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Self-Regulatory Organizations; American Stock Exchange L.L.C.; Notice of Filing of Proposed Rule Change To Establish Resolution Times for Uncompared Transactions

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Start Preamble November 26, 2002.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 Start Printed Page 72242(“Act”),[1] notice is hereby given that on April 22, 2002, American Stock Exchange LLC (“Amex”) 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 primarily by Amex. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties.[2]

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

The purpose of the proposed rule change is to amend Amex's rule 731 and to adopt Commentary .08 to rule 731 to provide flexibility in establishing resolution times for uncompared transactions in equities, including shares of exchange traded funds and shares of trust-issued receipts.

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

In its filing with the Commission, 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. Amex has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.[3]

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

The resolution of uncompared trades (“DKs”) has gone through substantial revision as the nature of trade comparison has changed. In 1966, standardized forms were adopted for the timely and efficient resolution of DKs. The primary responsibility for DK resolution at that time was entrusted to floor members.[4] In 1978, the time limit for replying to a DK notice was set at 3:45 p.m. on trade date plus three business days (“T+3”) or prior to 10 a.m. on trade date plus five business days (“T+5”) if a specialist or independent member was involved. Upon a change in the opening to 9:30 a.m. in 1985, members were then required to reply to a DK notice involving a specialist or independent member prior to 9:30 a.m. on T+5.

The Commission's 1987 Market Break Report [5] resulted in a major initiative to shorten the comparison process, including the development in 1990 of Amex's Intra-Day Comparison system (“IDC”).[6] In 1990, Amex also implemented rule 719, Comparison of Exchange Transactions, which required that any transactions effected on the exchange must be compared or otherwise closed out by Amex's close of business on the business day following the day of the contract.[7] Amex adopted further rule changes in 1991 to formalize the operational procedures for full implementation of Amex's electronic equity trade comparison facility.[8] Among the new rules adopted was rule 731, Resolution of Uncompared Transactions, that expressly required that member organizations resolve uncompared trades no later than 3 p.m. on T+1 or 3:30 p.m. on T+1 if an agent was involved.

Because of the inherent risks in the settlement process and in uncompared trades, Amex believes it should have the flexibility to change the time periods for the resolution of DKs. For example, market conditions and systemic changes may require Amex to implement different cut-off time periods for the resolution of DKs depending on the particular product, such as stocks, bonds, ETFs, or TIRs. Accordingly Amex proposes to amend rule 731 to allow Amex to establish DK resolution time periods for equities, bond, ETFs, and TIRs as appropriate.

Specifically, the proposed rule change will amend rule 731 by providing Amex flexibility in determining cut-off times and dates for member organizations to make any necessary additions, deletions, or changes to its DK data and in determining cut-off times for resolution and acceptance of DKs remaining uncompared in the system. The proposed rule change also will adopt Commentary .08 to rule 731 that extends the applicability of the rule to Portfolio Depositary Receipts, Index Fund Shares, and Trust Issued Receipts orders to buy or sell a security where the price is derivatively based upon another security or index of securities.[9] The proposed Commentary also provides that Amex may establish separate times to review and resolve DKs in these products.

The proposed rule change is consistent with section 6(b) of the Act [10] in general and furthers the objectives of section 6(b) 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 mechanisms of a free and open market and a national market system, and in general, protect investors and the public interest.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The proposed rule change will impose no burden on competition.

(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 self-regulatory organization 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. Start Printed Page 72243

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of Amex. All submissions should refer to File No. SR-Amex-2002-36 and should be submitted by December 26, 2002.

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


2.  Amex staff informed the Commission staff on October 23, 2002, that it had satisfactorily concluded its discussions with the National Securities Clearing Corporation regarding the filing.

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3.  The Commission has modified the text of the summaries prepared by Amex.

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4.  A separate rule for uncompared options trades, rule 970, was adopted when options commenced trading at the Amex in 1975. Rule 970 sets forth the procedures for settling uncompared options trades through the Rejected Option Transaction Notice.

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5.  Commission, Division of Market Regulation, The October 1987 Market Break (February 1988).

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6.  Exchange Act Release No. 28069 (May 29, 1990), 55 FR 23324 (June 7, 1990), (SR-Amex-90-01) (order approving IDC for post-trade processing of transactions in equity securities).

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7.  Exchange Act Release No. 27851 (March 27, 1990), 55 FR 12759 (April 5, 1990), (SR-Amex-89-05) (order permanently approving rule requiring regular way trades be compared or closed out by close of business on T+1). In 1994, the SEC approved trade date submission of comparison data at the Amex. Exchange Act Release No. 34298 (July 1, 1994), 59 FR 35397 (July 11, 1994), (SR-Amex-94-13)(order approving program to compare equity trades on trade date). Today Rule 719(a) requires members and member organizations to submit comparison data to their clearing firm for any transaction executed on Amex within two hours of the trade.

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8.  Exchange Act Release No. 29157 (May 2, 1991), 56 FR 21510 (May 9, 1991), (SR-Amex-90-16)(order approving rule detailing mechanics of resolving uncompared equity trades through IDC).

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9.  Orders to buy or sell an option will continue to be covered by rule 950(f) and the applicable Commentary to rule 950.

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[FR Doc. 02-30676 Filed 12-3-02; 8:45 am]