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Intermarket Trading System; Order Approving Fifteenth Amendment to the ITS Plan Relating to Remote Specialists, the National Market System Test System, Trade Adjustment Procedures, and Technical Revisions

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Start Preamble November 3, 2000.

On June 6, 2000, the Intermarket Trading System (“ITS”) submitted to the Securities and Exchange Commission (“Commission”) an amendment to the restated ITS Plan pursuant to Section 11A of theSecurities Exchange Act of 1934 (“Act”),[1] and Rule 11A3a3-2 thereunder.[2] The Participants filed the proposal to recognize the implementation of remote specialists and the National Market Test System. In addition, the Participants proposed to codify procedures for trade adjustment and to make technical revisions. Notice of the proposal appeared in the Federal Register on September 8, 2000.[3] The Commission received no comments on the proposal. For the reasons discussed below, the Commission is approving the proposal.

The proposal amends Sections 6(a)(ii)(B) and (E), 7(c) and 8(a) of the ITS Plan to reflect the changed manner in which the BSE and the PCX will interact with ITS, in particular that BSE and PCX specialists carry out their specialist operations off the floors of the BSE and the PCX.[4]

The proposal recognizes the National Market Test System (“NMTS”) as a stand-alone system that supports testing of the Consolidated Tape System, Consolidated Quotation System, ITS, and the Participants interfaced with these systems. The NMTS can be used during normal business hours and ITS will be responsible for one-third of the costs of the NMTS. The ITS Plan provisions for the NMTS equally divide the ITS costs among all Participants.

The proposal adds Section 6(b)(iv) to the ITS Plan, which codifies the trade adjustment process whereby, and circumstances under which, supervisors monitoring Participants' markets may request the ITS Control Center to enter agreed-upon adjustments to system trades (price, size, buy or sell side, cancel or insert trade “as of” a prior day).

The proposal makes several technical amendments dealing with the ITS/CAES Linkage as adopted by the Commission, eliminating the definition of the term “ITS/CAES security (stock)” and making other conforming changes. In addition, the revision reinserts text in the ITS Plan under Section 5(b)(ii) that the Commission inadvertently omitted.[5] According to the Participants, the revisions are otherwise neutral as to their effect on the Commission's adopted amendment. Lastly, the revisions redesignate current Sections 12, 13, and 14 as Sections 13, 14, and 15 respectively, and current Section 15 as Section 12 (with other conforming changes), and amending Section 3(a) to reflect the change in the Amex's corporate name from “American Stock Exchange, Inc.” to “American Stock Exchange LLC.”

The Commission finds that the proposed amendment is consistent with the Act in general, and in particular, with Sections 11A(a)(1)(C)(ii) and (D),[6] which provide for fair competition among the Participants and their members, and the linking of markets for qualified securities through communications and data processing facilities that foster efficiency, enhance competition, increase the information available to brokers, dealers, and investors, facilitate the offsetting of investors' orders, and contribute to the best execution of such orders. The Commission also finds that the amendment is consistent with Rule 11Aa3-2(c)(2),[7] which requires the Commission to determine that the amendment is necessary and appropriate in the public interest, for Start Printed Page 68166the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act.

The proposal provides for the recognition of the BSE's and the PCX's use of remote specialists to carry out their specialist operations off the floors of the BSE and the PCX. The proposal also provides for the implementation of the National Market Test System, which supports testing of the Consolidated Tape System, Consolidated Quotation System, and ITS. In addition, the proposal provides for the codification of procedures for trade adjustment. The Commission believes that the foregoing measures should improve the efficiency and reliability of ITS. Lastly, the proposal provides additional technical amendments to the ITS Plan consistent with ITS's purpose: to facilitate intermarket trading in exchange-listed equity securities.

For the foregoing reasons, the Commission finds that the proposed amendment is consistent with Act and the rules and regulations thereunder applicable to the ITS and, in particular, Sections 11A(a)(1)(C)(ii) and (D) of the Act [8] and Rule 11Aa3-2(c)(2).[9]

It is therefore ordered, pursuant to Section 11A(a)(3)(B) of the Act,[10] that the proposed amendment be, and hereby is, approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Margaret H. McFarland,

Deputy Secretary.

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2.  17 CFR 240.11Aa3-2. The ITS is a National Market System (“NMS”) plan, which was designed to facilitate intermarket trading in exchange-listed equity securities based on current quotation information emanating from the linked markets. See Securities Exchange Act Release No. 19456 (January 27, 1983), 48 FR 4938 (February 3, 1983).

The ITS participants include the American Stock Exchange LLC (“Amex”), the Boston Stock Exchange, Inc. (“BSE”), the Chicago Board Options Exchange, Inc. (“CBOE”), the Chicago Stock Exchange, Inc. (“CHX”), the Cincinnati Stock Exchange, Inc. (“CSE”), the National Association of Securities Dealers, Inc. (“NASD”), the New York Stock Exchange, Inc. (“NYSE”), the Pacific Exchange, Inc. (“PCX”), and the Philadelphia Stock Exchange, Inc. (“PHLX”) (“Participants”).

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3.  Securities Exchange Act Release No. 43240 (September 1, 2000), 65 FR 54571 (September 8, 2000).

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4.  The BSE and PCX filed proposed rule changes with the Commission to implement these changes. The Commission approved the BSE's proposal on August 8, 2000. See Securities Exchange Act Release No. 43127 (August 8, 2000), 65 FR 49617 (August 14, 2000), (SR-BSE-99-01). The Commission approved the PCX's proposal on May 5, 2000. See Securities Exchange Act Release No. 42759 (May 5, 2000), 65 FR 30654 (May 12, 2000), (SR-PCX-99-39).

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5.  See Securities Exchange Act Release No. 42212 (December 9, 1999), 64 FR 70297 (December 16, 1999) (adopting amendments to expand the ITS/CAES linkage to all listed securities).

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6.  15 U.S.C. 78k-1(a)(1)(C)(ii) and (D).

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8.  15 U.S.C. 78k-1(a)(1)(C)(ii) and (D).

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10.  15 U.S.C. 78k-1(a)(3)(B).

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[FR Doc. 00-29021 Filed 11-13-00; 8:45 am]