rule change. Under the proposed rule change, specialists may disclose information about stop orders when the specialist reasonably believes that the member conducting the market probe has the intention to trade in the stock at a price at which such stop orders would be relevant. Orders other than stop orders, including percentage orders, may be disclosed without restriction in response to a member's probe. The Commission believes that because stop orders held on the book may be far away from the market the proposal's special treatment of stop orders is reasonable. The Commission believes that it is reasonable that specialists only disclose stop order information when a member's market probe reasonably indicates an intention to trade at a price at which the stop orders would be relevant. This restriction should help safeguard against potential market manipulation and provide investors who place stop orders with a level of protection and confidence that Exchange members will not be permitted to obtain information regarding stop orders unless they have a legitimate market interest in that information.[15]

IV. Conclusion

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,[16] that the proposed rule change (SR-AMEX-99-29) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[17]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  Securities Exchange Act Release No. 41870 (September 13, 1999), 64 FR 51156 (September 21, 1999).

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4.  A stop order to buy (sell) becomes a market order when a transaction in the security occurs at or above (below) the stop price after the order is represented in the Trading Crowd. A stop limit order to buy (sell) becomes a limit order executable at the limit price or better when a transaction occurs at or above (below) the stop price after the order is represented. See Amex Rule 131(q) and (r), respectively.

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5.  A percentage order is a limited price order to buy or sell 50% of the volume of a specified stock after its entry. A percentage order is “elected” and becomes capable of execution under circumstances set forth in Amex Rule 131.

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6.  In approving this rule change, 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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8.  15 U.S.C. 78k-1(a)(1)(C)(iii).

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11.  15 U.S.C. 78k-1(a)(1)(C)(iii).

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15.  The Commission notes that it approved a proposed rule change submitted by the New York Stock Exchange (“NYSE”) pertaining to specialist disclosure of information on the order book which contained substantially similar provisions to this proposal. The NYSE proposal also included a provision permitting a specialist to disclose to a member the identity of any buyer or seller on the Book unless the buyer or seller expressly requests that his or her investment anonymity be maintained at all times with respect to a specific order. See Securities Exchange Act Release No. 41421 (May 18, 1999), 64 FR 28848 (May 27, 1999). A similar provision already contained in Amex Rule 174 is not amended by this proposal.

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[FR Doc. 00-3748 Filed 2-16-00; 8:45 am]

BILLING CODE 8010-01-M